AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 13, 1999
REGISTRATION NO. 333 - 81835
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
NUTRICEUTICALS.COM CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
NEVADA 7375 34-1755390
<S> <C> <C>
- ------------------------------ ---------------------------- -------------------
STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
6950 BRYAN DAIRY ROAD
LARGO, FL 33777
(727) 544-8866
-------------------------------------------------------------
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------
STEPHEN M. WATTERS, PRESIDENT
NUTRICEUTICALS.COM CORPORATION
6950 BRYAN DAIRY ROAD
LARGO, FL 33777
(727) 544-8866
-----------------------------------------------------------
(NAME, ADDRESS, INCLUDING ZIP CODE, AND
TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------
PLEASE SEND COPIES OF COMMUNICATIONS TO:
LINA ANGELICI, ESQ. GREGORY SICHENZIA, ESQ.
SCHIFINO & FLEISCHER, P.A. SICHENZIA, ROSS & FRIEDMAN, LLP
ONE TAMPA CITY CENTER, SUITE 2700 135 WEST 50TH STREET, 20TH FLOOR
TAMPA, FLORIDA 33602 NEW YORK, NEW YORK 10020
(813) 223-1535 (212) 664-1200
------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the box. [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities registration number of the earlier effective registration
statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement of the earlier effective registration statement for the
same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
-----------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE PROPOSED MAXIMUM OFFERING PROPOSED MAXIMUM AMOUNT OF
TO BE REGISTERED REGISTERED (1)(2) PRICE PER SHARE OFFERING PRICE REGISTRATION FEE (3)
--------------------------------- ----------------- -------------------------- ----------------- ---------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value ....... 1,725,000 $10.00 $17,250,000 $4,796
Purchase Warrants ................... 150,000 -- -- --
Common Stock, $.001 par value........ 150,000 $16.50 $2,475,000 $689
Total................................ $19,725,000 $5,485
===================================== ================== =========================== ==================== ====================
</TABLE>
(CONTINUED ON NEXT PAGE)
(1) Includes 225,000 shares which the underwriters have the option to purchase
to cover over-allotments, if any.
(2) Represents maximum number of shares of common stock underlying underwriters
warrants which may be exercised at 165% of the offering price per share.
(3) Pursuant to Rule 457(o), the registration fee was calculated on the basis of
the maximum aggregate offering price of all the securities listed in the
table.
(4) $3,531 previously paid
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DUE DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION DATED SEPTEMBER 13, 1999
PROSPECTUS
1,500,000 SHARES
NUTRICEUTICALS.COM CORPORATION
COMMON STOCK
($.001 par value)
All of the 1,500,000 shares of Common Stock offered hereby are being
sold by Nutriceuticals.com Corporation. Although our shares are listed for
trading on the OTC Electronic Bulletin Board under the symbol "JCOM," there has
been no active trading market for our common stock. It is currently estimated
that the offering price will be between $8.00 and $10.00 per share. We have
applied to have our stock approved for listing on the Boston Stock Exchange and
approved for quotation on the National Association of Securities Dealers
Automated Quotation System, SmallCap Market.
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 6.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
TERMS OF THE OFFERING
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS BEFORE EXPENSES
PUBLIC AND COMMISSIONS TO NUTRICEUTICALS.COM (1)
------ --------------- -------------------------
<S> <C> <C> <C>
Per Share....................... $ $ $
Total .......................... $ $ $
- -------
</TABLE>
(1) The estimated expenses of the offering are $370,000.
The underwriters may, under some circumstances, for 45 days after the
date of this prospectus, purchase up to an additional 225,000 shares of Common
Stock from us at the public offering price less the underwriting discount.
Delivery of the shares of common stock will be made on or about
_______, 1999, against payment in immediately available funds.
KASHNER DAVIDSON SECURITIES CORPORATION
PROSPECTUS DATED SEPTEMBER __, 1999
<PAGE>
TABLE OF CONTENTS
SUMMARY.................................................................1
RISK FACTORS............................................................5
USE OF PROCEEDS........................................................14
DIVIDEND POLICY........................................................14
MARKET FOR THE COMMON STOCK............................................14
CAPITALIZATION.........................................................16
DILUTION...............................................................17
CONSOLIDATED FINANCIAL DATA............................................18
SELECTED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL DATA.........................................19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS...............................................20
BUSINESS...............................................................21
BECAN..................................................................30
MANAGEMENT.............................................................33
SECURITY OWNERSHIP OF MANAGEME
AND CERTAIN BENEFICIAL OWNERS......................................38
DESCRIPTION OF CAPITAL STOCK...........................................39
UNDERWRITING...........................................................41
LEGAL MATTERS..........................................................42
EXPERTS................................................................42
ADDITIONAL INFORMATION.................................................43
INDEX TO FINANCIAL STATEMENTS.........................................F-1
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR
TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY BE USED ONLY WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
INFORMATION CONTAINED ON OUR WEB SITES DOES NOT CONSTITUTE PART OF THIS
DOCUMENT.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements in this prospectus are forward-looking
statements. These forward-looking statements include statements in the "Business
- - Industry Background," and "-The Nutriceuticals.com Solution" sections of this
prospectus relating to trends in Internet use and electronic commerce. These
forward-looking statements also include statements relating to the Company's
performance in the "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Use of Proceeds," and "Business" sections of this
prospectus. Forward-looking statements include statements regarding the intent,
belief or current expectations of the Company or its officers (including
statements preceded by, followed by or including forward-looking terminology
such as "may," "will," "should," "believe," "expect," "anticipate," "estimate,"
"continue" or similar expressions or comparable terminology) with respect to
various matters.
All forward-looking statements in this prospectus are based on
information available to us on the date of this prospectus. Please note that
matters set forth under the caption "Risk Factors" constitute cautionary
statements identifying important factors with respect to the forward-looking
statements, including certain risks and uncertainties, that could cause actual
results to differ materially from those in such forward-looking statements.
(i)
<PAGE>
SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION REGARDING OUR COMPANY AND THE COMMON STOCK BEING SOLD IN THIS
OFFERING AND OUR CONSOLIDATED FINANCIAL STATEMENTS, PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES APPEARING ELSEWHERE IN THIS PROSPECTUS.
BECAUSE THIS IS ONLY A SUMMARY, YOU SHOULD READ THE REST OF THIS PROSPECTUS
BEFORE YOU INVEST IN OUR COMMON STOCK. READ THE ENTIRE PROSPECTUS CAREFULLY,
ESPECIALLY THE RISKS DESCRIBED UNDER "RISK FACTORS." UNLESS OTHERWISE INDICATED,
THE INFORMATION IN THIS PROSPECTUS HAS BEEN ADJUSTED TO GIVE RETROACTIVE EFFECT
TO A NUMBER OF STOCK SPLITS AND REVERSE STOCK SPLITS AS DESCRIBED IN NOTES 7 AND
9 TO THE COMPANY'S FINANCIAL STATEMENTS INCLUDED ELSEWHERE HEREIN, AND ASSUMES
THAT THE UNDERWRITER'S OVER-ALLOTMENT OPTION HAS NOT BEEN EXERCISED.
NUTRICEUTICALS.COM CORPORATION
The Company recently commenced operations as an online retailer of
vitamins, nutritional supplements and other natural products and its revenues to
date have been nominal. However, on September 9, 1999, we entered into an
agreement to acquire all of the issued and outstanding shares of common stock of
Becan Distributors, Inc., a wholesale distributor of pharmaceutical products and
to a lesser extent, over-the-counter drugs and health and beauty care products.
Becan has been in operation since 1997 and substantially all of its sales have
been to independent pharmacies.
With the acquisition of Becan pending, we have changed the focus of the
Company from being an online retailer to an online business-to-business
wholesale portal in which manufacturers, distributors, wholesalers, and
retailers can improve their trading efficiency by exchanging goods and services
through a secure public and private channel, the Nutriceuticals.com web site. We
believe that by creating a wholesale portal:
o manufacturers, distributors, wholesalers, and retailers will be
able to list their products and start transacting business on the
Internet quickly at a low cost;
o manufacturers, wholesalers, and distributors will have an
efficient system to dispose of problematic inventories in a
rapidly growing Internet market;
o manufacturers, distributors, wholesalers, and retailers will have
an effective mechanism to turn close-out items into cash;
o buyers will have a means of getting the lowest possible price as
determined by the market.
The Company's objective is to become a leading owner and operator of an
online portal for pharmaceuticals, over-the-counter drugs, health and beauty
care products, and private label nutritional supplements. To accomplish this the
Company will endeavor to provide:
o an electronic commerce market place ~ a new way of doing business
through Internet technology that eliminates territorial and
regional borders.;
o quality products at competitive prices;
o efficient service through online automation;
o a community environment for news, information and online forums.
To reflect the new focus of the Company's business, the Company plans
to propose to shareholders at the next Annual Meeting of Shareholders a
corporate name change to "DrugMax.com, Inc."
1
<PAGE>
INDUSTRY OVERVIEW
The Internet has emerged as the fastest growing communications medium
in history and is dramatically changing how businesses and individuals
communicate and share information. International Data Corporation estimates that
the number of Internet users will grow from 97 million at the end of 1998 to 320
million by 2002, though Nutriceuticals.com may not benefit from this growth. The
Internet has created new opportunities for conducting commerce, such as
business-to-consumer and person-to-person e-commerce. Recently, the widespread
adoption of intranets and the acceptance of the Internet as a business
communications platform has created a foundation for business-to-business e-
commerce that offers the potential for organizations to streamline complex
processes, lower costs and improve productivity. Business-to-consumer and
person-to-person e-commerce is a one-way network that deals directly with buyers
and creates benefits mostly for sellers. Business-to-business e-consumer tends
to be a two-way network that mediates between buyers and sellers and creates
benefits for both sides. Internet-based business-to-business e-commerce is
poised for rapid growth and is expected to represent a significantly larger
opportunity than business-to-consumer or person-to-person e-commerce. According
to Forrester Research, business-to-business e-commerce is expected to grow from
$43 billion in 1998 to $1.3 trillion in 2003, accounting for more than 90% of
the dollar value of e-commerce in the United States by 2003. There is no
assurance, however, that Nutriceuticals.com will benefit from this growth.
BECAN ACQUISITION
On September 9, 1999, the Company entered into an agreement to acquire
all of the issued and outstanding shares of common stock of Becan, a wholesale
distributor of pharmaceutical products and to a lesser extent, over the counter
drugs, and health and beauty care products. Such acquisition is subject to the
consummation of this offering. Becan commenced operations in January 1997 and
its net revenues for the year ended March 31, 1999 and three months ended June
30, 1999 were $31.1 million and $12.2 million, respectively. Net income for the
respective periods were $94,031 and $58,301. Stockholders equity at June 30,
1999 was $199,761. See "Becan", "Management - Loans and Other Affiliated
Transactions" and the Financial Statements of Becan.
We believe that the Becan acquisition will provide the Company's online
portal with a significant source of both potential buyers and sellers. In
addition, the operation of Becan as a distributor will provide the Company with
additional cash flow to supplement the proceeds of this offering.
Our address is 6950 Bryan Dairy Road, Largo, Florida 35777, our
telephone number is 727/544-8866, extention 224, and our Web sites are
www.nutriceuticals.com, www.javaslim.com, and www.healthseek.com.
2
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common Stock Offered..............................1,500,000 shares
Common Stock Outstanding After this Offering......6,196,707 shares (1)
Use of Proceeds...................................Purchase of Becan, repayment of
indebtedness, general corporate
purposes (principally sales and
marketing for brand development and
Web site recognition) and possible
acquisitions.
OTC Electronic Bulletin Board Symbol..............JCOM
</TABLE>
(1) Includes 2,000,000 shares to be issued in connection with the purchase of
Becan. Does not include 1,000,000 shares which will be held in escrow
pending Becan's attainment of certain financial targets for the years
ending March 31, 2000 and 2001. See "Becan."
RISK FACTORS
Investing in our common stock involves a high degree of risk. For a
discussion of certain risks that you should consider before buying shares of our
common stock, see "Risk Factors" beginning at page 6 of this prospectus.
3
<PAGE>
CONSOLIDATED AND PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED THREE MONTHS ENDED
MAR. 31, 1998(1) MAR. 31, 1999(2) MAR. 31,1999 JUNE 30, 1999
------------- -------------- ------------ ------------------------
PRO FORMA(3) UNAUDITED PRO FORMA(3)
--------- --------- ------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Net revenues............................ $ 7,019 $ 37,118 $31,111,979 $33,899 $12,230,155
Gross profit (loss)..................... (9,741) 22,622 897,616 19,113 301,532
Selling general and administrative
expenses.......................... 26,839 132,793 1,118,241 101,308 232,863
Goodwill amortization................... -- - 520,016 - 130,004
Loss from operations.................... (36,215) (110,171) (740,641) (82,195) (61,335)
Other income (net)...................... 32,215 1,761 1,761 (254) 46,571
Net loss................................ (4,365) (108,410) (738,880) (82,449) (107,906)
========= ========== ========== ======== ===========
Basic and diluted net loss per share ... $ (.02) $ (.08) $ (.22) $ (.06) $ (.03)
--------- ---------- ---------- --------- ------------
Basic and diluted weighted average
common shares outstanding......... 175,514 1,372,230 3,392,729 2,676,707 3,392,729
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
----------------------------------------------
ACTUAL PRO FORMA(3) AS ADJUSTED(4)
----------- ------------ --------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash .............................. $ 14,599 $ 136,761 $ 9,776,761
Working capital ................... (89,722) 55,917 9,835,917
Total assets ...................... 128,570 11,644,119 21,284,119
Stockholders' equity (deficit)..... (44,522) 7,995,478 17,775,478
</TABLE>
(1) The March 31, 1998 financial data has been reclassified from the
liquidation basis of accounting to conform to the March 31, 1999
presentation.
(2) Includes a predecessor corporation from April 1, 1998 to September 7,
1998 (prior to merger) and Nutriceuticals from September 8, 1998
(inception) to March 31, 1999. See the "Consolidated Financial
Statements and Notes thereto, included elsewhere herein.
(3) Gives effect to certain consulting and employment agreements dated as of
March 31, 1999, April 1, 1999, and August 16, 1999, the HealthSeek.com
and Becan acquisitions, and the acquisition of the World Wide Web site
domain name "www.nutriceuticals.com." See "Management - Compensation of
Executive Officers," "Business - The HealthSeek.com Acquisition," and
"Becan." See also the Unaudited Pro Forma Consolidated Financial
Statements and Notes thereto included elsewhere herein.
(4) Gives effect to the sale of the common stock offered hereby and the
application of the net proceeds received therefrom; the acquisition of
the World Wide Web site domain name "www.nutriceuticals.com" and the
acquisition of Becan.
4
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING A
DECISION TO INVEST IN NUTRICEUTICALS.COM. IF ANY OF THE FOLLOWING RISKS ACTUALLY
OCCUR, OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF FUTURE OPERATIONS COULD
BE MATERIALLY ADVERSELY AFFECTED. IN SUCH CASE, THE TRADING PRICE OF OUR COMMON
STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
WE HAVE A LIMITED E-COMMERCE OPERATING HISTORY AND WE MAY NOT BE ABLE TO
SUCCESSFULLY MANAGE OUR BUSINESS OR ACHIEVE PROFITABILITY
The Company's natural products business began in September 1998, and
commenced Internet sales in February 1999. Accordingly, we have nominal revenues
to date from the internet business and only a limited operating history on which
to base an evaluation of our business and prospects. Although we have contracted
to acquire a distributor, the Company's prospects should still be considered in
light of the risks, expenses and difficulties frequently encountered by
companies in their early stage of development, particularly companies in new and
rapidly evolving markets such as online commerce. Such risks for the Company
include, but are not limited to, and evolving and unpredictable business model
and the management of growth. To address these risks, the Company must, among
other things, develop and maintain its customer base, implement and successfully
execute its business and marketing strategy, continue to develop and upgrade its
technology and transaction-processing systems, improve its Web sites, provide
superior customer service and order fulfillment, respond to competitive
developments, and attract, retain and motivate qualified personnel. We may not
be able to successfully address such risks, or manage our business to achieve or
maintain profitability. The failure to do so could have a material adverse
effect on the Company's business, prospects, financial condition and results of
operations.
WE HAVE INCURRED NET LOSSES SINCE INCEPTION AND ANTICIPATE CONTINUED LOSSES AND
NEGATIVE CASH FLOW
From inception of our business in September 1998 through June 30, 1999,
we incurred net operating losses of $(195,224). As of June 30, 1999, we had a
negative net equity of ($44,522). We anticipate our losses from our e-commerce
operations will increase significantly from current levels because we expect to
invest heavily in:
o brand development, marketing and promotion;
o Web site content development;
o strategic relationship development and maintenance; and
o Web site technology and operating infrastructure development.
We anticipate relatively low gross margins, therefore our ability to
become profitable given our planned expenses depends on our ability to generate
and sustain substantial sales from e-commerce operations. If we do achieve
profitability, we cannot be certain that we can sustain or increase
profitability on a quarterly or annual basis in the future. If we cannot achieve
and sustain operating profitability or positive cash flow from operations, we
may be unable to meet our working capital requirements without seeking
additional financing.
On a pro-forma basis, after giving effect to the Becan acquisition, we will
show revenues of approximately $31.1 million for the year ended March 31, 1999
and $12.2 million for the three months ended June 30, 1999, and losses of
approximately $740,000 and $108,000 for such periods. Our amortization expense
for such periods would have been approximately $520,000 and $130,000,
respectively.
DEPENDENCE ON OFFERING PROCEEDS AND ADDITIONAL CAPITAL NEEDS
We require substantial working capital to fund our e-commerce business. The
Company does not presently have adequate cash from operations or financing
activities to meet either its short-term or
5
<PAGE>
long-term capital needs. Accordingly, the Company is dependent on and intends to
use a substantial portion of the proceeds of this offering to fund its
operations and implement its marketing strategies. We anticipate that the net
proceeds we receive from this offering will be sufficient to meet our current
capital requirements through the next 12 months. Thereafter, if we are not able
to generate a positive cash flow, we will likely have to raise additional funds.
The actual amount and timing of our future capital requirements may differ
materially from our estimates. In particular, our estimates may be inaccurate as
a result of changes and fluctuations in our revenues, operating costs and
development expenses. Our revenues, operating costs and development expenses
will be negatively affected by any inability to:
o effectively and efficiently manage the expansion of our operations;
o obtain favorable co-branding or Internet marketing agreements with
third parties;
o negotiate favorable contracts and relationships with manufacturers,
distributors and wholesalers; and
o obtain brand recognition, attract sufficient numbers of customers or
increase the volume of e-commerce sales of our products.
Our e-commerce revenues and costs also depend upon factors that we cannot
control. These factors include changes in technology and regulations, increased
competition and factors such as Web integrity, seasonality, and performance by
third parties in connection with our operations. Because of these factors, our
actual revenues and costs are uncertain and may vary considerably. These
variations may significantly affect our future need for capital. Also, if we
accelerate the expansion of our operations or complete any acquisitions, we will
require more funding sooner than we currently expect. We may be unable to raise
funds sufficient for our needs, either on suitable terms or at all. This result
would substantially harm the trading price of our common stock and materially
harm our business.
OUR MANAGEMENT TEAM IS NEW AND WE NEED ADDITIONAL PERSONNEL
Our online commerce business began in September 1998 and we launched our
first online store in February 1999. The Company is substantially dependent on
the efforts of Mr. Stephen Watters, President, Chief Executive Officer and Chief
Financial Officer, and Mr. Jugal Taneja, former Chief Executive Officer,
consultant and director who have no proven record of success in the selling of
health products via the Internet. In addition, our future success depends on our
ability to identify, attract, hire, train, retain and motivate other highly
skilled technical, managerial, editorial, merchandising, marketing and customer
service personnel. We currently have 3 employees and 2 consultants.
Following this offering and the acquisition of Becan, we will have 13 employees
and 2 consultants, and we expect to add additional personnel to manage the
anticipated growth of our operations. However, the e-commerce market is highly
competitive, and retaining new personnel could be costly in terms of cash
compensation or equity necessary to attract them to the Company, or such
personnel may not be available to the Company on any terms. Competition for
these individuals is intense and we may be unable to successfully attract,
assimilate or retain sufficiently qualified personnel in the future. The Company
does not currently carry key man life insurance for its principal officer.
MANAGEMENT AND CERTAIN STOCKHOLDERS CAN EXERCISE CONTROL OVER NUTRICEUTICALS.COM
Upon consummation of the offering and the Becan acquisition, there will
be 6,196,707 shares outstanding of which our current directors and executive
officers and their respective affiliates will beneficially own, in the
aggregate, approximately 68.1%. In particular, Jugal K. Taneja, a principal
shareholder and director, will beneficially hold 41.0% of our outstanding common
stock upon
6
<PAGE>
completion of this offering, and collectively in concert with his adult
children, will control 47.4%. Therefore, if these shareholders act together,
they will be able to exercise control over all matters requiring shareholder
approval, including the election of directors and approval of significant
corporate transactions. Such concentration of ownership may also have the effect
of delaying, preventing or deterring a change in our control which could
adversely affect the market price of our common stock. See "Security Ownership
of Management and Certain Beneficial Owners."
THE BOOK VALUE OF THE SHARES YOU PURCHASE IN THIS OFFERING WILL BE DILUTED
SUBSTANTIALLY
As of June 30, 1999, the Company had a negative net tangible book value
of $(44,522) or $(.02) per share. The pro forma adjusted net tangible book value
of the common stock as of June 30, 1999 will be $1.59 per share. As a result, if
you purchase shares of common stock in this offering, the net tangible book
value per share of the common stock you purchase will be diluted by an amount
equal to $7.41 per share upon the completion of this offering.
PAYMENTS TO AFFILIATES
The Company plans to use approximately $190,000 from the proceeds of
the offering to repay loans from our President Stephen M. Watters, and from
affiliated entities under the control of Jugal K. Taneja, a principal
shareholder and director and from Howard Howell, a director. See "Use of
Proceeds" and "Management - Loans and Other Affiliated Transactions."
WE ARE SUBJECT TO RISKS ASSOCIATED WITH DEPENDENCE ON THE INTERNET AND INTERNET
INFRASTRUCTURE DEVELOPMENT
Our success will depend in large part on continued growth in, and the
use of, the Internet. There are critical issues concerning the commercial use of
the Internet which remain unresolved. The issues concerning the commercial use
of the Internet which we expect to affect the development of the market for our
products and services include:
o security o ease of access
o reliability o quality of service
o cost o necessary increases in bandwidth
availability
The adoption of the Internet for information retrieval and exchange,
commerce and communications, particularly by those enterprises that have
historically relied upon traditional means of commerce and communications,
generally will require that these enterprises accept a new medium for conducting
business and exchanging information. These entities likely will accept this new
medium only if the Internet provides them with greater efficiency and an
improved area of commerce and communication.
Demand and market acceptance of the Internet are subject to a high
level of uncertainty and are dependent on a number of factors, including the
growth in consumer access to and acceptance of new interactive technologies, the
development of technologies that facilitate interactive communication between
organizations and targeted audiences and increases in user bandwidth. If the
Internet fails to develop or develops more slowly than we expect as a commercial
or business medium, it will adversely affect our business.
OUR FUTURE E-COMMERCE OPERATING RESULTS ARE UNPREDICTABLE
Our revenues and operating results may fluctuate significantly from
quarter to quarter due to a number of factors, not all of which are in our
control. These factors include:
o our ability to attract and retain new customers and maintain
customer satisfaction;
o new Web sites, services and products introduced by us or by our
competitors;
7
<PAGE>
o price competition;
o decreases in the level of growth, use of, or consumer acceptance
of, the Internet and other online services for the purchase of
consumer products;
o our ability to upgrade and develop our systems and infrastructure
and attract new personnel in a timely and effective manner;
o traffic levels on our Web sites and our ability to convert that
traffic into customers;
o technical difficulties or system downtime affecting the Internet
or online services, generally, or the operation of our Web sites;
o the failure of Internet bandwidth to increase significantly over
time and/or an increase in the cost to consumers of obtaining or
using Internet bandwidth;
o government regulations related to use of the Internet for
commerce or sales and distribution of natural products; and
o general economic conditions and economic conditions specific to
the Internet, online commerce and the software industry.
OUR MARKETS ARE HIGHLY COMPETITIVE
The online commerce market is new, rapidly evolving and intensely
competitive. We expect competition to intensify in the future because barriers
to entry are minimal, and current and new competitors can launch new Web sites
at a relatively low cost. In addition, the health products industry is intensely
competitive. We currently compete primarily with wholesalers and distributors of
pharmaceuticals, over-the-counter drugs and health and beauty products.
We also compete with the growing number of manufacturers that sell
their products directly online. We anticipate that we may soon compete with
other manufacturers, distributors and wholesalers that plan to sell their
products directly to customers online in the near future. We also compete with
traditional store-based retailers and mail order and/or direct marketers.
Competitive pressures created by any one of these current or future competitors,
could have a material adverse affect on our operations. See "Business -
Competition."
WE ARE SUBJECT TO CAPACITY CONSTRAINT RISKS; RELIANCE ON INTERNALLY DEVELOPED
SYSTEMS AND SYSTEM DEVELOPMENT RISKS
A key element of our strategy is to generate a high volume of traffic
on, and use of, our Web sites. Accordingly, our Web site transaction processing
systems and network infrastructure performance, reliability and availability are
critical to our operating results. These factors are also critical to our
reputation and our ability to attract and retain customers and maintain adequate
customer service levels. The volume of goods we sell and the attractiveness of
our product and service offerings will decrease if there are any systems
interruptions that affect the availability of our Web sites or our ability to
fulfill orders. We will continually enhance and expand our technology and
transaction processing systems, and network infrastructure and other
technologies, to accommodate increases in the volume of traffic on our Web
sites. See "Use of Proceeds." We may be unsuccessful in these efforts or we may
be unable to accurately project the rate or timing of increases in the use of
our Web sites. We may also fail to timely expand and upgrade our systems and
infrastructure to accommodate these increases.
RAPID TECHNOLOGICAL CHANGE MAY ADVERSELY AFFECT US
To remain competitive, we must continue to enhance and improve the
responsiveness, functionality and features of our online stores. The Internet
and the online commerce industry are
8
<PAGE>
characterized by rapid technological change, changes in user and customer
requirements and preferences and frequent product and service introductions. If
competitors introduce products and services embodying new technologies or if new
industry standards and practices emerge, then our existing Web sites,
proprietary technology and systems may become obsolete. Our future success will
depend on our ability to do the following:
o both license and/or internally develop leading technologies
useful in our business;
o enhance our existing services;
o develop new services and technology that address the increasingly
sophisticated and varied needs of our prospective customers; and
o respond to technological advances and emerging industry standards
and practices on a cost-effective and timely basis.
The development of our Web sites and other proprietary technology
entails significant technical and business risks. We may use new technologies
ineffectively or we may fail to adapt our Web sites, proprietary technology and
transaction processing systems to customer requirements or emerging industry
standards. If we face material delays in introducing new services, products and
enhancements, our customers may forego the use of our products and services and
use those of our competitors.
WE RELY ON MANUFACTURERS, DISTRIBUTORS AND WHOLESALERS FOR OUR PRODUCTS
We are entirely dependent upon the manufacturers, distributors and
wholesalers that supply us with products for resale, and the availability of
these products is unpredictable. As is common in the industry, we have no
long-term or exclusive arrangements with any manufacturer or distributor, other
than Becan, that guarantees the availability of any of our products for resale.
WE ARE SUBJECT TO RISK OF SYSTEM FAILURE
Our success, in particular our ability to successfully receive and
fulfill orders and provide high quality customer service, largely depends on the
efficient and uninterrupted operation of our computer and communications
systems. The Company contracts with third parties to host our computer and
communications hardware systems and to maintain our critical connection to the
Internet.
Our systems and operations are vulnerable to damage or interruption
from fire, flood, power loss, telecommunications failure, break-ins, earthquake
and similar events. We have no formal disaster recovery plan and carry no
business interruption insurance to compensate us for losses that may occur.
Furthermore, our security mechanisms or those of our suppliers may not prevent
security breaches or service breakdowns. Despite our implementation of security
measures, our servers may be vulnerable to computer viruses, physical or
electronic break-ins and similar disruptions. These events could cause
interruptions or delays in our business, loss of data or render us unable to
accept and fulfill orders.
WE ARE SUBJECT TO RISKS ASSOCIATED WITH ONLINE COMMERCE SECURITY AND CREDIT CARD
FRAUD
A significant barrier to online commerce and communications is the
secure transmission of confidential information over public networks. Our
business may be adversely affected if our security measures do not prevent
security breaches and we cannot assure that we can prevent all security
breaches. To the extent that our activities, or those of third-party
contractors, involve the storage and transmission of proprietary information
(such as credit card numbers), security breaches could damage our reputation,
and expose us to a risk of loss or litigation and possible liability. Under
current credit card practices, a merchant is liable for fraudulent credit card
transactions where, as is the case with the transactions we process, that a
merchant does not obtain a cardholder's signature. Fraudulent use of credit card
data in the future could adversely affect our business.
9
<PAGE>
WE MAY NOT SUCCESSFULLY PROTECT OUR PROPRIETARY RIGHTS
We regard copyrights, service marks, trademarks, trade dress, trade
secrets and similar intellectual property as critical to our success. To protect
our proprietary rights, we will rely on trademark and copyright law, trade
secret protection and confidentiality and/or license agreements with our
employees, customers, partners and others. We will pursue the registration of
our trademarks and service marks in the United States. We have applied for
Federal registration of the mark "Java Slim," and after consummation of this
offering, we intend to apply for the marks "Nutriceuticals.com" and "Dr.
Nutriceutical." We cannot be certain that federal registration of these service
marks or any other service mark will issue. In addition, effective trademark,
service mark, copyright and trade secret protection may be unavailable in every
country in which our products and services are available online. We have not
applied to register any mark outside the U.S. or taken any trademark searches to
determine whether any of these marks is available for use or registration
outside the United States in connection with vitamins and other natural
products.
To date, there have been no interruptions in the Company's business as
the result of any claim of infringement. However, no assurance can be given that
the Company will not be adversely affected by the assertion of intellectual
property rights belonging to others. The effects of such assertions could
include requiring the Company to alter or withdraw existing trademarks or
products, delaying or preventing the introduction of products, or forcing the
Company to pay damages if the products have been introduced.
The steps we take to protect our proprietary rights may be inadequate,
or third parties might infringe or misappropriate our trade secrets, copyrights,
trademarks, trade dress and similar proprietary rights. In addition, others
could independently develop substantially equivalent intellectual property. We
may have to litigate in the future to enforce our intellectual property rights,
to protect our trade secrets or to determine the validity and scope of the
proprietary rights of others. Such litigation could result in substantial costs
and the diversion of our management and technical resources which could harm our
business.
WE MAY BE LIABLE FOR INTERNET CONTENT
We believe that our future success will depend in part upon our ability
to deliver original and compelling descriptive content (information, articles,
editorials, etc.) about the products we sell on the Internet and about related
healthcare and wellness issues. Accordingly, the Company anticipates that it
will become a publisher of online content in the foreseeable future. At such
time, we will face potential liability for defamation, negligence, copyright,
patent or trademark infringement, or other claims based on the nature and
content of materials that we publish or distribute. In the past, plaintiffs have
brought such claims and sometimes successfully litigated them against online
services. In addition, in the event that we implement a greater level of
interconnectivity on our Web sites, we will not and cannot practically screen
all of the content our users generate or access, which could expose us to
liability with respect to such content. We do not presently carry general
liability insurance, and any such insurance obtained in the future may not cover
claims of these types or may be inadequate to indemnify us for all liability
that may be imposed on us. If we face liability, then our reputation and our
business may suffer.
WE MAY BE SUBJECT TO SALES AND OTHER TAXES
We do not currently collect sales or other similar taxes for physical
shipments of goods into states other than Florida. However, one or more local,
state or foreign jurisdictions may seek to impose sales tax collection
obligations on us and other out of state companies which engage in online
commerce. In addition, any new operations in states outside Florida could
subject our shipments into such states to state sales taxes under current or
future laws. If one or more states or any foreign country successfully asserts
that we should collect sales or other taxes on the sale of our merchandise, it
could adversely affect our business.
10
<PAGE>
WE MAY BECOME SUBJECT TO ADDITIONAL GOVERNMENT REGULATION
Laws and regulations directly applicable to communications or commerce
over the Internet are becoming more prevalent. The most recent session of the
U.S. Congress resulted in Internet laws regarding children's privacy,
copyrights, taxation and the transmission of sexually explicit material. The
European Union recently enacted its own privacy regulations. The law of the
Internet, however, remains largely unsettled, even in areas where there has been
some legislative action. It may take years to determine whether and how existing
laws such as those governing intellectual property, privacy, libel, contracts
and taxation apply to the Internet. In addition, the growth and development of
the market for online commerce may prompt calls for more stringent consumer
protection laws, both in the United States and abroad, that may impose
additional burdens on companies conducting business online. The adoption or
modification of laws or regulations relating to the Internet could adversely
affect our business.
WE ARE SUBJECT TO RISKS ASSOCIATED WITH ACQUISITIONS
On September 9, 1999, we entered into an agreement for the purchase of
all of the outstanding shares of common stock of Becan, a wholesale distributor
of pharmaceuticals, over-the-counter drugs, and health and beauty care products.
There can be no assurance that we will successfully assimilate the additional
personnel, operations, acquired technology and products of Becan into our
business, or retain key personnel.
In addition to the acquisition of Becan, we intend to seek investments
in complementary companies, products or technologies. If we buy a company, we
could have difficulty in assimilating that company's personnel and operations.
In addition, the key personnel of an acquired company may decide not to work for
us. We could also have difficulty in assimilating the acquired technology or
products into our operations. These difficulties could disrupt our ongoing
business, distract our management and employees and increase our expenses. In
addition, future acquisitions could have a negative impact on our business,
financial condition and results of operations. Furthermore, we may have to incur
debt or issue equity securities to pay for any future acquisition, the issuance
of which would be dilutive to our existing stockholders.
WE MAY HAVE POTENTIAL CONFLICTS OF INTEREST WITH INNOVATIVE HEALTH PRODUCTS,
INC.
Substantially all of our e-commerce sales to date, although nominal, have
resulted from the sale of our brand label products, which are manufactured for
us by Innovative Health Products, Inc., an affiliated entity. We have not
entered into an agreement with Innovative to define the ongoing relationship
between the companies. As a result of the affiliation between Innovative and
ourselves, any future agreement between the two companies may not be deemed the
result of arms' length negotiations. Further, although we and Innovative are
engaged in related businesses, the companies currently have no policies to
govern the pursuit or allocation of corporate opportunities between us in the
event they arise. See "Management - Loans and Other Affiliated Transactions."
THE OFFERING PRICE OF OUR STOCK MAY BE ARBITRARY
Prior to this offering there has been no active trading market for our
common stock. There can be no assurances that an active market for our stock
will develop or continue after this offering. The offering price of was
determined through negotiations between the Company and the underwriter. The
offering price may not bear any relationship to the market price for our common
stock after this offering. The offering price of the shares does not bear any
relationship to assets, earnings, book value, or other criteria of value
applicable to the Company. You should not consider the offering price to be and
indication of the actual value of our common stock. The price of our stock is
subject to change as a result of market conditions and other factors. No
assurances can be given that our stock can be resold at the offering price.
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<PAGE>
POSSIBLE ILLIQUIDITY OF THE TRADING MARKET
The Company's common stock is presently quoted on the OTC Electronic
Bulletin Board, which is a significantly less liquid market than the Nasdaq
SmallCap Market or other stock exchanges. As a result of the common stock being
quoted on the OTC Electronic Bulletin Board, an investor may find it more
difficult to dispose of, or to obtain accurate quotations as to the price of,
the common stock than if those securities were listed on the Nasdaq SmallCap
Market or another stock exchange. We have applied for listing of our common
stock on The Nasdaq SmallCap Market and the Boston Stock Exchange. However,
there can be no assurance that the Company will become able to satisfy the
quantitative and other listing requirements for listing on the SmallCap Market
or the Boston Stock Exchange. Similarly, if our listing application were
accepted, there can be no assurance that we would be able to continue to meet
the requirements necessary to stay listed.
