AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 16, 1999
REGISTRATION STATEMENT NO. 333-81835
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 3
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>
<S> <C> <C>
NEVADA 7375 34-1755390
- ------------------------------- --------------------------- ------------------
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
--------------
6950 BRYAN DAIRY ROAD
LARGO, FLORIDA 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, FLORIDA 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:
<TABLE>
<S> <C>
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
TELEPHONE: (813) 223-1535 TELEPHONE: (212) 664-1200
--------------
</TABLE>
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 number 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. [ ]
--------------
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 NOVEMBER 16, 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 "DMAX," 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.
YOU SHOULD PURCHASE SHARES ONLY IF YOU CAN AFFORD A COMPLETE LOSS OF YOUR
INVESTMENT. SEE "RISK FACTORS" COMMENCING ON PAGE 5.
----------------
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>
PROCEEDS BEFORE
PRICE TO UNDERWRITING DISCOUNTS 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 November , 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PAGE
----
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
</TABLE>
<TABLE>
<S> <C>
PAGE
----
BUSINESS .................................. 21
BECAN ..................................... 30
MANAGEMENT ................................ 33
SECURITY OWNERSHIP OF MANAGEMENT
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
</TABLE>
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.
NOTICE FOR CALIFORNIA RESIDENTS
OUR COMMON STOCK IS TO BE SOLD IN THE STATE OF CALIFORNIA PURSUANT TO A
LIMITED OFFERING QUALIFICATION UNDER A SUITABILITY STANDARD WHEREBY INVESTORS
MUST MEET A "SUPER SUITABILITY" STANDARD OF NOT LESS THAN $250,000 LIQUID NET
WORTH (A NET WORTH EXCLUSIVE OF HOME, HOME FURNISHINGS AND AUTOMOBILES), PLUS
$65,000 GROSS ANNUAL INCOME OR $500,000 LIQUID NET WORTH OR $1,000,000 NET WORTH
(INCLUSIVE) OR $200,000 GROSS ANNUAL INCOME.
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
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 six months ended
September 30, 1999 were $31.1 million and $26.5 million, respectively. Net
income for the respective periods were $94,031 and $112,095. Stockholders equity
at September 30, 1999 was $253,555. 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>
<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 ................. DMAX
</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 5 of this prospectus.
3
<PAGE>
CONSOLIDATED AND PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------- YEAR ENDED SIX MONTHS ENDED
MAR. 31, 1998(1) MAR. 31, 1999(2) MAR. 31,1999 SEPTEMBER 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 $ 50,697 $26,569,650
Gross profit (loss) ................... (9,741) 22,622 897,616 24,107 629,596
Selling general and administrative
expenses ............................. 26,839 132,793 1,118,241 270,118 667,364
Goodwill amortization ................. -- -- 516,430 -- 258,215
Loss from operations .................. (36,215) (110,171) (737,055) (246,011) (295,983)
Other income (expense) net ............ 32,215 1,761 1,761 (3,497) (99,645)
Net loss .............................. (4,365) (108,410) (735,294) (249,508) (395,628)
========= ========== =========== ========== ===========
Basic and diluted net loss per share .. $ (.02) $ (.08) $ (.21) $ (.09) $ (.11)
--------- ---------- ----------- ---------- -----------
Basic and diluted weighted average
common shares outstanding ............ 175,514 1,372,230 3,484,122 2,681,496 3,484,122
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
-----------------------------------------------
ACTUAL PRO FORMA(3) AS ADJUSTED(4)
------------ -------------- ---------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash ................................... $ 4,633 $ 125,616 $ 9,705,616
Working capital (deficit) .............. (252,633) (49,066) 9,730,934
Total assets ........................... 322,925 12,470,058 22,050,059
Stockholders' equity (deficit) ......... (171,581) 7,828,419 17,608,419
</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, and the HealthSeek.com
and Becan acquisitions. 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 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
OPERATION 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 September 30,
1999, we incurred net operating losses of $(353,983). As of September 30, 1999,
we had a negative net equity of $(171,581). 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 $26.6 million for the six months ended September 30, 1999, and losses of
approximately $735,294 and $395,628 for such periods. Our amortization expense
for such periods would have been approximately $516,430 and $258,215,
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 4 employees and 2 consultants. Following
this offering and the acquisition of Becan, we will have 14 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 September 30, 1999, the Company had a negative net tangible book
value of $(211,137) or $(.08) per share. The pro forma adjusted net tangible
book value of the common stock as of September 30, 1999 will be $1.58 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 $7.42 per share upon the completion of this offering.
PAYMENTS TO AFFILIATES
The Company plans to use approximately $200,000 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, and approximately
$146,000 of the proceeds for the payment of accrued compensation to Mr. Walters
and Mr. Taneja. 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:
<TABLE>
<S> <C>
o security o ease of access
o reliability o quality of service
o cost o necessary increases in bandwidth availability
</TABLE>
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 UNPREDICATABLE
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.
11
<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.
WE HAVE AGREED TO SELL SHARES OF OUR COMMON STOCK TO CALIFORNIA INVESTORS BASED
ON A "SUPER-SUITABILITY" STANDARD WHICH MAY LIMIT YOUR ABILITY TO SELL YOUR
SHARES IN THE AFTERMARKET
This offering was approved in California on the basis of a limited offering
qualification where offers and sales could only be made to proposed issuees
based on their meeting certain suitability standards as described in this
prospectus. We did not have to demonstrate compliance with some or all of the
merit regulations of the California Department of Corporations, as found in
Title 10, California Code of Regulations, Rule 260.140 et seq.
Residents of the State of California will be unable to sell shares of
common stock they purchase in this offering, and investors residing in all other
states will be unable to sell shares of common stock they purchase in this
offering to California residents, pursuant to exemptions for secondary trading
available under California Corporations Code ss25104(h), as such exemptions have
been withheld. However, there may be other exemptions to cover private sales by
the bona fide owners of our securities for such owner's own account without
advertising and without being effected by or through a borker dealer in a public
offering.
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 2,540,000 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.
13
<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 ......................... $ 200,000 1.6%
Working Capital ................................................ $ 1,380,000 11.7%
----------- ----
Total ......................................................... $11,780,000 100%
=========== ====
</TABLE>
- ----------------
* Includes approximately $146,000 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 "DMAX," and as of November 12, 1999, there were
approximately 546 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 November 11, 1999, there
were a total of approximately 18 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
November 11, 1999, the last reported sale price of the common stock on the OTC
Electronic Bulletin Board was $9.00 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
14
<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.