OUR COMMON STOCK PRICE MAY BE VOLATILE
The stock market has experienced extreme price and volume fluctuations,
which have particularly affected the market prices of many Internet related
companies, and which have often been unrelated to the operating performance of
these companies. The trading price of our common stock is likely to be highly
volatile and subject to wide fluctuations due to the fact that we are an
Internet company, as well as in response to the following factors:
o announcements of technological innovations, new sales formats or
new products or services by us or our competitors;
o conditions or trends in the Internet and online commerce
industries;
o changes in the economic performance and/or market valuations of
other Internet, online service or retail companies;
o announcements by us of significant acquisitions, strategic
partnerships, joint ventures or capital commitments; and
o general economic conditions and changes or volatility in the
financial market.
These broad market and industry factors may adversely affect the market
price of our common stock, regardless of our actual operating performance. In
the past, following periods of volatility in the market price of stock, many
companies have been the object of securities class action litigation. If we were
to be sued in a securities class action, it could result in substantial costs
and a diversion of management's attention and resources.
FUTURE PUBLIC SALES OF OUR COMMON STOCK COULD ADVERSELY AFFECT OUR STOCK PRICE
If our stockholders sell substantial amounts of our common stock in the
public market following this offering, the market price of our common stock
could fall. Such sales might also make it more difficult for us to sell equity
or equity-related securities in the future at a time and price that we deem
appropriate.
Upon completion of this offering and purchase of Becan, we will have
outstanding 6,196,707 shares of common stock (excluding the 1,000,000 common
shares held in escrow). Of these shares, the 1,500,000 shares sold in this
offering, together with 155,892 additional shares of our common stock, will be
freely tradeable without restriction. The remaining 4,540,815 shares of our
common stock (excluding the shares held in escrow) are deemed restricted shares
of which 2,520,000 shares will be eligible for sale within 12 months of this
offering and the remainder of 2,000,000 shares subsequent to 12 months from this
offering. See "Description of Capital Stock - Shares Eligible for Future Sales."
POSSIBLE ADVERSE EFFECT OF "PENNY STOCK" RULES ON LIQUIDITY FOR THE COMPANY'S
SECURITIES
Rule 3a51-1 under the Securities Exchange Act of 1934 categorizes any
equity security as a "penny stock" where the equity security has a price of less
than $5.00 per share (other than securities
12
<PAGE>
registered on certain national securities exchanges or quoted on the Nasdaq
system, provided that the current price and volume information with respect to
transactions in such securities is provided by the exchange or system), subject
to certain exceptions including where the issuer has (i) net tangible assets
(equal to total assets less intangible assets and liabilities) exceeding
$2,000,000 (as demonstrated by financial statements dated less than 15 months
prior to the date of the transaction in question) and the issuer has been in
continuous operation for at least three years; (ii) net tangible assets of at
least $5,000,000, if such issuer had been in continuous operation for less than
three years; or (iii) average annual revenue of at least $6,000,000, if such
issuer has been in continuous operation for less than three years. Rule 15g-9
under the Exchange Act imposes sales practice requirements of broker-dealers
which sell penny stocks to persons other than established customers (as defined
in Rule 15g-9) or in other limited circumstances, including requiring the
broker-dealer, prior to any transaction in a penny stock, to make a special
suitability determination for the purchaser, to receive the purchaser's written
agreement to the transaction and to deliver a disclosure statement respecting
the penny stock rules.
The public offering price of the Company's common stock will be
sufficiently high such that the common stock will not initially be "penny
stock." However, there can be no assurance that the price of the Company's
common stock will remain above $5.00 per share or that the Company will continue
to qualify for exemption from the penny stock rules.
If the Company's securities become subject to the penny stock rules, the ability
or willingness of broker-dealers to sell or make a market in the Company's
common stock may be adversely affected and the market liquidity of the Company's
securities could be adversely affected.
YEAR 2000 RISK MAY ADVERSELY AFFECT OUR COMPANY
Many existing computer programs use only two digits to identify a year.
These programs were designed and developed without addressing the impact of the
upcoming change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond the Year
2000. We have assessed our systems which permit the sale, order, processing and
delivery of products to our customers to determine Year 2000 compliance. Based
on our review and the results of limited testing, we believe all of such systems
are Year 2000 compliant.
We also utilize software, computer technology and other services
internally developed and provided by third-party vendors that may fail due to
the Year 2000 phenomenon. For example, we are dependent on the institutions
involved in processing our customers' credit card payments for Internet
services. We are also dependent on telecommunications vendors and leased
point-of-purchase vendors to maintain network reliability.
However, known or unknown errors or defects that affect the operation
of our systems could result in delay or loss of revenue, interruption of
shopping services, cancellation of customer contracts, diversion of development
resources, damage to our reputation, costs, and litigation costs, any of which
could adversely affect our business, financial condition and results of
operation. The expenses associated with our assessment and potential remediation
plan cannot be determined. Further, at this time, we do not have enough
information to determine the most reasonably likely worst case scenario.
Therefore, we do not have a contingency plan in place to handle the most
reasonably likely worst case scenario, and we do not intend to create one.
YOU SHOULD NOT RELY ON FORWARD-LOOKING STATEMENTS IN THIS PROSPECTUS
This prospectus contains forward-looking statements that involve risks
and uncertainties. We use words such as "anticipates," "believes," "plans,"
"expects," "future," "intends" and similar expressions to identify such
forward-looking statements. This prospectus also contains forward-looking
statements attributed to certain third parties relating to their estimates
regarding the growth of certain electronic-commerce, pharmaceutical markets
and spending. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this prospectus. Our actual
results could differ materially from those anticipated in these forward-looking
statements for many reasons, including the risks faced by us described above and
elsewhere in this prospectus.
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<PAGE>
USE OF PROCEEDS
We estimate that we will receive net proceeds of approximately
$11,780,000 from our sale of the 1,500,000 shares of common stock offered by us
with this prospectus based on an assumed offering price of $9.00 per share
(approximately $13,602,500 if the underwriter fully exercises its over-allotment
option). This estimate is after deducting estimated underwriting discounts and
commissions and other fees and expenses payable by us. The estimated use of the
net proceeds of this offering shall be as follows, in order of priority:
<TABLE>
<CAPTION>
PURPOSES FOR WHICH PROCEEDS ARE TO BE USED DOLLAR AMOUNT PERCENTAGE
- ------------------------------------------ ------------- ----------
<S> <C> <C>
Acquisition of Becan....................................... $2,000,000 17.0%
Marketing of Web Site...................................... $4,000,000 34.0%
Development of Web Site Infrastructure and
Technology................................................. $2,000,000 17.0%
Repayment of Becan Credit Facility......................... $1,200,000 10.2%
Salaries for Current and Additional Personnel*............. $1,000,000 8.5%
Repayment of Obligations to Affiliates..................... $190,000 1.6%
Working Capital............................................ $1,390,000 11.7%
---------- ----
TOTAL...................................................... $11,780,000 100%
- -------
</TABLE>
* Includes approximately $73,000 for the payment of accrued compensation to our
President and Director/Consultant. See "Management - Employment Agreements and
Other Arrangements."
We believe the proceeds are sufficient to sustain the Company's
activities for at least 12 months following the offering. The Company may, if
the opportunity arises, use an unspecified portion of the remaining proceeds to
acquire or invest in complementary businesses, products and technologies.
However, other than the pending acquisition of Becan, the Company has no present
understandings, commitments or agreements with respect to any material
acquisition or investment. Until we use the net proceeds for a particular
purpose, we will invest them in short-term interest bearing securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends. We currently expect
to retain future earnings, if any, to finance the growth and development of our
business. We do not anticipate paying any cash dividends in the foreseeable
future. Prospective investors should not view an investment in the common stock
as a source of income.
MARKET FOR THE COMMON STOCK
Our common stock is quoted on the OTC Electronic Bulletin Board and is traded
under the symbol "JCOM," and as of September 1, 1999, there were approximately
550 shareholders of record of the common stock. From 1997 through March 1999,
before we commenced our e-commerce business, there was no active trading market
for our common stock. From April 1999 to September 1, 1999, there were a total
of 11 trades reported for our common stock on the OTC Electronic Bulletin Board.
During such period, the high ask and low bid information as reported ranged from
$52.00 per share to $8.00 per share. On August 25, 1999, the last reported sale
price of the common stock on the OTC Electronic Bulletin Board was $13.00 per
share. Due to the limited trading in our common stock, the Company believes that
the trading prices are not indicative of a true market price for our shares.
We have applied to have the common stock approved for listing on the
Boston Stock Exchange and approved for quotation on The Nasdaq SmallCap Market.
Approvals of the applications will contain various conditions, including the
sale of the stock to be issued in this offering, and the
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<PAGE>
presence of at least three registered and active market makers. We will seek to
encourage and assist at least three market makers to make a market in our common
stock following the offering. We cannot be certain that our common stock will be
able to meet the applicable listing and quotation criteria in order to maintain
its listing on the Boston Stock Exchange or its quotation on The Nasdaq SmallCap
Market. Neither can we be certain that an active and liquid trading market will
develop, or if developed, will be maintained. A public market having the
desirable characteristics of depth, liquidity, and orderliness, however, depends
upon the presence in the marketplace of both willing buyers and sellers of
common stock at any given time, which is not within our control. We cannot be
certain that an investor will be able to resell the common stock at or above the
offering price of the common stock.
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<PAGE>
CAPITALIZATION
The following table sets forth as of June 30, 1999, (i) our
consolidated capitalization, and (ii) our pro forma consolidated capitalization
as adjusted to give effect to the acquisition of our World Wide Web Internet
site domain name www.nutriceuticals.com, the acquisition of Becan, and the sale
of the common stock offered by this prospectus, after deduction of estimated
offering expenses and underwriting discounts, and assuming an offering price of
$9.00 per share.
<TABLE>
<CAPTION>
JUNE 30, 1999
ACTUAL AS ADJUSTED
------ -----------
<S> <C> <C>
Total current liabilities (1) ..................................... $ 173,092 $ 2,332,930(2)
Stockholders' equity :
Common stock, $.001 par value; 24,000,000 shares authorized,
2,676,707 shares issued and outstanding, actual; 6,196,707
shares authorized and outstanding pro forma, as
adjusted (3)(4); ......................................... 2,677 6,197
Preferred stock, $.001 par value; 2,000,000 shares
authorized; no shares issued and outstanding
Additional paid-in capital ........................................ 139,725 17,956,205(5)
Accumulated deficit ............................................... (186,924) (186,924)
Total stockholder's equity ............................... $ (44,522) $ 17,775,478
------------ ------------
Total capitalization ..................................... $ (44,522) $ 17,775,478
------------ ------------
</TABLE>
(1) Includes $50,000 of notes payable due to various officers, directors and an
affiliate, at June 30, 1999. For a description of the Company's debt, see
"Management - Loans and Other Affiliated Transactions" and Note 9 of Notes
to the Company's Consolidated Financial Statements.
(2) Subsequent to June 30, 1999, an officer, director and an affiliate loaned
the Company an additional $140,000 for working capital purposes. All of the
$190,000 will be repaid from the proceeds of this offering. In addition,
approximately $1.2 million outstanding under Becan's line of credit will be
repaid from the proceeds of this offering.
(3) Does not include 400,000 shares of common stock reserved for future issuance
under our 1999 Stock Option Plan. See "Description of Capital Stock."
(4) The pro forma as adjusted number of shares gives effect to the issuance of
2,000,000 shares of common stock to be issued in connection with our
purchase of, but excludes 1,000,000 shares held in escrow in connection with
the Becan acquisition; to be issued pending the attainment of certain
financial targets for the years ending 2000 and 2001. The pro forma number
of shares as adjusted also gives effect to the issuance of 20,000 shares of
common stock issued in connection with the purchase of our World Wide Web
Internet site domain name "www.nutriceuticals.com," and a one-for-two
reverse split of common stock effected in September 1999. All share and per
share data have been adjusted for the September 1999 reverse stock split.
See "Description of Capital Stock" and Note 9 of Notes to Consolidated
Financial Statements.
(5) Net of $370,000 of costs and expenses, and $1,350,000 of underwriter's
discounts in connection with the sale of common stock offered by this
prospectus.
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DILUTION
The net tangible book value of our common stock on June 30, 1999 was
$(44,522), or approximately $(.02) per share. Net tangible book value per share
represents the amount of our tangible assets less the amount of total
liabilities divided by the number of shares of common stock outstanding.
After giving effect to (i) our sale of 1,500,000 shares of common stock
offered by us with this prospectus at an assumed offering price of $9.00 per
share, after deducting our estimated underwriting discounts and expenses related
to this offering, and (ii) after giving effects to the issuance of 2,000,000
shares of our common stock in connection with our acquisition of Becan, and
20,000 in connection with the purchase of our Internet site domain name, our net
tangible book value on June 30, 1999 would have been approximately $9.8 million,
or approximately $1.59 per share. This represents an immediate increase in the
net tangible book value of $1.61 per share to existing stockholders and an
immediate dilution of $7.41 (or an 82% dilution) to new investors.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Assumed offering price per share............................................ $9 .00
------
Net tangible book per share value as of June 30, 1999.................. $(.02)
-------
Increase per share attributable to the offering........................ $ 1.61
------
Adjusted net tangible book value after the offering.......................... $1.59
-----
Dilution per share to new investors.......................................... $7.41 (82%)
----- ------
</TABLE>
- ----------
The table does not give effect to the 1,000,000 shares held in escrow
in connection with the acquisition of Becan, which are to be issued pending the
attainment of certain financial targets for the years ending 2000 and 2001. See
"Becan" and Note 9(d) of the Company's Notes to Consolidated Financial
Statements.
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<PAGE>
CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The consolidated statement of
operations data for the years ended March 31, 1998 and 1999 and the consolidated
balance sheet data as of March 31, 1998 and 1999 are derived from our
Consolidated Financial Statements which have been audited by Kirkland, Russ,
Murphy & Tapp, independent auditors, and are included elsewhere in this
prospectus, and are qualified by reference to such Consolidated Financial
Statements and the Notes thereto. The selected financial data of the Company for
the three-month period ended June 30, 1999 have been derived from the unaudited
consolidated financial statements of the Company. The unaudited financial
statements include all adjustments, consisting of normal recurring accruals that
the Company considers necessary for a fair presentation of its financial
position and results of operations for the period. The results of operations for
the three-months ended June 30, 1999 are not necessarily indicative of results
that may be expected for the full year.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED YEAR ENDED ENDED
MARCH 31, 1998(1) MARCH 31, 1999(2) JUNE 30, 1999
------------------ ----------------- -------------
<S> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net revenues............................................ $ 7,019 $ 37,118 $ 33,899
Gross profit (loss)..................................... (9,741) 22,622 19,133
Selling, general and administrative expenses............ 26,839 132,793 101,308
---------- ------------ ----------
Loss from operations........................... (36,215) (110,171) (82,195)
Other income............................................ 32,215 1,761 (254)
---------- ------------ ----------
Net loss................................................ $ (4,365) $ (108,410) $ (82,449)
========== ============ ==========
Basic and diluted net loss per share ................... (.02) (.08) $ (.03)
---------- ------------ ----------
Basic and diluted weighted average common
shares outstanding................................. 175,514 1,372,230 2,676,707
========== ============ ==========
</TABLE>
AS OF JUNE 30, 1999
--------------------------------------------
ACTUAL PRO FORMA(3) AS ADJUSTED(4)
---------- ------------ --------------
CONSOLIDATED BALANCE SHEET DATA:
Cash ......................... $ 14,599 $ 136,761 $ 9,776,761
Working capital .............. (89,722) 55,917 9,835,917
Total assets ................. 128,570 11,644,119 21,284,119
Stockholders' equity (deficit) (44,522) 7,995,478 17,775,478
(1) The March 31, 1998 financial data has been reclassified from the
liquidation basis of accounting to conform with the 1999 presentation.
(2) Includes predecessor from April 1, 1998 to September 7, 1998 (prior to
merger) and Nutriceuticals from September 8, 1998 (inception) to March 31,
1999. See the "Consolidated Financial Statements and Notes thereto,
included elsewhere herein.
(3) Gives effect to the acquisition of the World Wide Web site domain name and
Becan.
(4) The as adjusted data gives effect to the sale of the common stock offered
hereby and the application of the net proceeds received and the
acquisition of the World Wide Web site domain name and Becan.
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<PAGE>
SELECTED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The selected pro forma condensed consolidated financial data presented
below for the year ended March 31, 1999 and as of, and for the three-months
ended June 30, 1999 are derived from the unaudited Pro Forma Consolidated
Financial Statements included elsewhere in this prospectus. The pro forma
condensed consolidated statement of operations data for the year ended March 31,
1999 and three-months ended June 30, 1999 gives effect to the following as if
each had occurred as of April 1, 1998 and April 1, 1999, respectively: (i) the
acquisitions of Becan and HealthSeek.com, (ii) the purchase of the World Wide
Web Internet site domain name "www.nutriceuticals.com," and (iii) this offering
and the application of the net proceeds therefrom. The pro forma condensed
consolidated balance sheet data as of June 30, 1999 gives effect to this
offering and the application of the net proceeds to the Company therefrom as if
this offering had occurred on April 1, 1999.
The acquisitions have been accounted for under the purchase method of
accounting. The Consolidated Statement of Operations also gives the effect of a
one-for-two reverse common stock split effected by the Company in September
1999. All share and per share data have been adjusted for the reverse stock
split. The pro forma results are not necessarily indicative of future operations
or the actual results that would have occurred had the acquisitions taken place
at the beginning of the period. This pro forma consolidated statement of
operations should be read in conjunction with the Company's Consolidated
Financial Statements and Notes thereto.
<TABLE>
<CAPTION>
YEAR ENDED THREE-MONTHS ENDED
MARCH 31, 1999 JUNE 30, 1999
-------------- -------------
<S> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net Revenues .................................. $ 31,111,979 $ 12,230,155
Gross Profit .................................. 897,616 301,532
Operating expenses:
Selling, general and administrative expenses 1,118,241 232,863
Goodwill amortization ...................... 520,016 130,004
------------ ------------
Total Operating Expenses ...................... 1,638,257 362,867
------------ ------------
Income (loss) from continuing operations ...... (740,641) (61,335)
Other income and expenses, net ................ -- (3,477)
Interest income (expense), net ................ 1,761 (43,094)
------------ ------------
Net Income (loss) ............................. (738,880) (107,906)
============ ============
Basic and diluted net loss per share .......... (0.22) (0.03)
============ ============
Weighted average common shares outstanding .... 3,392,729 3,392,729
============ ============
</TABLE>
JUNE 30, 1999
-------------
BALANCE SHEET DATA:
Cash ........................................................... $ 9,776,761
Working capital ................................................ 9,835,917
Total assets ................................................... 21,284,119
Stockholders' equity ........................................... 17,775,478
19
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Effective March 31, 1997, we adopted a plan of liquidation by which we
sold our major product line and subsequently disposed of all our operating
assets by March 31, 1998. Effective March 1999, we acquired all of the
outstanding common stock of Nutriceuticals.com Corporation, a Florida
corporation, which was organized in September 1998. We merged with
Nutriceuticals of Florida and changed our name to Nutriceuticals.com
Corporation. From September through June we experienced net revenues of
approximately $78,000 and realized a loss of ($195,224).
On September 9, 1999, we entered into an agreement to acquire all of
the common stock of Becan, a wholesale distributor of pharmaceuticals,
over-the-counter drugs, and health and beauty care products. Such acquisition is
conditioned upon the successful completion of the offering. In connection with
this acquisition, we will pay Becan's parent company, Dynamic Health Products,
Inc. ("Dynamic") the sum of $2,000,000 in cash and 2,000,000 (post one-for-two
reverse stock split) shares of our common stock in exchange for all of the
outstanding shares of Becan common stock. In addition, we also will deposit
1,000,000 shares of our common stock into escrow for future issuance to Dynamic
upon the attainment by Becan of certain financial targets for the years ending
2000 and 2001.
Becan's sales increased from $10.4 million for the year ended March 31,
1998 to $31.0 million for the year ended March 31, 1999, and from $5.8 million
for the three months ended June 30, 1998 to $12.2 million for the three months
ended June 30, 1999. Such increases resulted primarily from adding additional
customers and the commencement of operations in the New Orleans market.
Becan's cost of goods sold increased as a percentage of sales from
approximately 96.4 % in fiscal 1998 to 97.1% for fiscal 1999, and from
approximately 96.6% for the three months ended June 30, 1998 to 97.6% for the
three months ended June 30, 1999. We attribute the increases to our rapid growth
in the pharmaceuticals market, which traditionally carries lower margins.
Becan's operating expenses decreased as a percentage of sales from
approximately 2.9% in fiscal 1998 to 2.1% in fiscal 1999, and from 2.4% for the
three months ended June 30, 1998 to 1.4% for the three months ended June 30,
1999. Such decreases were caused primarily by the additional growth requiring
low-end labor only.
Becan's net income before taxes has remained relatively constant as a
percentage of sales during the periods presented.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
Our cash at March 31, 1999 and June 30, 1999 were $56,986 and $14,599,
respectively. On March 15, 1999, we acquired in a merger all of the outstanding
common stock of Nutriceuticals.com Corporation, a Florida corporation.
Nutriceuticals of Florida had an initial capitalization of approximately
$130,000, which funded the Company's operations from inception through May 1999.
Subsequent to May, the Company has borrowed an aggregate of $190,000 from its
officers and directors, or affiliates, for working capital purposes. See
"Management - Loans and Other Affiliated Transactions" for the terms of the
loans.
We will need the proceeds of this offering to complete the acquisition
of Becan and for on-going Web site development, marketing, promotion, and for
general working capital purposes, including the Company's plans to hire
additional full-time management personnel. The proceeds from this offering
should be sufficient for us to carry on our operations for at least the next
twelve to eighteen months. Thereafter, we may need additional capital. Future
equity investments may have a dilutive effect on
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<PAGE>
the percentage ownership of the Company's present shareholders. There can be no
assurances that future capital will become available when needed, or at all. In
the event that Nutriceuticals.com is not able to obtain the needed funds in the
future, we may not be able to continue operations or put its business plan into
full effect.
BUSINESS
COMPANY HISTORY
The Company was founded in 1993 under the name NuMED Surgical, Inc. to
engage in the research, development and distribution of medical instruments and
surgical supplies to the health care market. We were created when NuMED Home
Health Care, Inc., a publicly held company, spun off to its stockholders all of
the assets and liabilities of its surgical/medical products division
(reorganized as NuMED Surgical, Inc.), and the assets and liabilities of a
wholly-owned subsidiary, NuMED Technologies, Inc. The spin off was effected at
the advice of Home Health Care's financial advisors, to separate Home Health
Care's service line of business from its equipment business. Prior to the spin
off, we had no operations or business other than as a division or wholly-owned
subsidiary of NuMED Home Health Care. In connection with the spin off, our
common stock was registered on SEC Form 10-SB, under Section 12(g) of the
Securities Exchange Act of 1934.
On March 31, 1997, we adopted a plan of liquidation in which the
Company sold its major product line and subsequently disposed of all its
operating assets. On March 15, 1999, we acquired in a merger all of the
outstanding common stock of Nutriceuticals.com Corporation, a Florida
corporation ("Nutriceuticals of Florida"). Nutriceuticals of Florida was
organized in September 1998 to engage in the online retailing of natural
products over the Internet. After we acquired Nutriceuticals of Florida, we
changed our corporate name to Nutriceuticals.com Corporation. On March 31, 1999,
we acquired HealthSeek.com Corp., which was founded in 1995 to provide Web-based
healthcare content and related information to healthcare professionals, medical
patients, and consumers. Nutriceuticals.com and our wholly-owned subsidiary
HealthSeek.com may be considered development stage companies, as revenues to
date for each have been nominal.
On September 9, 1999, the Company entered into an agreement to acquire
all of the outstanding shares of common stock of Becan, a wholesale distributor
primarily of pharmaceutical products and to a lesser extent, over-the-counter
drugs, and health and beauty care products. Such acquisition is subject to the
consummation of this offering. With the acquisition of Becan pending, we have
changed the focus of the Company from being an online retailer to an online
business-to-business wholesale portal in which manufacturers, distributors,
wholesalers, and retailers can improve their trading efficiency by exchanging
goods and services through a secure public and private channel, the
Nutriceuticals.com web site. We believe that by creating a wholesale portal:
o manufacturers, distributors, wholesalers, and retailers will be able
to list their products and start transacting business on the Internet
quickly at a low cost;
o manufacturers, wholesalers, and distributors will have an efficient
system to dispose of problematic inventories in a rapidly growing
Internet market;
o manufacturers, distributors, wholesalers, and retailers will have an
effective mechanism to turn close-out items into cash;
o buyers will have a means of getting the lowest possible price as
determined by the market.
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<PAGE>
The Company's objective is to become a leading owner and operator of an
online exchange for pharmaceutical, over-the-counter drugs, health and beauty
care products, and private label nutritional supplements. To accomplish this the
Company will endeavor to provide:
o an electronic commerce marketplace ~ a new way of doing business
through Internet technology that eliminates territorial and regional
borders.;
o quality products at competitive prices;
o efficient service through online automation;
o a community environment for news, information and online forums.
Becan commenced operations in January 1997 and its net revenues for the
year ended March 31, 1999 and three months ended June 30, 1999 were $31.1
million and $12.2 million, respectively. Net income for the respective periods
were $94,031 and $58,301. Stockholders equity at June 30, 1999 was $199,761. See
"Becan", "Management - Loans and Other Affiliated Transactions" and the
Financial Statements of Becan.
INDUSTRY OVERVIEW
The Internet has emerged as the fastest growing communications medium
in history and is dramatically changing how businesses and individuals
communicate and share information. International Data Corporation estimates that
the number of Internet users will grow from 97 million at the end of 1998 to 320
million by 2002, though Nutriceuticals.com may not benefit from this growth. The
Internet has created new opportunities for conducting commerce, such as
business-to-consumer and person-to-person e-commerce. Recently, the widespread
adoption of intranets and the acceptance of the Internet as a business
communications platform has created a foundation for business-to-business
e-commerce that offers the potential for organizations to streamline complex
processes, lower costs and improve productivity. Internet-based business-to-
business e-commerce is poised for rapid growth and is expected to represent a
significantly larger opportunity than business-to-consumer or person-to-person
e-commerce. According to Forrester Research, business-to-business e-commerce is
expected to grow from $43 billion in 1998 to $1.3 trillion in 2003, accounting
for more than 90% of the dollar value of e-commerce in the United States by
2003, though Nutriceuticals.com may not benefit from this growth.
The dynamics of business-to-business e-commerce relationships differ
significantly from those of other e-commerce relationships. Business-to-business
e-commerce solutions frequently automate processes that are fundamental to a
business's operations by replacing various paper-based transactions with
electronic communications. In addition, business-to-business e-commerce
solutions must often be integrated with a customer's existing systems, a process
that can be complex, time-consuming and expensive. Consequently, selection and
implementation of a business-to-business e-commerce solution represents a
significant commitment by the customer, and the costs of switching solutions are
high. In addition, because business transactions are typically recurring and
non-discretionary, the average order size and lifetime value of a
business-to-business e-commerce customer is generally greater than that of a
business-to-consumer e-commerce customer. These solutions are likely to be most
readily accepted by industries characterized by a large number of buyers and
sellers, a high degree of fragmentation among buyers, sellers or both,
significant dependence on information exchange, large transaction volume and
user acceptance of the Internet.
PHARMACEUTICALS AND HEALTH CARE PRODUCTS INDUSTRY
According to IMS Health, a company specializing in information services
for the pharmaceutical and health care industries, the United States is the
world's largest pharmaceutical market, with 1998 sales of $111 billion,
including diagnostics and over the counter drugs (OTC) products. That figure is
22
<PAGE>
expected to rise to $163 billion in 2002, for an increase of 46%. The National
Association of Chain Drug Stores reported that total prescription drug sales for
1999 are expected to exceed a record $121.6 billion, an increase of 18%. This
continued growth rate of the sales of pharmaceutical products was attributed to
a number of factors including (i) the value added by the introduction of new
drugs into the marketplace, which more than offsets the value lost by
medications losing patent protection, (ii) new patterns of drug lifestyle
management, resulting in higher sales occurring earlier in the life cycle of a
medication, (iii) increased money spent on direct-to-consumer marketing
initiatives, (iv) an unprecedented period of investment by pharmaceutical
companies worldwide.
Currently, the sale of pharmaceuticals and health care products are
serviced primarily by traditional full-line distributors. A full-line
distributor will carry anywhere from 15,000 to 50,000 SKU's (stock keeping
units), consisting of pharmaceuticals, Rx brand, Rx generic, health and beauty
care, over-the-counter drugs, private label, and various sundry items. The
traditional distributor derives income from sell margins, buy margins and
manufacturer cash discounts. There are over eighty current full line wholesalers
across the United States that compete in selling pharmaceuticals and health care
products. The wholesalers currently sell more than $300 billion dollars of the
aforementioned products annually. Through the acquisition of Becan, we intend to
provide manufacturers, distributors, wholesalers and retailers with an online
solution for exchanging goods and services.
THE NUTRICEUTICALS.COM SOLUTION
Through the acquisition of Becan we intend to launch the first
business-to-business wholesale online portal for pharmaceuticals,
over-the-counter drugs, health and beauty care products and private label
nutritional supplements. Our objective is to apply new Internet tools to the
existing distribution systems of such products to improve their trading
efficiency and create a community in which the wholesale and the retail markets
can exchange ideas, goods and services, advertise and promote their products.
Parties will be able to exchange information and goods through a secure public
and private channel, the Nutriceuticals.com Web site. Policies and practices
will be structured to provide buyers and sellers with an unbiased and fair
environment in which to conduct their day-to-day business. Our initial marketing
efforts will be to make available to manufacturers, distributors, wholesalers
and retailers pharmaceuticals, over the counter drugs, health and beauty care
products, and private label nutritional supplements.
We are in the process of creating a new Web site to be used in by our
business-to-business portal. It is expected that the site will be functional
prior to year end and will enable us to carry out the following models:
o Catalog: creates value by aggregating suppliers and buyers. Works best
in industry characterized by fragmented buyers and sellers who
transact frequently for relatively small-ticket items. Also works well
for situation where demand is predictable and prices do not fluctuate
too frequently;
o Auction: creates value by spatial matching of buyers and sellers.
Works best in industries or settings where one-of-a-kind,
non-standard, or perishable products need to be bought or sold among
businesses that have a very different perception of value for the
product. i.e. capital equipment, used products, unsaleable returned
products and hard-to-find products; and
o Exchange: creates value by timely matching of supply and demand. Works
best where demand and prices are volatile by allowing businesses to
manage excess supply and peak-load demand.
We believe that customers will favor sites that allow buyers and sellers to
choose the appropriate market-making mechanism.
We intend to utilize our advantage as an early entrant as a
business-to-business e-commerce to leverage our infrastructure, technology,
marketing and management resources thereby achieving
23
<PAGE>
economies of scale and attract an increased audience, making our site more
appealing to a broad array of advertisers and e-commerce customers.
We expect to generate revenues from services such as banner ads,
sponsored newsletters and discussion forums, virtual trade shows, e-commerce,
online auctions, reverse auctions, wholesale marketplace, "storefronts" and
other special services.
Through our existing Web sites we are currently selling nutritional
supplements, vitamins and natural products to consumers, retailers and a limited
number of wholesalers.
STRATEGY
The Company's objective is to be a leading online business-to-business
portal for pharmaceutical, over-the-counter drugs, health and beauty care
products, and private label nutritional supplements. The Company's business
strategy as a result of the Becan acquisition will be to expand the existing
distribution system by applying new internet tools to the system thereby
creating an internet portal in which manufacturers, distributors, wholesalers
and retailers can exchange goods and services through a secure public and
private channel, the Nutriceuticals.com Web site. The Company will implement
this strategy by the following:
o create brand recognition and generate traffic to our Web
sites;
o develop strategic relationships;
o maintain technology focus and expertise; and
o attract and retain exceptional employees.
CREATE BRAND RECOGNITION AND GENERATE TRAFFIC TO OUR WEB SITES. We must
build awareness of our Web sites to attract and expand our Internet customer
base. We intend to promote, advertise and increase recognition of our Web sites
through a variety of marketing and promotional techniques, including:
o co-marketing agreements with major online sites and services;
o online content and ease of use of our Web sites;
o enhanced customer service and technical support;
o advertising in trade journals, leading web sites and other
traditional media;
o conducting an ongoing public relations campaign; and
o developing other business alliances and partnerships.
DEVELOP STRATEGIC RELATIONSHIPS. We believe that developing strategic
relationships with a diverse set of partners, including customers
(manufacturers, distributors, wholesalers and retailers) on-line portals, broad
band access providers and on-line content providers, is critical to our success
because such strategic marketing alliances may enhance our brand recognition,
increase customer sales and expand our online visibility. As a result, we intend
to enter into relationships with Internet access providers, search engines and
other high traffic Web sites. See "Business - Marketing and Sales."
MAINTAIN TECHNOLOGY FOCUS AND EXPERTISE. A state of the art,
interactive commerce platform is necessary to enhance the services we offer and
to expand the benefits of online reselling of our products. We also intend to
upgrade our technology platform to further enhance our customer
24
<PAGE>
interaction and support systems which we believe offer us a competitive
advantage. We will continue to expend substantial efforts to develop, purchase,
license and make technological advancements to our Web sites and our transaction
processing systems to enhance our availability, reliability and site up-time,
and to improve the efficiency of our fulfillment activities. See "Use of
Proceeds."
ATTRACT AND RETAIN EXCEPTIONAL EMPLOYEES. Talented employees,
management and directors provide significant advantages in the rapidly evolving
electronic commerce market. We intend to devote substantial efforts to building
a talented employee base. See "Use of Proceeds."
WE CANNOT ASSURE YOU THAT WE WILL BE SUCCESSFUL IN OUR STRATEGIC EFFORTS.
OUR ONLINE STORES
Customers currently enter our online stores at www.nutriceuticals.com
and www.javaslim.com. which were launched in February and June of 1999. As
previously indicated (see "The Nutriceuticals.com Solutions") we are in the
process of creating a new Web site for our business-to-business portal.
We plan to offer the following e-commerce related services for our
advertisers and users of our Web site:
o online stores: through simple-to-use store creation software
we plan to offer any current or future advertiser an
interactive platform to sell certain products in easy to
manage environments;
o catalog-platforms: we plan to work with current and future
advertisers as well as industry-specific distributors to
create and populate Internet-based catalogs;
o classifieds: we plan to launch classified sections listing
individual products and a path to the specific buyer or
seller;
o auctions: we plan to launch online auctions and reverse
auctions;
o news and analysis: daily update of press releases and news
stories targeted to each respective industry;
o community: bulletin boards; trade show information and other
useful industry events; and
o requests for proposals/quotations/bids: posted projects open
to bid.
MARKETING AND SALES
We intend to use a variety of programs to stimulate demand for our
products, including a direct sales force, telesales and advertising.
DIRECT SALES. Upon completion of this offering we will employ
approximately 10 persons who will act as our direct sales force to target
organizations that buy and sell products listed on our Web sites.See, "Use of
Proceeds."
TELESALES. We will maintain an in-house telesales group of
approximately 5 persons for use in customer prospecting, lead generation and
lead follow-up. See "Use of Proceeds."
ADVERTISING. In addition to strategic agreements and traditional
advertising, we intend to use many online sales and marketing techniques to
increase brand recognition and direct traffic to our online stores. These
include purchasing banner advertising on search engine Web sites and Internet
directories and direct links from healthcare home pages. See "Use of Proceeds."
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<PAGE>
CUSTOMER SERVICE AND SUPPORT
We believe that we can establish and maintain long-term relationships
with our customers and encourage repeat visits if, among other things, we have
good customer support and service. We currently offer online information
regarding our products and services. We answer customer questions about the
ordering process, and investigate the status of orders, shipments and payments.
A customer can access our staff by fax or e-mail by following prompts located on
our Web sites, or by calling our toll free telephone line. Customers who do not
wish to enter their credit card numbers through one of our Web sites also may
use the toll free line for purchases. We will continue these support services
when we expand our product line upon consummation of the Becan acquisition.