15
<PAGE>
CAPITALIZATION
The following table sets forth as of September 30, 1999, (i) our
consolidated capitalization, and (ii) our pro forma consolidated capitalization
as adjusted to give effect to 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>
SEPTEMBER 30, 1999
-----------------------------------
ACTUAL AS ADJUSTED
------------- -------------------
<S> <C> <C>
Total current liabilities(1) .......................... $ 494,506 $ --
Stockholders' equity:
Common stock, $.001 par value; 24,000,000 shares
authorized, 2,696,707 shares issued and outstanding,
actual; 6,196,707 shares authorized and outstanding
pro forma, as adjusted(2)(3) ....................... 2,697 6,197
Preferred stock, $.001 par value; 2,000,000 shares
authorized; no shares issued and outstanding
Additional paid-in capital ........................... 179,705 17,956,205
Accumulated deficit .................................. (353,983) (353,983)
Total stockholder's equity .......................... $ (171,581) $ 17,608,419
Total capitalization ................................. $ (171,581) $ 17,608,419
</TABLE>
- ----------------
(1) Includes $200,000 of notes payable due to various officers, directors and
an affiliate, at September 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. All of the
$200,000 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.
(2) Does not include 400,000 shares of common stock reserved for future
issuance under our 1999 Stock Option Plan. See "Description of Capital
Stock."
(3) The 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 number of shares
as adjusted also gives effect to a one-for-two reverse split of common
stock effected in October 1999. All share and per share data have been
adjusted for the October 1999 reverse stock split. See "Description of
Capital Stock" and Note 9 of Notes to Consolidated Financial Statements.
(4) 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.
16
<PAGE>
DILUTION
The net tangible book value of our common stock on September 30, 1999 was
$(211,137), or approximately $(.08) 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, our net
tangible book value on September 30, 1999 would have been approximately $9.8
million, or approximately $1.58 per share. This represents an immediate increase
in the net tangible book value of $1.66 per share to existing stockholders and
an immediate dilution of $7.42 (or an 82% dilution) to new investors.
<TABLE>
<S> <C> <C> <C>
Assumed offering price per share ............................... $ 9.00
------
Net tangible book per share value as of September 30, 1999 .... $ (.08)
-------
Increase per share attributable to the offering ............... $ 1.66
-------
Adjusted net tangible book value after the offering ............ $ 1.58
------
Dilution per share to new investors ............................ $ 7.42 (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 of the Company's Notes to Consolidated Financial Statements.
17
<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 six month period ended September 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 six months ended September 30, 1999 are not necessarily
indicative of results that may be expected for the full year.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED YEAR ENDED ENDED
MARCH 31, 1998(1) MARCH 31, 1999(2) SEPTEMBER 30, 1999
------------------- ------------------- ------------------
<S> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net revenues ......................................... $ 7,019 $ 37,118 $ 50,697
Gross profit (loss) .................................. (9,741) 22,622 24,107
Selling, general and administrative expenses ......... 26,839 132,793 270,118
--------- ---------- ----------
Loss from operations ................................ (36,215) (110,171) (246,011)
Other income ......................................... 32,215 1,761 360
--------- ---------- ----------
Net loss ............................................. $ (4,365) $ (108,410) $ (249,508)
========= ========== ==========
Basic and diluted net loss per share ................. (.02) (.08) $ (.09)
========= ========== ==========
Basic and diluted weighted average common shares
outstanding ........................................ 175,514 1,372,230 2,681,496
========= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
-----------------------------------------------
ACTUAL PRO FORMA(3) AS ADJUSTED(4)
------------ -------------- ---------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash ................................... $ 4,633 $ 125,616 $ 9,705,616
Working capital (deficit) .............. (252,633) (49,066) 9,730,934
Total assets ........................... 322,925 12,470,058 22,050,059
Stockholders' equity (deficit) ......... (171,581) 1,828,419 17,608,419
</TABLE>
- ----------------
(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 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 Becan.
18
<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 six months ended
September 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 six months ended September 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 September 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 SIX MONTHS ENDED
MARCH 31, 1999 SEPTEMBER 30, 1999
---------------- -------------------
<S> <C> <C>
CONSOLIDATE STATEMENT OF OPERATIONS DATA:
Net Revenues .......................................... $31,111,979 $26,569,650
Gross Profit .......................................... 897,616 629,596
Operating expenses:
Selling, general and administrative expenses ......... 1,118,241 667,364
Goodwill amortization ................................ 516,430 258,215
----------- -----------
Total Operating Expenses .............................. 1,634,671 925,579
Income (loss) from continuing operations .............. (737,055) (295,983)
Other income and expenses, net ........................ -- 120
Interest income (expense), net ........................ 1,761 (99,645)
----------- -----------
Net Income (loss) ..................................... (735,294) (395,628)
=========== ===========
Basic and diluted net loss per share .................. (0.21) (0.11)
=========== ===========
Weighted average common shares outstanding ............ 3,484,122 3,484,122
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ......... $ 9,705,616
Working capital ................... 9,730,934
Total assets ...................... 22,050,059
Stockholders' equity .............. 17,608,419
</TABLE>
19
<PAGE>
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 1998 through
September 1999 we experienced accumulated net revenues of approximately $87,815
and realized an accumulated loss of $(353,983).
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 $12.2 million
for the six months ended September 30, 1998 to $26.5 million for the six months
ended September 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 96.1% in fiscal 1998 to 97.2% for fiscal 1999, and from
approximately 97.0% for the six months ended September 30, 1998 to 97.7% for the
six months ended September 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 2.2% for the
six months ended September 30, 1998 to 1.5% for the six months ended September
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 September 30, 1999 were $56,986 and $4,633,
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 $200,000 from its
officers and directors, or affiliates, for working capital purposes. See
"Management--Loans and Other Affiliated Transactions" for the terms of the
loans.
In October 1999, the Company established a $100,000 revolving line of
credit with First Community Bank of America, to provide additional working
capital for the Company. In November 1999, the borrowing limit on the line of
credit was increased to $250,000. The note bears interest at 6.5% per annum on
the unpaid outstanding principal of each advance, payable monthly. The note is
secured by a quarantee in the form of a Third Party Pledge Agreement in favor
of First Community Bank of America, from Dynamic Health Products, Inc. of which
Jugal K. Taneja is a majority shareholder. The principal on the note is due and
payable on October 10, 2000.
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
20
<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. We ceased operations on April 1, 1997 and liquidated our major product
line because of continued losses caused by increased competition and the loss of
exclusivity of our products. Also, we had inadequate internal resources to
pursue one of our products and we were not able to find an acceptable industry
partner to enter into a joint venture with to pursue development of this
product. The sale of our major product line and assets was consummated by March
31, 1998 and accordingly, from April 1, 1998 to September 8, 1998 we used a
liquidation basis of acounting.
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.
21
<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 six months ended September 30, 1999 were $31.1
million and $26.5 million, respectively. Net income for the respective periods
were $94,031 and $112,095. 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."
25
<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:
<TABLE>
<S> <C>
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
</TABLE>
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
27
<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
28
<PAGE>
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
29
<PAGE>
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 4 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
30
<PAGE>
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 $7.7 million which will be amortized over fifteen years.
For the year ended March 31, 1999 and the six months ended September 30,
1999, Becan had revenues of $31,075,000 and $26,518,953, respectively and net
income of $94,031 and $112,095 for such periods. Stockholders equity at
September 30, 1999 was $253,555.
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, and to a lesser extent, over-the-counter, and health and
beauty care products. Becan operates two distribution centers, one of which is
a 4,024 square foot leased facility located in Pittsburgh, Pennsylvania, used
by Becan, and the other is a 1,200 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 Bergen Brunswig Drug Company, Pharmserv Inc.,
Merc & Co, Inc., and Abbott Laboratories.
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.
31
<PAGE>
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.
WILLEM H. HAMERS 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 Hamers 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.
Becan has a verbal agreement to pay management fees to its parent company,
Dynamic, for various legal, accounting and administrative services. The
agreement is reviewed periodically and
32
<PAGE>
adjusted at the discretion of Dynamic. Pursuant to this agreement, Becan paid
to Dynamic $15,000 per month, commencing on October 1, 1998. Such amount was
increased to $20,000 per month on November 1, 1999. The amount of management
fees accrued for the year ended March 31, 1999 was $90,000. As of the year
ended March 31, 1999, Becan owed an aggregate of approximately $64,980 to
Dynamic and Innovative for management fees and products purchased during the
year. Upon our acquisition of Becan, the management agreement and the fees will
be terminated.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information for each director and executive
officer of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------- ----- -------------------------------------
<S> <C> <C>
Stephen M. Watters ............ 32 President, Chief Executive Officer,
Chief Financial Officer and Director
William L. LaGamba ............ 40 Vice President, Chief Operating
Officer, Secretary and Treasurer
Dr. Howard L. Howell .......... 52 Director
Jeffrey K. Peterson ........... 49 Director
M. Lisa Shasteen .............. 38 Director
Jugal K. Taneja ............... 55 Director
</TABLE>
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.
From April 1992 to March 1995, 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.
WILLIAM L. LAGAMBA is a director of Dynamic Health Products, Inc. and has
served as its Chief Executive Officer since June 1998. He was a founder and the
President of Becan Distributors, Inc., a wholesaler of prescription and
non-prescription pharmaceuticals from January 1997 until June 1998. Dynamic
acquired Becan Distributors, Inc. in June 1998. For 14 years prior to January
1997, Mr. LaGamba was employed in various capacities by McKesson Drug Company,
a large distributor of pharmaceuticals, health and beauty aids and services.
33
<PAGE>
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 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). 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
34
<PAGE>
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 $100 per committee meeting that he or she attends.
Directors are also eligible to receive stock options under the Company's stock
option plan. Each of our newly appointed non-employee directors will receive an
option for the purchase of 5,000 shares of our common stock. The exercise price
of such options will be equal to the offering price of the common stock in this
offering. See "Management--1999 Stock Option Plan."
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following summary compensation table sets forth all cash and/or
non-cash compensation paid to or accrued for the past three (3) fiscal years
for the Company's Chief Executive Officer.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SALARY, BONUS,
NAME AND PRINCIPAL POSITION(1) MARCH 31, & ALL OTHER COMPENSATION ($)
- --------------------------------------------- ------------------- -----------------------------
<S> <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
35
<PAGE>
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 $146,000, 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.
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 the 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."
36
<PAGE>
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.
Becan buys over the counter drugs and health and beauty care products for
resale from Innovative. Purchases of such products for the year ended March 31,
1999 were $154,162, or less than 1% of the products Becan purchased. Becan does
not have a contract committing Innovative or Dynamic to provide such supplies.
The products we have obtained from Innovative have been purchased, and Becan
will only purchase products in the future from Innovative, on terms which are
no less favorable than the terms on which they could purchase similar products
from a disinterested third party supplier.
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. 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 a $10,000 advance. In addition, Dr. Howell, a
director, loaned the Company $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."
MERGER WITH NUTRICEUTICALS OF FLORIDA
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
37
<PAGE>
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.
38
<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 November 12, 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 November 12, 1999 there were approximately
2,696,707 common shares issued and outstanding.
<TABLE>
<CAPTION>
BEFORE OFFERING(1) AFTER OFFERING(1)
------------------------------------- ------------------------------------
NAME AND ADDRESS AMOUNT AND NATURE PERCENTAGE AMOUNT AND NATURE PERCENTAGE
OF BENEFICIAL OWNER OF BENEFICIAL OWNER(2) OF CLASS OF BENEFICIAL OWNER(2) OF CLASS
- ------------------------------------------- ------------------------ ------------ ------------------------ -----------
<S> <C> <C> <C> <C>
21st Century Healthcare Fund LLC (3)(7)
6950 Bryan Dairy Road
Largo, Florida 33777 ..................... 300,000 11.1% 300,000 4.8%
Manju Taneja (4)(7)
6950 Bryan Dairy Road
Largo, Florida 33777 ..................... 211,821 7.9% 211,821 3.4%
Mihir K. Taneja (5)(7)
6950 Bryan Dairy Road
Largo, Florida 33777 ..................... 200,000 7.4% 200,000 3.2%
Mandeep K. Taneja (6)(7)
6950 Bryan Dairy Road
Largo, Florida 33777 ..................... 200,000 7.4% 200,000 3.2%
Dynamic Health Products, Inc. (7)
6950 Bryan Dairy Road
Largo, Florida 33777 ..................... 0 -- 2,000,000 32.3%
Stephen M. Watters ........................ 1,000,000 37.1% 1,000,000 16.1%
William L. LaGamba ........................ 100,000 3.7% 100,000 1.6%
Dr. Howard L. Howell ...................... 0 -- 0 --
Jeffery K. Peterson ....................... 0 -- 0 --
M. Lisa Shasteen .......................... 0 -- 0 --
Jugal K. Taneja (7)(8) .................... 538,815 20.0% 2,538,815 40.2%
All Directors and Officers
as a group (6 persons) (7) ............... 1,638,815 60.8% 3,638,815 58.7%
</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.