However, we may eventually increase the level of, and outsource, our customer
support services through a provider of customer support services. See "Use of
Proceeds."
WAREHOUSING AND FULFILLMENT
We currently fulfill substantially all of our orders from a single
vendor, Innovative Health Products, an affiliated company, which carries a broad
selection of natural products. We have no formal agreement with Innovative
Health Products. See "Management - Loans and Other Affiliated Transactions."
Upon consummation of the acquisition of Becan and the establishment of our new
Web site, we expect that electronically ordered products may be sent either
directly by seller to buyer or shipped from one of Becan's warehouses. See "Risk
Factors - We Rely on Manufacturers, Distributors and Wholesalers for Our
Products."
TECHNOLOGY AND SECURITY
We contract with a Web site provider that specializes in providing
scaleable business solutions to high volume Internet sites for mission critical
Internet connectivity. We contracted with the provider to deliver a secure
platform for server hosting with uninterruptible power supply and back up
generators, fire suppression, raised floors, heating ventilation and
air-conditioning, separate cooling zones, operations twenty-four-hours-a-day,
seven-days-a-week.
Notwithstanding these precautions, we cannot assure that the security
mechanisms used by us, our customers or our Internet provider will prevent
security breaches or service breakdowns. Despite the network security measures
we have implemented, our servers may be vulnerable to computer viruses, physical
or electronic break-ins and similar disruptions. Such a description could lead
to interruptions or delays in our service, loss of data, or our inability to
accept and fulfill customer orders. Any of these events would materially hurt
our business, results of operations and financial condition.
The Company is greatly aware of the importance of securing and
utilizing the most sophisticated information technology solutions available on
the market. Toward that goal, we will explore new and innovative solutions that
can improve the reliability, efficiency and scalability of our Web sites. As we
intend to create a highly enjoyable and secure shopping experience for our
customers, committed to achieving and maintaining technological leadership in
the e-commerce industry.
THE HEALTHSEEK.COM ACQUISITION
On March 31, 1999, we completed the acquisition of HealthSeek.com
Corp., and its popular healthcare content and community site,
www.healthseek.com. The acquisition of HealthSeek.com is intended to provide
content and community and generate traffic to the Company's online stores. In
connection with this acquisition, we have issued 100,000 (post one-for-two
reverse stock split) shares of our Nutriceuticals.com common stock to
HealthSeek.com's sole shareholder in exchange for all of the outstanding shares
of HealthSeek.com common stock. Also, pursuant to the purchase agreement with
HealthSeek.com, the Company entered into a consulting arrangement with the sole
shareholder of HealthSeek.com to maintain and operate the HealthSeek.com Web
site. Under the terms of the consulting agreement, our consultant will provide
approximately 10 hours of service per week for the
26
<PAGE>
maintenance of the Web site in exchange for an initial $10,000 payment and an
additional $40,000 annual salary for the current year, and $40,000 for every
year thereafter in which the consulting agreement is renewed by the Company.
COMPETITION
The online commerce market is new, rapidly evolving and intensely
competitive. We expect competition to intensify in the future because barriers
to entry are minimal, and current and new competitors can launch new Web sites
at relatively low cost. In addition, the industry is intensely competitive. We
believe that the critical success factors for companies seeking to create
Internet business-to-business e-commerce solutions include the following.
o breadth and depth of product offerings;
o brand recognition;
o installed base of customers; and
o ease of use and convenience.
We compete primarily with traditional suppliers and distributors, other
online sellers of the same or competitive products. Further, these traditional
wholesalers and distributors may soon establish commercial Web sites offering
similar products.
Unlike other well-publicized product categories such as online book or
compact disc retailing, there is no current market leader in the online
business-to-business of the Company's current and proposed products. Our
immediate goal is to position ourselves as a leading online portal. To that end,
the Company believes that its early entry into the online market will enable it
to establish critical competitive advantages over future competitors. Management
believes that such competitive advantages include the:
o establishment of a recognizable brand;
o development of online marketing and media relationships;
o acquisition of exclusive advertising space;
o development of important relationships with manufacturers,
distributors, wholesalers and content providers; and most
importantly
o existing customer base.
There is no assurance that the Company will realize such advantages.
Competitive pressures created by any one of these current or future
competitors, or by our competitors collectively, could materially hurt our
business. We believe that the principal competitive factors in our market are
and will be:
o brand recognition o speed and accessibility
o selection o customer service
o convenience o quality of site content
o price o reliability and speed of fulfillment
Many of our current and potential competitors have longer operating
histories and larger customer bases than we do. In addition, many of our current
and potential competitors have greater
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<PAGE>
brand recognition and significantly greater financial, marketing and other
resources than we do. In addition, as more people use the Internet and other
online services, certain larger, well established and well financed entities
may:
o acquire online competitors or suppliers;
o invest in online competitors or suppliers; or
o form joint ventures with online competitors or suppliers.
Certain of our actual or potential competitors, such as McKesson HBOC,
Inc., Bergen Brunswig Corp., and Cardinal Health, Inc., may be able to:
o secure merchandise from vendors on more favorable terms;
o devote greater resources to marketing and promotional
campaigns;
o adopt more aggressive pricing or inventory availability
policies; and
o devote substantially more resources to Web site and systems
development than we do.
In addition, new technologies and expansion of existing technologies,
such as price comparison programs that select specific titles from a variety of
Web sites, may direct customers to online resellers which compete with us and
may increase competition. Increased competition may reduce our operating
margins, as well as cause a loss to any possible market share and brand
recognition. Further, to strategically respond to changes in the competitive
environment, we may sometimes make pricing, service or marketing decisions or
acquisitions that could materially hurt our business. In addition, companies
controlling access to Internet transactions through network access or Web
browsers could promote our competitors or charge us a substantial fee for
inclusion in their product or service offerings. We cannot assure that we can
compete successfully against current and future competitors. Failure to compete
successfully against our current and future competitors could materially hurt
our business.
GOVERNMENT REGULATIONS AND LEGAL UNCERTAINTIES
We are subject to various laws and regulations relating to our
business. Few laws or regulations are currently directly applicable to
the Internet. However, because of the Internet's popularity and increasing use,
new laws and regulations may be adopted. Such laws and regulations may cover
issues such as:
o user privacy;
o pricing;
o content;
o copyrights;
o distribution; and
o characteristics and quality of products and services.
In addition, the growth of the Internet and electronic commerce,
coupled with publicity regarding Internet fraud, may lead to the enactment of
more stringent consumer protection laws. These laws may impose additional
burdens on our business. The enactment of any additional laws or regulations
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may impede the growth of the Internet, which could decrease our potential
revenues from electronic commerce or otherwise adversely affect our business,
financial condition and operating results.
Laws and regulations directly applicable to electronic commerce or
Internet communications are becoming more prevalent. The most recent session of
Congress enacted Internet laws regarding on-line copyright infringement.
Although not yet enacted, Congress is considering laws regarding Internet
taxation. The European Union recently enacted new privacy regulations. These are
all recent enactments, and there is uncertainty regarding their marketplace
impact. In addition, various jurisdictions already have enacted laws that are
not specifically directed to electronic commerce but that could affect our
business. The applicability of many of these laws to the Internet is uncertain
and could expose us to substantial liability.
Any new legislation or regulation regarding the Internet, or the
application of existing laws and regulations to the Internet, could materially
adversely affect us. If we were alleged to violate federal, state or foreign,
civil or criminal law, even if we could successfully defend such claims, it
could materially adversely affect us.
We believe that our use of third party material on our portal is
permitted under current provisions of copyright law. However, because legal
rights to certain aspects of Internet content and commerce are not clearly
settled, our ability to rely upon exemptions or defenses under copyright law is
uncertain.
Several telecommunications carriers are seeking to have
telecommunications over the Internet regulated by the Federal Communications
Commission in the same manner as other telecommunications services.
Additionally, local telephone carriers have petitioned the Federal
Communications Commission to regulate Internet service providers and online
service providers in a manner similar to long distance telephone carriers and to
impose access fees on such providers.
If either of these petitions are granted, the costs of communicating on
the Internet could increase substantially. This, in turn, could slow the growth
of use of the Internet. Any such legislation or regulation could materially
adversely affect our business, financial condition and operating results.
PROPRIETARY RIGHTS
Proprietary rights will be important to our success and our competitive
position. To protect our proprietary rights, we will rely on copyright,
trademark and trade secret laws, confidentiality agreements with employees and
third parties, and license agreements with consultants, vendors and customers.
Despite such protections, a third party could, without authorization, copy or
otherwise appropriate information from our Web sites. Our agreements with
employees, consultants and others who participate in development activities
could be breached, we may not have adequate remedies for any breach, and our
trade secrets may otherwise become known or independently developed by
competitors.
We currently have two pending applications for trademarks. Generally,
we cannot protect our Web addresses for our portal as trademarks because they
are too generic. The laws of some foreign countries do not protect our
proprietary rights to the same extent as do the laws of the United States, and
effective copyright, trademark and trade secret protection may not be available
in such jurisdictions.
There have been substantial amounts of litigation in the computer
industry regarding intellectual property assets. Third parties may claim
infringement by us with respect to current and future products, trademarks or
other proprietary rights, or we may counterclaim against such parties in such
actions. Any such claims or counterclaims could be time-consuming, result in
costly litigation, diversion of management's attention, cause product release
delays, require us to redesign our products or require us to enter into royalty
or licensing agreements, any of which could have a material adverse
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effect upon our business, financial condition and operating results. Such
royalty and licensing agreements, if required, may not be available in terms
acceptable to us, or at all.
EMPLOYEES
We currently employ 3 persons, and 2 consultants. In connection with
the acquisition of Becan, we would add 10 new employees including managerial,
technical and operations personnel. Labor unions do not represent any of our
employees. We consider our employee relations to be good. Competition for
qualified personnel in our industry is intense, particularly for technical
staff. Upon consummation of the offering, we intend to hire approximately 15
additional personnel who will be responsible for marketing, advertising, Web
development, and general and administrative activities. We believe that we need
to attract, hire and retain qualified personnel to be successful in the future.
See "Use of Proceeds."
FACILITIES
Our principal administrative, marketing and customer service facilities
total approximately 400 square feet of office and warehouse space, which is
located at 6950 Bryan Dairy Road, Largo, Florida 33777, and is currently
provided to us, without charge, by Innovative Health Products, an affiliated
company. See "Management - Loans and Other Affiliated Transactions." These
facilities will not be sufficient for the near future, and after this offering,
the Company plans to acquire new facilities of 1,000 to 3,000 square feet for
administrative, customer service and limited warehousing purposes. See "Use of
Proceeds."
Upon completion of the acquisition of Becan, we will assume a leased
property in Pittsburgh, Pennsylvania that Becan utilizes for offices,
warehousing, and shipping for its distribution operations, consisting of
approximately 4,024 square feet. The offices are leased pursuant to a four-year
lease that expires on February 28, 2003. Becan has an option to continue the
lease on a month to month basis or renew at the end of the four-year term. The
rental under the lease is $1,658 per month subject to yearly adjustment for tax
expenses. Becan also leases property, consisting of approximately 1,200 square
feet, in Mandeville, Louisiana, that is being utilized by its subsidiary,
Discount Rx, for offices, warehousing and shipping for Discount Rx's
distribution operations. These offices are leased on a month to month basis and
the rental under the lease is $900 per month.
LEGAL PROCEEDINGS
From time to time, we may become involved in litigation arising in the
ordinary course of our business. We are not presently subject to any material
legal proceedings.
BECAN
ACQUISITION
On September 9, 1999, we entered into an agreement to acquire all of
the common stock of Becan, a wholesale distributor of pharmaceuticals, over the
counter drugs, and health and beauty care products. Such acquisition is
conditioned upon the successful completion of the offering. Becan is a
wholly-owned subsidiary of Dynamic, an affiliate of Jugal K. Taneja, a principal
shareholder and director of our Company. See "Management - Loans and Other
Affiliated Transactions." In connection with this acquisition we will pay
Becan's parent company, Dynamic, the sum of $2,000,000 in cash, and 2,000,000
(post one-for-two reverse stock split) shares of our common stock in exchange
for all of the outstanding shares of Becan common stock. In addition, we also
will deposit 1,000,000 shares of our common stock into escrow for future
issuance to Dynamic upon the attainment by Becan of certain financial targets
for the years ending March 31, 2000 and 2001. Upon completion of
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this offering, the shares of our common stock issued in connection with the
acquisition of Becan will constitute approximately 32.3% of our outstanding
common stock, (or 41.7% on a fully diluted basis assuming the future issuance of
the 1,000,000 shares held in escrow).
We will account for the acquisition using the purchase method of
accounting. We expect to record goodwill and other intangible assets of
approximately $7.8 million which will be amortized over fifteen years.
For the year ended March 31, 1999 and the three months ended June 30,
1999, Becan had revenues of $31,075,000 and $12,196,000, respectively and net
income of $94,031 and $58,301 for such periods. Stockholders equity at June 30,
1999 was $199,761.
BUSINESS
Becan was incorporated in November 1996, in Ohio and commenced
operations in January 1997. Becan was acquired by Dynamic in June 1998. Becan is
a wholesale distributor of pharmaceuticals, over-the-counter drugs, and health
and beauty care products. In August 1998, Becan formed Discount Rx, Inc., a
Louisiana corporation which also acts as a wholesale distributor of
pharmaceuticals, over-the-counter, and health and beauty care products. Becan
operates two distribution centers, one of which is a 2,600 square foot leased
facility located in Pittsburgh, Pennsylvania, used by Becan, and the other is a
1,250 square foot leased facility located in Mandeville, Louisiana, used by
Discount Rx. Both of these facilities are used for the wholesale distribution of
pharmaceuticals and health and beauty care products. The products which Becan
and Discount Rx wholesale are acquired from various manufacturers, including
Merck & Co., Abbott Labs, and Eli Lilly.
PRODUCT LINE
Becan and its subsidiary Discount Rx offer over sixty branded
pharmaceuticals to their customers, along with diabetic test strips, a limited
number of generic pharmaceuticals, a line of nutriceuticals, and a line of
exclusive over the counter products. The branded pharmaceuticals account for
ninety percent of the sales for both companies. While diabetic test strips
account for five percent, generics for one percent, nutriceuticals for two
percent, and the exclusive over-the-counter products account for two percent.
In addition to strengthening their core business, the branded
pharmaceuticals, both Becan and Discount Rx are engaged in growing the
nutriceuticals business, which is one of the fastest growing categories within
their customer base.
Both companies have agreements with licensed alternate source
facilities from which they purchase and sell merchandise to.
MARKET FOR PRODUCT LINE
In the fiscal year ended March 31, 1999, approximately
ninety-seven percent of both companies' total sales were to independent
pharmacies and three percent to alternate facilities.
The overall market for Becan is defined as the Continental U.S.,
however initial concentration has been on accounts in central and eastern United
States.
SALES AND MARKETING
Becan and Discount Rx utilize a combination of inside sales
and marketing, field sales calls, and independent contractors for its sales and
marketing efforts. The majority of Becan's day to day sales is accomplished
through its inside sales efforts. All of Becan's sales efforts focus on
retaining the existing sales base and developing new customers.
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DISTRIBUTION
Becan and Discount Rx have two distribution locations, one in
Pittsburgh, Pennsylvania, and the other in Mandeville, Louisiana, respectively.
These locations are strategically located to enable the companies to deliver
approximately ninety five percent of the product to their customers via next day
delivery, shipped by way of ground UPS. The remaining product (large over the
counter orders) is distributed via bulk shipments that are delivered via common
carriers. In all instances a minimum order quantity is required to offset
delivery costs and ensure profitability.
MANAGEMENT INFORMATION SYSTEMS
Becan and Discount Rx use two different management tools to
regulate their inventories, one provided by their accounting software, and the
other an in-house system. The in-house system tracks purchases and sales, and
calculates average purchases against sales, including a growth factor, and then
suggests the appropriate inventory to purchase. Using these systems, both Becan
and Discount Rx provide their customers with an inventory fill rate that
surpasses the industry average. Both companies also track price increases. This
allows both companies to forecast when a price increase will take place, and
allows them to purchase the appropriate inventory to take advantage of those
price increases.
COMPETITION
There are a number of suppliers within each of Becan's and
Discount Rx's market areas that provide branded pharmaceuticals and other
products to independent pharmacies, internet pharmacies, clinics and other
licensed outlets. Both Becan and Discount Rx have developed a niche market
within the market of the other suppliers by offering their customers the needed
product at below market prices.
Becan's major competitors are the national wholesalers: McKesson,
AmeriSource, Bindley Western, Cardinal and Bergen Brunswig, along with a number
of regional wholesalers and buying groups. Both Becan and Discount Rx are able
to compete with these larger companies because we offer a limited inventory and
our cost to serve our customer base is far less than that of our competitors.
MANAGEMENT
PHILLIP J. LAIRD has served as the President of Becan since it was
acquired by Dynamic in June 1998. From May 1997 until June 1998 Mr. Laird was
the Vice President of the Diabetes Supply Division of Direct Rx, Inc., the
predecessor or Dynamic. Mr. Laird was also a retail area sales manager for
McKesson Drug Company from November 1996 to May 1997. Similarly, Mr. Laird was a
retail area sales manager for FoxMeyer Drug Company, managing approximately 250
retail pharmacies with four sales consultants from May 1994 to May 1997. Mr.
Laird received a degree in Business Administration from Robert Morris College,
Pennsylvania, in 1983.
WILLIAM H. HAMMERS is the President of Discount Rx, a position that he
has held since Becan founded Discount Rx in August 1998. Before becoming
President of Becan, Mr. Hammers served as the Executive Vice President of Sales
for Penner & Welsch since 1997. Prior thereto, Mr. Hammers was a Sales Manager
for the Slidell Division of McKesson Drug Company from 1996 to 1997, and he also
was a Sales Manager for the Slidell Division of FoxMeyer Drug Company from 1991
to 1996.
It is expected that Messrs. Laird and Hammers will continue in their
capacity as officers of Becan and Discount Rx following the acquisition of Becan
by the Company. Neither officer is under an employment contract with Becan or
Discount Rx.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information for each director and
executive officer of the Company.
NAME AGE POSITION
- ---- --- --------
Stephen M. Watters 32 President, Chief Executive Officer,
Chief Financial Officer and Director
Dr. Howard L. Howell 52 Director
Jeffrey K. Peterson 49 Director
M. Lisa Shasteen 38 Director
Jugal K. Taneja 55 Director
Pursuant to the company's bylaws, each director of the company serves
as a director for a term of one (1) year and until his successor is duly
qualified. Officers shall be appointed annually by the Board of Directors, at
its annual meeting, to hold such office until an officer's successor shall have
been duly appointed and qualified, unless an officer sooner dies, resigns or is
removed by the Board.
Set forth below is the business experience and other biographical
information regarding our directors and officers.
Stephen M. Watters was the President and a Director of Nutriceuticals
of Florida since that Company's inception in September 1998, until its merger
with and into our Company in March 1999. Since the merger, Mr. Watters has
served as our President and as a Director on our board of directors. Recently,
Mr. Watters was named Chief Executive Officer and Chief Financial Officer of the
Company. Previously, from September through November 1998, Mr. Watters was Vice
President of Finance of Dynamic, a Florida corporation. Through its wholly-owned
subsidiaries which include Innovative Health Products, Inc. and Becan, Dynamic
manufactures and distributes nutritional and health products. Prior to his
association with Dynamic, Mr. Watters was in the investment banking and
brokerage businesses where he served as Vice President of sales for Gilford
Securities from February 1998 to September 1998; Vice President of sales for
Hobbs, Melville Corp. from November 1997 to February 1998; and as branch manager
for sales, with Schneider Securities, Inc. from 1995 to 1997. During 1992 to
1994, Mr. Watters was employed by Bancapital Corp. as an investment banker. He
received his Executive Masters of Business Administration degree from Case
Western Reserve University in 1997.
Howard L. Howell, D.D.S. was recently appointed to our board of
directors in August 1999. Dr. Howell has been managing his private orthodontic
dentistry practice since 1977. in addition to the private practice of
orthodontics, Dr. Howell is the President of Howell, Whitehead & Associates,
P.A., a multi-office private practice group specializing in pediatric dentistry
and orthodontics. He also serves as Chief Executive Officer and a Director of
Telluride Expeditions Corp., a Colorado corporation which operates a travel
agency, and as a director of Medcom Facilities Inc., real estate holding company
incorporated in the state of Florida. In addition, Dr. Howell is involved in
various real estate investments. Dr. Howell received his degree from the Medical
College of Virginia.
Jeffrey K. Peterson was recently appointed to our board of directors in
August 1999. From 1997 to the present, Mr. Peterson served as Vice Chairman of
the Board of Directors, and Executive Vice President of Central European
Distribution Corporation, Delaware Corporation and a leading importer and
distributor of alcoholic beverages in Poland ("CEDC"). Mr. Peterson also handles
investor relations for CEDC. Mr. Peterson is also a co-founder of CEDC'S
wholly-owned subsidiary Carey AGRI International Poland SP Z.O.O., a limited
liability company organized under the laws of Poland, and has served as a member
of its management board since it's inception in 1990. Prior
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thereto, Mr. Peterson contracted with African, Middle Eastern, South American
and Asian Governments and companies for the supply of American agricultural
exports and selected agribusiness products, such as livestock, feed supplements
and veterinary supplies. In addition, Mr. Peterson has worked with international
banks and with United States governmental entities to facilitate support for
exports from the United States. Mr. Peterson served for three years with the
United States military in southeast Asia prior to attending the University of
South Florida, from which he graduated in 1976.
M. Lisa Shasteen is also a newly appointed Director of the company
(since August 1999). Ms. shasteen currently serves as Vice President and General
Counsel for Communications Equity Associates, Inc., a Florida corporation, an
investment and merchant banking firm specializing in the media entertainment and
communication industries. Ms. Shasteen is responsible for the oversight and
management of CEA's legal affairs. Prior to joining CEA in September 1997, Ms.
Shasteen established a private legal practice in Tampa, Florida in (April 1996),
focusing mainly on real estate, telecommunications, and regulatory matters
including industrial bond financing and assemblages for national developers. In
particular, Ms. Shasteen was responsible for the management of legal matters and
personnel to prepare Aerial Communications for its initial launch in Florida.
Previously, from July 1994 to April 1996, Ms. Shasteen was an attorney with
Rudnick & Wolfe in Tampa, Florida, where her practice areas included mergers and
acquisitions, commercial development, construction, and zoning. Ms. Shasteen
graduated CUM LAUDE from the University of Oklahoma, and obtained her JURIS
DOCTORATE degree with high honors from Stetson University College of Law in St.
Petersburg, Florida.
Jugal K. Taneja presently serves as a Director. He was the Chairman of
the Board from our inception in October 1993 until August 16, 1999. He also
served as the Company's Chief Executive Officer, from inception through April
18, 1995, and again from January 1, 1996 until August 16, 1999. Further, he
served at various times over the years as the Company's President and Secretary.
In addition to his service to the Company, Mr. Taneja operates several other
companies. He is presently the Chairman of the Board of Dynamic, a Florida
corporation, a position he has held since Dynamic's inception in 1991. Through
its wholly-owned subsidiaries which include Innovative Health Products, Inc. and
Becan, Dynamic manufactures and distributes nutritional and health products. Mr.
Taneja also serves as Director of NuMed Home Health Care, Inc., a Nevada
corporation which operates eight wholly-owned subsidiaries providing home health
care services, and contract rehabilitation staffing (since NuMed's inception in
1991). Previously, Mr. Taneja served as Senior Vice President of Union Commerce
Bank and Huntington National Bank from 1979 to 1983. Mr. Taneja holds degrees in
Petroleum Engineering, Mechanical Engineering, and a Masters in Business
Administration from Rutgers University.
Committees of the Board of Directors
The Board has established an Audit Committee consisting of Directors M.
Lisa Shasteen, Dr. Howard L. Howell, and Jeffrey K. Peterson. The Audit
Committee is responsible for reviewing our auditing programs, overseeing the
quarterly regulatory reporting process, overseeing internal audits as necessary,
receiving and reviewing the results of each external audit, and reviewing
management's response to auditor's recommendations. This newly formed committee
has not yet held its first meeting.
Compensation of Directors
From our inception until August 1999, our directors had not received
any compensation for their services as a director. Recently, the Board of
Directors approved the following arrangements for the compensation of our
directors. Commencing August 1999, our non-employee directors shall receive $500
for each meeting of the board of directors that they attend, plus reimbursement
of their reasonable out-of-pocket expenses incurred in connection with such
meetings. Additionally, each non-employee member of a committee of the board of
directors shall receive a fee of $100 per committee meeting that he or she
attends. Directors are also eligible to receive stock options under the
Company's stock option plan. Each of our newly appointed non-employee directors
will receive an
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option for the purchase of 5,000 shares of our common stock. The exercise price
of such options will be equal to the offering price of the common stock in this
offering. See "Management - 1999 Stock option plan."
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following summary compensation table sets forth all cash and/or
non-cash compensation paid to or accrued for the past three (3) fiscal years for
the Company's Chief Executive Officer.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
SALARY, BONUS, &
NAME AND PRINCIPAL POSITION (1) FISCAL YEAR ENDED MARCH 31, ALL OTHER COMPENSATION ($)
- ------------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
JUGAL K. TANEJA, CHIEF EXECUTIVE OFFICER (2) 1999 0
1998 0
1997 0
</TABLE>
(1) We have no officers or other individuals whose compensation from the
Company exceeded $100,000 in any of the past three (3) fiscal years.
(2) In August 1999, Mr. Taneja resigned as the Company's CEO, and
Stephen M. Watters was appointed as his successor.
EMPLOYMENT AGREEMENTS AND OTHER ARRANGEMENTS
In the first quarter of the current fiscal year, we entered into an
employment agreement with Mr. Watters which provides for an initial term of
three years commencing April 15, 1999 at an initial base salary of $150,000,
plus an annual performance bonus and stock options to be determined by the Board
of Directors, in exchange for Mr. Watters' full-time services to the Company.
Mr. Watters' employment agreement also contains standard termination provisions
for disability, for cause, and for good reason. Mr. Watters' employment
agreement further provides for health insurance benefits and contains
confidentiality and non-competition provisions that prohibit him form competing
with us. The period covered by the non-competition provisions will end three
years after Mr. Watters' termination.
We also entered into an employment agreement with Jugal K. Taneja for
an initial term ending April 15, 2002, with an annual base salary of $100,000.
Mr. Taneja, served the Company as our Chief Executive Officer from inception
through April 18, 1995, and again from January 1, 1996 until August 16, 1999, at
which time Mr. Taneja's employment agreement was changed to a consulting
agreement and amended as necessary to reflect his current position as a
consultant to the Company. It is anticipated that Mr. Taneja will continue to
devote approximately 25% of his time to the affairs of the Company under the new
consulting agreement. Mr. Taneja's consulting agreement contains standard
termination provisions for disability, for cause, and for good reason, and it
contains confidentiality and non-competition provisions that prohibit him from
competing with us. The period covered by the non-competition provisions will end
three years after Mr. Taneja's termination.
Accrued payments in the aggregate amount of approximately $73,000,
owing under the employment agreements/consulting arrangements with Messrs.
Watters and Taneja, will be paid out of the proceeds of this offering. See "Use
of Proceeds."
1999 STOCK OPTION PLAN
Under the Company's 1999 Stock Option Plan, 400,000 shares of common
stock are reserved for issuance upon exercise of stock options. The Plan is
designed as a means to retain and motivate key employees. The Board of Directors
administers and interprets the Plan. Options may be granted to all eligible
employees of the Company, including officers and non-employee directors and
others who perform services for the Company.
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The Plan provides for the granting of both incentive stock options (as
defined in Section 422 of the Internal Revenue Code) and non-statutory stock
options. Options are granted under the Plan on such terms and at such prices as
determined by the Board of Directors, except that the per share exercise price
of the options cannot be less than the fair market value of the common stock on
the date of the grant. Each option is exercisable after the period or periods
specified in the option agreement, but no option may be exercisable after the
expiration of ten years from the date of grant. Options granted under the Plan
are not transferable other than by will or by the laws of descent and
distribution. Presently, the Company has not granted any options under the Plan.
LOANS AND OTHER AFFILIATED TRANSACTIONS
DYNAMIC HEALTH PRODUCTS, INC.
We have been operating out of the principal offices of Dynamic, in
Largo, Florida, since September 1998. Dynamic has provided us, without charge,
with office and warehouse space, and the use of Dynamic's general office
equipment. See "Business - Warehouse and Fulfillment."
Dynamic, a Florida corporation, is a manufacturer and distributor of
proprietary and nonproprietary non-prescription medications, nutritional
supplements, and health and beauty care products. Dynamic has several
wholly-owned subsidiaries including Innovative Health Products, Inc. and Becan.
We are affiliated with Dynamic as a result of overlapping Boards of Directors
and overlapping principal shareholders. Specifically, a principal shareholder
and director of the Company, Jugal K. Taneja, is also the Chairman of the Board
of Dynamic. In addition, Mr. Taneja is a principal shareholder of Dynamic, with
beneficial ownership of approximately 33% of the outstanding common stock of
Dynamic. Members of his immediate family own in the aggregate an additional 20%
of the outstanding shares of Dynamic, and collectively, Mr. Taneja and his
family exercise voting control over 53% of Dynamic's common stock.
INNOVATIVE HEALTH PRODUCTS, INC.
Substantially all of natural products sold by the Company to date have
been supplied by Innovative Health Products, Inc. We are affiliated with
Innovative because Innovative is a wholly-owned subsidiary of Dynamic.
Innovative conducts all of Dynamic's manufacturing operations. See "Dynamic
Health Products, Inc." We do not have a contract committing Innovative
or Dynamic to provide the supplies the we will need to fulfil our customer
orders. The products we have obtained from Innovative have been purchased, and
we will only purchase products in the future from Innovative, on terms which are
no less favorable than the terms on which we could purchase similar products
from a disinterested third party supplier. See "Risk Factors -- We Rely on
Manufacturers, Distributors, and Wholesalers for Our Products."
BECAN DISTRIBUTORS, INC.
On September 9, 1999, we entered into an agreement to acquire Becan, a
wholesale distributor of pharmaceuticals, over-the-counter drugs, and health and
beauty care products. Becan is a wholly-owned subsidiary of Dynamic. See " -
Dynamic Health Products, Inc." and " - Innovative Health Products, Inc."
Pursuant to the terms of the purchase agreement, we will acquire all of the
outstanding common stock of Becan from Dynamic in exchange for $2,000,000 cash
and 2,000,000 (post one-for-two reverse stock split) shares of our common stock.
An additional 1,000,000 shares of our common stock will be held in escrow for
future issuance to Dynamic in the event Becan attains certain financial targets
for the years ending 2000 and 2001. After the closing of the Becan acquisition,
Mr. Taneja and members of his family will collectively exercise voting power
with respect to 47.4% of our common stock.
INDEBTEDNESS TO MANAGEMENT AND AFFILIATES
Affiliated entities of Jugal K. Taneja, namely 21st Century Healthcare
Fund, LLC, and Carnegie Capital Ltd., respectively loaned $50,000 in May 1999,
and $20,000 in August 1999, to the Company.
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Mr. Taneja is a member of our Board of Directors. Similarly, in July 1999, our
President, Chief Executive Officer, and Chief Financial Officer, Stephen M.
Watters, provided the Company with a loan in the amount of $70,000, and our
newly appointed director, Dr. Howell, loaned the Company an additional $50,000.
These loans were provided for the purpose of assisting us with our immediate
capital needs. The principal sum on each of these four promissory notes,
together with interest on the unpaid principal balance (at an annual rate equal
to prime plus one percent) is due and payable on demand at any time following
the earlier to occur of either (i) a public offering of the Company's common
stock pursuant to a registration statement filed with the Securities and
Exchange Commission, or (ii) December 31, 1999. We intend to repay these
promissory notes in full out of the proceeds of this offering. See "Use of
Proceeds."
On March 15, 1999, we acquired Nutriceuticals.com Corporation, a
Florida corporation in a merger transaction pursuant to which we were the
surviving corporation and the shareholders of Nutriceuticals of Florida received
one share of our common stock in exchange for each share of Nutriceuticals of
Florida stock. An aggregate of 2,400,000 shares of our common stock was issued
to their shareholders in the merger transaction. We were affiliated with
Nutriceuticals of Florida as a result of overlapping Boards of Directors and
overlapping principal shareholders. Specifically, our former Chairman of the
Board and Chief Executive Officer, Jugal K. Taneja, was also the Chairman of the
Board of Chief Executive Officer of Nutriceuticals of Florida. Further, Mr.
Taneja was a principal shareholder of Nutriceuticals of Florida, with beneficial
ownership of approximately 21% of their outstanding common stock. Members of his
immediate family owned in the aggregate an additional 16.8% of the outstanding
shares of Nutriceuticals of Florida, and collectively, Mr. Taneja and his family
exercised voting control over 37.8 % of their common stock. As a result of the
merger with Nutriceuticals of Florida, Mr. Taneja and his family, as a group,
retained voting control over approximately 35% of our common stock.
POLICY REGARDING LOANS AND OTHER AFFILIATED TRANSACTIONS
The Becan transaction described above was approved by a
Special Committee of the board of directors, consisting solely of independent
directors. All of the other affiliated transactions and loans described above
were entered into when there were less than two disinterested independent
directors on our board of directors, and accordingly the Company lacked
sufficient disinterested independent directors to approve or ratify such
transactions and loans at the time they were initiated. However, the Company
believes that all such transactions and loans were made on terms that are as
favorable to the Company as those which were generally available from
unaffiliated third parties at the time they were initiated, and all existing
loans will be immediately repaid in full from the proceeds of this offering. See
"Use of Proceeds."
We currently have and will maintain at least two independent directors
on our board of directors. All future material affiliated transactions and
future loans and loan guarantees with our officers, directors, 5% shareholders,
or their respective affiliates, will be on terms that are as favorable to the
Company as those generally available from unaffiliated third parties; and all
such future transactions and loans, and any forgiveness of such loans, shall be
approved or ratified by a majority of our independent directors who do not have
an interest in the transactions and who will have access, at our expense to the
Company's or independent legal counsel. Further, we do not intend to make any
future loans to or guarantee loans on behalf of our officers, directors and
employees, other than: (i) advances for travel, business expense, and similar
ordinary operating expenditures; (ii) loans or loan guarantees made for the
purchase of our securities, and (iii) loans for relocation.
37
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's common stock as of September 13, 1999, by
(i) each person known to own beneficially more than 5% of the Company's Common
Stock, (ii) each Director and Officer of the Company, and (iii) all Directors
and Officers as a group. As of September 13, 1999 there were approximately
2,696,707 common shares issued and outstanding.
<TABLE>
<CAPTION>
BEFORE OFFERING AFTER OFFERING (1)
AMOUNT AND NATURE PERCENTAGE AMOUNT AND NATURE PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OF OF BENEFICIAL OF
OF BENEFICIAL OWNER OWNER (2) CLASS OWNER (2) CLASS
------------------- --------- --------------- ---------- ---------------
<S> <C> <C> <C> <C>
21st Century Healthcare Fund LLC (3)(7)..... 300,000 11.1% 300,000 4.8%
6950 Bryan Dairy Road
Largo, Florida 33777
Manju Taneja (4)(7)......................... 211,821 7.9% 211,821 3.4%
6950 Bryan Dairy Road
Largo, Florida 33777
Mihir K. Taneja (5)(7) ..................... 200,000 7.4% 200,000 3.2%
6950 Bryan Dairy Road
Largo, Florida 33777
Mandeep K. Taneja (6)(7).................... 200,000 7.4% 200,000 3.2%
6950 Bryan Dairy Road
Largo, Florida 33777
Dynamic Health Products, Inc. (7) .......... 0 -- 2,000,000 32.3%
6950 Bryan Dairy Road
Largo, Florida 33777
Stephen M. Watters.......................... 1,000,000 37.1% 1,000,000 16.1%
Dr. Howard L. Howell........................ 0 -- 0 --
Jeffrey K. Peterson ....................... 0 -- 0 --
M. Lisa Shasteen .......................... 0 -- 0 --
Jugal K. Taneja (8)(7)...................... 538,815 20.0% 2,538,815 41.0%
All Directors and Officers
as a group (6 persons) (7).............. 1,538,815 57.5% 3,538,815 57.1%
- -------------------
</TABLE>
(1) After Offering ownership figures are based upon 6,196,707 shares issued and
outstanding and (i) include the issuance of 1,500,000 shares in the
offering that is the subject of this prospectus; (ii) include the issuance
of 2,000,000 shares to Dynamic in connection with the acquisition of Becan;
and (iii) exclude the 1,000,000 shares held in escrow in connection with
the Becan acquisition.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. The number of shares beneficially owned
by a person includes shares of common stock subject to options held by that
person, if any, that are currently exercisable or exercisable within 60
days of the date of this prospectus. Such shares issuable pursuant to such
options are deemed outstanding for computing the percentage ownership of
the person holding such options but not deemed outstanding for the purposes
of computing the percentage ownership of each other person. To our
knowledge, the persons named in this table have sole voting and investment
power with respect to all shares of common stock shown as owned by them,
subject to community property laws where applicable and except as indicated
in the other footnotes to this table. The business address of each of the
Company's directors named above is: c/o Nutriceuticals.com Corporation,
6950 Bryan Dairy Road, Largo, Florida 33777.
(3) 21st Century Healthcare Fund, LLC, is a limited liability company of which
Jugal K. Taneja is the principal.
(4) Includes 1,330 shares held of record by Jugal K. Taneja, her spouse. Ms.
Taneja disclaims voting power with respect to the shares held of record by
her spouse. Does not include shares held of record by 21st Century
Healthcare Fund, LLC, The First Delhi Trust or Westminster Trust Company,
whose shares are beneficially owned by her husband.
(5) Mihir K. Taneja is the adult son of Jugal K. Taneja and Manju Taneja.
(6) Mandeep K. Taneja is the adult son of Jugal K. Taneja and Manju Taneja.
(7) Assumes the consummation of the sale of Becan to the Company, and the
issuance of 2,000,000 shares of common stock to Dynamic in exchange
therefor. Jugal K. Taneja is a principal shareholder of Dynamic, with
beneficial ownership of approximately 33% of its outstanding common stock.
Members of Mr. Taneja's immediate family own in the aggregate an additional
20% of the outstanding shares of Dynamic, and collectively, he and his
family exercise voting control over 53% of Dynamic's common stock.
Consequently, if Mr. Taneja and the members of his family act in concert,
with respect to any matter to be voted upon by the shareholders of
Nutriceuticals after the offering, they would exercise voting control over
2,938,815 shares, or 47.4% of the Company's common stock.
(8) Includes (i) all of the shares held of record by 21st Century Healthcare
Fund, LLC, a limited liability company of which Jugal K. Taneja is the
principal; (ii) 8,994 shares held of record by The First Delhi Trust, a
trust established for the benefit of the children of Jugal K. Taneja; (iii)
18,000 shares held of record by Westminster Trust Company, a partnership in
which Jugal K. Taneja is the general partner; and (iv) 210,491 shares held
of record by Manju Taneja, his spouse. Mr. Taneja disclaims voting power
with respect to the shares held of record by his spouse.
38
<PAGE>
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
We are authorized to issue up to 24,000,000 shares of common stock and
2,000,000 shares of preferred stock. The following description of our capital
stock is not complete and is qualified in its entirety by our articles of
incorporation and bylaws, both of which are included as exhibits to the
registration statement of which this prospectus forms a part, and by applicable
Nevada laws.
COMMON STOCK
As of September 13, 1999, there were approximately 2,696,707 shares of
common stock outstanding held by approximately 546 stockholders of record.
Subject to preferences that may be applicable to any outstanding shares of
preferred stock, our board of directors may declare a dividend out of funds
legally available and the holders of common stock are entitled to receive
ratably any such dividends. In the event of our liquidation, dissolution or
winding up, holders of our common stock are entitled to share ratably in all of
our assets remaining after we pay our liabilities and liquidation preferences of
any outstanding shares of preferred stock. Holders of our common stock have no
preemptive rights or other subscription rights to convert their shares into any
other securities. There are no redemption or sinking fund provisions applicable
to the common stock.
PREFERRED STOCK
Our board of directors has the authority, without further action by our
stockholders, to issue up to 2,000,000 shares of preferred stock in one or more
series and to fix the privileges and rights of each series. These privileges and
rights may be greater than those of the common stock. Our board of directors,
without further stockholder approval, can issue preferred stock with voting,
conversion or other rights that could adversely affect the voting power and
other rights of the holders of common stock. This type of "blank check preferred
stock" makes it possible for us to issue preferred stock quickly with terms
calculated to delay or prevent a change in our control or make removal of our
management more difficult. Additionally, if we issue this preferred stock, then
the market price of common stock may decrease, and voting and other rights may
decrease. However, we will not offer preferred stock to our officers, directors,
5% shareholders, or their respective affiliates, except on the same terms as it
is offered to all other existing shareholders or to new shareholders, unless the
issuance of preferred stock is approved by a majority of our independent
directors who do not have an interest in the transaction and who have access, at
our expense, to the Company's or independent legal counsel. We currently have no
plans to issue any preferred stock.
WARRANTS
In connection with the offering, and as additional compensation to the
underwriters, the Company has created warrants for the purchase of 150,000
shares of common stock. The warrants will be exercisable, in whole or in part,
between the first and fifth years, at an exercise price equal to 165% of the
offering price of this offering. The underwriters shall have the option to
require us to register the warrants and/or the common stock underlying the
warrants.
INDEMNIFICATION
While these provisions provide directors with protection from awards
for monetary damages for breaches of their duty of care, they do not eliminate
such duty. Accordingly, these provisions will have no effect on the availability
of equitable remedies such as an injunction or rescission based on a director's
breach of his or her duty of care. The provisions described above apply to an
officer of a corporation only if he or she is a director of such corporation and
is acting in his or her capacity as director, and do not apply to the officers
of the corporation who are not directors.
Our bylaws provide that, to the fullest extent permitted by the Nevada
Revised Statutes, we may indemnify our directors, officers and employees. Our
bylaws further provide that we may similarly
39
<PAGE>
indemnify our agents. In addition, we anticipate that each director will enter
into an indemnification agreement pursuant to which we will indemnify such
director to the fullest extent permitted by the. At present, there is no pending
litigation or proceeding involving any of our directors or officers in which
indemnification is required or permitted, and we are not aware of any threatened
litigation or proceeding that may result in a claim for such indemnification.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American
Securities Transfer & Trust, Inc. The transfer agent's address is 938 Quail
Street, Suite 101, Lakewood, Colorado 80215 and telephone number is (303)
234-5300.
SHARES ELIGIBLE FOR FUTURE SALES
Sales of a substantial number of shares of common stock in the public
market following the offering made by this prospectus could adversely affect
market prices prevailing from time to time. Furthermore, sales of substantial
amounts of common stock in the public market after various resale restrictions
lapse could adversely affect the prevailing market price and our ability to
raise equity capital in the future.
Based on 2,696,707 shares outstanding on September 13, 1999, there will
be 6,196,707 shares of common stock outstanding upon the completion of this
offering and the acquisition of Becan, assuming the underwriters do not exercise
their over-allotment option (excludes the 1,000,000 shares held in escrow in
connection with the Becan acquisition). The 1,500,000 shares sold in this
offering will be freely tradeable without restriction under the Securities Act.
In addition, approximately 155,892 additional shares are freely tradeable
without restriction.
The remaining 4,540,815 shares outstanding upon completion of the
offering (excluding shares in escrow) will be "restricted securities" as that
term is defined in Rule 144 and may not be sold publicly unless they are
registered under the Securities Act or are sold pursuant to Rule 144 or another
exemption from registration. Of these restricted securities, 11,841 shares are
eligible for immediate sale pursuant to Rule 144 under the Securities Act,
subject to compliance with the volume limitations and other restrictions under
Rule 144. In connection with this offering, the holders of 3,542,815 shares of
common stock (consisting of our directors, officers, 5% holders and affiliates)
have entered into lock-up agreements with Kashner Davidson Securities under
which they have agreed not to offer, sell or otherwise dispose of any such
shares of common stock, any options or warrants to acquire shares of common
stock or any securities convertible into shares of common stock (or any shares
of common stock issuable upon exercise or conversion of securities) owned by
them for a period of 18 months after the date of this prospectus. Kashner
Davidson Securities may, in its sole discretion and at any time without notice,
release all or any portion of the securities subject to such lock-up agreements.
Kashner Davidson Securities currently has no plans to release any portion of the
securities subject to such lock-up agreements.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned "restricted securities"
(as defined in Rule 144) for at least one year (including the holding period of
any prior owner, except an affiliate) is entitled to sell, within any three
month period, a number of shares that does not exceed the greater of (i) one
percent of the number of shares of common stock then outstanding or (ii) the
average weekly trading volume of the common stock on the Nasdaq National Market
during the four calendar weeks preceding the required filing of a Form 144 with
respect to such sale. Sales under Rule 144 are also subject to certain manner of
sale provisions and notice requirements and to the availability of current
public information about us. Under Rule 144(k), a person who is not deemed to
have been an affiliate at any time during the 90 days preceding a sale, and who
has beneficially owned the shares proposed to be sold for at least two years
(including the holding period of any prior owner except an affiliate), is
entitled to sell such shares without complying with the manner of sale, public
information, volume and other limitation or
40
<PAGE>
notice provisions of Rule 144. In general, under Rule 701 of the Securities Act
as currently in effect, any employee, consultant or advisor of ours who
purchases shares from us in connection with a compensatory stock or option plan
or other written agreement is eligible to resell such shares 90 days after the
effective date of our initial public offering (which was completed in June 1998)
in reliance on Rule 144, but without compliance with certain restrictions,
including the holding period, contained in Rule 144.
UNDERWRITING
Under the terms and subject to the conditions contained in an
underwriting agreement dated ___________ , 1999, we have agreed to sell to the
underwriters named below, for whom Kashner Davidson Securities Corporation is
acting as representative, the following numbers of shares of common stock:
UNDERWRITER NUMBER OF SHARES
Kashner Davidson Securities Corporation ................
Total .............................................. 1,500,000
======================
The underwriting agreement provides that the underwriters are obligated
to purchase all of the shares of common stock in the offering, if any are
purchased, other than those shares covered by the over-allotment option
described below. The underwriting agreement also provides that if an underwriter
defaults the purchase commitments of non-defaulting underwriters may be
increased or the offering of common stock may be terminated.
We have granted to the underwriters a 45 day option to purchase up to
225,000 additional shares of common stock at the offering price, less
underwriting discounts and commissions. The option may be exercised only to
cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and, to certain
selling group members at that price less a concession of $________ per share.
The underwriters and selling group members may allow a discount of $
_____________ per share on sales to other broker/dealers. After the offering,
the public offering price and concession and discount to dealers may be changed
by the representatives.
The following table summarizes the compensation and estimated expenses
we will pay.
<TABLE>
<CAPTION>
Without With
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
<S> <C> <C> <C>
Underwriting Discounts and Commissions $ $ $
paid by Nutriceuticals.com
<C> <C> <C>
Expenses payable by Nutriceuticals.com $ $ $
</TABLE>
As additional compensation to the underwriters, the underwriting
agreement provides for the sale to the underwriters, for an aggregate of $100,
warrants to purchase 150,000 shares of common stock. The underwriter's warrant
will be exercisable, in whole or in part, between the first and fifth years, at
an exercise price equal to 165% of the offering price of this offering. The
underwriters shall have the option to require us to register the warrants and/or
the common stock underlying the warrants.
Our directors, officers and certain stockholders have agreed not to
offer, sell, contract to sell, announce their intention to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act of 1933
relating to any additional shares of the common stock or securities convertible
into or exchangeable or exercisable for any shares of the common stock, without
the prior written consent of Kashner Davidson Securities, for a period of 18
months after the date of this prospectus.
41
<PAGE>
We have agreed to indemnify the underwriters against liabilities under
the Securities Act, or contribute to payments that the underwriters may be
required to make in that respect.
The representatives may engage in over-allotment, stabilizing
transactions, syndicate covering transactions, penalty bids and "passive" market
making in accordance with Regulation M under the Securities Exchange Act of
1934. Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position. Stabilizing transactions permit bids
to purchase the underlying security so long as the stabilizing bids do not
exceed a specified maximum. Syndicate covering transactions involve purchases of
the shares of common stock in the open market after the distribution has been
completed in order to cover syndicate short positions. Penalty bids permit the
Representatives to reclaim a selling concession from a syndicate member when the
shares of common stock originally sold by such syndicate member are purchased in
a syndicate covering transaction to cover syndicate short positions. In
"passive" market making, market makers in the securities who are underwriters or
prospective underwriters may, subject to certain limitations, make bids for or
purchases of the securities until the time, if any, at which a stabilizing bid
is made. These stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on the over the counter Bulletin Board or otherwise and, if commenced,
may be discontinued at any time.
Prior to this offering there has been no active trading market for our
common stock. Accordingly, the offering price of the shares was determined by
negotiation between the Company and the underwriter. Factors considered in
determining such price and terms, include prevailing market conditions and an
assessment of our future prospects. The offering price of the shares does not
bear any relationship to assets, earnings, book value, or other criteria of
value applicable to the Company. You should not consider the offering price to
be and indication of the actual value of our common stock. The price of our
stock is subject to change as a result of market conditions and other factors.
No assurances can be given that our stock can be resold at the offering price.
LEGAL MATTERS
Certain legal matters will be passed on for us by our counsel, Schifino
& Fleischer, P.A., Tampa, Florida. Certain legal matters will be passed on for
the underwriters by Sichenzia, Ross & Friedman, LLP, 135 West 50th Street, 20th
Floor, New York, New York 10020.
EXPERTS
Kirkland, Russ, Murphy & Tapp, Clearwater, Florida, independent
auditors, have audited Nutriceuticals.com Corporation's consolidated financial
statements as of March 31, 1998 and 1999, as set forth in their report. We have
included Nutriceuticals.com Corporation's consolidated financial statements in
the prospectus and elsewhere in the registration statement in reliance on
Kirkland, Russ, Murphy & Tapp's report, given upon their authority as experts in
accounting and auditing.
Brimmer, Burek, Keelan & McNally, LLP, Tampa, Florida, independent
auditors, have audited Becan Distributors, Inc.'s consolidated financial
statements as of March 31, 1999, as set forth in their report. We have included
Becan's consolidated financial statements in the prospectus and elsewhere in the
registration statement in reliance on Brimmer, Burek, Keelan & McNally, LLP's
report, given upon their authority as experts in accounting and auditing.
42
<PAGE>
ADDITIONAL INFORMATION
We are subject to the reporting requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith, file
reports, proxy statements and other information with the SEC. Such reports,
proxy statements and other information may be inspected and copied at the public
reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the SEC's regional offices located at the
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, IL
60661 and Seven World Trade Center, 13th Floor, New York, NY 10048. Copies of
such material can be obtained from the Public Reference Section of the SEC upon
payment of certain fees prescribed by the SEC. The SEC's Web site contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC. The address of that site is
http://www.sec.gov. Our common stock is quoted on the OTC Electronic Bulletin
Board and our reports, proxy statements and other information may also be
inspected at the offices of Nasdaq Operations, 1735 K Street, N.W., Washington,
D.C. 20006.
We have filed a Registration Statement on Form SB-2 with the SEC under
the Securities Act in respect of the common stock offered hereby. This
prospectus, which is a part of the registration statement, omits certain
information contained in the registration statement as permitted by the SEC's
rules and regulations. For further information with respect to
Nutriceuticals.com and the common stock offered hereby, please reference the
registration statement, including its exhibits. Statements herein concerning the
contents of any contract or other document filed with the SEC as an exhibit to
the registration statement are not necessarily complete and are qualified in all
respects by such reference. Copies of the registration statement, including all
exhibits and schedules thereto, may be inspected without charge at the public
reference facilities maintained by the SEC, or obtained at prescribed rates from
the Public Reference Section of the SEC at the address set forth above.
43
<PAGE>
INDEX TO FINANCIAL STATEMENTS
NUTRICEUTICALS.COM CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Kirkland, Russ, Murphy & Tapp, Independent Auditors ........... F-2
Consolidated Balance Sheets ............................................. F-3
Consolidated Statements of Income........................................ F-4
Consolidated Statements of Changes in Net Deficiency in Liquidation...... F-5
Consolidated Statements of Stockholders' Equity (Deficit)................ F-6
Consolidated Statement of Cash Flows..................................... F-7
Notes to Consolidated Financial Statements............................... F-8
BECAN DISTRIBUTORS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
Report of Brimmer, Burek, Keelan & McNally, LLP, Independent Auditors ... F-17
Consolidated Balance Sheets ............................................. F-18
Consolidated Statements of Operations.................................... F-19
Consolidated Statements of Changes in Stockholders' Equity............... F-20
Consolidated Statement of Cash Flows..................................... F-21
Notes to Consolidated Financial Statements............................... F-23
UNAUDITED CONSOLIDATED PRO FORMA
FINANCIAL INFORMATION
Pro Forma Condensed Consolidated Financial Statements.................... F-28
Pro Forma Consolidated Balance Sheet..................................... F-29
Pro Forma Consolidated Statement of Operations (Three-months ended
June 30, 1999)......................................................... F-30
Pro Forma Consolidated Statement of Operations (Year ended
March 31, 1999)......................................................... F-31
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders
Nutriceuticals.com Corporation:
We have audited the accompanying consolidated balance sheets of
Nutriceuticals.com Corporation, as of March 31, 1998 and 1999, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
period from September 8, 1998 (date of inception) to March 31, 1999, and the
related statement of changes in net deficiency in liquidation for the year ended
March 31, 1998 and for the period from April 1, 1998 to September 7, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Nutriceuticals.com Corporation as of March 31, 1998 and 1999, and results of
their operations and their cash flows for the period from September 8, 1998
(date of inception) to March 31, 1999, and results of their changes in net
deficiency in liquidation for the year ended March 31, 1998 and for the period
from April 1, 1998 to September 7, 1998, in conformity with generally accepted
accounting principles.
Kirkland, Russ, Murphy & Tapp, LLP
Tampa, Florida
April 26, 1999
F-2
<PAGE>
NUTRICEUTICALS.COM CORPORATION
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND 1999 AND JUNE 30, 1999 (UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1998 1999 1999
--------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash $ 8,274 56,986 14,599
Accounts receivable, less allowance for doubtful
accounts -- 9,278 19,038
Due from related party -- 5,171 5,570
Inventory -- 16,303 19,163
Prepaids and other current assets -- -- 25,000
--------- --------- ---------
Total current assets 8,274 87,738 83,370
Computer software, net -- 47,500 45,000
Deposits -- 380 200
--------- --------- ---------
$ 8,274 135,618 128,570
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable 500 80,186 62,614
Accrued expenses 16,437 17,505 60,478
Note payable to related party -- -- 50,000
--------- --------- ---------
Total current liabilities 16,937 97,691 173,092
Stockholders' equity (deficit):
Preferred stock, $.001 par value, 2,000,000 shares
authorized, no preferred shares issued or outstanding -- -- --
Common stock, $.001 par value, 24,000,000 shares
authorized, 2,676,707 shares issued and outstanding -- 2,677 2,677
Additional paid-in capital -- 139,725 139,725
Deficit -- (104,475) (186,924)
Net deficiency in liquidation, attributed to 175,514
shares (8,663) -- --
--------- --------- ---------
Total stockholders' equity (deficit) (8,663) 37,927 (44,522)
--------- --------- ---------
$ 8,274 135,618 128,570
========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
NUTRICEUTICALS.COM CORPORATION
STATEMENTS OF INCOME
FOR THE PERIOD FROM SEPTEMBER 8, 1998 (DATE OF INCEPTION)
TO MARCH 31, 1999 AND FOR THE THREE-MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
THREE-MONTHS
PERIOD ENDED ENDED
MARCH 31, 1999 JUNE 30, 1999
-------------- -------------
(UNAUDITED)
<S> <C> <C>
Net revenues $ 37,118 33,899
Cost of revenues 14,496 14,786
----------- -----------
Gross profit 22,622 19,113
Selling, general and administrative expenses 128,858 101,308
----------- -----------
Operating loss (106,236) (82,195)
Other income:
Interest income 1,761 335
Interest expense -- (589)
----------- -----------
Net loss $ (104,475) (82,449)
=========== ===========
Basic and diluted net loss per share of common stock $ (.08) (.03)
Weighted common shares outstanding 1,372,230 2,676,707
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
NUTRICEUTICALS.COM CORPORATION
STATEMENTS OF CHANGES IN NET DEFICIENCY IN LIQUIDATION
FOR THE YEAR ENDED MARCH 31, 1998, FOR THE
PERIOD FROM APRIL 1, 1998 TO SEPTEMBER 7, 1998
AND FOR THE THREE-MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM THREE-MONTHS
YEAR ENDED APRIL 1, 1998 ENDED
MARCH 31, TO SEPTEMBER 7, JUNE 30,
1998 1998 1999
--------- --------------- ------------
(Unaudited)
<S> <C> <C> <C>
Increase in net assets in liquidation:
Sales $ 3,918 -- --
Bad debt recovery 3,101 -- --
--------- --------- ---------
Decreases in net assets in liquidation:
Cost of goods sold (16,760) -- --
Professional fees (13,012) (3,875) (3,375)
Occupancy (6,432) -- --
Office expense (1,283) (60) (201)
Other (6,112) -- --
--------- --------- ---------
Decrease in net assets in
liquidation before adjustments (36,580) (3,935) (3,395)
Adjustments of estimated values 32,215 -- --
--------- --------- ---------
Decrease in net assets in liquidation (4,365) (3,935) (3,395)
Beginning net liabilities in liquidation (4,298) (8,663) (8,663)
--------- --------- ---------
Ending net liabilities in liquidation $ (8,663) (12,598) (12,058)
========= ========= =========
Loss per share:
Loss attributable to common stockholders $ (4,365) (3,935) (3,395)
Net loss per common share (basic and diluted) $ (.02) (.02) (.02)
========= ========= =========
Weighted common shares outstanding
(basic and diluted) 175,514 175,514 175,514
========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
NUTRICEUTICALS.COM CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
ADDITIONAL RETAINED NET TOTAL
COMMON PAID-IN EARNINGS DEFICIENCY STOCKHOLDERS'
STOCK CAPITAL (DEFICIT) IN LIQUIDATION EQUITY
-------- -------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C>
(DEFICIT)
Balances at March 31, 1997,
on the liquidation basis
of accounting $ -- -- -- (4,298) (4,298)
Loss attributable to common
stockholders -- -- -- (4,365) (4,365)
-------- -------- -------- -------- --------
Balances at March 31, 1998,
on the liquidation basis of
accounting -- -- -- (8,663) (8,663)
Loss attributable to common
stockholders prior to merger -- -- -- (3,935) (3,935)
Recapitalization at date of merger 177 (12,775) -- 12,598 --
September 24, 1998, initial
capital contribution, 2,000,000
shares at $.015 per share 2,000 28,000 -- -- 30,000
October 30, 1998 sale of 400,000
shares of common stock at $.25
per share 400 99,600 -- -- 100,000
Issuance of 100,000 shares at
$.25 per share for acquisition 100 24,900 -- -- 25,000
Net loss -- -- (104,475) -- (104,475)
-------- -------- -------- -------- --------
Balances at March 31, 1999 2,677 139,725 (104,475) -- 37,927
Net loss -- -- (82,449) -- (82,449)
-------- -------- -------- -------- --------
Balance at June 30, 1999
(unaudited) $ 2,677 139,725 (186,924) -- (44,522)
======== ======== ======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
NUTRICEUTICALS.COM CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM SEPTEMBER 8, 1998 (DATE OF INCEPTION)
TO MARCH 31, 1999 AND FOR THE THREE-MONTHS ENDED JUNE 30, 1999(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM THREE-MONTHS
SEPTEMBER 8, 1998 ENDED
TO MARCH 31, 1999 JUNE 30, 1999
----------------- -------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(104,475) (82,449)
Adjustment to reconcile net loss to net cash used by
operating activities:
Amortization expense 2,500 2,500
Change in operating assets and liabilities:
Accounts receivable, net (9,278) (9,760)
Due from related party (5,171) (399)
Inventory (16,303) (2,860)
Deposits (380) 180
Prepaid expenses and other assets -- (25,000)
Accounts payable 69,311 (17,572)
Accrued expenses 1,068 42,973
--------- ---------
Net cash used in operating activities (62,728) (92,387)
Cash flows from investing activities:
Purchase of computer software (15,000) --
--------- ---------
Net cash used in investing activities (15,000) --
Cash flows from financing activities:
Initial capital contributions 30,000 --
Sale of common stock 100,000 --
Proceeds from note payable -- 50,000
--------- ---------
Net cash provided by financing activities 130,000 50,000
Net increase (decrease) in cash 52,272 (42,387)
Cash at beginning of period 4,714 56,986
--------- ---------
Cash at end of period $ 56,986 14,599
========= =========
Supplemental disclosures:
In exchange for 100,000 shares of its common stock at $.25 per share and $10,000
cash (in accounts payable), the Company acquired all of the common stock of
HealthSeek.com, Inc. on March 31, 1999.
Cash paid for interest for the three-months ended June 30, 1999 $ 589
=========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-7
<PAGE>
NUTRICEUTICALS.COM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1999 AND JUNE 30, 1999 (UNAUDITED)
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND MERGER
NuMed Surgical, Inc. (NuMed) was engaged in the research, development
and distribution of medical instruments and surgical supplies to the health care
market since February 1991. Effective March 31, 1997, NuMed adopted a plan of
liquidation in which it sold its major product line and subsequently disposed of
all its operating assets by March 31, 1998.
Effective March 1999, NuMed acquired all of the outstanding common
stock of Nutriceuticals.com Corporation (Nutriceuticals), which was organized in
the State of Florida on September 8, 1998 (date of inception). Nutriceuticals is
engaged in the retailing of nutritional supplements via the Internet. For
accounting purposes, the acquisition has been treated as an acquisition of NuMed
by Nutriceuticals and as a recapitalization of Nutriceuticals. Additionally,
Nutriceuticals was merged into NuMed and NuMed changed its name to
Nutriceuticals.com Corporation (the Company).
As a result of the merger, each issued and outstanding share of
Nutriceutical's common stock was converted into one share of NuMed's common
stock. The results of operations of the consolidated companies are reflected as
if the above transaction took place at September 8, 1998 (date of inception).
Consequently, for comparative purposes, the consolidated financial statements
have been presented as if the Company were a single entity for all periods
presented and all significant intercompany accounts and transactions have been
eliminated in consolidation.
ACQUISITION
Effective March 31, 1999, the Company acquired HealthSeek.com,
Corporation (HealthSeek), a Massachusetts corporation. HealthSeek is a health
care community website providing information to health care professionals and
consumers. The acquisition was accounted for using the purchase method of
accounting. The Company acquired all of the common stock of HealthSeek, in
exchange for 100,000 (post September 1999 one-for-two reverse stock split)
shares of voting common stock and $10,000 cash. In consideration of the sale and
transfer of the shares, the Company acquired the registered domain name
HealthSeek and all assets, copyrights and other documentation relating to the
website and assumed all costs and expenses related to the ongoing maintenance of
the website. HealthSeek did not have significant historical book assets,
liabilities or revenues and expenses during its' limited operating history. The
purchase price was allocated to HealthSeek's website. HealthSeek is a
wholly-owned subsidiary of the Company.
DESCRIPTION OF BUSINESS
The Company and its wholly-owned subsidiary, HealthSeek, consists of
two distinct linked Web sites providing web-based health care communications and
related information to consumers, including retailing low-priced nutritional
supplements via the Internet (e-commerce).
F-8
(CONTINUED)
<PAGE>
NUTRICEUTICALS.COM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COMPARABILITY OF FINANCIAL INFORMATION
The significant accounting policies of the Company conform with
generally accepted accounting principles and reflect practices appropriate to
the businesses in which it operates. On March 31, 1997, the Company adopted a
plan of liquidation in which it sold its major product line and subsequently
disposed of all its operating assets. The Company accounted for the liquidation
using the liquidation basis of accounting. Thus, the post liquidation basis
financial statements as of and for the year ended March 31, 1998, the period
from April 1, 1998 to September 7, 1998, and the three months ended June 30,
1998, are not comparable to the consolidated financial statements as of March
31, 1999, and for the period from September 8, 1998 (date of inception) to March
31, 1999.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary. All significant intercompany accounts
have been eliminated in the consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
RISKS AND UNCERTAINTIES
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to
significant concentrations of credit risk, consist principally of cash and cash
equivalents. Substantially all of the Company's cash and cash equivalents are
vested in short-term money market accounts, which bear minimal risk, and are
available on demand. The carrying amounts reported in the balance sheets for
cash and cash equivalents approximate their fair values due to the short-term
nature of these financial instruments. The balances, at times, may exceed
federally insured limits.
BUSINESS RISK
The markets for the products and services offered on HealthSeek.com and
Nutriceuticals.com are intensely competitive. The Company competes with both
traditional distribution channels and online services. The Company may
potentially face competition from a number of other online services that have
expertise in developing online commerce and in facilitating internet traffic.
F-9
(CONTINUTE)
<PAGE>
NUTRICEUTICALS.COM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIGNIFICANT CUSTOMERS
The Company is entirely dependent upon the manufacturers, distributors
and wholesalers that supply natural products for resale. Currently, sales and
purchases of natural products provided by Innovative Health Products, Inc., a
related party, account for a substantial portion of the Company's revenues and
inventory.
INCOME TAXES
The Company has adopted Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes." Under the asset and liability
method of SFAS No. 109, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Valuation
allowances are established when necessary to reduce deferred tax assets to
amounts expected to be realized.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and the
accompanying notes. Actual results could differ from those estimates.
PRODUCT DEVELOPMENT COSTS
Product development costs that consist primarily of website development
and maintenance services are expensed as incurred.
ADVERTISING COSTS
Advertising costs are charged to expense in the period the costs are
incurred. Advertising expense was $-0- for the year ended March 31, 1998 and the
period from April 1, 1998 to September 7, 1998 and $54,402 and $1,808 for the
period from September 8, 1998 (date of inception) to March 31, 1999 the
three-months ended June 30, 1999, respectively.
REVENUE RECOGNITION
The Company recognizes revenue when goods or services are provided.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method.
F-10
(CONTINUTED)
<PAGE>
NUTRICEUTICALS.COM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ACCOUNTS RECEIVABLE
Accounts receivable are due primarily from individuals through credit
card sales via e-commerce and from companies and individuals concentrated in the
state of Florida via traditional distribution channels.
COMPUTER SOFTWARE
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 98-1, ACCOUNTING FOR COSTS OF COMPUTER
SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE, This SOP is effective for
fiscal years beginning after December 15, 1998 and requires capitalization of
certain costs of computer software developed or obtained for internal use.
Computer software are stated at cost less accumulated amortization.
Amortization is recorded using the straight-line method over an estimated useful
life of three years.
NET LOSS PER SHARE
In 1997, the Financial Accounting Standards Board issued SFAS No. 128,
EARNINGS PER SHARE, and, in February 1998, the Securities and Exchange
Commission issued Staff Accounting Bulletin No. 98 related to SFAS 128. SFAS 128
replaced the calculation for primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is similar to the previously
reported fully diluted earnings per share. The Company has no common stock
equivalents at March 31, 1998 and 1999 and June 30, 1999, resulting in diluted
earnings per share.
RECENT ACCOUNTING PRONOUNCEMENTS
COMPREHENSIVE INCOME
Effective April 1, 1998, the Company adopted SFAS No. 130, REPORTING
COMPREHENSIVE INCOME. Under SFAS 130 changes in net assets of an entity
resulting from transactions and other events and circumstances from non-owner
sources are reported in the financial statements for the period in which they
are recognized. Because there were no such changes, adoption of SFAS 130 did not
impact the consolidated financial statements of the Company.
SEGMENT REPORTING
Effective April 1, 1998, the Company adopted SFAS No. 131, DISCLOSURES
ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. The Company operates as
a single segment and will evaluate additional segment disclosure requirements as
it expands its operations.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES was released. The statement requires the recognition of all
derivatives as either assets or liabilities in the
F-11
(CONTINUED)
<PAGE>
NUTRICEUTICALS.COM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
balance sheet and the measurement of those instruments at fair value. The
accounting for changes in the fair value of a derivative depends on the planned
use of the derivative and the resulting designation. The Company is required to
implement the statement in the first quarter of fiscal 2000. The Company has not
used derivative instruments and believes the impact of adoption of this
statement will not have a significant effect on the consolidated financial
statements.
LONG-LIVED ASSETS
The Company has adopted SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. SFAS No. 121
requires that long-lived assets and certain identifiable intangibles held and
used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If the sum of the expected future cash flows (undiscounted and
without interest) is less than the carrying amount of the asset, an impairment
loss is recognized. Measurement of that loss would be based on the fair value of
the asset. SFAS 121 also generally requires long-lived assets and certain
identifiable intangibles to be disposed of to be reported at the lower of the
carrying amount or the fair value less cost to sell.
NOTE 2 - INVENTORIES
Inventories at March 31, 1998 and 1999 and June 30, 1999 consist of the
following:
<TABLE>
<CAPTION>
MARCH 31, 1998 MARCH 31, 1999 JUNE 30, 1999
-------------- -------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Nutritional supplements $ -- 16,303 19,163
======== ======== ========
</TABLE>
NOTE 3 - COMPUTER SOFTWARE
Computer software consists of the following at March 31, 1998 and 1999
and June 30, 1999:
<TABLE>
<CAPTION>
MARCH 31, 1998 MARCH 31, 1999 JUNE 30, 1999
-------------- -------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
HealthSeek.com website domain $ -- 35,000 35,000
Nutriceuticals.com website domain -- 15,000 15,000
------- ------- -------
-- 50,000 50,000
Less accumulated amortization -- (2,500) 5,000
------- ------- -------
Net computer software $ -- 47,500 45,000
======= ======= =======
</TABLE>
Amortization related to computer software approximated $-0- for the
year ended March 31, 1998 and for the period from April 1, 1998 to September 7,
1998 and $2,500 for the period from September 8, 1998 (date of inception) to
March 31, 1999 and the three-months ended June 30, 1999, respectively.
NOTE 4 - RELATED PARTY TRANSACTIONS
The Company's principal administrative, marketing and customer service
facilities are currently provided without charge by Innovative Health Products,
Inc., a related party.
F-12
(CONTINUED)
<PAGE>
NUTRICEUTICALS.COM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Innovative Health Products, Inc. is the Company's principal supplier of
natural products and has common significant shareholder's of the Company.
Amounts due to related party represent amounts due to Innovative Health
Products, Inc. for the purchase of inventory.
NOTE 5 - NOTE PAYABLE TO RELATED PARTY
Note payable of $50,000 represents amounts due to stockholder at prime
plus 1%. The amount is due on demand, or at December 31, 1999, or upon second
offering of common stock, whichever is sooner.
NOTE 6 - INCOME TAXES
The Company had no income tax expense for the year ended March 31, 1998
or for the periods from April 1, 1998 to September 7, 1998, September 8, 1998
(date of inception) to March 31, 1999 and for the three-months ended June 30,
1999.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The Company had
no such material differences at March 31, 1998 and 1999 and June 30, 1999.
As of March 31, 1999 and June 30, 1999, the Company has the following
net operating loss carry forwards (NOL) to offset future income.
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1999 1999
-------- --------
(UNAUDITED)
<S> <C> <C>
Net operating losses, federal $ 41,000 73,000
Net operating losses, state 6,000 10,500
-------- --------
47,000 83,500
Valuation allowance (47,000) (83,500)
-------- --------
Net operating loss carryforward $ -- --
======== ========
</TABLE>
FASB 109 requires a valuation allowance to reduce the deferred tax
assets reported, if based on the weight of the evidence, it is more likely than
not that some portion or all of the deferred tax assets will not be realized. As
such, a $47,000 and $83,500 valuation allowances have been established at March
31, 1999 and June 30, 1999, respectively.
F-13
(CONTINUED)
<PAGE>
NUTRICEUTICALS.COM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - STOCKHOLDERS' EQUITY
As discussed in note 1, the merger between NuMed and Nutriceuticals has
been accounted for as a reverse acquisition/ recapitalization and, as a result,
for comparative purposes, the consolidated financial statements, including
equity transactions, have been presented as if the Company were a single entity
for all periods presented.