To satisfy the requirement of several state securities regulations,
certain of our shareholders, including the shareholders listed in the table
above, our President and Chief Executive Officer, agreed they will not, for a
period of two (2) years after the date of this prospectus, offer, pledge, sell,
contract a sale, grant any option for the sale of, or otherwise dispose of,
directly or indirectly shares of the common stock held by them, or any security
or other instrument which by its terms is convertible into, exercisable for, or
exchangeable for shares of common stock. Further, such persons acknowldeged
that, commencing two years from the completion date of the public offering, two
and one half percent (2 1/2%) of the common stock may be released each quarter
for the next two years. All remaining shares of common stock subject to this
lock-up shall be released from escrow on the anniversary of the fourth year from
the completion of the public offering.
39
<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 November 12, 1999, there were 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
40
<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 November 12, 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
41
<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:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ------------------------------------------------- ----------
<S> <C>
Kashner Davidson Securities Corporation .........
Total .......................................... 1,500,000
=========
</TABLE>
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 .......... $ $ $
</TABLE>
We have agreed to pay the underwriter a non-accountable expense allowance
of 3% of the gross proceeds derived from the sale of the shares of common stock
underwritten, including the sale of any shares of common stock that the
underwriter may sell to cover over-allotments, if any, of which $50,000 has
been paid as of the date of this prospectus. We have also agreed to pay all
expenses in connection with (i) qualifying the common stock offered hereby for
sale under the laws of the states as we and the underwriter may designate, and
(ii) registering the offering with the NASD, including filing fees and fees and
expenses of counsel retained for these purposes.
As additional compensation to the underwriters, the underwriting agreement
provides for the sale to the underwriters, for an aggregate of $10, 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
42
<PAGE>
option to require us to register the warrants and/or the common stock
underlying the warrants. The shares of common stock underlying the
underwriter's warrant will be restricted from sale, transfer, assignment or
hypothecation for the period of one year from the effective date of the
offering except to officers or partners (not directors) of the Underwriters and
members of the selling group and/or their officers or partners.
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.
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
The validilty of the common stock offered hereby will be passed upon for
the Company by Jones Vargas, Las Vegas, Nevada. Certain other 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
43
<PAGE>
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.
Shalek & Associates, CPA's Inc., Independence, Ohio, independent auditors,
have audited Becan Distributors, Inc.'s consolidated financial statements as of
March 31, 1998, 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 Shalek & Associates, CPA's Inc.'s report,
given upon their authority as experts in accounting and auditing.
44
<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.
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.
45
<PAGE>
INDEX TO FINANCIAL STATEMENTS
NUTRICEUTICALS.COM CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
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
</TABLE>
BECAN DISTRIBUTORS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Brimmer, Burek, Keelan & McNally, LLP, Independent Auditors ..... F-16
Report of Shalek & Associates, CPA's, Inc., 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
</TABLE>
UNAUDITED CONSOLIDATED PRO FORMA
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Pro Forma Condensed Consolidated Financial Statements ............................ F-28
Pro Forma Consolidated Balance Sheet ............................................. F-29
Pro Forma Consolidated Statement of Operations (Six months ended
September 30, 1999) ........................................................... F-30
Pro Forma Consolidated Statement of Operations (Year ended March 31, 1999) ....... F-31
</TABLE>
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. 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
Tampa, Florida
April 26, 1999
F-2
<PAGE>
NUTRICEUTICALS.COM CORPORATION
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND 1999 AND SEPTEMBER 30, 1999 (UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
--------------------------- ---------------
1998 1999 1999
----------- ------------- ---------------
<S> <C> <C> <C>
(UNAUDITED)
Current assets:
Cash ................................................................ $ 8,274 $ 56,986 $ 4,633
Accounts receivable, less allowance for doubtful accounts ........... -- 9,278 10,850
Due from related party .............................................. -- 5,171 3,940
Inventory ........................................................... -- 16,303 23,292
Prepaids and other current assets ................................... -- -- 199,158
-------- ---------- ------------
Total current assets ............................................... $ 8,274 $ 87,738 $ 241,873
Computer software, net ............................................... -- 47,500 41,296
Deposits ............................................................. -- 380 200
Intangible assets, net ............................................... -- -- 39,556
-------- ---------- ------------
$ 8,274 135,618 322,925
======== ========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable .................................................... 500 80,186 142,905
Accrued expenses .................................................... 16,437 17,505 130,275
Note payable ........................................................ -- -- 21,326
Related party obligations ........................................... -- -- 200,000
-------- ---------- ------------
Total current liabilities .......................................... 16,937 97,691 494,506
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, 2,696,707 shares issued and outstanding ............... -- 2,677 2,697
Additional paid-in capital .......................................... -- 139,725 179,705
Deficit ............................................................. -- (104,475) (353,983)
Net deficiency in liquidation, attributed to 175,514 shares ......... (8,663) -- --
-------- ---------- ------------
Total stockholders' equity (deficit) ............................... (8,663) 37,927 (171,581)
-------- ---------- ------------
$ 8,274 135,618 322,925
======== ========== ============
</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 SIX MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
PERIOD ENDED ENDED
MARCH 31, 1999 SEPTEMBER 30, 1999
---------------- ------------------
(UNAUDITED)
<S> <C> <C>
Net revenues ................................................. $ 37,118 $ 50,697
Cost of revenues ............................................. 14,496 26,590
---------- ----------
Gross profit ............................................... 22,622 24,107
Selling, general and administrative expenses ................. 128,858 270,118
---------- ----------
Operating loss ............................................. (106,236) (246,011)
Other income:
Interest income ............................................. 1,761 559
Other income and expenses (net).............................. -- 360