On March 15, 1999, the Company's shareholders approved a one-for-fifty
reverse stock split of the outstanding shares of NuMed Common Stock. The March
1999 reverse stock split reduced the number of outstanding shares of NuMed
Common Stock, but did not reduce the total number of shares authorized. Prior to
the reverse stock split, approximately 8,775,685 shares of NuMed Common Stock
were issued and outstanding. Following the reverse stock split, 175,514 shares
of NuMed common stock remained outstanding and, pursuant to the merger
agreement, shareholders of Nutriceuticals received, in exchange for each issued
and outstanding share of Nutriceuticals Common Stock, one share of NuMed Common
Stock, on a post March 1999 reverse stock split basis. The post March 1999
reverse stock split shares issued and outstanding to the shareholders of the
Nutriceuticals were 2,400,000. Shareholders' equity has been restated to give
retroactive recognition to the March 1999 reverse stock split in prior periods.
Total number of shares of Common Stock issued and outstanding following the
March 1999 reverse stock split was 2,575,514 (prior to the April two-for-one
stock split (see Note 9a)).
NOTE 8 - CONSULTING AGREEMENT
On March 31, 1999, the Company acquired HealthSeek, and, as a result of
the acquisition, entered into a consulting agreement with the seller to maintain
and operate the website. The consultant shall devote six hours per week to
provide such services, including implementation of the matters as described in
the agreement. Annual compensation to be paid by the Company as a result of the
agreement is $40,000 per year, payable monthly, with the first payment due May
1, 1999. The agreement expires on March 31, 2000.
NOTE 9 - SUBSEQUENT EVENTS
STOCK SPLIT
On April 14, 1999, the Company's Board of Directors authorized a
two-for-one stock split effected in the form of a stock dividend distributed to
shareholders of record on April 26, 1999. As a result of the April 1999 split,
2,675,514 additional shares were issued. All share and per share data appearing
in the consolidated financial statements and notes thereto have been
retroactively adjusted for the April 1999 stock split.
STRATEGIC ALLIANCE
During the second quarter of 1999, the Company entered into a strategic
alliance with IndigoCity.com, Inc. (Indigo City), a Florida corporation. Indigo
City will provide advertising, developmental and technical services on its
website on behalf of the Company. The parties agree to equally share gross
margin revenues as a result of the strategic alliance. The Company will incur
expenses of $150 per month for cross promotional products and services on Indigo
City's website.
F-14
(CONTINUED)
<PAGE>
SECONDARY OFFERING
During fiscal year 2000, the Company intends to complete a secondary
stock offering in which approximately 1,000,000 shares of common stock are
expected to be issued. The proceeds will be used to repay notes payable to
stockholders and affiliates, fund working capital and marketing expenses.
ACQUISITION (UNAUDITED)
In September 1999, the Company entered into an agreement to acquire
Becan Distributors, Inc. for 2,000,000 shares of common stock (post September
1999 one-for-two reverse stock split) and $2,000,000 cash. An additional
1,000,000 shares will be held in escrow in connection with the acquisition to be
issued pending the attainment of certain financial targets for the years ending
2000 and 2001.
PURCHASE OF DOMAIN NAME (UNAUDITED)
In August 1999, the Company intends to purchase its World Wide Web
Internet site domain name for 20,000 (post September 1999 one-for-two reverse
stock split) shares of common stock. The domain name will be amortized over a
fifteen-year period.
NOTES PAYABLE (UNAUDITED)
The Company incurred debt of $190,000 at prime plus 1% due to various
stockholders and affiliates. The notes are due upon demand at any time following
the earlier to occur of either (i) December 31, 1999 or (ii) upon receipt of
proceeds from a public offering of the Company's common stock.
REVERSE STOCK SPLIT (UNAUDITED)
In September 1999, the Company intends to effect a one-for-two reverse
stock split. Total number of shares of Common Stock issued and outstanding
following the September 1999 reverse stock split will be approximately
2,676,707. All share and per share data appearing in the consolidated financial
statements and notes thereto have been retroactively adjusted for the September
1999 reverse stock split.
NOTE 10 - YEAR 2000 ISSUE (UNAUDITED)
The Company does not expect the Year 2000 Issue to have a significant
effect on operations. Management of the Company does not expect major vendors or
customers to be unable to sell to, provide services to, or purchase from the
Company because of the Year 2000 Issue.
F-15
(CONTINUED)
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Becan Distributors, Inc. and Subsidiary
Pittsburgh, Pennsylvania
We have audited the accompanying consolidated balance sheet of Becan
Distributors, Inc. and Subsidiary as of March 31, 1999, and the related
consolidated statement of operations, shareholder's equity, and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit. The
financial statements of Becan Distributors, Inc. as of March 31, 1998 were
audited by other auditors whose report dated June 28, 1999, expressed an
unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated 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 consolidated financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Becan
Distributors, Inc. and Subsidiary as of March 31, 1999, and the consolidated
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
Brimmer, Burek, Keelan & Mcnally LLP
August 6, 1999
(Except for Note 7, as to which
the date is September 10, 1999)
F-16
<PAGE>
BECAN DISTRIBUTORS, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
MARCH 31, JUNE 30,
1998 1999 1998 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Current assets (unaudited)
Cash $ 208,372 $ 69,010 $ 57,491 $ 32,162
Accounts receivable 876,505 1,640,823 1,064,623 2,177,920
Inventory 445,776 1,178,801 541,093 1,263,434
Prepaid and other current assets -- -- -- 57,672
---------- ---------- ---------- ----------
Total current assets 1,530,653 2,888,634 1,663,207 3,531,188
Property, plant and equipment - net 4,616 34,533 9,509 36,122
Other assets - net 2,547 24,028 2,547 18,000
---------- ---------- ---------- ----------
Total assets $1,537,816 $2,947,195 $1,675,263 $3,585,310
========== ========== ========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Accounts payable $1,022,121 $1,249,343 $ 938,080 $2,156,539
Accrued expenses 9,763 20,487 2,005 34,655
Notes payable 185,000 -- 4,852 --
Due to affiliates 200,000 64,980 204,700 18,644
Accrued income tax -- 21,994 -- --
Line of credit payable -- 1,448,931 430,000 1,175,711
---------- ---------- ---------- ----------
Total current liabilities 1,416,884 2,805,735 1,579,637 3,385,549
Shareholder's equity
Common stock, no par; 850 shares authorized;
642.85 shares issued and outstanding,
500 shares issued and outstanding at
March 31, 1998 50,000 85,000 85,000 85,000
Retained earnings 70,932 56,460 10,626 114,761
---------- ---------- ---------- ----------
Total shareholder's equity 120,932 141,460 95,626 199,761
---------- ---------- ---------- ----------
Total liabilities and
shareholder's equity $1,537,816 $2,947,195 $1,675,263 $3,585,310
========== ========== ========== ==========
</TABLE>
Please read accompanying notes.
F-17
<PAGE>
BECAN DISTRIBUTORS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE THREE-MONTHS ENDED
MARCH 31, JUNE 30,
1998 1999 1998 1999
----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Sales $10,389,518 $31,074,861 $ 5,809,043 $12,196,256
Cost of good sold 9,985,401 30,199,867 5,613,406 11,913,837
----------- ----------- ----------- -----------
Gross Profit 404,117 874,994 195,637 282,419
Operating expenses 299,748 659,158 137,639 175,888
----------- ----------- ----------- -----------
Income from operations 104,369 215,836 57,998 106,531
Interest expense 15,631 99,811 9,802 48,230
----------- ----------- ----------- -----------
Net income before income taxes 88,738 116,025 48,196 58,301
Income tax -- 21,994 -- --
----------- ----------- ----------- -----------
Net income $ 88,738 $ 94,031 $ 48,196 $ 58,301
=========== =========== =========== ===========
Net income per share of common stock $ 177.47 $ 157.97 $ 74.97 $ 90.69
=========== =========== =========== ===========
Weighted-average shares of
common stock outstanding 500.00 595.23 642.85 642.85
=========== =========== =========== ===========
</TABLE>
Please read accompanying notes.
F-18
<PAGE>
BECAN DISTRIBUTORS, INC.
AND SUBSIDIARY
STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
COMMON STOCK
---------------------
NUMBER OF RETAINED
SHARES AMOUNT EARNINGS
--------- --------- ---------
Balance at 3/31/98 500.00 $ 50,000 $ 70,932
Common stock issued for cash 142.85 35,000 --
Net income -- -- 48,196
Dividends -- -- (108,503)
--------- --------- ---------
Balance at 6/30/98 642.85 85,000 10,625
Net income -- -- 45,835
--------- --------- ---------
Balance at 3/31/99 642.85 85,000 56,460
Net income -- -- 58,301
--------- --------- ---------
Balance at 6/30/99 642.85 $ 85,000 $ 114,761
========= ========= =========
Please read accompanying notes.
F-19
<PAGE>
BECAN DISTRIBUTORS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE THREE-MONTHS ENDED
MARCH 31, JUNE 30,
1998 1999 1998 1999
------------ ------------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 88,738 $ 94,031 $ 48,196 $ 58,301
Adjustments to reconcile net income (loss) to
net cash used in operating activities
Depreciation expense 1,004 3,682 357 6,320
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (829,726) (764,318) (188,118) (537,097)
Prepaid expenses (2,547) (21,481) -- (57,672)
Inventory (423,426) (733,025) (95,317) (84,633)
Increase (decrease) in:
Accounts payable 900,282 227,222 (84,040) 907,196
Accrued income tax -- 21,994 -- --
Accrued expenses 3,371 10,724 (7,758) (7,826)
------------ ------------ ------------ ------------
Net cash provided (used) by operating activities (262,304) (1,161,171) (326,680) 284,589
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (5,620) (33,599) (5,250) (6,512)
Decrease in other assets -- -- -- 4,631
------------ ------------ ------------ ------------
Net cash provided (used) by investing activities (5,620) (33,599) (5,250) (1,881)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt -- -- 4,852 --
Proceeds from affiliate loan 200,000 64,980 -- --
Proceeds from issuance of common stock 50 35,000 35,000 --
Principal payments on notes payable -- (200,000) -- --
Dividends paid -- (108,503) (108,503) --
Proceeds from line of credit 93,000 14,697,257 245,000 --
Payments on line of credit -- (13,433,326) -- (273,220)
Payments of related party obligations -- -- (26,500) (46,336)
Proceeds from issuance of related party obligations -- -- 31,200 --
------------ ------------ ------------ ------------
Net cash provided (used) by financing activities 293,050 1,055,408 181,049 (319,556)
------------ ------------ ------------ ------------
Net increase (decrease) in cash 25,126 (139,362) (150,881) (36,848)
Cash at beginning of year 183,246 208,372 208,372 69,010
------------ ------------ ------------ ------------
Cash at end of year $ 208,372 $ 69,010 $ 57,491 $ 32,162
============ ============ ============ ============
</TABLE>
F-20
<PAGE>
BECAN DISTRIBUTORS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE THREE-MONTHS ENDED
MARCH 31, JUNE 30,
1998 1999 1998 1999
--------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C>
SUPPLEMENTAL INFORMATION:
Interest paid $ 15,631 $ 99,811 $ 13,797 $ 45,320
========= ========= ========= =========
Taxes paid $ -- $ -- $ -- $ --
========= ========= ========= =========
</TABLE>
Please read accompanying notes.
F-21
<PAGE>
BECAN DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Becan Distributors, Inc. was incorporated January 18, 1997 as an Ohio
corporation. Discount Rx, Inc., a wholly owned subsidiary of Becan Distributors,
Inc. was incorporated August 17, 1998 as a Louisiana corporation. Becan
Distributors, Inc. and Subsidiary (the "Company) is a wholesale distributor of
pharmaceuticals, over the counter drugs, and health and beauty care products
throughout the United States. The Company sells primarily to independent retail
and regional chain owned drug stores.
The Company was privately owned until June 26, 1998 and had elected
with the consent of its shareholders to be taxed as an S corporation. On June
26, 1998, the Company executed an agreement and plan of reorganization with
Nu-Wave Health Products, Inc. ("Nu-Wave") whereby all of the issued and
outstanding capital stock of the Company was exchanged for 1,500,000 shares of
Nu-Wave Health Products, Inc. As a result of the exchange, the Company became a
wholly owned subsidiary of Nu-Wave and changed its year end from December 31 to
March 31 so as to coincide with the year end of Nu-Wave.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies used in preparing the
accompanying financial statements follows:
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of Becan Distributors,
Inc. and its wholly owned Subsidiary, Discount Rx, Inc. Significant intercompany
balances and transactions have been eliminated in consolidation.
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. Estimates also affect the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates,
however, management does not believe these differences would have a material
effect on the operating results.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method.
F-22
(CONTINUED)
<PAGE>
BECAN DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ACCOUNTS RECEIVABLE
The Company has not experienced any bad debts from receivables during
its existence and feels that no allowance for uncollectible amounts is required.
Therefore, no provision has been made for bad debts.
INCOME TAXES
The Company was an S corporation until the date of acquisition by
Nu-Wave on June 26, 1998. Therefore, income tax expense reflects the activity
from June 27, 1998 through March 31, 1999. The Company has no deferred tax
assets or liabilities at March 31, 1999 and March 31, 1998.
COMPREHENSIVE INCOME
Financial Accounting Standards No. 130 establishes standards for
reporting comprehensive income which is defined as the change in equity of an
enterprise except those resulting from stockholder transactions. All components
of comprehensive income are required to be reported in the income statement. The
Company adopted this Standard effective April 1, 1998. During 1998, the Company
did not engage in any transactions required to be reported under this new
Standard.
EARNINGS PER COMMON SHARE
Earnings per common share has been computed based upon the
weighted-average number of shares outstanding during the period.
PROPERTY, PLANT AND EQUIPMENT
Depreciation is provided for using the straight-line method, in amounts
sufficient to relate the cost of depreciable assets to operations over their
estimated service lives ranging from three to seven years.
IMPAIRMENT OF ASSETS
The Company's policy is to evaluate whether there has been a permanent
impairment in the value of long-lived assets, certain identifiable intangibles
and goodwill when certain events have taken place that indicate that the
remaining balance may not be recoverable. When factors indicate that the
intangible assets should be evaluated for possible impairment, the Company uses
an estimate of related undiscounted future cash flows. There have been no
impairment losses in 1999.
ADVERTISING
The Company charges advertising costs to expense as incurred. The
amount of advertising expense for the years ended March 31, 1999 and March 31,
1998 was $63,175 and $39,422, respectively.
REVENUE RECOGNITION
Revenues are recognized when the merchandise is shipped to the
customer.
F-23
(CONTINUED)
<PAGE>
BECAN DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PROPERTY LEASES
The Company leases a property in Pittsburgh, Pennsylvania that is being
utilized by Becan for offices, warehousing, and shipping for its distribution
operations, consisting of approximately 4,024 square feet. The offices are
leased pursuant to a four year lease that expires on February 28, 2003. The
Company has an option to continue the lease on a month to month basis or renew
the lease at the end of the four year term. The rental under the lease is $1,658
per month subject to yearly adjustment for tax expenses.
The Company leases a property in Mandeville, Louisiana that is being
utilized by Discount Rx for offices, warehousing, and shipping for its
distribution operations, consisting of approximately 1,200 square feet. The
offices are leased on a month to month basis. The rental under the lease is $900
per month. Future minimum lease payments, by year in aggregate under
non-cancelable operating leases consist of the following at March 31, 1999:
YEAR ENDED MARCH 31,
2000 $18,238
2001 19,896
2002 19,896
2003 18,238
RECLASSIFICATIONS
Certain reclassifications have been made to the financial statements for the
year ended March 31, 1998 to conform to the presentation at March 31, 1999.
NOTE 2 - RELATED PARTY TRANSACTIONS
The Company buys over the counter drugs and health and beauty care
products for resale from an affiliated corporation. Purchases from the affiliate
for the year ended March 31, 1999 were $154,162.
The Company has a verbal agreement to pay management fees to its parent
company (Dynamic Health Products, Inc., formerly Nu-Wave) for various legal,
accounting and administrative services. The agreement is for a monthly payment
of $15,000 and started October 1, 1998. The agreement is to be reviewed
periodically and adjusted at the discretion of the parent company. The amount of
management fees for the year ended March 31, 1999 was $90,000.
The Company owes approximately $64,980 to affiliated corporations for
management fees and products purchased during the year.
During the current fiscal year, the Company had various borrowing
arrangements with stockholders of the Company. At the beginning of the year the
amount of the indebtedness to stockholders was approximately $200,000. During
the year an additional $75,000 was borrowed from stockholders or entities
controlled by stockholders. The entire stockholder indebtedness was
paid off during the year and all borrowing arrangements with stockholders and
related entities were cancelled. Interest paid to those related parties for the
year was $20,128.
F-24
(CONTINUED)
<PAGE>
BECAN DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
An officer of the Company had an employment agreement whereby, he was
entitled to purchase additional shares of the company based upon the financial
performance of the Company compared to certain agreed upon projections. Prior to
the date of the reorganization with Nu-Wave in June 1998, the employment
agreement was terminated and the officer purchased an additional 142.85 shares
of common stock for $35,000 in full settlement of the employment agreement and
obligations thereunder. The officer subsequently became the Chief Executive
Officer of the parent company.
The Company completed an agreement and reorganization with Nu-Wave
Health Products, Inc. ("Nu-Wave") on June 26, 1998 whereby all of the issued and
outstanding common stock of the Company was exchanged for 1,500,000 shares of
common stock of Nu-Wave. As a result, the Company became a wholly owned
subsidiary of Nu-Wave and changed its year-end from December 31 to March 31 so
as to coincide with the year-end of Nu-Wave. After the exchange, the former
shareholders of the Company owned approximately 84% of the parent company.
NOTE 3 - INCOME TAXES
Income taxes for the year ended March 31, 1999 differ from the amounts
computed by applying the effective U.S. federal income tax rates of 15 to 34% to
income before income taxes as a result of the following:
<TABLE>
<S> <C>
Computed tax expense at the statutory rate $ 27,698
Increase (decrease) in taxes resulting from:
State income taxes, net of federal tax benefit 5,440
Effect of permanent differences and portion
of income attributable to S Corporation status (11,144)
---------
Income tax expense $ 21,994
=========
</TABLE>
The Company and its parent file a consolidated federal income tax
return. Income tax expense in the Company's income statement has been allocated
on the basis of separate company net income before tax.
The Company has no deferred tax assets or liabilities at March 31,
1999.
NOTE 4 - LINE OF CREDIT
In November 1998, the Company established a $2.0 million revolving
credit facility scheduled to mature in November 2001. The credit available to
the Company is based on a percentage of eligible accounts receivable and
inventory. The facility imposes no financial covenants. Minimum borrowing under
the agreement is $1,000,000. The agreement places limitations on disposition of
assets and debt funding to transactions within the normal course of business and
restricts the payment of dividends to any shareholder of record and any class of
Common stock during the term of the agreement. All borrowings accrue interest at
prime (7.75% at March 31, 1999) plus 1.25% and are secured by all assets of the
Company. At March 31, 1999, the Company had borrowed $1,448,931 under this
facility.
The credit line payable is included with current liabilities instead of
long-term liabilities as management believes that this presentation better
reflects the utility of the current assets as the source of repayment for the
credit line payable.
F-25
(CONTINUED)
<PAGE>
BECAN DISTRIBUTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The line of credit is personally guaranteed by Jugal Taneja, the
Chairman of the Board of the parent company.
The Company had a secured $700,000 demand line of credit with Mellon
Bank, N.A., dated March 16, 1998 through February 28, 1999. At March 31, 1998
$185,000 was borrowed against the line of credit. This line of credit is
renewable annually by mutual agreement of the parties.
NOTE 5 - CONCENTRATIONS OF CREDIT RISK
CASH IN BANK
The Company maintains its checking account in one commercial bank. Cash
in this checking account at times exceeded the $100,000 Federal Deposit
Insurance Corporation's maximum insured balance coverage. At March 31, 1999 the
Company's bank balance in this account was approximately $217,000.
Concentrations of credit risk with respect to sales are limited due to
the distribution of sales over a large customer base as of March 31, 1999. For
the year ended March 31, 1999, one customer represented approximately 11.07% of
revenues derived from distribution.
NOTE 6 - YEAR 2000 ISSUE
The Year 2000 issue relates to limitations in computer systems and
applications that may prevent proper recognition of the Year 2000. The potential
effect of the Year 2000 issue on the Company will not be fully determinable
until the Year 2000 and thereafter. The Company's software packages and all of
the hardware associated with its operations are Year 2000 compliant. The Company
is currently requesting that all suppliers supply certification statements that
comply with the Year 2000 requirements. If the Year 2000 modifications are not
properly completed either by the Company or entities with which the Company
conducts business, the Company's revenues and financial condition could be
adversely impacted.
NOTE 7 - SUBSEQUENT EVENT
On September 9, 1999, an agreement was signed whereby the Company will
be sold to a related company. The terms of the agreement call for the
acquisition of all the outstanding stock of the Company by the purchasing
entity. If the sale is consummated as planned, the Company would become a wholly
owned subsidiary of the related company. Due to certain contingencies, it is not
possible to determine when the sale will be consummated.
F-26
<PAGE>
NUTRICEUTICALS.COM CORPORATION
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The unaudited Pro Forma Consolidated Balance Sheet at June 30, 1999
gives effect to this offering and the application of the net proceeds to the
Company therefrom, as if they had occurred on April 1, 1999. The unaudited Pro
Forma Consolidated Statements of Operations for the year ended March 31, 1999
gives effect to the following acquisitions as if each had occurred on April 1,
1998: the acquisitions of Becan and HealthSeek.com, the purchase of the World
Wide Web Internet site domain name "www.nutriceuticals.com," and the application
of the net proceeds of this offering. The unaudited Pro Forma Consolidated
Statement of Operations for the three-months ended June 30, 1999 gives effect to
the following acquisitions as if each had occurred on April 1, 1999: the
acquisition of Becan, the purchase of the World Wide Web Internet site domain
name "www.nutriceuticals.com," and the application of the net proceeds of this
offering. The Pro Forma Financial Statements also give effect to a one-for-two
reverse stock split effected in September 1999. All share and per share data
have been adjusted for the September 1999 reverse stock split.
The unaudited Pro Forma Consolidated Financial Statements are based on
(i) Nutriceutical's audited Consolidated Statement of Operations for the year
ended March 31, 1999, unaudited Consolidated Statement of Operations for the
three-months ended June 30, 1999 and unaudited Consolidated Balance Sheet at
June 30, 1999 and (ii) Becan's audited Statements of Operations for the year
ended March 31, 1999, unaudited Consolidated Statements of Operations for the
three-months ended June 30, 1999 and unaudited Consolidated Balance Sheet at
June 30, 1999.
The acquisitions were accounted for under the purchase method of
accounting. The total purchase price for the acquisition was allocated to
tangible and identifiable intangible assets and liabilities based on
management's estimate of their fair values with the excess of cost over net
assets acquired allocated to goodwill.
The unaudited Pro Forma Condensed Consolidated Financial Statements do
not purport to be indicative of the combined results of operations that actually
would have occurred if the transactions described above had been effected at the
dates indicated or to project future results of operations for any period. The
unaudited Pro Forma Condensed Consolidated Financial Statements should be read
in conjunction with Nutriceutical's Consolidated Financial Statements and
Becan's Consolidated Financial Statements and respective related notes thereto
included elsewhere in this Prospectus.
F-27
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
<TABLE>
<CAPTION>
(NUTRICEUTICALS) (BECAN) PRO FORMA
JUNE 30, 1999 JUNE 30, 1999 ADJUSTMENTS JUNE 30, 1999
------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Cash 14,599 32,162 140,000 (1) 9,776,761
9,590,000 (5)
Accounts receivable, net 19,038 2,177,920 2,196,958
Inventory, net 19,163 1,263,434 1,282,597
Other current assets 30,570 57,672 88,242
----------- ----------- ----------- -----------
Total current assets 83,370 3,531,188 9,730,000 13,344,558
Property, plant and equipment net 45,000 36,122 81,122
Deposits 200 -- 200
Other assets -- 1,623 1,623
Intangible assets, net -- 16,377 40,000 (2) 56,377
Goodwill -- -- 7,800,239 (3) 7,800,239
----------- ----------- ----------- -----------
Total assets 128,570 3,585,310 7,840,239 21,284,119
=========== =========== =========== ===========
Accounts payable and
accrued expenses 123,092 2,191,194 2,314,286
Line of credit -- 1,175,711 1,175,711
Loans payable to related
party and affiliates 50,000 18,644 140,000 (1) 18,644
(190,000)(5)
Total current liabilities 173,092 3,385,549 (50,000) 3,508,641
----------- ----------- ----------- -----------
Stockholder's equity (deficit) (44,522) 199,761 7,800,239 (4) 17,775,478
40,000 (4)
9,780,000 (5)
Total liabilities and
stockholders' equity 128,570 3,585,310 7,840,239 21,284,119
=========== =========== =========== ===========
</TABLE>
- ----------
(1) Notes payable due to various stockholders and affiliates at prime plus 1%
due upon demand.
(2) Purchase of World Wide Web Internet site domain name
"www.nutriceuticals.com" for common stock.
(3) Recognition of goodwill for the acquisition of Becan for the amount by
which the purchase price ($8,000,000) exceeded the fair market value of the
net assets acquired.
(4) Increase in stockholders' equity of approximately $7,840,239, which
represents the estimated goodwill of $7,800,239 resulting from the
acquisition of Becan and the elimination of stockholders' equity of Becan,
as if the acquisition and the purchase of the World Wide Web Internet site
domain name had occurred at the beginning of the period.
(5) Offering proceeds of 1,500,000 shares at $9.00 per share, less offering
cost and expenses, underwriter's discounts, repayment of notes to
shareholders and affiliates, and $2,000,000 cash paid for acquisition of
Becan.
F-28
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
THREE-MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
(NUTRICEUTICALS) (BECAN) PROFORMA PROFORMA
JUNE 30, 1999 JUNE 30, 1999 ADJUSTMENTS JUNE 30, 1999
--------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net Revenues $ 33,899 12,196,256 12,230,155
----------- ----------- -----------
Gross Profit 19,113 282,419 301,532
Selling, general and administrative expenses 101,308 175,888 277,196
-- -- 667 (1) 667
-- -- (45,000)(2) (45,000)
Goodwill amortization -- -- 130,004 (3) 130,004
----------- ----------- ----------- -----------
Total Operating Expenses 101,308 175,888 85,671 362,867
----------- ----------- ----------- -----------
Income (Loss) from continuing operations (82,195) 106,531 (61,335)
Other income and expenses, net -- (3,477) (3,477)
Interest expense (589) (45,320) 1,913 (4) (43,996)
Interest income 335 567 902
----------- ----------- ----------- -----------
Income Tax Expense -- -- --
----------- ----------- ----------- -----------
Net Income (loss) $ (82,449) 58,301 (107,906)
=========== =========== =========== ===========
Basic and diluted net loss per share $ (0.06) (0.03)(5)(6)
===========
Weighted average common shares outstanding 3,392,729 (5)(6)
</TABLE>
- ----------
(1) Amortization of $40,000 World Wide Web Internet site domain name over 15
years.
(2) Management fees paid to parent company for various legal, accounting and
administrative services.
(3) Amortization of goodwill over a 15 year life for the acquisition of Becan
for the amount by which the purchase price exceeded the fair market value
of the net assets acquired.
(4) Interest expense related to notes payable due to various stockholders and
affiliates.
(5) The Company effected a one-for-two reverse stock split of its common stock
in September 1999. All share and per share data have been adjusted for the
reverse stock split.
(6) Assumes all shares outstanding as of June 30,1999 (including shares issued
for acquisition of Becan and World Wide Web Internet site domain name
"Nutriceuticals.com") have been outstanding throughout the period.
F-29
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
(NUTRICEUTICALS) (BECAN) (HEALTHSEEK) PRO FORMA PRO FORMA
MARCH 31, 1999(1) MARCH 31, 1999 DECEMBER 31, 1999 ADJUSTMENTS MARCH 31, 1999
---------------- -------------- ----------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net Revenues $ 37,118 31,074,861 -- -- 31,111,979
----------- ----------- ----------- ----------- -----------
Gross Profit 22,622 874,994 -- -- 897,616
Operating Expenses:
Selling, general and
administrative expenses 132,793 758,969 245 11,667 (2) 903,674
40,000 (3) 40,000
250,000 (4) 250,000
2,667 (5) 2,667
11,900 (6) 11,900
(90,000)(7) (90,000)
Goodwill amortization -- -- -- 520,016 (8) 520,016
----------- ----------- ----------- ----------- -----------
Total Operating Expenses 132,793 758,969 245 746,250 1,638,257
----------- ----------- ----------- ----------- -----------
Income (Loss) from continuing
operations (110,171) 116,025 (245) -- (740,641)
----------- ----------- ----------- ----------- -----------
Interest income 1,761 -- -- -- 1,761
----------- ----------- ----------- ----------- -----------
Income Tax Expense -- (21,994) -- 21,994 (9) --
----------- ----------- ----------- ----------- -----------
Net Income (loss) $ (108,410) 94,031 (245) -- (738,880)
=========== =========== =========== =========== ===========
Basic and diluted net loss per share $ (0.08) -- (0.22)(10)(11)
=========== =========== =========== =========== ===========
Weighted average common shares
outstanding 3,392,729(10)(11)
</TABLE>
- ----------
(1) Includes predecessor from April 1, 1998 to September 7,1998 (prior to
merger) and Nutriceuticals from September 8, 1998 (inception) to March
31, 1999. See Consolidated Financial Statements and Notes thereto
included elsewhere herein.
(2) Amount of Website domain of $35,000 amortized over 3 years.
(3) Annual compensation for Website maintenance per consulting agreement.
(4) Employment and consulting agreements for President ($150,000) and
director ($100,000), respectively.
(5) Amortization of $40,000 World Wide Web Internet site domain name over 15
years.
(6) Interest expense related to notes payable due to various stockholders and
affiliates.
(7) Management fees paid to parent company for various legal, accounting and
administrative services.
(8) Amortization of goodwill over a 15 year life for the acquisition of Becan
for the amount by which the purchase price exceeded the fair market value
of the net assets acquired.
(9) To adjust income tax expense on a consolidated basis.
(10) The Company effected a one-for-two reverse split of its common stock in
September 1999. All share and per share data have been adjusted for the
reverse stock split.
(11) Assumes all shares outstanding as of March 31,1999 (including shares
issued for acquisition of Becan, HealthSeek, and World Wide Web Internet
site domain name "Nutriceuticals.com") have been outstanding throughout
the period.
F-30
<PAGE>
================================================================================
1,500,000 SHARES
COMMON STOCK
NUTRICEUTICALS.COM CORPORATION
--------
PROSPECTUS
--------
KASHNER DAVIDSON SECURITIES CORPORATION
THE DATE OF THIS PROSPECTUS IS
____________, 1999
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 78.7502 of the Nevada Revised Statutes permits a corporation to
include in its charter documents, and in agreements between the corporation and
its directors and officers, provisions expanding the scope of indemnification
beyond the indemnification specifically provided by the current law.
Article XI of our Bylaws provides for the indemnification of officers,
directors and third parties acting on our behalf if such person acted in good
faith and in a manner reasonably believed to be in, and not opposed to, our best
interest and, with respect to any criminal action or proceeding, the indemnified
party had no reason to believe his or her conduct was unlawful.
In addition to providing for indemnification in our Bylaws, the Company
may purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee, or agent of the Company, or is or was serving at
the request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, or other enterprise, against any
liability asserted against such person and incurred by such person in any such
capacity or arising out of his or her status as such. Further, we may enter into
indemnification agreements with our directors and executive officers in the
future.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by us in connection with the
sale of common stock being registered. All amounts are estimates except the SEC
registration fee.
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
----------- ------
<S> <C>
Securities and Exchange Commission filing fee................................. $ 5,297
NASD filing fee............................................................... $ 2,405
Nasdaq listing fee............................................................ $ 10,000
Blue Sky filing fees and expenses............................................. $ 42,500
Legal fees and expenses....................................................... $ 75,000
Underwriter's expenses........................................................ $ 75,000
Accounting fees and expenses.................................................. $ 20,000
Printing, postage, and mailing expenses....................................... $ 100,000
Stock transfer agent fees and certificates ................................... $ 5,000
Miscellaneous ................................................................ $ 34,798
-------
Total.................................................................... $ 370,000
=======
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years, we have issued unregistered securities to
a limited number of persons as described below. The following information
regarding our shares of common stock has been adjusted to give effect to (i) the
one-for-fifty reverse stock split of our common stock effected
in March 1999, and (ii) the two-for-one stock split in the form of a stock
dividend effected in April 1999 and a one-for-two reverse split of our common
stock effective in August 1999.
(1) On March 15, 1999, we issued an aggregate of 2,400,000 shares of
common stock to 14 investors in connection with the merger of Nutriceuticals.com
Corporation, a Florida corporation, with and into the Company; and
(2) On March 31, 1999, we issued 100,000 shares of common stock, to one
(1) investor in connection with the acquisition of HealthSeek.com Corporation, a
Massachusetts corporation.
II-1
<PAGE>
(3) On August 16, 1999, we issued 20,000 shares of common stock to CJF
Health Services, Inc. a wholly-owned subsidiary of Lyntren Communications, Inc.,
a Washington corporation, in exchange for all right, title and interest in the
World Wide Web Internet site ("Website") domain name "nutriceuticals.com," and
any and all assets related to the operations of a Website under that domain
name.
None of the foregoing transactions involved any underwriters,
underwriting discounts or commissions or any public offering, and we believe
that each transaction was exempt from the registration requirements of the
Securities Act by virtue of Section 4(2) thereof, Regulation D promulgated
thereunder. The recipients in such transactions represented their intention to
acquire the securities for investment only and not with a view to or for sale in
connection with any distribution thereof, and appropriate legends were affixed
to the share certificates and instruments issued in such transactions. All
recipients had adequate access, through their relationships with us, to
information about us.
ITEM 27. EXHIBITS.
The Exhibit Index attached hereto is hereby incorporated to this Item
by reference thereto.
ITEM 28. UNDERTAKINGS
We hereby undertake to:
(1) To file, during any period in which offers or sales are being made
of the securities registered hereby, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of this registration
statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in this registration statement;
and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
this registration statement or any material change to
such information in this registration statement;
provided, however, that the undertakings set forth in paragraphs (i) and (ii)
above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed by the registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in this
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) That, for purposes of determining any liability under the
Securities Act, each filing of our annual report pursuant to section 13(a) or
section 15(d) of the Exchange Act (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the Exchange
Act) that is incorporated by reference in this registration statement shall be
deemed to be a new registration statement relating to the securities offered
herein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the city of Largo,
state of Florida, on September 10, 1999.
Nutriceuticals.com Corporation
By: /s/ STEPHEN M. WATTERS
-----------------------------------
Stephen M. Watters, President
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
Stephen M. Watters his attorney-in-fact, with the power of substitution, for him
in any and all capacities, to sign any amendments to this registration
statement, and to file the same with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorney-in-fact or his substitute or
substitutes may do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/S/ STEPHEN M. WATTERS Chief Executive Officer, September 10, 1999
- ---------------------------------- Chief Financial Officer and Director
Stephen M. Watters
Director
- ----------------------------------
Howard Howell
/S/ JEFFREY PETERSON Director September 10, 1999
- ----------------------------------
Jeffrey Peterson
Director
- ----------------------------------
M. Lisa Shasteen
/S/ JUGAL K. TANEJA Director September 10, 1999
- ----------------------------------
Jugal K. Taneja
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
- ----------- -----------------------
<S> <C>
1.1 Form of Underwriting Agreement *
1.2 Form of Underwriter's Warrant *
3.1 Articles of Incorporation, as amended *
3.2 Bylaws of the Registrant *
4.1 Specimen of Certificate for Common Stock +
4.2 Nutriceuticals.com Corporation 1999 Incentive and Non-Statutory Stock
Option Plan +
5.1 Opinion of Schifino & Fleischer, P.A., re: Legality of securities being registered **
10.1 Employment Agreement by and between the Registrant and Stephen M. Watters,
dated as of April 1, 1999 *
10.2 Employment Agreement by and between the Registrant and Jugal K. Taneja, dated as
of April 1, 1999 *
10.3 Consulting Agreement and Agreement Regarding Ownership of Computer Software
between HealthSeek.com Corp. and Eric Egnet, dated as of March 31, 1999 *
10.4 Strategic Alliance Agreement by and between IndigoCity.com, Inc. and the
Registrant, dated as of April 13, 1999 *
10.5 Agreement and Plan of Merger by and between NuMED Surgical, Inc. and
Nutriceuticals.com Corporation, dated as of January 15, 1999 *
10.6 Agreement and Plan of Reorganization between the Registrant and Eric Egnet, dated
March 31, 1999 *
10.7 Agreement and Plan of Reorganization by and between Nutriceuticals.com Corporation
and Dynamic Health Products, Inc., and Becan Distributors, Inc., dated
September 9, 1999 +
10.8 Consulting Agreement by and between the Registrant and Jugal K. Taneja, dated as
of August 16, 1999 **
21 Subsidiaries of the Registrant *
23.1(a) Consent of Kirkland, Russ, Murphy & Tapp, independent auditors +
23.1(b) Consent of Brimmer, Burek, Keelan & McNally LLP +
23.2 Consent of Schifino & Fleischer, P.A. (included in Exhibit 5.1) **
24 Power of Attorney (reference is made to the signature page) *
27 Financial Data Schedule***
- -----------
</TABLE>
+ Filed herewith.