Interest expense ............................................ -- (4,416)
---------- ----------
Net loss ................................................... $ (104,475) $ (249,508)
========== ==========
Basic and diluted net loss per share of common stock ......... $ (.08) $ (.09)
Weighted common shares outstanding ........................... 1,372,230 2,681,496
========== ==========
</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 SIX MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS
YEAR ENDED APRIL 1, 1998 ENDED
MARCH 31, TO SEPTEMBER 7, SEPTEMBER 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) (3,875)
Occupancy ........................................ (6,432) -- --
Office expense ................................... (1,283) (60) (60)
Other ............................................ (6,112) -- --
--------- --------- ---------
Decrease in net assets in liquidation before
adjustments ................................... (36,580) (3,935) (3,935)
Adjustments of estimated values ................... 32,215 -- --
--------- --------- ---------
Decrease in net assets in liquidation ........... (4,365) (3,935) (3,935)
Beginning net liabilities in liquidation .......... (4,298) (8,663) (8,663)
--------- --------- ---------
Ending net liabilities in liquidation ............. $ (8,663) $ (12,598) $ (12,598)
========= ========= =========
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(DEFICIT)
-------- ------------ ------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
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
Issuance of 20,000 shares at $2.00 per share
for acquisition of domain name .............. 20 39,980 -- -- 40,000
Net loss ..................................... -- -- (249,508) -- (249,508)
------ --------- ---------- -------- ----------
Balance at September 30, 1999 (unaudited) .... $2,697 $ 179,705 $ (353,983) $ -- $ (171,581)
====== ========= ========== ======== ==========
</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 SIX MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS
SEPTEMBER 8, 1998 ENDED
TO MARCH 31, 1999 SEPTEMBER 30, 1999
------------------- ------------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss ............................................ $ (104,475) $(249,508)
Adjustment to reconcile net loss to net cash used
by operating activities:
Amortization expense ................................ 2,500 6,648
Change in operating assets and liabilities:
Accounts receivable, net ............................ (9,278) (1,572)
Due from related party .............................. (5,171) 1,231
Inventory ........................................... (16,303) (6,989)
Deposits ............................................ (380) 180
Prepaid expenses and other assets ................... -- (199,158)
Accounts payable .................................... 69,311 62,709
Accrued expenses .................................... 1,068 112,770
---------- ---------
Net cash used in operating activities ............. (62,728) (273,689)
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 .......................... -- 23,603
Repayments of principal on note payable ............. -- (2,277)
Proceeds from related party obligations ............. -- 200,000
---------- ---------
Net cash provided by financing activities ......... 130,000 221,326
Net increase (decrease) in cash ...................... 52,272 (52,363)
Cash at beginning of period .......................... 4,714 56,986
---------- ---------
Cash at end of period ................................ $ 56,986 $ 4,633
========== =========
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.
In August 1999, the Company issued 20,000 shares of its common stock to a
non-affiliated third party for purchase of its World Wide Web Internet site
domain name.
<S> <C>
Cash paid for interest for the six months ended September 30, 1999 ...... $ 189
=======
</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 SEPTEMBER 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 October 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
<PAGE>
NUTRICEUTICALS.COM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1999 AND SEPTEMBER 30, 1999 (UNAUDITED)--(CONTINUED)
NOTE 1 -- DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
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 six months ended September 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 and the six months ended September 30, 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
<PAGE>
NUTRICEUTICALS.COM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1999 AND SEPTEMBER 30, 1999 (UNAUDITED)--(CONTINUED)
NOTE 1 -- DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
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 $3,163 for
the period from September 8, 1998 (date of inception) to March 31, 1999 and the
six months ended September 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
<PAGE>
NUTRICEUTICALS.COM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1999 AND SEPTEMBER 30, 1999 (UNAUDITED)--(CONTINUED)
NOTE 1 -- DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
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 September 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
<PAGE>
NUTRICEUTICALS.COM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1999 AND SEPTEMBER 30, 1999 (UNAUDITED)--(CONTINUED)
NOTE 1 -- DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
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 September 30, 1999 consist of
the following:
<TABLE>
<CAPTION>
MARCH 31, 1998 MARCH 31, 1999 SEPTEMBER 30, 1999
---------------- ---------------- ------------------
(UNAUDITED)
<S> <C> <C> <C>
Nutritional supplements ......... $ -- 16,303 23,292
==== ====== ======
</TABLE>
NOTE 3 -- COMPUTER SOFTWARE
Computer software consists of the following at March 31, 1998 and 1999 and
September 30, 1999:
<TABLE>
<CAPTION>
MARCH 31, 1998 MARCH 31, 1999 SEPTEMBER 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) 8,704
---- ------ ------
Net computer software ..................... $ -- 47,500 41,296
==== ====== ======
</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 $8,704 for the period from September 8, 1998 (date of inception)
to March 31, 1999 and the six months ended September 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
<PAGE>
NUTRICEUTICALS.COM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1999 AND SEPTEMBER 30, 1999 (UNAUDITED)--(CONTINUED)
NOTE 4 -- RELATED PARTY TRANSACTIONS--(CONTINUED)
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 -- NOTES PAYABLE TO RELATED PARTIES
Notes payable of $190,000 represents amounts due to related parties at
prime plus 1%. The notes are due upon demand at the earlier of (i) a public
offering of common stock, or (ii) at December 31, 1999. The Company also
borrowed an additional $10,000 from a related party. The amount is due upon
demand and has since been repaid.
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 six months ended September 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
September 30, 1999.
As of March 31, 1999 and September 30, 1999, the Company has the following
net operating loss carry forwards (NOL) to offset future income.
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1999 1999
----------- -------------
(UNAUDITED)
<S> <C> <C>
Net operating losses, federal ........... $ 41,000 97,000
Net operating losses, state ............. 6,000 14,000
--------- --------
47,000 111,000
Valuation allowance ..................... (47,000) (111,000)
--------- --------
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 $111,000 valuation allowances have been established at March
31, 1999 and September 30, 1999, respectively.
F-13
<PAGE>
NUTRICEUTICALS.COM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1999 AND SEPTEMBER 30, 1999 (UNAUDITED)--(CONTINUED)
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 9.
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 SPLITS
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.
In October 1999, the Company effected a one-for-two reverse stock split.
Total number of shares of Common Stock issued and outstanding following the
October 1999 reverse stock split will be approximately 2,696,707. All share and
per share data appearing in the consolidated financial statements and notes
thereto have been retroactively adjusted for the October 1999 reverse 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
<PAGE>
NUTRICEUTICALS.COM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1999 AND SEPTEMBER 30, 1999 (UNAUDITED)--(CONTINUED)
NOTE 9 -- SUBSEQUENT EVENTS--(CONTINUED)
PUBLIC OFFERING
During fiscal year 2000, the Company intends to complete a public stock
offering in which approximately 1,500,000 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 October 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. The sale is subject to the consummation of a secondary offering by
Nutriceuticals.
PURCHASE OF DOMAIN NAME
In August 1999, the Company purchased its World Wide Web Internet site
domain name for 20,000 (post October 1999 one-for-two reverse stock split)
shares of common stock. The domain name will be amortized over a fifteen-year
period.
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
<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>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Becan Distributors, Inc.
Pittsburgh, PA
We have audited the accompanying balance sheet of Becan Distributors, Inc.
(an S corporation) as of March 31, 1998, and the related statements of
operations, retained earnings, and cash flows for the twelve months then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our 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 financial statements are free of
material misstatement. An audit includes examining, on a test basis evidence
supporting the amount and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Becan Distributors, Inc. as
of March 31, 1998, and the results of its operations and its cash flows for the
twelve months then ended in conformity with generally accepted accounting
principles.
The Company, with consent of its shareholders, has elected under the
Internal Revenue Code to be an S corporation. In lieu of the corporation income
taxes, the stockholders of an S corporation are taxed on their proportionate
share of the Company's taxable income. Therefore, no provision or liability for
Federal income taxes has been included in these financial statements.
/s/ SHALEK & ASSOCIATES, CPA'S INC.
- -----------------------------------
Independence, Ohio
June 28, 1999
F-17
<PAGE>
BECAN DISTRIBUTORS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
----------------------------- -----------------------------
1998 1999 1998 1999
------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets
Cash ................................................ $ 208,372 $ 69,010 $ 20,739 $ 120,983
Accounts receivable ................................. 876,505 1,640,823 948,124 2,511,246
Inventory ........................................... 445,776 1,178,801 674,495 1,655,155
Prepaid and other current assets .................... -- -- 15,525 63,317
---------- ---------- ---------- ----------
Total current assets ..................... ......... 1,530,653 2,888,634 1,658,883 4,350,701
Property, plant and equipment -- net ................. 4,616 34,533 20,861 34,051
Other assets -- net .................................. 2,547 24,028 3,617 15,937
---------- ---------- ---------- ----------
Total assets ....................................... $1,537,816 $2,947,195 $1,683,361 $4,400,689
========== ========== ========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Accounts payable .................................... $1,022,121 $1,249,343 $ 901,344 $2,653,800
Accrued expenses .................................... 9,763 20,487 7,253 31,825
Notes payable ....................................... 185,000 -- -- --
Due to affiliates ................................... 200,000 64,980 213,242 --
Accrued income tax .................................. -- 21,994 -- --
Line of credit payable .............................. -- 1,448,931 430,000 1,461,509
---------- ---------- ---------- ----------
Total current liabilities .......................... 1,416,884 2,805,735 1,551,839 4,147,134
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 46,522 168,555
---------- ---------- ---------- ----------
Total shareholder's equity ......................... 120,932 141,460 131,522 253,555
---------- ---------- ---------- ----------
Total liabilities and shareholder's equity ......... $1,537,816 $2,947,195 $1,683,361 $4,400,689
========== ========== ========== ==========
</TABLE>
Please read accompanying notes.
F-18
<PAGE>
BECAN DISTRIBUTORS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE SIX MONTHS ENDED
MARCH 31, SEPTEMBER 30,
----------------------------------- ----------------------------------
1998 1999 1998 1999
---------------- ---------------- --------------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Sales ........................................ $ 10,389,518 $ 31,074,861 $12,214,804 $ 26,518,953
Cost of good sold ............................ 9,985,401 30,199,867 11,842,877 25,913,464
------------ ------------ ----------- ------------
Gross Profit ................................ 404,117 874,994 371,927 605,489
Operating expenses ........................... 299,748 659,158 268,698 397,246
------------ ------------ ----------- ------------
Income from operations ....................... 104,369 215,836 103,229 208,243
Interest income .............................. -- -- 18 2,061
Other income (expenses), net ................. -- -- 12,000 (240)
Interest expense ............................. 15,631 99,811 (31,155) (97,969)
------------ ------------ ----------- ------------
Net income before income taxes ............... 88,738 116,025 84,092 112,095
Income tax ................................... -- 21,994 -- --
------------ ------------ ----------- ------------
Net income ................................... $ 88,738 $ 94,031 $ 84,092 $ 112,095
============ ============ =========== ============
Net income per share of common stock ......... $ 177.47 $ 157.97 $ 130.81 $ 174.37
============ ============ =========== ============
Weighted-average shares of
common stock outstanding ................... 500.00 595.23 642.85 642.85
============ ============ =========== ============
</TABLE>
Please read accompanying notes.
F-19
<PAGE>
BECAN DISTRIBUTORS, INC. AND SUBSIDIARY
STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------
NUMBER OF RETAINED
SHARES AMOUNT EARNINGS
----------- ----------- -------------
<S> <C> <C> <C>
Balance at 3/31/98 ..................... 500.00 $ 50,000 $ 70,932
Common stock issued for cash ........... 142.85 35,000 --
Net income ............................. -- -- 84,092
Dividends .............................. -- -- (108,503)
------ -------- ----------
Balance at 9/30/98 (unaudited) ......... 642.85 85,000 46,522
Net income ............................. -- -- 9,938
------ -------- ----------
Balance at 3/31/99 ..................... 642.85 85,000 56,460
Net income ............................. -- -- 112,095
------ -------- ----------
Balance at 9/30/99 (unaudited) ......... 642.85 $ 85,000 $ 168,555
====== ======== ==========
</TABLE>
Please read accompanying notes.