* Previously filed.
** To be filed by amendment.
*** Contained in electronically filed version only.
EXHIBIT 4.1
SEE RESTRICTIVE LEGEND ON REVERSE SIDE
NUTRICEUTICALS.COM CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA
48,000,000 AUTHORIZED SHARRES $.001 PAR VALUE
NUMBER SHARES
- ------ ---------
1726 -200,000-
THIS CERTIFIES THAT MIHIR K TANEJA CUSIP 67066l 10 3
------------------------
IS THE OWNER OF ***TWO HUNDRED THOUSAND*** SEE REVERSE
FOR CERTAIN DEFINITIONS
*200,000*******
FULLY PAID AND NON-ASSESSABLE SHARES OF **200,000******
$.001 PAR VALUE COMMON STOCK OF ***200,000*****
****200,000****
*****200,000***
NUTRICEUTICALS.COM CORPORATION
transferable only on the books of the Company in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid unless countersigned by the Transfer Agent and Registrar.
IN WITNESS WHEREOF, the said Company has caused this Certificate to be
executed by the facsimile signatures of its duly authorized officers and to be
sealed with the facsimile seal of the Company.
Dated: 04/29/1999
/s/ [ILLEGIBLE] [SEAL] /s/ STEPHEN M. WATTER
- ----------------------- -----------------------
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED
AMERICAN SECURITIES TRANSFER & TRUST, INC.
P.O Box 1596
Denver, Colorado 80201
NUTRICEUTICALS.COM CORPORATION
1999 INCENTIVE AND NON-STATUTORY
STOCK OPTION PLAN
SECTION 1. PURPOSE
This 1999 Incentive and Non-Statutory Stock Option Plan (the "Plan") is
intended as a performance incentive for officers and employees of
Nutriceuticals.com Corporation, a Nevada corporation (the "Company") or its
Subsidiaries (as hereinafter defined) and for certain other individuals
providing services to or acting as directors of the Company or its Subsidiaries,
to enable the persons to whom options are granted (an "Optionee" or "Optionees")
to acquire or increase a proprietary interest in the success of the Company. The
Company intends that this purpose will be effected by the granting of incentive
stock options ("Incentive Options") as defined in Section 422A(b) of the
Internal Revenue Code of 1986, as amended (the "Code") and other stock options
("Non-statutory Options") under the Plan.
SECTION 2. OPTIONS TO BE GRANTED AND ADMINISTRATION
2.1 OPTIONS TO THE GRANTED. Options granted under the Plan may be either
Incentive Options or Non-statutory Options.
2.2 ADMINISTRATION BY THE BOARD. This Plan shall be administered by the
Board of Directors of the Company (the "Board"). The Board shall have full and
final authority to operate, manage and administer the Plan on behalf of the
Company. This authority includes, but is not limited to: (i) the power to grant
options conditionally or unconditionally; (ii) the power to prescribe the form
or forms of the instruments evidencing options granted under this Plan; (iii)
the power to interpret the Plan; (iv) the power to provide regulations for the
operation of the incentive features of the Plan, and otherwise to prescribe
regulations for interpretation, management and administration of the Plan; (v)
the power to delegate responsibility for Plan operation, management and
administration on such terms, consistent with the Plan, as the Board may
establish; (vi) the power to delegate to other persons the responsibility for
performing ministerial acts in furtherance of the Plan's purpose; and (vii) the
power to engage the services of persons or organizations in furtherance of the
Plan's purpose, including but not limited to, banks, insurance companies,
brokerage firms and consultants.
In addition, as to each option, the Board shall have full and final
authority in its discretion: (i) to determine the number of shares subject to
each option; (ii) to determine the time or times at which options will be
granted; (iii) to determine the time or times when each option shall become
exercisable and the duration of the exercise period, which shall not exceed the
limitations specified in Section 5.1.1; and (iv) to determine the option price
for the shares subject to each option, which price shall be subject to the
applicable requirements, if any, of Section 5.1.4 hereof.
2.3 APPOINTMENT AND PROCEEDINGS OF COMMITTEE. The Board may appoint a
Stock Option Committee (the "Committee") which shall consist of at least three
members of the Board. The Board may from time to time appoint members of the
Committee in substitution for or in addition to members previously appointed,
and may fill vacancies, however caused, in the Committee. The Committee shall
select one of its members as its chairman and shall hold its meetings at such
times and places as it shall deem advisable. A majority of its members shall
constitute a quorum, and all actions of the Committee shall be taken by a
majority of its members. Any action may be taken by a written instrument signed
by
1
<PAGE>
all of the members, and any action so taken shall be as fully effective as if it
had been taken by a vote of a majority of the members at a meeting duly called
and held.
2.4 POWERS OF COMMITTEE. Subject to the provisions of this Plan and the
approval of the Board, the Committee shall have the power to make
recommendations to the Board as to whom options should be granted, the number of
shares to be covered by each option, the time or times of option grants, and the
terms and conditions of each option. In addition, the Committee shall have
authority to interpret the Plan, to prescribe, amend and rescind rules and
regulations relating to the Plan, and to exercise the administrative and
ministerial powers of the Board with regard to aspects of the Plan other than
the granting of options. The interpretation and construction by the Committee of
any provisions of the Plan or of any option granted hereunder and the exercise
of any power delegated to it hereunder shall be final, unless otherwise
determined by the Board. No member of the Board or the Committee shall be liable
for any action or determination made in good faith with respect to the Plan or
any option granted hereunder.
SECTION 3. STOCK
3.1 SHARES SUBJECT TO PLANS. The stock subject to the options granted
under the Plan shall be shares of the Company's authorized but unissued common
stock, par value $.001 per share ("Common Stock"). The total number of shares
that may be issued pursuant to options granted under the Plan shall not exceed
an aggregate of 400,000 shares of Common Stock.
3.2 LAPSED OR UNEXERCISED OPTIONS. Whenever any outstanding option under
the Plan expires, is canceled or is otherwise terminated (other than by
exercise), the shares of Common Stock allocable to the unexercised portion of
such option shall be restored to the Plan and be available for the grant of
other options under the Plan.
SECTION 4. ELIGIBILITY
4.1 ELIGIBLE OPTIONEES. Incentive options may be granted only to
officers and other employees of the Company or its Subsidiaries, including
members of the Board who are also employees of the Company or a Subsidiary.
Non-statutory options may be granted to officers or other employees of the
Company or its Subsidiaries and to certain other individuals providing services
to the Company or its Subsidiaries. Non-employee directors will be granted
options to purchase 3000 shares of the Company's Common Stock upon their initial
election or appointment to the Board.
4.2 LIMITATIONS ON 10% STOCKHOLDERS. No Incentive Option shall be
granted to an individual who, at the time the Incentive Option is granted, owns
(including ownership attributed pursuant to Section 425(d) of the Code) more
than 10% of the total combined voting power of all classes of stock of the
Company or any parent or Subsidiary of the Company (a "greater-than-10%
stockholder"), unless such Incentive Option provides that (i) the purchase price
per share shall not be less than 110% of the fair market value of the Common
Stock at the time such Incentive Option is granted, and (ii) that such Incentive
Option shall not be exercisable to any extent after the expiration of five years
from the date it is granted.
4.3 LIMITATION ON EXERCISABLE OPTIONS. The aggregate fair market value
(determined at the time the Incentive Option is granted) of the Common Stock
with respect to which Incentive Options are exercisable for the first time by
any person during any calendar year under the Plan and under any other
2
<PAGE>
option plan of the Company (or a parent or subsidiary as defined in Section 425
of the Code) shall not exceed $100,000. Any option granted in excess of the
foregoing limitation shall be specifically designated as being a Non-statutory
Option.
SECTION 5. TERMS OF THE OPTION AGREEMENTS
5.1 MANDATORY TERMS. Each option agreement shall contain such provisions
as the Board or the Committee shall from time to time deem appropriate, and
shall include provisions relating to the method of exercise, payment of exercise
price, adjustments on changes in the Company's capitalization and the effect of
a merger, consolidation, liquidation, sale or other disposition of or involving
the Company. Option agreements need not be identical, but each option agreement
by appropriate language shall include the substance of all of the following
provisions:
5.1.1 EXPIRATION. Notwithstanding any other provision of the
Plan or of any option agreement, each option shall expire on the date specified
in the option agreement, which date shall not be later than the tenth
anniversary of the date on which the option was granted (fifth anniversary in
the case of a greater-than-10% stockholder).
5.1.2 EXERCISE. Each option shall be deemed exercised when (i)
the Company has received written notice of such exercise in accordance with the
terms of the option, (ii) full payment of the aggregate option price of the
shares of Common Stock as to which the option is exercised has been made, and
(iii) arrangements that are satisfactory to the Board or the Committee in its
sole discretion have been made for the optionee's payment to the Company of the
amount that is necessary for the Company or Subsidiary employing the optionee to
withhold in accordance with applicable Federal or state tax withholding
requirements. Unless further limited by the Board or the Committee in any
option, the option price of any shares of Common Stock purchased shall be paid
in cash, by certified or official bank check, by money order, with shares of
Common Stock or by a combination of the above; provided further, however, that
the Board or the Committee in its sole discretion may accept a personal check in
full or partial payment of any shares of Common Stock. If the exercise price is
paid in whole or in part with shares, the value of the shares surrendered shall
be their fair market value on the date the option is exercised as determined in
accordance with Section 5.1.4 hereof. No optionee shall be deemed to be a holder
of any shares of Common Stock subject to an option unless and until a stock
certificate or certificates for such shares of Common Stock are issued to such
person(s) under the terms of the Plan. No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other property) or
distributions or other rights for which the record date is prior to the date
such stock certificate is issued, except as expressly provided in Section 6
hereof. No optionee shall be deemed to be a holder of any shares of Common Stock
subject to an option unless and until a stock certificate or certificates for
such shares of Common Stock are issued to such person(s) under the terms of the
Plan.
5.1.3 EVENTS CAUSING IMMEDIATE EXERCISE. Unless otherwise
provided in any option, each outstanding option shall become immediately fully
exercisable.
5.1.3.1 if there occurs any transaction (which shall
include a series of
transactions occurring within 60 days or occurring pursuant to a plan), that has
the result that stockholders of the Company immediately before such transaction
cease to own at least 51 percent of the voting stock of the Company or of any
entity that results from the participation of the Company in a reorganization,
consolidation, merger, liquidation or any other form of corporate transaction;
3
<PAGE>
5.1.3.2 if the stockholders of the Company shall approve a
plan of merger, consolidation, reorganization, liquidation or dissolution in
which the Company does not survive (unless the approved merger, consolidation,
reorganization, liquidation or dissolution is subsequently abandoned); or
5.1.3.3 if the stockholders of the Company shall approve a
plan for the sale, lease, exchange or other disposition of all or substantially
all the property and assets of the Company (unless such plan is subsequently
abandoned).
The Board or the Committee may in its sole discretion accelerate the
date on which any option may be exercised and may accelerate the vesting of any
shares of Common Stock subject to any option or previously acquired by the
exercise of any option.
5.1.4 PURCHASE PRICE. The purchase price per share of the Common
Stock under each Incentive Option shall be not less than the fair market value
of the Common Stock on the date the option is granted (110% of the fair market
value in the case of a greater-than-10% stockholder). The price at which shares
may be purchased pursuant to Non-statutory Options shall be specified by the
Board at the time the option is granted, and may be less than, equal to or
greater than the fair market value of the shares of Common Stock on the date
such Non-statutory Option is granted, but shall not be less than the par value
of shares of Common Stock.
For the purpose of the Plan, the "fair market value" per share of Common
Stock on any date of reference shall be the Closing Price of the Common Stock of
the Company which is referred to in either clause (i), (ii) or (iii) below, on
the business day immediately preceding such date, or if not referred to in
either clause (i), (ii) or (iii) below, "fair market value" per share of Common
Stock shall be such value as shall be determined by the Board or the Committee,
unless the Board or the Committee in its sole discretion shall determine
otherwise in a fair and uniform manner. For this purpose, the Closing Price of
the Common Stock on any business day shall be (i) if the Common Stock is listed
or admitted for trading on any United States national securities exchange, or if
actual transactions are otherwise reported on a consolidated transaction
reporting system, the last reported sale price of Common Stock on such exchange
or reporting system, as reported in any newspaper of general circulation, (ii)
if the Common Stock is quoted on the National Association of Securities Dealers
Automated Quotations System ("NASDAQ"), or any similar system of automated
dissemination of quotations of securities prices in common use, the mean between
the closing high bid and low asked quotations for such day of Common Stock on
such system, or (iii) if neither clause (i) or (ii) is applicable, the mean
between the high bid and low asked quotations for the Common Stock as reported
by the National Quotation Bureau, Incorporated if at least two securities
dealers have inserted both bid and asked quotations for Common Stock on at least
five of the ten preceding days.
5.1.5 TRANSFERABILITY OF OPTIONS. Incentive options granted
under the Plan and the rights and privileges conferred thereby may not be
transferred, assigned, pledged or hypothecated in any manner (whether by
operation of law or otherwise) other than by will or by applicable laws of
descent and distribution, and shall not be subject to execution, attachment or
similar process. Upon any attempt so to transfer, assign, pledge, hypothecate or
otherwise dispose of any Incentive Option under the Plan or any right or
privilege conferred hereby, contrary to the provisions of the Plan, or upon the
sale or levy or any attachment or similar process upon the rights and privileges
conferred hereby, such option shall thereupon
4
<PAGE>
terminate and become null and void. Non-statutory Options shall be transferable
to the extent provided in the option agreements under which they are granted.
5.1.6 TERMINATION OF EMPLOYMENT OR DEATH OF OPTIONEE. Except as
may be otherwise expressly provided in the terms and conditions of the option
granted to an Optionee, options granted hereunder shall terminate on the earlier
to occur of:
5.1.6.1 the date of expiration thereof; or
5.1.6.2 other than the case of death of the Optionee or
disability of the Optionee within the meaning of Section 22(e)(3) of the Code
("disability"), (A) 90 days after termination of the employment between the
Company and the Optionee in the case of an Incentive Option, and (B) 90 days
after termination of the employment or other relationship between the Company
and the Optionee, unless such termination provision is waived by resolution
adopted by the Board within 30 days of the termination of such relationship, in
the case of a Non-statutory Option.
Except as may otherwise be expressly provided in the terms and
conditions of the option granted to an Optionee, in the event of the death of an
Optionee while in an employment or other relationship with the Company and
before the date of expiration of such option, such option shall terminate on the
earlier of such date of expiration or 180 days following the date of such death.
After the death of the Optionee, his executors, administrators or any person or
persons to whom his option may be transferred by will or by laws of descent and
distribution, shall have the right, at any time prior to such time termination,
to exercise the option to the extent the Optionee was entitled to exercise such
option immediately prior to his death.
Except as may otherwise be expressly provided in the terms and
conditions of the option granted to an Optionee, if an Optionee's employment or
other relationship with the Company terminates because of a disability, the
Optionee's option shall terminate on the earlier of the date of expiration
thereof or 180 days following the termination of such relationship; and unless
by its terms it sooner terminates and expires during such 180 day period, the
Optionee may exercise that portion of his or her option which is exercisable at
the time of termination of such relationship.
An employment relationship between the Company and the Optionee shall be
deemed to exist during any period during which the Optionee is employed by the
Company or by any Subsidiary. Whether authorized leave of absence or absence on
military government service shall constitute termination of the employment
relationship between the Company and the Optionee shall be determined by the
Board at the time thereof.
5.1.7 RIGHTS OF OPTIONEES. No Optionee shall be deemed for any
purpose to be the owner of any shares of Common Stock subject to any option
unless and until (i) the option shall have been exercised pursuant to the terms
thereof, (ii) the Company shall have issued and delivered the shares of the
Optionee, and (iii) the Optionee's name shall have been entered as a stockholder
of record on the books of the Company. Thereupon, the Optionee shall have full
voting, dividend and other ownership rights with respect to such shares of
Common Stock.
5.2 CERTAIN OPTIONAL TERMS. The Board may in its discretion provide,
upon the grant of any option hereunder, that the Company shall have an option to
repurchase all or any number of shares
5
<PAGE>
purchased upon exercise of such option. The repurchase price per share payable
by the Company shall be such amount or be determined by such formula as is fixed
by the Board at the time the option for the shares subject to repurchase was
granted. The Board may also provide that the Company shall have a right of first
refusal with respect to the transfer or proposed transfer of any shares
purchased upon exercise of an option granted hereunder. In the event the Board
shall grant options subject to the Company's repurchase rights or rights of
first refusal, the certificate or certificates representing the shares purchased
pursuant to such option shall carry a legend satisfactory to counsel for the
Company referring to the Company's repurchase option.
SECTION 6. ADJUSTMENT OF SHARES OF COMMON STOCK
6.1 INCREASE OR DECREASE OF OUTSTANDING SHARES. If at any time while the
Plan is in effect or unexercised options are outstanding, there shall be any
increase or decrease in the number of issued and outstanding shares of Common
Stock through the declaration of a stock dividend or through any
recapitalization resulting in a stock split-up, combination or exchange of
shares of Common Stock, then and in such event (i) appropriate adjustment shall
be made in the maximum number of shares of Common Stock available for grant
under the Plan, so that the same percentage of the Company's issued and
outstanding shares of Common Stock shall continue to be subject to being so
optioned, and (ii) appropriate adjustment shall be made in the number of shares
and the exercise price per share of Common Stock thereof then subject to any
outstanding option, so that the same percentage of the Company's issued and
outstanding shares of Common Stock shall remain subject to purchase at the same
aggregate exercise price.
6.2 DISCRETIONARY ADJUSTMENT. Subject to the specific terms of any
option, the Board or the Committee may change the terms of options outstanding
under this Plan, with respect to the option price or the number of shares of
Common Stock subject to the options, or both, when, in the sole discretion of
the Board or the Committee, such adjustments become appropriate by reason of a
corporate transaction described in Section 5.1.4 hereof.
6.3 CONVERSION OF SHARES. Except as otherwise expressly provided herein,
the issuance by the Company of shares of its capital stock of any class, or
securities convertible into shares of capital stock of any class, either in
connection with direct sale or upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares or obligations of the Company
convertible into such shares or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to the number of or
exercise price of shares of Common Stock then subject to outstanding options
granted under the Plan.
6.4 GENERAL. Without limiting the generality of the foregoing, the
existence of outstanding options granted under the Plan shall not affect in any
manner the right or power of the Company to make, authorize or consummate (i)
any or all adjustments, recapitalizations, reorganizations or other changes in
the Company's capital structure or its business; (ii) any merger or
consolidation of the Company; (iii) any issue by the Company of debt securities,
or preferred or preference stock that would rank above the shares subject to
outstanding options; (iv) the dissolution or liquidation of the Company; (v) any
sale, transfer or assignment of all or any part of the assets or business of the
Company; or (vi) any other corporate act or proceeding, whether of a similar
character or otherwise.
6
<PAGE>
SECTION 7. AMENDMENT OF THE PLAN
The Board may amend the Plan at any time, and from time to time, subject
to the limitation that no amendment shall be effective unless approved by the
stockholders of the Company in accordance with applicable law and regulations at
an annual or special meeting held within 12 months before or after the special
meeting held within 12 months before or after the date of adoption of such
amendment, in any instance in which such amendment would: (i) increase the
number of shares of Common Stock as to which options may be granted under the
Plan; of (ii) change in substance the provisions of Section IV hereof relating
to eligibility to participate in the Plan.
Rights and obligations under any option granted before any amendment of
the Plan shall not be altered or impaired by such amendment, except with the
consent of the Optionee.
SECTION 8. NON-EXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board nor the approval of the
Plan by the stockholders of the Company shall be construed as creating any
limitations on the power of the Board to adopt such other incentive arrangements
as it may deem desirable, including without limitation the granting the stock
options otherwise than under the Plan, and such arrangements may be either
applicable generally or only in specific cases.
SECTION 9. GOVERNMENT AND OTHER REGULATIONS; GOVERNING LAW
The obligation of the Company to sell and delivery shares of Common
Stock with respect to options granted under the Plan shall be subject to all
applicable laws, rules and regulations, including all applicable federal and
state securities laws, and the obtaining of all such approvals by government
agencies as may be deemed necessary or appropriate by the Board or the
Committee. All shares sold under the Plan shall bear appropriate legends. The
Plan shall be governed by and construed in accordance with the laws of the State
of Florida.
SECTION 10. EFFECTIVE DATE OF PLAN
The effective date of the Plan is June 10, 1999, the date on which it
was approved by the Board. No option may be granted under the Plan after the
tenth anniversary of such effective date.
7
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization ("Agreement") dated September
9, 1999, is by and between Nutriceuticals.com Corporation, a Nevada corporation
("Buyer"), and Dynamic Health Products, Inc., a Florida corporation ("Seller"),
the sole stockholder of Becan Distributors, Inc., an Ohio corporation (the
"Company").
RECITALS:
Seller owns all of the outstanding shares of voting common stock, no par
value, of the Company, constituting all of the issued and outstanding capital
stock of the Company (the "Shares"). The Buyer desires to acquire all of the
Shares, and Seller desires to exchange all of the Shares for cash and shares of
voting common stock, par value $.01 per share, of the Buyer, in an exchange that
qualifies under Sections 354 and 368 of the Internal Revenue Code of 1986, as
amended.
This Agreement is being entered into for the purpose of implementing the
foregoing desires, and sets forth the terms and conditions pursuant to which
Seller is selling to the Buyer, and the Buyer is purchasing from Seller, solely
in exchange for cash and shares of voting common stock of the Buyer, all of the
642.85 issued and outstanding shares of the Company.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
"APPLICABLE CONTRACT" - any Contract (a) under which the Company has or
may acquire any rights, (b) under which the Company has or may become subject to
any obligation or liability, or (c) by which the Company or any of the assets
owned or used by it is or may become bound.
"BALANCE SHEET" - as defined in Section 3.4.
"BEST EFFORTS" - the efforts that a prudent Person desirous of achieving
a result would use in similar circumstances to ensure that such result is
achieved as expeditiously as possible; provided, however, that an obligation to
use Best Efforts under this Agreement does not require the Person subject to
that obligation to take actions that would result in a materially adverse change
in the benefits to such Person of this Agreement and the Contemplated
Transactions.
"BREACH" - a "Breach" of a representation, warranty, covenant,
obligation, or other provision of this Agreement or any instrument delivered
pursuant to this Agreement will be deemed to have occurred if there is or has
been (a) any inaccuracy in or breach of, or any failure to perform or comply
with, such representation, warranty, covenant, obligation, or other provision,
or (b) any claim
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(by any Person) or other occurrence or circumstance that is or was inconsistent
with such representation, warranty, covenant, obligation, or other provision,
and the term "Breach" means any such inaccuracy, breach, failure, claim,
occurrence, or circumstance.
"BUYER" - as defined in the first paragraph of this Agreement.
"BUYER'S SHARES" - as defined in Section 2.2.
"CLOSING" - as defined in Section 2.3.
"CLOSING DATE" - the date and time as of which the Closing actually
takes place.
"COMPANY" - as defined in the first paragraph of this Agreement.
"CONSENT" - any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"CONTEMPLATED TRANSACTIONS" - all of the transactions contemplated by
this Agreement, including:
(a) the sale of the Shares by Seller to Buyer;
(b) the performance by Buyer and Seller of their respective covenants
and obligations under this Agreement; and
(c) Buyer's acquisition and ownership of the Shares and exercise of
control over the Company.
"CONTRACT" - any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied) that is
legally binding.
"DAMAGES" - as defined in Section 7.2.
"DISCLOSURE LETTER" - the disclosure letter delivered by Seller to Buyer
concurrently with the execution and delivery of this Agreement.
"ENCUMBRANCE" - any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest, right of
first refusal, or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income, or exercise of any other attribute of
ownership.
"ENVIRONMENT" - soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage basins, and
wetlands), groundwaters, drinking water
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supply, stream sediments, ambient air (including indoor air), plant and animal
life, and any other environmental medium or natural resource.
"ENVIRONMENTAL, HEALTH AND SAFETY LIABILITIES" - any cost, damages,
expense, liability, obligation, or other responsibility arising from or under
Environmental Law or Occupational Safety and Health Law and consisting of or
relating to:
(a) any environmental, health, or safety matters or conditions
(including on-site or off-site contamination, occupational safety
and health, and regulation of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands and
response, investigative, remedial, or inspection costs and
expenses arising under Environmental Law or Occupational Safety
and Health Law;
(c) financial responsibility under Environmental Law or Occupational
Safety and Health Law for cleanup costs or corrective action,
including any investigation, cleanup, removal, containment, or
other remediation or response actions ("Cleanup") required by
applicable Environmental Law or Occupational Safety and Health
Law (whether or not such Cleanup has been required or requested
by any Governmental Body or any other Person) and for any natural
resource damages; or
(d) any other compliance, corrective, investigative, or remedial
measures required under Environmental Law or Occupational Safety
and Health Law.
The terms "removal," "remedial," and "response action," include the
types of activities covered by the United States Comprehensive Environmental
Response, Compensation, and Liability Act, 42 U.S.C. ss.9601 et seq., as amended
("CERCLA").
"ENVIRONMENTAL LAW" - any Legal Requirement that requires or relates to:
(a) advising appropriate authorities, employees, and the public of
intended or actual releases of pollutants or hazardous substances
or materials, violations of discharge limits, or other
prohibitions and of the commencements of activities, such as
resource extraction or construction, that could have significant
impact on the Environment;
(b) preventing or reducing to acceptable levels the release of
pollutants or hazardous substances or materials into the
Environment;
(c) reducing the quantities, preventing the release, or minimizing
the hazardous characteristics of wastes that are generated;
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(d) assuring that products are designed, formulated, packaged, and
used so that they do not present unreasonable risks to human
health or the Environment when used or disposed of;
(e) protecting resources, species, or ecological amenities;
(f) reducing to acceptable levels the risks inherent in the
transportation of hazardous substances, pollutants, oil, or other
potentially harmful substances;
(g) cleaning up pollutants that have been released, preventing the
threat of release, or paying the costs of such clean up or
prevention; or
(h) making responsible parties pay private parties, or groups of
them, for damages done to their health or the Environment, or
permitting self-appointed representatives of the public interest
to recover for injuries done to public assets.
"ERISA" - the Employee Retirement Income Security Act of 1974 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"ESCROW AGREEMENT" - as defined in Section 2.2.
"FACILITIES" - any real property, leaseholds, or other interests
currently or formerly owned or operated by the Company and any buildings,
plants, structures, or equipment (including motor vehicles, tank cars, and
rolling stock) currently or formerly owned or operated by the Company.
"GAAP" - generally accepted United States accounting principles, applied
on a basis consistent with the basis on which the Balance Sheet and the other
financial statements referred to in Section 3.4(b) were prepared.
"GOVERNMENTAL AUTHORIZATION" - any approval, consent, license, permit,
waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
"GOVERNMENTAL BODY" - any:
(a) nation, state, county, city, town, village, district, or other
jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or other government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official,
or entity and any court or other tribunal);
(d) multi-national organization or body; or
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(e) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing
authority or power of any nature.
"HAZARDOUS ACTIVITY" - the distribution, generation, handling,
importing, management, manufacturing, processing, production, refinement,
Release, storage, transfer, transportation, treatment, or use (including any
withdrawal or other use of groundwater) of Hazardous Materials in, on, under,
about, or from the Facilities or any part thereof into the Environment, and any
other act, business, operation, or thing that increases the danger, or risk of
danger, or poses an unreasonable risk of harm to persons or property on or off
the Facilities, or that may affect the value of the Facilities or the Company.
"HAZARDOUS MATERIALS" - any waste or other substance that is listed,
defined, designated, or classified as, or otherwise determined to be, hazardous,
radioactive, or toxic or a pollutant or a contaminant under or pursuant to any
Environmental Law, including any admixture or solution thereof, and specifically
including petroleum and all derivatives thereof or synthetic substitutes
therefor and asbestos or asbestos-containing materials.
"INTELLECTUAL PROPERTY ASSETS" - as defined in Section 3.22.
"INTERIM BALANCE SHEET" - as defined in Section 3.4.
"IRC" - the Internal Revenue Code of 1986 or any successor law, and
regulations issued by the IRS pursuant to the Internal Revenue Code or any
successor law.
"IRS" - the United States Internal Revenue Service or any successor
agency, and, to the extent relevant, the United States Department of the
Treasury.
"KNOWLEDGE" - an individual will be deemed to have "Knowledge" of a
particular fact or other matter if.
(a) such individual is actually aware of such fact or other matter; or
(b) a prudent individual could be expected to discover or otherwise
become aware of such fact or other matter in the course of
conducting a reasonably comprehensive investigation concerning
the existence of such fact or other matter.
A Person (other than an individual) will be deemed to have "Knowledge"
of a particular fact or other matter if any individual who is serving as a
director, officer, partner, executor, or trustee of such Person (or in any
similar capacity) has, or at any time had, Knowledge of such fact or other
matter.
"LEGAL REQUIREMENT" - any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
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"OCCUPATIONAL SAFETY AND HEALTH LAW" - any Legal Requirement in effect
on the date of this Agreement, designed to provide safe and healthful working
conditions and to reduce occupational safety and health hazards, and any
governmental program in effect on the date of this Agreement, designed to
provide safe and healthful working conditions.
"ORDER" - any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"ORDINARY COURSE OF BUSINESS" - an action taken by a Person will be
deemed to have been taken in the "Ordinary Course of Business" only if
(a) such action is consistent with the past practices of such Person,
and is taken in the ordinary course of the normal day-to-day
operations of such Person;
(b) such action is not required to be authorized by the board of
directors of such Person (or by any Person or group of Persons
exercising similar authority) and is not required to be
specifically authorized by the parent company (if any) of such
Person; and
(c) such action is similar in nature and magnitude to actions
customarily taken, without any authorization by the board of
directors (or by any Person or group of Persons exercising
similar authority), in the ordinary course of the normal
day-to-day operations of other Persons that are in the same line
of business as such Person.
"ORGANIZATIONAL DOCUMENTS" - (a) the articles or certificate of
incorporation and the bylaws of a corporation; and (b) any amendment to any of
the foregoing.
"PERSON " - any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"PLAN" - as defined in Section 3.13.
"PROCEEDING" - any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"PUBLIC FINANCING" - shall mean the public offering by Buyer of Buyer
common stock pursuant to a registration statement of Buyer currently on file
with the Securities and Exchange Commission.
"RELATED PERSON " - with respect to a particular individual:
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(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly controlled by such
individual or one or more members of such individual's Family;
(c) any Person in which such individual or members of such
individual's Family hold (individually or in the aggregate) a
Material Interest; and
(d) any Person with respect to which such individual or one or more
members of such individual's Family serves as a director,
officer, partner, executor, or trustee (or in a similar
capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is directly or
indirectly controlled by, or is directly or indirectly under
common control with such specified Person;
(b) any Person that holds a Material Interest in such specified Person;
(c) each Person that serves as a director, officer, partner,
executor, or trustee of such specified Person (or in a similar
capacity);
(d) any Person in which such specified Person holds a Material Interest;
(e) any Person with respect to which such specified Person serves as
a general partner or a trustee (or in a similar capacity); and
(f) any Related Person of any individual described in clause (b) or (c).
For purposes of this definition, (a) the "Family" of an individual
includes (i) the individual, (ii) the individual's spouse (and former spouses),
(iii) any other natural person who is related to the individual or the
individual's spouse within the second degree, and (iv) any other natural person
who resides with such individual, and (b) "Material Interest" means direct or
indirect beneficial ownership (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934) of voting securities or other voting interests
representing at least 5% of the outstanding voting power of a Person or equity
securities or other equity interests representing at least 5% of the outstanding
equity securities or equity interests in a Person.
"RELEASE" - any spilling, leaking, emitting, discharging, depositing,
escaping, leaching, dumping, or other releasing into the Environment, whether
intentional or unintentional.
"REPRESENTATIVE" - with respect to a particular Person, any director,
officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants, and financial advisors.
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"SECURITIES ACT" - the Securities Act of 1933 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.
"SELLER" - as defined in the first paragraph of this Agreement.
"SELLER'S RELEASE" - as defined in Section 2.4.
"SHARES " - as defined in the Recitals of this Agreement.
"SUBSIDIARY" - with respect to any Person (the "Owner"), any corporation
or other Person of which securities or other interests having the power to elect
a majority of that corporation's or other Person's board of directors or similar
governing body, or otherwise having the power to direct the business and
policies of that corporation or other Person (other than securities or other
interests having such power only upon the happening of a contingency that has
not occurred) are held by the Owner or one or more of its Subsidiaries; when
used without reference to a particular Person, "Subsidiary" means a Subsidiary
of the Company.
"TAX RETURN " - any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment of
any Tax or in connection with the administration, implementation, or enforcement
of or compliance with any Legal Requirement relating to any Tax.
"THREAT OF RELEASE" - a substantial likelihood of a Release that may
require action in order to prevent or mitigate damage to the Environment that
may result from such Release.
"THREATENED" - a claim, Proceeding, dispute, action, or other matter
will be deemed to have been "Threatened" if any demand or statement has been
made (orally or in writing) or any notice has been given (orally or in writing),
or if any other event has occurred or any other circumstances exist, that would
lead a prudent Person to conclude that such a claim, Proceeding, dispute,
action, or other matter is likely to be asserted, commenced, taken, or otherwise
pursued in the future.
2. SALE AND TRANSFER OF SHARES; CLOSING
2.1 SHARES. Subject to the terms and conditions of this Agreement, at
the Closing, Seller will sell and transfer the Shares to Buyer, and Buyer will
purchase the Shares from Seller.
2.2 CONSIDERATION. In consideration of the sale and transfer of the
Shares, the Buyer will deliver in full payment for the Shares, (a) $2,000,000 in
cash (b) 4,000,000 shares of common stock, $.001 par value, of Buyer ("Buyer's
Shares") and (c) 2,000,000 shares of common stock, $.001 par value, of Buyer,
which shares shall be placed in escrow pursuant to an escrow agreement, in the
form of Exhibit 2.2 (the "Escrow Agreement"). The number of shares in
subparagraphs (b) and (c) of this Section 2.2 shall be reduced by 50% after the
effective time of a one-for-two reverse split to be approved by Buyer's Board in
September 1999.
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2.3 CLOSING. The purchase and sale (the "Closing") provided for in this
Agreement will take place at the same time and place as the closing of the
Public Financing, or at such other time and place as the parties may agree.
Subject to the provisions of Section 7, failure to consummate the purchase and
sale provided for in this Agreement on the date and time and at the place
determined pursuant this Section 2.3 will not result in the termination of this
Agreement and will not relieve any party of any obligation under this Agreement.