F-20
<PAGE>
BECAN DISTRIBUTORS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE SIX MONTHS ENDED
MARCH 31, SEPTEMBER 30,
1998 1999 1998 1999
------------- --------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .............................................. $ 88,738 $ 94,031 $ 84,092 $ 112,095
Adjustments to reconcile net income (loss) to
net cash used in operating activities
Depreciation and amortization expense .................. 1,004 3,682 570 10,377
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable .................................. (829,726) (764,318) (68,127) (870,423)
Prepaid expenses and other assets .................... (2,547) (21,481) (17,545) (63,317)
Inventory ............................................ (423,426) (733,025) (228,719) (476,354)
Increase (decrease) in:
Accounts payable ..................................... 900,282 227,222 (120,777) 1,404,457
Accrued income tax ................................... -- 21,994 -- --
Accrued expenses ..................................... 3,371 10,724 (2,510) (10,656)
---------- ------------- ---------- ----------
Net cash provided (used) by operating activities ........ (262,304) (1,161,171) (353,016) 106,179
---------- ------------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment ................................... (5,620) (33,599) (18,281) (6,512)
Decrease in other assets ................................ -- -- (1,075) 4,708
---------- ------------- ---------- ----------
Net cash provided (used) by investing activities ........ (5,620) (33,599) (19,356) (1,804)
---------- ------------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt .......................... -- -- -- --
Proceeds from affiliate loan ............................ 200,000 64,980 39,742 --
Payment of affiliate loan ............................... -- -- -- (64,980)
Proceeds from issuance of common stock .................. 50 35,000 -- --
Principal payments on notes payable ..................... -- (200,000) 35,000 --
Dividends paid .......................................... -- (108,503) (108,503) --
Net change in revolving line of credit .................. 93,000 1,263,931 245,000 12,578
Payments of related party obligations ................... -- -- (26,500) --
---------- ------------- ---------- ----------
Net cash provided (used) by financing activities ........ 293,050 1,055,408 184,739 (52,402)
---------- ------------- ---------- ----------
Net increase (decrease) in cash .......................... 25,126 (139,362) (187,633) (51,973)
Cash at beginning of year ................................ 183,246 208,372 208,372 69,010
---------- ------------- ---------- ----------
Cash at end of year ...................................... $ 208,372 $ 69,010 $ 20,739 $ 120,983
========== ============= ========== ==========
</TABLE>
Please read accompanying notes.
F-21
<PAGE>
BECAN DISTRIBUTORS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE SIX MONTHS ENDED
MARCH 31, SEPTEMBER 30
------------------------- -------------------------
1998 1999 1998 1999
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
SUPPLEMENTAL INFORMATION:
Interest paid ........... $ 15,631 $ 99,811 $ 31,155 $ 97,969
======== ======== ======== ========
Taxes paid .............. $ -- $ -- $ -- $ --
======== ======== ======== ========
</TABLE>
Please read accompanying notes.
F-22
<PAGE>
BECAN DISTRIBUTORS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1999 AND SEPTEMBER 30, 1999 (UNAUDITED)
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. In August 1998, Nu-Wave
changed its name to Dynamic Health Products, Inc.
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-23
<PAGE>
BECAN DISTRIBUTORS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1999 AND SEPTEMBER 30, 1999 (UNAUDITED)--(CONTINUED)
NOTE 1 -- DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
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, or September 30, 1999.
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 the fiscal year ended March 31, 1999 and for the six months
ended September 30, 1999.
ADVERTISING
The Company charges advertising costs to expense as incurred. The amount of
advertising expense for the fiscal years ended March 31, 1999 and March 31, 1998
was $63,175 and $39,422, respectively, and $2,372 for the six months ended
September 30, 1999.
REVENUE RECOGNITION
Revenues are recognized when the merchandise is shipped to the customer.
F-24
<PAGE>
BECAN DISTRIBUTORS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1999 AND SEPTEMBER 30, 1999 (UNAUDITED)--(CONTINUED)
NOTE 1 -- DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
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:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
- ------------------------------
<S> <C>
2000 ......... $18,238
2001 ......... 19,896
2002 ......... 19,896
2003 ......... 18,238
</TABLE>
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
and September 30, 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, and $166,288 for the six months ended
September 30, 1999.
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, and $90,000 for
the six months ended September 30, 1999.
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-25
<PAGE>
BECAN DISTRIBUTORS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1999 AND SEPTEMBER 30, 1999 (UNAUDITED)--(CONTINUED)
NOTE 2 -- RELATED PARTY TRANSACTIONS--(CONTINUED)
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 and
September 30, 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. The Company had borrowed $1,448,931 under this facility at March 31,
1999 and $1,461,509 at September 30, 1999.
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-26
<PAGE>
BECAN DISTRIBUTORS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1999 AND SEPTEMBER 30, 1999 (UNAUDITED)--(CONTINUED)
NOTE 4 -- LINE OF CREDIT--(CONTINUED)
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. In November 1998, any outstanding
obligations under this line of credit were satisfied from proceeds of the new
$2,000,000 credit facility.
NOTE 5 -- CONCENTRATIONS OF CREDIT RISK
CASH IN BANK
The Company maintains its checking accounts in two commercial banks. Cash
in these checking accounts at times exceeded the $100,000 Federal Deposit
Insurance Corporation's maximum insured balance coverage.
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 and
September 30, 1999. For the year ended March 31, 1999 and for the six months
ended September 30, 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 -- PENDING SALE OF COMPANY
On September 9, 1999, an agreement was signed between Nutriceuticals.com
Corporation ("Nutriceuticals") and Dynamic Health Products, Inc., the sole
shareholder of the Company whereby the Company will be sold to Nutriceuticals.
The terms of the agreement call for the acquisition of all the outstanding stock
of the Company by Nutriceuticals. If the sale is consummated as planned, the
Company would become a wholly owned subsidiary of Nutriceuticals. The sale is
subject to the consummation of a public offering by Nutriceuticals.
F-27
<PAGE>
NUTRICEUTICALS.COM CORPORATION
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The unaudited Pro Forma Consolidated Balance Sheet at September 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 six months ended September 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 October 1999. All share and per share data have
been adjusted retroactively as of September 30, 1999.