2.4 CLOSING OBLIGATIONS. At the Closing:
(a) Seller will deliver to Buyer:
(a) certificates representing the Shares, duly endorsed (or
accompanied by duly executed stock powers), for transfer
to Buyer;
(b) releases in the form of Exhibit 2.4(a)(ii) executed by
Seller ("Seller's Releases");
(b) Buyer will deliver to Seller:
(i) $2,000,000 by wire transfer to an account specified by
Seller;
(ii) certificates representing 4,000,000 shares of Buyer's
common stock;
(iii) Buyer will deliver to Escrow Agent certificates
representing 2,000,000 shares of Buyer's common stock. The
certificates to be issued shall bear a customary
restrictive legend applicable to restricted securities
issued privately; and
(c) Buyer and Seller will enter into the Escrow Agreement.
3. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
3.1 ORGANIZATION AND GOOD STANDING.
(a) The Company is a corporation duly organized, validly
existing, and in good standing under the laws of its
jurisdiction of incorporation, with full corporate power
and authority to conduct its business as it is now being
conducted, to own or use the properties and assets that it
purports to own or use, and to perform all its obligations
under Applicable Contracts. The Company is duly qualified
to do business as a foreign corporation and is in good
standing under the laws of each state or other
jurisdiction in which either the ownership or use of the
properties owned or used by it, or the nature of the
activities conducted by it, requires such qualification.
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(b) Seller has delivered to Buyer copies of the Organizational
Documents of the Company, as currently in effect.
3.2 AUTHORITY; NO CONFLICT.
(a) This Agreement constitutes the legal, valid, and binding obligation
of Seller, enforceable against Seller in accordance with its terms.
Seller has the absolute and unrestricted right, power, authority,
and capacity to execute and deliver this Agreement and to perform
its obligations under this Agreement.
(b) Except as set forth in Part 3.2 of the Disclosure Letter, neither
the execution and delivery of this Agreement nor the consummation
or performance of any of the Contemplated Transactions will,
directly or indirectly (with or without notice or lapse of time):
(i) contravene, conflict with, or result in a violation of (A)
any provision of the Organizational Documents of the
Company, or (B) any resolution adopted by the board of
directors or the stockholder of the Company;
(ii) contravene, conflict with, or result in a violation of, or
give any Governmental Body or other Person the right to
challenge any of the Contemplated Transactions or to
exercise any remedy or obtain any relief under, any Legal
Requirement or any Order to which the Company, or any of
the assets owned or used by the Company, may be subject;
(iii) contravene, conflict with, or result in a violation of any
of the terms or requirements of, or give any Governmental
Body the right to revoke, withdraw, suspend, cancel,
terminate, or modify, any Governmental Authorization that
is held by the Company or that otherwise relates to the
business of, or any of the assets owned or used by, the
Company;
(iv) cause Buyer or the Company to become subject to, or to
become liable for the payment of, any Tax;
(v) cause any of the assets owned by the Company to be
reassessed or revalued by any taxing authority or other
Governmental Body;
(vi) contravene, conflict with, or result in a violation or
breach of any provision of, or give any Person the right
to declare a default or exercise any remedy under, or to
accelerate the maturity or performance of, or to cancel,
terminate, or modify, any Applicable Contract; or
(vii) result in the imposition or creation of any Encumbrance
upon or with respect to any of the assets owned or used by
the Company.
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Except as set forth in Part 3.2 of the Disclosure Letter, neither Seller
nor the Company is or will be required to give any notice to or obtain any
Consent from any Person in connection with the execution and delivery of this
Agreement or the consummation or performance of any of the Contemplated
Transactions.
(c) Seller is acquiring the Buyer's Shares for their own account and
not with a view to their distribution within the meaning of
Section 2(11) of the Securities Act.
3.3 CAPITALIZATION. The authorized equity securities of the Company
consist of 850 shares of common stock, no par value, of which 642.85 shares are
issued and outstanding and constitute the Shares. Seller is the record and
beneficial owner and holder of the Shares, free and clear of all Encumbrances.
No legend or other reference to any purported Encumbrance appears upon any
certificate representing equity securities of the Company. All of the
outstanding equity securities of the Company have been duly authorized and
validly issued and are fully paid and non-assessable. There are no Contracts
relating to the issuance, sale, or transfer of any equity securities or other
securities of the Company. None of the outstanding equity securities or other
securities of the Company was issued in violation of the Securities Act or any
other Legal Requirement. The Company does not own, nor does the Company have any
Contract to acquire, any equity securities or other securities of any Person
(other than the Company) or any direct or indirect equity or ownership interest
in any other business.
3.4 FINANCIAL STATEMENTS. Seller has delivered to Buyer:
(a) a balance sheet of the Company as at March 31, 1999 (including the
notes thereto, the "Balance Sheet"), and the related statements of
income, changes in stockholder's equity, and cash flow for the
fiscal year then ended, together with the report thereon of
Brimmer, Burek, Keelan and McNally, LLP, independent certified
public accountants; and
(b) an unaudited balance sheet of the Company as at June 30, 1999 (the
"Interim Balance Sheet") and the related unaudited statements of
income, changes in stockholders' equity, and cash flow for the six
months then ended, including in each case the notes thereto. Such
financial statements and notes fairly present the financial
condition and the results of operations, changes in stockholders'
equity, and cash flow of the Company as at the respective dates of
and for the periods referred to in such financial statements, all
in accordance with GAAP, subject, in the case of interim financial
statements, to normal recurring year-end adjustments (the effect of
which will not, individually or in the aggregate, be materially
adverse) and the absence of notes (that, if presented, would not
differ materially from those included in the Balance Sheet); the
financial statements referred to in this Section 3.4 reflect the
consistent application of such accounting principles throughout the
periods involved, except as disclosed in the notes to such
financial statements.
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3.5 BOOKS AND RECORDS. The books of account, minute books, stock record
books, and other records of the Company, all of which have been made available
to Buyer, are complete and correct and have been maintained in accordance with
sound business practices and the requirements of Section 13(b)(2) of the
Securities Exchange Act of 1934, as amended (regardless of whether or not the
Company is subject to that Section), including the maintenance of an adequate
system of internal controls. The minute book of the Company contains accurate
and complete records of all meetings held of, and corporate action taken by, the
stockholders, the Boards of Directors, and committees of the Boards of Directors
of the Company, and no meeting of any such stockholders, Board of Directors, or
committee has been held for which minutes have not been prepared and are not
contained in such minute books. All of those books and records are in the
possession of the Company.
3.6 TITLE TO PROPERTIES; ENCUMBRANCES. Part 3.6 of the Disclosure Letter
contains a complete and accurate list of leaseholds, or other interests therein
owned by the Company. Seller has delivered or made available to Buyer copies of
the deeds and other instruments (as recorded) by which the Company acquired such
interests, and copies of all title insurance policies, opinions, abstracts, and
surveys in the possession of Seller or the Company and relating to such property
or interests. The Company owns all the properties and assets (whether real,
personal, or mixed and whether tangible or intangible) that they purport to own
located in the facilities owned or operated by the Company or reflected as owned
in the books and records of the Company, including all of the properties and
assets reflected in the Balance Sheet and the Interim Balance Sheet (except for
assets held under capitalized leases disclosed or not required to be disclosed
in Part 3.6 of the Disclosure Letter and personal property sold since the date
of the Balance Sheet and the Interim Balance Sheet, as the case may be, in the
Ordinary Course of Business), and all of the properties and assets purchased or
otherwise acquired by the Company since the date of the Balance Sheet (except
for personal property acquired and sold since the date of the Balance Sheet in
the Ordinary Course of Business and consistent with past practice. All material
properties and assets reflected in the Balance Sheet and the Interim Balance
Sheet are free and clear of all Encumbrances except, with respect to all such
properties and assets, (a) mortgages or security interests shown on the Balance
Sheet or the Interim Balance Sheet as securing specified liabilities or
obligations, with respect to which no default (or event that, with notice or
lapse of time or both, would constitute a default) exists, (b) mortgages or
security interests incurred in connection with the purchase of property or
assets after the date of the Interim Balance Sheet (such mortgages and security
interests being limited to the property or assets so acquired), with respect to
which no default (or event that, with notice or lapse of time or both, would
constitute a default) exists, (c) liens for current taxes not yet due, and (d)
with respect to real property, (i) minor imperfections of title, if any, none of
which is substantial in amount, materially detracts from the value or impairs
the use of the property subject thereto, or impairs the operations of the
Company, and (ii) zoning laws and other land use restrictions that do not impair
the present or anticipated use of the property subject thereto.
3.7 CONDITION AND SUFFICIENCY OF EQUIPMENT. The equipment owned by the
Company is structurally sound, is in good operating condition and repair, and is
adequate for the uses to which it is being put, and none of such equipment is in
need of maintenance or repairs except for ordinary, routine maintenance and
repairs that are not material in nature or cost. The equipment of the
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Company is sufficient for the continued conduct of the Company's business after
the Closing in substantially the same manner as conducted prior to the Closing.
3.8 ACCOUNTS RECEIVABLE. All accounts receivable of the Company that are
reflected on the Balance Sheet or the Interim Balance Sheet or on the accounting
records of the Company as of the Closing Date (collectively, the "Accounts
Receivable") represent or will represent valid obligations arising from sales
actually made or services actually performed in the Ordinary Course of Business.
Unless paid prior to the Closing Date, the Accounts Receivable are or will be as
of the Closing Date current and collectible net of the respective reserves shown
on the Balance Sheet or the Interim Balance Sheet or on the accounting records
of the Company as of the Closing Date (which reserves are adequate and
calculated consistent with past practice and, in the case of the reserve as of
the Closing Date, will not represent a greater percentage of the Accounts
Receivable as of the Closing Date than the reserve reflected in the Interim
Balance Sheet represented of the Accounts Receivable reflected therein and will
not represent a material adverse change in the composition of such Accounts
Receivable in terms of aging). Seller has no knowledge of any contest, claim, or
right of set-off, other than returns in the Ordinary Course of Business, under
any Contract with any obligor of an Accounts Receivable relating to the amount
or validity of such Accounts Receivable. Seller has delivered to Buyer a
complete and accurate list of all Accounts Receivable as of the date of the
Interim Balance Sheet, which list sets forth the aging of such Accounts
Receivable.
3.9 INVENTORY. All inventory of the Company, whether or not reflected in
the Balance Sheet or the Interim Balance Sheet, consists of a quality and
quantity usable and salable in the Ordinary Course of Business, except for
obsolete items and items of below-standard quality, all of which have been
written off or written down to net realizable value in the Balance Sheet or the
Interim Balance Sheet or on the accounting records of the Company as of the
Closing Date, as the case may be. All inventories not written off have been
priced at the lower of cost or market on a first in, first out basis. The
quantities of each item of inventory (whether raw materials, work-in-process, or
finished goods) are not excessive, but are reasonable in the present
circumstances of the Company.
3.10 NO UNDISCLOSED LIABILITIES. Except as set forth in Part 3.10 of the
Disclosure Letter, the Company has no liabilities or obligations of any nature
(whether known or unknown and whether absolute, accrued, contingent, or
otherwise) except for liabilities or obligations reflected or reserved against
in the Balance Sheet or the Interim Balance Sheet and current liabilities
incurred in the Ordinary Course of Business since the respective dates thereof.
3.11 TAXES.
(a) The Company has filed or caused to be filed (on a timely basis
since 1996) all Tax Returns that are or were required to be filed
by or with respect to it, pursuant to applicable Legal
Requirements. Seller has delivered or made available to Buyer
copies of, all such Tax Returns filed since 1996. The Company has
paid, or made provision for the payment of, all Taxes that have or
may have become due pursuant to those Tax Returns or otherwise, or
pursuant to any assessment received by Seller
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or the Company, except such Taxes, if any, as are listed in Part
3.11 of the Disclosure Letter and are being contested in good faith
and as to which adequate reserves (determined in accordance with
GAAP) have been provided in the Balance Sheet and the Interim
Balance Sheet.
(b) The charges, accruals, and reserves with respect to Taxes on the
books of the Company are adequate (determined in accordance with
GAAP) and are at least equal to the Company's liability for Taxes.
There exists no proposed tax assessment against the Company except
as disclosed in the Balance Sheet or in Part 3.11 of the Disclosure
Letter. No consent to the application of Section 341 (f)(2) of the
IRC has been filed with respect to any property or assets held,
acquired, or to be acquired by the Company. All Taxes that the
Company is or was required by Legal Requirements to withhold or
collect have been duly withheld or collected and, to the extent
required, have been paid to the proper Governmental Body or other
Person.
(c) All Tax Returns filed by the Company are true, correct, and
complete. There is no tax sharing agreement that will require any
payment by the Company after the date of this Agreement.
3.12 NO MATERIAL ADVERSE CHANGE. Since the date of the Balance Sheet,
there has not been any material adverse change in the business, operations,
properties, prospects, assets, or condition of the Company, and no event has
occurred or circumstance exists that may result in such a material adverse
change.
3.13 EMPLOYEE BENEFITS.
(a) As used in this Section 3.13, the following terms have the meanings
set forth below.
"COMPANY PLAN" means all Plans of which an the Company or an ERISA
Affiliate of the Company is or was a Plan Sponsor, or to which an the Company or
an ERISA Affiliate of the Company otherwise contributes or has contributed, or
in which an the Company or an ERISA Affiliate of the Company otherwise
participates or has participated. All references to Plans are to Company Plans
unless the context requires otherwise.
"ERISA AFFILIATE" means, with respect to an the Company, any other
person that, together with the Company, would be treated as a single employer
under IRC ss.414.
"OTHER BENEFIT OBLIGATIONS" means all obligations, arrangements, or
customary practices, whether or not legally enforceable, to provide benefits,
other than salary, as compensation for services rendered, to present or former
directors, employees, or agents, other than obligations, arrangements, and
practices that are Plans. Other Benefit Obligations include consulting
agreements under which the compensation paid does not depend upon the amount of
service rendered, sabbatical policies, severance payment policies, and fringe
benefits within the meaning of IRC ss.132.
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"PENSION PLAN" has the meaning given in ERISA ss.3(2)(A).
"PLAN" has the meaning given in ERISA ss.3(3).
"QUALIFIED PLAN " MEANS any Plan that meets or purports to meet the
requirements of IRC ss.401 (a).
"TITLE IV PLANS" means all Pension Plan's that are subject to Title IV
of ERISA, 29 U.S.C. ss.1301 et seq.
"VEBA " MEANS a voluntary employees' beneficiary association under IRC
ss.501 (c)(9).
"WELFARE PLAN" has the meaning given in ERISA ss.3(l).
(b) The Company has no Plan, Company Plan, Other Benefit Obligations,
Pension Plan, Qualified Plan, Title IV Plans, VEBA or Welfare Plan.
3.14 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS.
(a) Except as set forth in Part 3.14 of the Disclosure Letter:
(i) the Company is, and at all times since March 31, 1999 has
been, in full compliance with each Legal Requirement that is
or was applicable to it or to the conduct or operation of
its business or the ownership or use of any of its assets;
(ii) no event has occurred or circumstance exists that (with or
without notice or lapse of time) (A) may constitute or
result in a violation by the Company of, or a failure on the
part of the Company to comply with, any Legal Requirement,
or (B) may give rise to any obligation on the part of the
Company to undertake, or to bear all or any portion of the
cost of, any remedial action of any nature; and
(iii) the Company has received, at any time since March 31, 1999,
any notice or other communication (whether oral or written)
from any Governmental Body or any other Person regarding (A)
any actual, alleged, possible, or potential violation of, or
failure to comply with, any Legal Requirement, or (B) any
actual, alleged, possible, or potential obligation on the
part of the Company to undertake, or to bear all or any
portion of the cost of, any remedial action of any nature.
(b) Part 3.14 of the Disclosure Letter contains a complete and accurate
list of each Governmental Authorization that is held by the Company
or that otherwise relates
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to the business of, or to any of the assets owned or used by, the
Company. Each Governmental Authorization listed or required to be
listed in Part 3.14 of the Disclosure Letter is valid and in full
force and effect. Except as set forth in Part 3.14 of the
Disclosure Letter:
(i) the Company is, and at all times since March 31, 1999 has
been, in full compliance with all of the terms and
requirements of each Governmental Authorization identified
or required to be identified in Part 3.14 of the Disclosure
Letter;
(ii) no event has occurred or circumstance exists that may (with
or without notice or lapse of time) (A) constitute or result
directly or indirectly in a violation of or a failure to
comply with any term or requirement of any Governmental
Authorization listed or required to be listed in Part 3.14
of the Disclosure Letter, or (B) result directly or
indirectly in the revocation, withdrawal, suspension,
cancellation, or termination of, or any modification to, any
Governmental Authorization listed or required to be listed
in Part 3.14 of the Disclosure Letter;
(iii) the Company has not received, at any time since March 31,
1999, any notice or other communication (whether oral or
written) from any Governmental Body or any other Person
regarding (A) any actual, alleged, possible, or potential
violation of or failure to comply with any term or
requirement of any Governmental Authorization, or (B) any
actual, proposed, possible, or potential revocation,
withdrawal, suspension, cancellation, terminatin of, or
modification to any Governmental Authorization; and
(iv) all applications required to have been filed for the renewal
of the Governmental Authorizations listed or required to be
listed in Part 3.14 of the Disclosure Letter have been duly
filed on a timely basis with the appropriate Governmental
Bodies, and all other filings required to have been made
with respect to such Governmental Authorizations have been
duly made on a timely basis with the appropriate
Governmental Bodies.
The Governmental Authorizations listed in Part 3.14 of the Disclosure
Letter collectively constitute all of the Governmental Authorizations necessary
to permit the Company to lawfully conduct and operate its business in the manner
it currently conducts and operates such business and to permit the Company to
own and use its assets in the manner in which it currently owns and uses such
assets.
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3.15 LEGAL PROCEEDINGS; ORDERS.
(a) Except as set forth in Part 3.15 of the Disclosure Letter, there is
no pending Proceeding:
(i) that has been commenced by or against the Company; or
(ii) that challenges, or that may have the effect of
preventing, delaying, making illegal, or otherwise
interfering with, any of the Contemplated Transactions.
To the Knowledge of Seller and the Company, (i) no such Proceeding has
been Threatened, and (ii) no event has occurred or circumstance exists that may
give rise to or serve as a basis for the commencement of any such Proceeding.
Seller has delivered to Buyer copies of all pleadings, correspondence, and other
documents relating to each Proceeding listed in Part 3.15 of the Disclosure
Letter. The Proceedings listed in Part 3.15 of the Disclosure Letter will not
have a material adverse effect on the business, operations, assets, condition,
or prospects of the Company.
(b) Except as set forth in Part 3.15 of the Disclosure Letter:
(i) there is no Order to which the Company, or any of the assets
owned or used by the Company, is subject;
(ii) Seller is not subject to any Order that relates to the
business of, or any of the assets owned or used by, the
Company; and
(iii) to the Knowledge of Seller and the Company, no officer,
director, agent, or employee of the Company is subject to
any Order that prohibits such officer, director, agent, or
employee from engaging in or continuing any conduct,
activity, or practice relating to the business of the
Company.
(c) Except as set forth in Part 3.15 of the Disclosure Letter:
(i) the Company is, and at all times since March 31, 1999 has
been, in full compliance with all of the terms and
requirements of each Order to which it, or any of the assets
owned or used by it, is or has been subject;
(ii) no event has occurred or circumstance exists that may
constitute or result in (with or without notice or lapse of
time) a violation of or failure to comply with any term or
requirement of any Order to which the Company, or any of the
assets owned or used by the Company, is subject; and
(iii) the Company has not received, at any time since March 31,
1999, any notice or other communication (whether oral or
written) from any Governmental Body or any other Person
regarding any actual, alleged, possible, or potential
violation of, or failure to comply with, any term or
requirement of any Order
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to which the Company, or any of the assets owned or used by
the Company, is or has been subject.
3.16 ABSENCE OF CERTAIN CHANGES AND EVENTS. Except as set forth in Part
3.16 of the Disclosure Letter, since the date of the Balance Sheet, the Company
has conducted its business only in the Ordinary Course of Business and there has
not been any:
(a) change in the Company's authorized or issued capital stock; grant
of any stock option or right to purchase shares of capital stock of
the Company; issuance of any security convertible into such capital
stock; grant of any registration rights; purchase, redemption,
retirement, or other acquisition by the Company of any shares of
any such capital stock; or declaration or payment of any dividend
or other distribution or payment in respect of shares of capital
stock;
(b) amendment to the Organizational Documents of the Company;
(c) payment or increase by the Company of any bonuses, salaries, or
other compensation to any stockholder, director, officer, or
(except in the Ordinary Course of Business) employee or entry into
any employment, severance, or similar Contract with any director,
officer, or employee;
(d) adoption of, or increase in the payments to or benefits under, any
profit sharing, bonus, deferred compensation, savings, insurance,
pension, retirement, or other employee benefit plan for or with any
employees of the Company;
(e) damage to or destruction or loss of any asset or property of the
Company, whether or not covered by insurance, materially and
adversely affecting the properties, assets, business, financial
condition, or prospects of the Company, taken as a whole;
(f) entry into, termination of, or receipt of notice of termination of
(i) any license, distributorship, dealer, sales representative,
joint venture, credit, or similar agreement, or (ii) any Contract
or transaction involving a total remaining commitment by or to the
Company of at least $25,000;
(g) sale (other than sales of inventory in the Ordinary Course of
Business), lease, or other disposition of any asset or property of
the Company or mortgage, pledge, or imposition of any lien or other
encumbrance on any material asset or property of the Company,
including the sale, lease, or other disposition of any of the
Intellectual Property Assets;
(h) cancellation or waiver of any claims or rights with a value to the
Company in excess of $25,000;
(i) material change in the accounting methods used by the Company; or
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(j) agreement, whether oral or written, by the Company to do any of the
foregoing.
3.17 CONTRACTS; NO DEFAULTS.
(a) Part 3.17(a) of the Disclosure Letter contains a complete and
accurate list, and Seller has delivered to Buyer true and complete
copies, of
(i) each Applicable Contract that involves performance of
services or delivery of goods or materials by the Company of
an amount or value in excess of $25,000;
(ii) each Applicable Contract that involves performance of
services or delivery of goods or materials to the Company of
an amount or value in excess of $25,000;
(iii) each Contract that was not entered into in the Ordinary
Course of Business and that involves expenditures or
receipts of one or more The Company in excess of $25,000;
(iv) each lease, rental or occupancy agreement, license,
installment and conditional sale agreement, and other
Applicable Contract affecting the ownership of, leasing of,
title to, use of, or any leasehold or other interest in, any
real or personal property (except personal property leases
and installment and conditional sales agreements having a
value per item or aggregate payments of less than $25,000
and with terms of less than one year);
(v) each licensing agreement or other Applicable Contract with
respect to patents, trademarks, copyrights, or other
intellectual property, including agreements with current or
former employees, consultants, or contractors regarding the
appropriation or the non-disclosure of any of the
Intellectual Property Assets;
(vi) each collective bargaining agreement and other Applicable
Contract to or with any labor union or other employee
representative of a group of employees;
(vii) each joint venture, partnership, and other Applicable
Contract (however named) involving a sharing of profits,
losses, costs, or liabilities by the Company with any other
Person;
(viii) each Applicable Contract containing covenants that in any
way purport to restrict the business activity of the Company
or limit the freedom of the Company to engage in any line of
business or to compete with any Person;
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(ix) each Applicable Contract providing for payments to or by any
Person based on sales, purchases, or profits, other than
direct payments for goods;
(x) each power of attorney that is currently effective and
outstanding;
(xi) each Applicable Contract entered into other than in the
Ordinary Course of Business that contains or provides for an
express undertaking by the Company to be responsible for
consequential damages;
(xii) each Applicable Contract for capital expenditures in excess
of $25,000;
(xiii) each written warranty, guaranty, and or other similar
undertaking with respect to contractual performance extended
by the Company other than in the Ordinary Course of
Business; and
(xiv) each amendment, supplement, and modification (whether oral
or written) in respect of any of the foregoing.
Part 3.17(a) of the Disclosure Letter sets forth reasonably complete
details concerning such Contracts, including the parties to the Contracts, the
amount of the remaining commitment of the Company under the Contracts, and the
Company's office where details relating to the Contracts are located.
(b) Except as set forth in Part 3.17(b) of the Disclosure Letter:
(i) Seller (and no Related Person of either Seller) neither has
nor may acquire any rights under, and Seller neither has nor
may become subject to any obligation or liability under, any
Contract that relates to the business of, or any of the
assets owned or used by, the Company; and
(ii) to the Knowledge of Seller and the Company, no officer,
director, agent, employee, consultant, or contractor of the
Company is bound by any Contract that purports to limit the
ability of such officer, director, agent, employee,
consultant, or contractor to (A) engage in or continue any
conduct, activity, or practice relating to the business of
the Company, or (B) assign to the Company or to any other
Person any rights to any invention, improvement, or
discovery.
(c) Except as set forth in Part 3.17(c) of the Disclosure Letter,
each Contract identified or required to be identified in Part
3.17(a) of the Disclosure Letter is in full force and effect and
is valid and enforceable in accordance with its terms.
(d) Except as set forth in Part 3.17(d) of the Disclosure Letter:
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(i) the Company is, and at all times since March 31, 1999 has
been, in full compliance with all applicable terms and
requirements of each Contract under which the Company has or
had any obligation or liability or by which the Company or
any of the assets owned or used by the Company is or was
bound;
(ii) each other Person that has or had any obligation or
liability under any Contract under which an the Company has
or had any rights is, and at all times since March 31, 1999
has been, in full compliance with all applicable terms and
requirements of such Contract;
(iii) no event has occurred or circumstance exists that (with or
without notice or lapse of time) may contravene, conflict
with, or result in a violation or breach of, or give the
Company or other Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate, or modify, any
Applicable Contract; and
(iv) the Company has not given to or received from any other
Person, at any time since March 31, 1999, any notice or
other communication (whether oral or written) regarding any
actual, alleged, possible, or potential violation or breach
of, or default under, any Contract.
(e) There are no renegotiations of, attempts to renegotiate, or
outstanding rights to renegotiate any material amounts paid or
payable to the Company under current or completed Contracts with
any Person and, to the Knowledge of Seller and the Company, no
such Person has made written demand for such renegotiation.
(f) The Contracts relating to the sale, design, manufacture, or
provision of products or services by the Company have been
entered into in the Ordinary Course of Business and have been
entered into without the commission of any act alone or in
concert with any other Person, or any consideration having been
paid or promised, that is or would be in violation of any Legal
Requirement.
3.18 INSURANCE.
(a) Seller has delivered to Buyer:
(i) true and complete copies of all policies of insurance to
which the Company is a party or under which the Company, or
any director of the Company, is or has been covered at any
time within the two years preceding the date of this
Agreement;
(ii) true and complete copies of all pending applications for
policies of insurance; and
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(iii) any statement by the auditor of the Company's financial
statements with regard to the adequacy of such entity's
coverage or of the reserves for claims.
(b) Part 3.18(b) of the Disclosure Letter describes:
(i) any self-insurance arrangement by or affecting the Company,
including any reserves established thereunder;
(ii) any contract or arrangement, other than a policy of
insurance, for the transfer or sharing of any risk by the
Company; and
(iii) all obligations of the Company to third parties with respect
to insurance (including such obligations under leases and
service agreements) and identifies the policy under which
such coverage is provided.
(c) Part 3.18(c) of the Disclosure Letter sets forth, by year, for
the current policy year and each of the two preceding policy
years:
(i) a summary of the loss experience under each policy;
(ii) a statement describing each claim under an insurance policy
for an amount in excess of $25,000, which sets forth:
(A) the name of the claimant;
(B) a description of the policy by insurer, type of
insurance, and period of coverage; and
(C) the amount and a brief description of the claim; and
(iii) a statement describing the loss experience for all claims
that were self-insured, including the number and aggregate
cost of such claims.
(d) Except as set forth on Part 3.18(d) of the Disclosure Letter:
(i) All policies to which the Company is a party or that provide
coverage to Seller, the Company, or any director or officer
of the Company:
(A) are valid, outstanding, and enforceable;
(B) are issued by an insurer that is financially sound
and taken together, provide adequate insurance
coverage for the assets and the operations of the
Company for all risks to which the Company is
normally exposed;
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(C) are sufficient for compliance with all Legal
Requirements and Contracts to which the Company is
a party or by which it is bound;
(D) will continue in full force and effect following
the consummation of the Contemplated Transactions;
and
(E) do not provide for any retrospective premium
adjustment or other experience-based liability on
the part of the Company.
(ii) Neither Seller nor the Company has received (A) any refusal
of coverage or any notice that a defense will be afforded
with reservation of rights, or (B) any notice of
cancellation or any other indication that any insurance
policy is no longer in full force or effect or will not be
renewed or that the issuer of any policy is not willing or
able to perform its obligations thereunder.
(iii) The Company has paid all premiums due, and has otherwise
performed all of its obligations, under each policy to which
the Company is a party or that provides coverage to the
Company or a director thereof.
(iv) The Company has given notice to the insurer of all claims
that may be insured thereby.
3.19 ENVIRONMENTAL MATTERS. Except as set forth in part 3.19 of the
disclosure letter:
(a) The Company is, and at all times has been, in full compliance with,
and has not been and is not in violation of or liable under, any
Environmental Law. Neither Seller nor the Company has any basis to
expect, nor has any of them or any other Person for whose conduct
they are or may be held to be responsible received, any actual or
Threatened order, notice, or other communication from (i) any
Governmental Body or private citizen acting in the public interest,
or (ii) the current or prior owner or operator of any Facilities,
of any actual or potential violation or failure to comply with any
Environmental Law, or of any actual or Threatened obligation to
undertake or bear the cost of any Environmental, Health, and Safety
Liabilities with respect to any of the Facilities or any other
properties or assets (whether real, personal, or mixed) in which
Seller or the Company has had an interest.
(b) There are no pending or, to the Knowledge of Seller and the
Company, Threatened claims, Encumbrances, or other restrictions of
any nature, resulting from any Environmental, Health, and Safety
Liabilities or arising under or pursuant to any Environmental Law,
with respect to or affecting any of the Facilities or any other
properties and assets (whether real, personal, or mixed) in which
Seller or the Company has or had an interest.
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(c) Neither Seller nor the Company has Knowledge of any basis to
expect, nor has any of them or any other Person for whose conduct
they are or may be held responsible, received, any citation,
directive, inquiry, notice, Order, summons, warning, or other
communication from any Governmental Body that relates to Hazardous
Activity, Hazardous Materials, or any alleged, actual, or potential
violation or failure to comply with any Environmental Law, or of
any alleged, actual, or potential obligation to undertake or bear
the cost of any Environmental, Health, and Safety Liabilities with
respect to any of the Facilities or any other properties or assets
(whether real, personal, or mixed) in which Seller or the Company
had an interest.
(d) To the knowledge of Seller, neither Seller nor the Company, or any
other Person for whose conduct they are or may be held responsible,
has any Environmental, Health, and Safety Liabilities with respect
to the Facilities or, to the Knowledge of Seller and the Company,
with respect to any other properties and assets (whether real,
personal, or mixed) in which Seller or the Company (or any
predecessor), has or had an interest, or at any property
geologically or hydrologically adjoining the Facilities or any such
other property or assets.
(e) There has been no Release by the Company or, to the Knowledge of
Seller and the Company, Threat of Release, of any Hazardous
Materials at or from the Facilities or at any other locations where
any Hazardous Materials were generated, manufactured, refined,
transferred, produced, imported, used, or processed from or by the
Facilities, or from or by any other properties and assets (whether
real, personal, or mixed) in which Seller or the Company has or had
an interest, or to the Knowledge of Seller and the Company any
geologically or hydrologically adjoining property, by Seller or the
Company.
(f) Seller has delivered to Buyer true and complete copies and results
of any reports, studies, analyses, tests, or monitoring possessed
or initiated by Seller or the Company pertaining to Hazardous
Materials or Hazardous Activities in, on, or under the Facilities,
or concerning compliance by Seller, the Company, or any other
Person for whose conduct they are or may be held responsible, with
Environmental Laws.
3.20 EMPLOYEES.
(a) Part 3.20 of the Disclosure Letter contains a complete and accurate
list of the following information for each employee or director of
the Company, including each employee on leave of absence or layoff
status: employer; name; job title; current compensation paid or
payable and any change in compensation since March 31, 1999;
vacation accrued; and service credited for purposes of vesting and
eligibility to participate under the Company's pension, retirement,
profit-sharing, thrift-savings, deferred compensation, stock bonus,
stock option, cash bonus, employee stock ownership (including
investment credit or payroll stock ownership), severance pay,
insurance, medical, welfare, or vacation plan, other Employee
Pension Benefit Plan
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or Employee Welfare Benefit Plan, or any other employee benefit
plan or any Director Plan.
(b) No employee or director of the Company is a party to, or is
otherwise bound by, any agreement or arrangement, including any
confidentiality, non-competition, or proprietary rights agreement,
between such employee or director and any other Person
("Proprietary Rights Agreement") that in any way adversely affects
or will affect (i) the performance of his duties as an employee or
director of the Company, or (ii) the ability of the Company to
conduct its business, including any Proprietary Rights Agreement
with Seller or the Company by any such employee or director. To
Seller's Knowledge, no director, officer, or other key employee of
the Company intends to terminate his employment with the Company.
(c) Part 3.20 of the Disclosure Letter also contains a complete and
accurate list of the following information for each retired
employee or director of the Company, or their dependents, receiving
benefits or scheduled to receive benefits in the future: name,
pension benefit, pension option election, retiree medical insurance
coverage, retiree life insurance coverage, and other benefits.
3.21 LABOR RELATIONS; COMPLIANCE. Since March 31, 1999, the Company has
not been a party to any collective bargaining or other labor Contract. Since
March 31, 1999, there has not been, there is not presently pending or existing,
and to Seller's Knowledge there is not Threatened, (a) any strike, slowdown,
picketing, work stoppage, or employee grievance process, (b) any Proceeding
against or affecting the Company relating to the alleged violation of any Legal
Requirement pertaining to labor relations or employment matters, including any
charge or complaint filed by an employee or union with the National Labor
Relations Board, the Equal Employment Opportunity Commission, or any comparable
Governmental Body, organizational activity, or other labor or employment dispute
against or affecting any of the Company or its premises, or (c) any application
for certification of a collective bargaining agent. To Seller's Knowledge, no
event has occurred or circumstance exists that could provide the basis for any
work stoppage or other labor dispute. There is no lockout of any employees by
the Company, and no such action is contemplated by the Company. The Company has
complied in all respects with all Legal Requirements relating to employment,
equal employment opportunity, nondiscrimination, immigration, wages, hours,
benefits, collective bargaining, the payment of social security and similar
taxes, occupational safety and health, and plant closing. The Company is liable
for the payment of any compensation, damages, taxes, fines, penalties, or other
amounts, however designated, for failure to comply with any of the foregoing
Legal Requirements.
3.22 INTELLECTUAL PROPERTY.
(a) Intellectual Property Assets - The term "Intellectual Property
Assets" includes:
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(i) the name Becan Distributors, all fictional business names,
trading names, registered and unregistered trademarks,
service marks, and applications (collectively, "Marks");
(ii) all patents, patent applications, and inventions and
discoveries that may be patentable (collectively,
"Patents");
(iii) all know-how, trade secrets, confidential information,
customer lists, software, technical information, data,
process technology, plans, drawings, and blue prints
(collectively, "Trade Secrets"); owned, used, or licensed
by the Company as licensee or licensor.
(b) Agreements - Part 3.22(b) of the Disclosure Letter contains a
complete and accurate list and summary description, including any
royalties paid or received by the Company, of all Contracts
relating to the Intellectual Property Assets to which the Company
is a party or by which the Company is bound, except for any license
implied by the sale of a product and perpetual, paid-up licenses
for commonly available software programs with a value of less than
$10,000 under which an the Company is the licensee. There are no
outstanding and, to Seller's Knowledge, no Threatened disputes or
disagreements with respect to any such agreement.
(c) Know-How Necessary for the Business.
(i) The Intellectual Property Assets are all those necessary for
the operation of the Company's businesses as they are
currently conducted. The Company is the owner of all right,
title, and interest in and to each of the Intellectual
Property Assets, free and clear of all liens, security
interests, charges, encumbrances, equities, and other
adverse claims, except for the lien held by The CIT
Group/Credit Finance, Inc., and has the right to use without
payment to a third party all of the Intellectual Property
Assets.
(ii) Except as set forth in Part 3.22(c) of the Disclosure
Letter, all former and current employees of the Company have
executed written Contracts with one or more of the Company
that assign to one or more of the Company all rights to any
inventions, improvements, discoveries, or information
relating to the business of the Company. No employee of the
Company has entered into any Contract that restricts or
limits in any way the scope or type of work in which the
employee may be engaged or requires the employee to
transfer, assign, or disclose information concerning his
work to anyone other than the Company.
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(d) Trade Secrets.
(i) With respect to each Trade Secret, the documentation
relating to such Trade Secret is current, accurate, and
sufficient in detail and content to identify and explain it
and to allow its full and proper use without reliance on the
knowledge or memory of any individual.
(ii) Seller and the Company have taken all reasonable precautions
to protect the secrecy, confidentiality, and value of their
Trade Secrets.
(iii) The Company has good title and an absolute (but not
necessarily exclusive) right to use the Trade Secrets. The
Trade Secrets are not part of the public knowledge or
literature, and, to Seller's Knowledge, have not been used,
divulged, or appropriated either for the benefit of any
Person (other than the Company) or to the detriment of the
Company. No Trade Secret is subject to any adverse claim or
has been challenged or threatened in any way.
3.23 CERTAIN PAYMENTS. Since March 31, 1999, neither the Company nor any
director, officer, agent, or employee of the Company, or to Seller's Knowledge
any other Person associated with or acting for or on behalf of the Company, has
directly or indirectly (a) made any contribution, gift, bribe, rebate, payoff,
influence payment, kickback, or other payment to any Person, private or public,
regardless of form, whether in money, property, or services (i) to obtain
favorable treatment in securing business, (ii) to pay for favorable treatment
for business secured, (iii) to obtain special concessions or for special
concessions already obtained, for or in respect of the Company or any Affiliate
of an the Company, or (iv) in violation of any Legal Requirement, (b)
established or maintained any fund or asset that has not been recorded in the
books and records of the Company.
3.24 DISCLOSURE.
(a) No representation or warranty of Seller in this Agreement and no
statement in the Disclosure Letter omits to state a material fact
necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.
(b) No notice given pursuant to Section 7.5 will contain any untrue
statement or omit to state a material fact necessary to make the
statements therein or in this Agreement, in light of the
circumstances in which they were made, not misleading.
(c) There is no fact known to Seller that has specific application to
either Seller or the Company (other than general economic or
industry conditions) and that materially adversely affects or, as
far as Seller can reasonably foresee, materially threatens, the
assets, business, prospects, financial condition, or results of
operations of the Company that has not been set forth in this
Agreement or the Disclosure Letter.
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3.25 RELATIONSHIPS WITH RELATED PERSONS. Neither Seller nor any Related
Person of Seller or of the Company has, or since the first day of the next to
last completed fiscal year of the Company has had, any interest in any property
(whether real, personal, or mixed and whether tangible or intangible), used in
or pertaining to the Company's business, except for property used by Seller's
home office personnel to oversee the operations of the Company. Neither Seller
nor any Related Person of Seller or of the Company is, or since the first day of
the next to last completed fiscal year of the Company has owned (of record or as
a beneficial owner) an equity interest or any other financial or profit interest
in, a Person that has (i) had business dealings or a material financial interest
in any transaction with the Company other than business dealings or transactions
conducted in the Ordinary Course of Business with the Company at substantially
prevailing market prices and on substantially prevailing market terms, or (ii)
engaged in competition with the Company with respect to any line of the products
or services of the Company (a "Competing Business") in any market presently
served by the Company except for less than one percent of the outstanding
capital stock of any Competing Business that is publicly traded on any
recognized exchange or in the over-the-counter market. Except as set forth in
Part 3.25 of the Disclosure Letter, neither Seller nor any Related Person of
Seller or of the Company is a party to any Contract with, or has any claim or
right against, the Company.
3.26 BROKERS OR FINDERS. Seller and its agents have incurred no
obligation or liability, contingent or otherwise, for brokerage or finders' fees
or agents' commissions or other similar payment in connection with this
Agreement.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
4.1 ORGANIZATION AND GOOD STANDING. Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Nevada.
4.2 AUTHORITY; NO CONFLICT.
(i) This Agreement constitutes the legal, valid, and binding obligation
of Buyer, enforceable against Buyer in accordance with its terms.
Buyer has the absolute and unrestricted right, power, and authority
to execute and deliver this Agreement and to perform its
obligations under this Agreement.
(ii) Except as set forth in Schedule 4.2, neither the execution and
delivery of this Agreement by Buyer nor the consummation or
performance of any of the Contemplated Transactions by Buyer will
give any Person the right to prevent, delay, or otherwise interfere
with any of the Contemplated Transactions pursuant to:
(i) any provision of Buyer's Organizational Documents;
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(ii) any resolution adopted by the board of directors or the
stockholders of Buyer;
(iii) any Legal Requirement or Order to which Buyer may be
subject; or
(iv) any Contract to which Buyer is a party or by which Buyer may
be bound.
Except as set forth in Schedule 4.2, Buyer is not and will not be
required to obtain any Consent from any Person in connection with the execution
and delivery of this Agreement or the consummation or performance of any of the
Contemplated Transactions.
4.3 INVESTMENT INTENT. Buyer is acquiring the Shares for its own account
and not with a view to their distribution within the meaning of Section 2(11) of
the Securities Act.
4.4 CERTAIN PROCEEDINGS. There is no pending Proceeding that has been
commenced against Buyer and that challenges, or may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions. To Buyer's Knowledge, no such Proceeding has been
Threatened.
4.5 BROKERS OR FINDERS. Buyer and its officers and agents have incurred
no obligation or liability, contingent or otherwise, for brokerage or finders'
fees or agents' commissions or other similar payment in connection with this
Agreement and will indemnify and hold Seller harmless from any such payment
alleged to be due by or through Buyer as a result of the action of Buyer or its
officers or agents.
5. COVENANTS
5.1 COVENANTS OF THE COMPANY.
(a) Prior to and through the Closing Date, the Company shall
(i) conduct its business only in the Ordinary Course of
Business;
(ii) use its commercially reasonable efforts to preserve intact
the current business organization of the Company, keep
available the services of the current officers, employees
and agents of the Company, and maintain the relations and
good will with suppliers, customers, landlords, creditors,
employees, agents and others having business relationships
with the Company; and
(iii) report periodically to Buyer concerning the status of the
business and operations of the Company.
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(b) Commencing on the date of execution of this Agreement through the
Closing Date, the Company shall not, directly or indirectly
(whether through an employee, a representative, an agent or
otherwise) solicit or encourage any inquiries or proposals, engage
in negotiations for or consent to or enter into any agreement
providing for the acquisition of the business. The Company shall
not, directly or indirectly (whether through an employee, a
representative, an agent or otherwise) disclose any non-public
information relating to the Company or afford access to any of the
books, records or other properties of the Company to any person or
entity that is considering, has considered or is making any such
acquisition inquiry or proposal relating to the Company's business.
(c) Prior to the Closing Date, the Company shall use commercially
reasonable efforts to:
(i) promptly comply with all filing requirements which
federal, state or local law may impose on the Company with
respect to the transactions contemplated by this
Agreement; and
(ii) take all actions necessary to be taken, make any filing
and obtain any consent, authorization or approval of or
exemption by any governmental authority, regulatory agency
or any other third party (including without limitation,
any landlord or lessor of the Company and any party to
whom notification s required to be delivered or from whom
any form of consent is required) which is required to be
filed or obtained by the Company in connection with the
transactions contemplated by this Agreement.
(d) Prior to the Closing Date, the Company shall make available to
Buyer any and all agreements, contracts, documents, other
instruments and personnel material to the Company's business,
including without limitation, those contracts to which the Company
is a party and those by which its business or any of the Company's
assets are bound.
5.2 COVENANTS OF BUYER.
(a) Buyer shall use all reasonable efforts to obtain any consent,
authorization or approval of, or exemption by, any governmental
authority or agency or other third party required to be obtained or
made by it in connection with this Agreement or the consummation of
the transactions contemplated hereby.
(b) Prior to the Closing Date, with the cooperation of the Company
where appropriate, Buyer shall:
(i) promptly comply with all filing requirements which
federal, state or local law may impose on Buyer with
respect to the transactions contemplated by this
Agreement; and
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(ii) use its diligent efforts to take all actions necessary to
be taken, make any filing and obtain any consent,
authorization or approval of or exemption by any
governmental authority, regulatory agency or any other
third party which is required to be filed or obtained by
Buyer in connection with the transactions contemplated by
this Agreement.
6. CONDITIONS
6.1 CONDITIONS TO OBLIGATIONS OF BUYER. The obligation of Buyer to
consummate the transactions contemplated by this Agreement is subject to the
fulfillment of each of the following conditions, which may be waive in whole or
in part by Buyer to the extent permitted by applicable law:
(a) At the Closing, Seller shall have furnished Buyer with certified
copies of resolutions duly adopted by the board of directors and
stockholders of Seller authorizing the execution, delivery and
performance of the terms of this Agreement.
(b) Seller shall have furnished to Buyer, at the Closing, with an
opinion of counsel to Seller and the Company dated as of the
Closing Date, in a form to be agreed upon.
(c) Each of the representations and warranties of Seller set forth in
this Agreement was true, correct and complete in all material
respects when made and shall also be true, correct and complete in
all material respects at and as of the Closing Date, with the same
force and effect as if made and as of the Closing Date. Seller
shall have performed and complied in all material respects with all
agreements and covenants required by this Agreement to be performed
by Seller at or prior to the Closing Date.
(d) Seller shall have delivered to Buyer a certificate, dated the
Closing Date, and signed by an executive officer of Seller
affirming that the representations and warranties made by Seller as
set forth in Section 3 of this Agreement were and are true, correct
and complete as required by Section 6.1(c) above.
(e) At the Closing, any and all necessary consents, authorizations
orders or approvals shall have been obtained, except as the same
shall have been waived by Buyer.
(f) On the Closing Date, there shall be no effective injunction, writ
or preliminary restraining order or any order of any kind
whatsoever with respect to Seller issued by a court or governmental
agency (or other governmental or regulatory authority) of competent
jurisdiction restraining or prohibiting the consummation of the
transactions contemplated hereby or making consummation thereof
unduly burdensome to Buyer. On the Closing Date and immediately
prior to consummation of the transactions contemplated by this
Agreement, no proceeding or lawsuit shall have been commenced, be
pending or have been threatened by any governmental or
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regulatory agency or authority or any other person with respect
to the transactions contemplated by this Agreement.
(g) Prior to the Closing Date, the Company shall have made available or
delivered to Buyer all of the agreements, contracts, documents and
other instruments required to be delivered pursuant to the
provisions of this Agreement.
(h) The Closing is conditioned upon the consummation of the Public
Financing.
6.2 CONDITIONS TO OBLIGATIONS OF SELLER. The obligations of Seller to
consummate the transactions contemplated by this Agreement are subject to the
fulfillment of each of the following conditions, which may be waived in whole or
in part by the Company to the extent permitted by law:
(a) At the Closing, Buyer shall have furnished Seller with certified
copies of resolutions duly adopted by the board of directors of
Buyer authorizing the execution, delivery and performance of the
terms of this Agreement and all other necessary or proper corporate
action to enable to comply with the terms of this Agreement.
(b) Buyer shall have furnished the Company at the Closing, with an
opinion of counsel to Buyer, dated as of the Closing Date, in a
form to be agreed upon.
(c) Each of the representations and warranties of Buyer was true,
correct and complete in all material respects when made and shall
also be true, correct and complete in all material respects at and
as of the Closing Date, with the same force and effect as if made
at and as of the Closing Date. Buyer shall have performed and
complied in all material respects with all agreements covenants
required by this Agreement to be performed by the Buyer at or prior
to the Closing Date.
(d) Buyer shall have delivered to the Company a certificate, dated the
Closing Date and signed by an executive officer of Buyer, affirming
that the representations and warranties of Buyer as set forth in
Section 4 of this Agreement were and are true, correct and complete
as required by Section 6.2(c).
(e) On or prior to the Closing Date, any and all necessary consents,
authorizations, orders or approvals shall have been obtained,
except as the same shall have been waived by the Company.
(f) On the Closing Date, there shall be no effective injunction, writ
or preliminary restraining order or any order of any kind
whatsoever with respect to the Company issued by a court or
governmental agency (or other governmental or regulatory authority)
of competent jurisdiction restraining or prohibiting the
consummation of the transactions contemplated herein or making the
consummation thereof unduly burdensome to the Company. On the
Closing Date, no proceeding or lawsuit shall have been commenced,
threatened or be pending or by any governmental or
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regulatory agency or authority or any other person with respect
to the transactions contemplated by this Agreement.
(g) Prior to the Closing Date, Buyer shall have made available or
delivered to the Company all of the agreements, contracts,
documents and other instruments required to be delivered pursuant
to the provisions of this Agreement.
(h) Buyer shall have consummated the Public Financing at a price of not
less than $8.00 per share.
(i) Buyer shall have entered into an agreement with Seller upon terms
satisfactory to Seller granting Seller, for a period of one year
from the Closing Date, the first right to manufacture private label
nutritional supplements sold or to be sold by the Company.
7. TERMINATION AND REMEDIES FOR BREACH OF THIS AGREEMENT
7.1 TERMINATION BY MUTUAL AGREEMENT. This Agreement may be terminated at
any time by mutual consent of the parties hereto, provided that such consent to
terminate is manifested in writing and is signed by each of the parties hereto.
7.2 TERMINATION FOR FAILURE TO CLOSE. This Agreement may be terminated
by any party hereto if the Closing shall not have occurred by October 31, 1999,
PROVIDED THAT, the right to terminate this Agreement pursuant to this Section
7.2 shall not be available to any party whose failure to fulfill any of its
obligations hereunder has been the cause of or resulted in the failure to
consummate the transactions contemplated hereby by the foregoing date.
7.3 TERMINATION BY OPERATION OF LAW. This Agreement may be terminated by
any party hereto if there shall be any statute, rule or regulation that renders
consummation of the transactions contemplated hereby illegal or otherwise
prohibited, or a court of competent jurisdiction or any government (or
governmental authority) shall have issued an order, decree or ruling, or has
taken any other action restraining, enjoining or otherwise prohibiting the
consummation of such transactions and such order, decree, ruling or other action
shall have become final and non-appealable.
7.4 TERMINATION FOR FAILURE TO PERFORM COVENANTS OR CONDITIONS. This
Agreement may be terminated prior to the Closing Date.
(a) by Buyer if: (i) any of the representations and warranties made in
this Agreement by the Seller shall not be materially true and
correct, when made or at any time prior to consummation of the
transactions contemplated hereby as if made at and as of such time;
(ii) any of the conditions set forth in Section 6.1 hereof have not
been fulfilled by the Closing Date; (iii) the Seller shall have
failed to observe or perform any of its material obligations under
this Agreement; or (iv) as otherwise set forth herein; or
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(b) by Seller if: (i) any of the representations and warranties of
Buyer shall not be materially true and correct when made or at any
time prior to consummation of the transactions contemplated hereby
as if made at and as of such time; (ii) any of the conditions set
forth in Section 6.2 hereof have not been fulfilled by the Closing
Date; (iii) Buyer shall have failed to observe or perform any of
their material respective obligations under this Agreement; or (iv)
as otherwise set forth herein.
8. INDEMNIFICATION; REMEDIES
8.1 SURVIVAL, RIGHT TO INDEMNIFICATION NOT AFFECTED BY KNOWLEDGE. All
representations, warranties, covenants, and obligations in this Agreement, the
Disclosure Letter, and any other document delivered pursuant to this Agreement
will survive the Closing. The right to indemnification, payment of Damages or
other remedy based on such representations, warranties, covenants, and
obligations will not be affected by any investigation conducted with respect to,
or any Knowledge acquired (or capable of being acquired) at any time, whether
before or after the execution and delivery of this Agreement or the Closing
Date, with respect to the accuracy or inaccuracy of or compliance with, any such
representation, warranty, covenant, or obligation. The waiver of any condition
based on the accuracy of any representation or warranty, or on the performance
of or compliance with any covenant or obligation, will not affect the right to
indemnification, payment of Damages, or other remedy based op. such
representations, warranties, covenants, and obligations.
8.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLER. Seller will
indemnify and hold harmless Buyer, the Company, and their respective
Representatives, stockholders, controlling persons, and affiliates
(collectively, the "Indemnified Persons") for, and will pay to the Indemnified
Persons the amount of, any loss, liability, claim, damage (including incidental
and consequential damages), expense (including costs of investigation and
defense and reasonable attorneys' fees) or diminution of value, whether or not
involving a third-party claim (collectively, "Damages"), arising, directly or
indirectly, from or in connection with:
(a) any Breach of any representation or warranty made by Seller in this
Agreement (without giving effect to any supplement to the
Disclosure Letter), the Disclosure Letter, the supplements to the
Disclosure Letter, or any other certificate or document delivered
by Seller pursuant to this Agreement;
(b) any Breach of any representation or warranty made by Seller in this
Agreement;
(c) any Breach by Seller of any covenant or obligation of such Seller
in this Agreement;
(d) any product shipped or manufactured by, or any services provided
by, the Company prior to the Closing Date;
(e) any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or
understanding alleged to have been made by
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any such Person with Seller or the Company (or any Person acting
on their behalf) in connection with any of the Contemplated
Transactions.
The remedies provided in this Section 8.2 will not be exclusive of or
limit any other remedies that may be available to Buyer or the other Indemnified
Persons.
8.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLER - ENVIRONMENTAL
MATTERS. In addition to the provisions of Section 8.2, Seller will indemnify and
hold harmless Buyer, the Company, and the other Indemnified Persons for, and
will pay to Buyer, the Company, and the other Indemnified Persons the amount of,
any Damages (including costs of cleanup, containment, or other remediation)
arising, directly or indirectly, from or in connection with:
(a) any Environmental, Health, and Safety Liabilities arising out of or
relating to: (i) (A) the ownership, operation, or condition at any
time on or prior to the Closing Date of the Facilities or any other
properties and assets (whether real, personal, or mixed and whether
tangible or intangible) in which Seller or the Company has or had
an interest, or (B) any Hazardous Materials or other contaminants
that were present on the Facilities or such other properties and
assets at any time on or prior to the Closing Date; or (ii) (A) any
Hazardous Materials or other contaminants, wherever located, that
were, or were allegedly, generated, transported, stored, treated,
Released, or otherwise handled by Seller or the Company or by any
other Person for whose conduct they are or may be held responsible
at any time on or prior to the Closing Date, or (B) any Hazardous
Activities that were, or were allegedly, conducted by Seller or the
Company or by any other Person for whose conduct they are or may be
held responsible; or
(b) any bodily injury (including illness, disability, and death, and
regardless of when any such bodily injury occurred, was incurred,
or manifested itself), personal injury, property damage (including
trespass, nuisance, wrongful eviction, and deprivation of the use
of real property), or other damage of or to any Person, including
any employee or former employee of Seller or the Company or any
other Person for whose conduct they are or may be held responsible,
in any way arising from or allegedly arising from any Hazardous
Activity conducted or allegedly conducted with respect to the
Facilities or the operation of the Company prior to the Closing
Date, or from Hazardous Material that was (i) present or suspected
to be present on or before the Closing Date on or at the Facilities
(or present or suspected to be present on any other property, if
such Hazardous Material emanated or allegedly emanated from any of
the Facilities and was present or suspected to be present on any of
the Facilities on or prior to the Closing Date) or (ii) Released or
allegedly Released by Seller or the Company or any other Person for
whose conduct they are or may be held responsible, at any time on
or prior to the Closing Date.
Buyer will be entitled to control any Cleanup, any related Proceeding,
and, except as provided in the following. sentence, any other Proceeding with
respect to which indemnity may be
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sought under this Section 8.3. The procedure described in Section 8.8 will apply
to any claim solely for monetary damages relating to a matter covered by this
Section 8.3.
8.4 INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER. Buyer will
indemnify and hold harmless Seller, and will pay to Seller the amount of any
Damages arising, directly or indirectly, from or in connection with (a) any
Breach of any representation or warranty made by Buyer in this Agreement or in
any certificate delivered by Buyer pursuant to this Agreement, (b) any Breach by
Buyer of any covenant or obligation of Buyer in this Agreement, or (c) any claim
by any Person for brokerage or finder's fees or commissions or similar payments
based upon any agreement or understanding alleged to have been made by such
Person with Buyer (or any Person acting on its behalf) in connection with any of
the Contemplated Transactions.
8.5 TIME LIMITATIONS. Seller will have no liability (for indemnification
or otherwise) with respect to any representation or warranty, other than those
in Sections 3.3, 3.11, 3.13, and 3.19, unless on or before two years after the
Closing Date, Buyer notifies Seller of a claim specifying the factual basis of
that claim in reasonable detail to the extent then known by Buyer; a claim with
respect to Section 3.3, 3.11, 3.13, or 3.19, or a claim for indemnification or
reimbursement not based upon any representation or warranty or any covenant or
obligation to be performed and complied with prior to the Closing Date, may be
made at any time. Buyer will have no liability (for indemnification or
otherwise) with respect to any representation or warranty, or covenant or
obligation to be performed and complied with prior to the Closing Date, unless
on or before two years after the Closing Date, Seller notifies Buyer of a claim
specifying the factual basis of that claim in reasonable detail to the extent
then known by Seller.
8.6 LIMITATIONS ON AMOUNT - SELLER. Seller will have no liability (for
indemnification or otherwise) with respect to the matters described in clause
(a), clause (b) or, to the extent relating to any failure to perform or comply
prior to the Closing Date, clause (c) of Section 8.2 until the total of all
Damages with respect to such matters exceeds $50,000, and then only for the
amount by which such Damages exceed $50,000. Seller will have no liability (for
indemnification or otherwise) with respect to the matters described in clause
(d) of Section 8.2 until the total of all Damages with respect to such matters
exceeds $50,000, and then only for the amount by which such Damages exceed
$50,000. However, this Section 8.6 will not apply to any 31 Breach of any of
Seller's representations and warranties of which Seller had Knowledge at any
time prior to the date on which such representation and warranty is made or any
intentional Breach by either Seller of any covenant or obligation, and Seller
will be jointly and severally liable for all Damages with respect to such
Breaches.
8.7 LIMITATIONS ON AMOUNT - BUYER. Buyer will have no liability (for
indemnification or otherwise) with respect to the matters described in clause
(a) or (b) of Section 8.4 until the total of all Damages with respect to such
matters exceeds $50,000, and then only for the amount by which such Damages
exceed $50,000. However, this Section 8.7 will not apply to any Breach of any of
Buyer's representations and warranties of which Buyer had Knowledge at any time
prior to the date on which such representation and warranty is made or any
intentional Breach by Buyer of any covenant or obligation, and Buyer will be
liable for all Damages with respect to such Breaches.
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8.8 PROCEDURE FOR INDEMNIFICATION - THIRD PARTY CLAIMS.
(a) Promptly after receipt by an indemnified party under Section 8.2,
8.4, or (to the extent provided in the last sentence of Section
8.3) Section 8.3 of notice of the commencement of any Proceeding
against it, such indemnified party will, if a claim is to be made
against an indemnifying party under such Section, give notice to
the indemnifying party of the commencement of such claim, but the
failure to notify the indemnifying party will not relieve the
indemnifying party of any liability that it may have to any
indemnified party, except to the extent that the indemnifying party
demonstrates that the defense of such action is prejudiced by the
indemnifying party's failure to give such notice
(b) If any Proceeding referred to in Section 8.8(a) is brought against
an indemnified party and it gives notice to the indemnifying party
of the commencement of such Proceeding, the indemnifying party
will, unless the claim involves Taxes, be entitled to participate
in such Proceeding and, to the extent that it wishes (unless (i)
the indemnifying party is also a party to such Proceeding and the
indemnified party determines in good faith that joint
representation would be inappropriate, or (ii) the indemnifying
party fails to provide reasonable assurance to the indemnified
party of its financial capacity to defend such Proceeding and
provide indemnification with respect to such Proceeding), to assume
the defense of such Proceeding with counsel satisfactory to the
indemnified party and, after notice from the indemnifying party to
the indemnified party of its election to assume the defense of such
Proceeding, the indemnifying party will not, as long as it
diligently conducts such defense, be liable to the indemnified
party under this Section 8 for any fees of other counsel or any
other expenses with respect to the defense of such Proceeding, in
each case subsequently incurred by the indemnified party in
connection with the defense of such Proceeding, other than
reasonable costs of investigation. If the indemnifying party
assumes the defense of a Proceeding, (i) it will be conclusively
established for purposes of this Agreement that the claims made in
that Proceeding are within the scope of and subject to
indemnification; (ii) no compromise or settlement of such claims
may be effected by the indemnifying party without the indemnified
party's consent unless (A) there is no finding or admission of any
violation of Legal Requirements or any violation of the rights of
any Person and no effect on any other claims that may be made
against the indemnified party, and (B) the sole relief provided is
monetary damages that are paid in full by the indemnifying party;
and (iii) the indemnified party will have no liability with respect
to any compromise or settlement of such claims effected without its
consent. If notice is given to an indemnifying party of the
commencement of any Proceeding and the indemnifying party does not,
within ten days after the indemnified party's notice is given, give
notice to the indemnified party of its election to assume the
defense of such Proceeding, the indemnifying party will be bound by
any determination made in such Proceeding or any compromise or
settlement effected by the indemnified party.
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(c) Notwithstanding the foregoing, if an indemnified party determines
in good faith that there is a reasonable probability that a
Proceeding may adversely affect it or its affiliates other than as
a result of monetary damages for which it would be entitled to
indemnification under this Agreement, the indemnified party may, by
notice to the indemnifying party, assume the exclusive right to
defend, compromise, or settle such Proceeding, but the indemnifying
party will not be bound by any determination of a Proceeding so
defended or any compromise or settlement effected without its
consent (which may not be unreasonably withheld).
(d) Seller hereby consents to the non-exclusive jurisdiction of any
court in which a Proceeding is brought against any Indemnified
Person for purposes of any claim that an Indemnified Person may
have under this Agreement with respect to such Proceeding or the
matters alleged therein, and agree that process may be served on
Seller with respect to such a claim anywhere in the world.
8.9 PROCEDURE FOR INDEMNIFICATION - OTHER CLAIMS. A claim for
indemnification for any matter not involving a third-party claim may be asserted
by notice to the party from whom indemnification is sought.
9. GENERAL PROVISIONS
9.1 EXPENSES. Except as otherwise expressly provided in this Agreement,
each party to this Agreement will bear its respective expenses incurred in
connection with the preparation, execution, and performance of this Agreement
and the Contemplated Transactions, including all fees and expenses of agents,
representatives, counsel, and accountants. Seller will cause the Company not to
incur any out-of-pocket expenses in connection with this Agreement.
9.2 PUBLIC ANNOUNCEMENTS. Any public announcement or similar publicity
with respect to this Agreement or the Contemplated Transactions will be issued,
if at all, at such time and in such manner as Buyer determines. Unless consented
to by Buyer in advance or required by Legal Requirements, prior to the Closing
Seller shall, and shall cause the Company to, keep this Agreement strictly
confidential and may not make any disclosure of this Agreement to any Person.
Seller and Buyer will consult with each other concerning the means by which the
Company's employees, customers, and suppliers and others having dealings with
the Company will be informed of the Contemplated Transactions, and Buyer will
have the right to be present for any such communication.
9.3 NOTICES. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand (with written confirmation of receipt), (b)
sent by telecopier (with written confirmation of receipt), provided that a copy
is mailed by registered mail, return receipt requested, or (c) when received by
the addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
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Seller: Dynamic Health Products, Inc.
6950 Bryan Dairy Road
Largo, FL 33777
Attention: Jugal K. Taneja
Facsimile No.: (727)548-1917
with a copy to: Philip Shasteen, Esq.
Johnson, Blakely, Pope, Bokor, Ruppel & Burns, P.A.
100 N. Tampa Street, Suite 1800
Tampa, FL 33601
Facsimile No.: (813)223-7118
Buyer: Nutriceutical.com Corporation
6950 Bryan Dairy Road
Largo, FL 33777
Attention: Stephen Watters
Facsimile No.: (727)548-1917
with a copy to: William J. Schifino, Esq.
Schifino & Fleischer, P.A.
201 N. Franklin Street, Suite 2700
Tampa, FL 33602
Facsimile No.: (813)223-3070
9.4 JURISDICTION, SERVICE OF PROCESS. Any action or proceeding seeking
to enforce any provision of, or based on any right arising out of, this
Agreement may be brought against any of the parties in the courts of the State
of Florida, County of Pinellas, or, if it has or can acquire jurisdiction, in
the United States District Court for the Middle District of Florida, and each of
the parties consents to the jurisdiction of such courts (and of the appropriate
appellate courts) in any such action or proceeding and waives any objection to
venue laid therein. Process in any action or proceeding referred to in the
preceding sentence may be served on any party anywhere in the world.
9.5 FURTHER ASSURANCES. The parties agree (a) to furnish upon request to
each other such further information, (b) to execute and deliver to each other
such other documents, and (c) to do such other acts and things, all as the other
party may reasonably request for the purpose of carrying out the intent of this
Agreement and the documents referred to in this Agreement.
9.6 WAIVER. The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by any party
in exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out of
this Agreement or the documents referred to in this Agreement
39
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can be discharged by one party, in whole or in part, by a waiver or renunciation
of the claim or right unless in writing signed by the other party; (b) no waiver
that may be given by a party will be applicable except in the specific instance
for which it is given; and (c) no notice to or demand on one party will be
deemed to be a waiver of any obligation of such party or of the right of the
party giving such notice or demand to take further action without notice or
demand as provided in this Agreement or the documents referred to in this
Agreement.
9.7 ENTIRE AGREEMENT AND MODIFICATION. This Agreement supersedes all
prior agreements between the parties with respect to its subject matter and
constitutes a complete and exclusive statement of the terms of the agreement
between the parties with respect to its subject matter. This Agreement may not
be amended except by a written agreement executed by the party to be charged
with the amendment.
9.8 DISCLOSURE LETTER. In the event of any inconsistency between the
statements in the body of this Agreement and those in the Disclosure Letter
(other than an exception expressly set forth as such in the Disclosure Letter
with respect to a specifically identified representation or warranty), the
statements in the body of this Agreement will control.
9.9 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS. Neither party
may assign any of its rights under this Agreement without the prior consent of
the other parties, which will not be unreasonably withheld, except that Buyer
may assign any of its rights under this Agreement to any Subsidiary of Buyer.
Subject to the preceding sentence, this Agreement will apply to, be binding in
all respects upon, and inure to the benefit of the successors and permitted
assigns of the parties. Nothing expressed or referred to in this Agreement will
be construed to give any Person other than the parties to this Agreement any
legal or equitable right, remedy, or claim under or with respect to this
Agreement or any provision of this Agreement. This Agreement and all of its
provisions and conditions are for the sole and exclusive benefit of the parties
to this Agreement and their successors and assigns.
9.10 SEVERABILITY. If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
9.11 SECTION HEADINGS, CONSTRUCTION. The headings of Sections in this
Agreement are provided for convenience only and will not affect its construction
or interpretation All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Agreement. All words used in this
Agreement will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms.
9.12 TIME OF ESSENCE. With regard to all dates and time periods set
forth or referred to in this Agreement, time is of the essence.
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9.13 GOVERNING LAW. This Agreement will be governed by the laws of the
State of Florida without regard to conflicts of laws principles.
9.14 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
BUYER:
NUTRICEUTICALS.COM CORPORATION,
a Nevada corporation
By: ___________________________
Stephen Watters, President
SELLER:
DYNAMIC HEALTH PRODUCTS, INC.
a Florida corporation
By: ___________________________
______________, President
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EXHIBIT 2.4(A)(II)
RELEASE
This Release is being executed and delivered in accordance with Section
2.4(a)(ii) of the Agreement and Plan of Reorganization dated September ____ ,
1999 (the "Agreement") between Nutriceuticals.com Corporation, a Nevada
corporation ("Buyer") and Dynamic Health Products, Inc. ("Seller"). Capitalized
terms used in this Release without definition have the respective meanings given
to them in the Agreement.
Seller acknowledges that execution and delivery of this Release is a
condition to Buyer's obligation to purchase the outstanding capital stock of the
Company pursuant to the Agreement and that Buyer is relying on this Release in
consummating such purchase.
Seller, for good and valuable consideration the receipt and sufficiency
of which is hereby acknowledged and intending to be legally bound, in order to
induce Buyer to purchase the outstanding capital stock of the Company pursuant
to the Agreement, hereby agrees as follows:
Seller, on behalf of himself and each of its Related Persons, hereby
releases and forever discharges the Buyer and the Company, and each of their
respective individual, joint or mutual, past, present and future
Representatives, affiliates, stockholders, controlling persons, Subsidiaries,
successors and assigns (individually, a "Releasee" and collectively,
"Releasees") from any and all claims, demands, Proceedings, causes of action,
Orders, obligations, contracts, agreements, debts and liabilities whatsoever,
whether known or unknown, suspected or unsuspected, both at law and in equity,
which each of Seller or any of their respective Related Persons now has, have
ever had or may hereafter have against the respective Releasees arising
contemporaneously with or prior to the Closing Date or on account of or arising
out of any matter, cause or event occurring contemporaneously with or prior to
the Closing Date, including, but not limited to, any rights to indemnification
or reimbursement from the Company, whether pursuant to their respective
Organizational Documents, contract or otherwise and whether or not relating to
claims pending on, or asserted after, the Closing Date.
Seller hereby irrevocably covenants to refrain from, directly or
indirectly, asserting any claim or demand, or commencing, instituting or causing
to be commenced, any proceeding of any kind against any Releasee, based upon any
matter purported to be released hereby.
Without in any way limiting any of the rights and remedies otherwise
available to any Releasee, Seller shall indemnify and hold harmless each
Releasee from and against all loss, liability, claim, damage (including
incidental and consequential damages) or expense (including costs of
investigation and defense and reasonable attorney's fees) whether or not
involving third party claims, arising directly or indirectly from or in
connection with (i) the assertion by or on behalf of Seller or any of their
Related Persons of any claim or other matter purported to be released pursuant
to this Release and (ii) the assertion by any third party of any claim or demand
against any Releasee which claim or demand arises directly or indirectly from,
or in connection with, any assertion by or on behalf of Seller or any of their
Related Persons against such third party of any claims or other matters
purported to be released pursuant to this Release.
<PAGE>
If any provision of this Release is held invalid or unenforceable by any
court of competent jurisdiction, the other provisions of this Release will
remain in full force and effect. Any provision of this Release held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
This Release may not be changed, except in a writing signed by the
person(s) against whose interest such change shall operate. This Release shall
be governed by and construed under the laws of the State of Florida without
regard to principles of conflicts of law.
All words used in this Release will be construed to be of such gender or
number as the circumstances require.
This Release may be executed in any number of counterparts, each of
which shall be deemed to be an original as against any party whose signature
appears thereon, and all of which shall together constitute one and the same
instrument. This Release shall become binding when one or more counterparts
hereof, individually or taken together, shall bear the signatures of all of the
parties reflected hereon as the signatories hereto.
IN WITNESS WHEREOF, each of the undersigned have executed and delivered
this Release as of this ___ day of September, 1999.
BUYER:
NUTRICEUTICALS.COM CORPORATION,
a Nevada corporation
By: /S/ STEPHEN M. WATTERS
-----------------------------
Stephen Watters, President
SELLER:
DYNAMIC HEALTH PRODUCTS, INC.
a Florida corporation
By: /S/ KOTHA S. SEHARAM
---------------------------
Kotha S. Seharam, President
KIRKLAND, RUSS, MURPHY & TAPP
Board of Directors
Nutriceuticals.com Corporation
We consent to the use of our reports included herein and to the reference to our
firm under the leading "experts" in the prospectus.
/s/Kirkland, Russ, Murphy & Tapp
Clearwater, Florida
September 10, 1999
BRIMMER, BUREK, KEELAN & MCNALLY LLP
Board of Directors
Nutriceuticals.com Corporation
We consent to the use of our reports included herein and to the reference to our
firm under the leading "experts" in the prospectus.
/s/Brimmer, Burek, Keelan & Mcnally LLP
Clearwater, Florida
September 10, 1999