The unaudited Pro Forma Consolidated Financial Statements are based on (i)
Nutriceutical's audited Consolidated Statement of Income for the year ended
March 31, 1999, unaudited Consolidated Statement of Income for the six
months ended September 30, 1999 and unaudited Consolidated Balance Sheet at
September 30, 1999 and (ii) Becan's audited Statements of Operations for the
year ended March 31, 1999, unaudited Consolidated Statements of Operations for
the six months ended September 30, 1999 and unaudited Consolidated Balance Sheet
at September 30, 1999.
The acquisitions were accounted for under the purchase method of
accounting. The total purchase price for the acquisitions were 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-28
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
BECAN PRO FORMA
NUTRICEUTICALS DISTRIBUTORS, INC. AS ADJUSTED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1999 ADJUSTMENTS 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash................................................ $ 4,633 $ 120,983 $ 9,580,000(1) $ 9,705,616
Note receivable .................................... -- 55,765 -- 55,765
Accounts receivable, net ........................... 10,850 2,511,246 -- 2,522,096
Inventory, net ..................................... 23,292 1,655,155 -- 1,678,447
Other current assets ............................... 203,098 7,552 -- 210,650
----------- ----------- ----------- -----------
Total current assets ............................... 241,873 4,350,701 9,580,000 14,172,574
Property and equipment, net......................... 41,296 34,051 -- 75,347
Deposits ........................................... 200 -- -- 200
Other assets ....................................... -- 1,520 -- 1,520
Intangible assets, net ............................. 39,556 14,417 -- 53,973
Goodwill ........................................... -- -- 7,746,445(2) 7,746,445
----------- ----------- ----------- -----------
Total assets ....................................... $ 322,925 $ 4,400,689 $17,326,445 $22,050,059
=========== =========== =========== ===========
Accounts payable and accrued expenses .............. $ 273,180 $ 2,685,625 $ -- $ 2,958,805
Note payable ....................................... 21,326 -- -- 21,326
Line of credit ..................................... -- 1,461,509 -- 1,461,509
Loans payable to related parties and affiliates..... 200,000 -- (200,000)(1) --
----------- ----------- ----------- -----------
Total current liabilities .......................... 494,506 4,147,134 (200,000) 4,441,640
----------- ----------- ----------- -----------
Stockholders' equity (deficit) ..................... (171,581) 253,555 17,526,445(3) 17,608,419
----------- ----------- ----------- -----------
Total liabilities and stockholders' equity (deficit) $ 322,925 $ 4,400,689 $17,326,445(1) $22,050,059
=========== =========== =========== ===========
</TABLE>
- --------------
(1) Offering proceeds of 1,500,000 shares at $9.00 per share, less offering
costs and expenses, payments of related party loans, and $2,000,000 cash
paid for acquisition of Becan Distributors, Inc.
(2) Recognition of goodwill for the acquisition of Becan Distributors, Inc. for
the amount by which the purchase price ($8,000,000) exceeded the fair
market value of the net assets acquired.
(3) Increase in stockholders' equity of approximately $17.5 milion, which
represents the estimated goodwill resulting from the acquisition of Becan
Distributors, Inc., the elimination of stockholders' equity of Becan
Distributors, Inc., and the application of net proceeds from this offering.
F-29
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
BECAN
NUTRICEUTICALS DISTRBUTORS, INC. PRO FORMA
SEPTEMBER 30, SEPTEMBER 30, PRO FORMA SEPTEMBER 30,
1999 1999 ADJUSTMENTS 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
Net Revenues ................................ $ 50,697 $ 26,518,953 $ -- $ 26,569,650
------------ ------------ ------------ ------------
Gross Profit ................................ 24,107 605,489 -- 629,596
Operating Expenses:
Selling, general and administrative
expenses................................... 270,118 397,246 -- 667,364
Goodwill amortization ..................... -- -- 258,215(1) 258,215
------------ ------------ ------------- ------------
Total Operating Expenses .................... 270,118 397,246 258,215 925,579
------------ ------------ ------------- ------------
Income (loss) from continuing operations .... (246,011) 208,243 -- (295,983)
Interest income ............................. 559 2,061 -- 2,620
Other income and expenses, net .............. 360 (240) -- 120
Interest expense ............................ (4,416) (97,969) -- (102,385)
------------ ------------ ------------ ------------
Income tax expense .......................... -- -- -- --
------------ ------------ ------------ ------------
Net Income (Loss) ........................... $ (249,508) $ 112,095 $ (258,215) $ (395,628)
============ ============ ============ ============
Basic and diluted net loss per share ........ $ (0.18) $ -- $ -- $ (0.11)(2)(3)
============ ============ ============ ============
</TABLE>
- ---------------
(1) Amortization of goodwill over a 15 year life for the acquisition of Becan
Distributors, Inc. for the amount by which the purchase price exceeded the
fair market value of the net assets acquired.
(2) The Company's Board of Directors authorized a one-for-two reverse split of
common stock. All share and per share data have been adjusted for the
reverse split.
(3) Weighted average of common stock outstanding of 3,484,122. Assumes all
shares outstanding as of September 30, 1999 (including shares issued for
acquisition of Becan Distributors, Inc. and World Wide Web Internet site
domain name "nutriceuticals.com" have been outstanding throughout the
period.
F-30
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
BECAN
NUTRICEUTICALS DISTRIBUTORS, INC. HEALTHSEEK.COM PRO FORMA
MARCH 31, MARCH 31, DECEMBER 31, PRO FORMA MARCH 31,
1999 1999 1998 ADJUSTMENTS 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 132,793 758,969 245 11,667(2) 849,272
administrative expenses .......... -- -- -- 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 ............ -- -- -- 516,430(8) 516,430
------------ ------------ ------------ ------------ ------------
Total Operating Expenses ........... 132,793 758,969 245 742,664 1,634,671
------------ ------------ ------------ ------------ ------------
Income (loss) from continuing
operations ....................... (110,171) 116,025 (245) -- (737,055)
Interest income .................... 1,761 -- -- -- 1,761
Other income and expenses, net ..... -- -- -- -- --
Interest expense ................... -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Income tax expense ................. -- (21,994) -- 21,994(9) --
------------ ------------ ------------ ------------ ------------
Net Income (Loss) .................. $ (108,410) $ 94,031 $ (245) $ -- $ (735,294)(10)(11)
============ ============ ============ ============ ============
Basic and diluted net loss per share $ (0.08) $ -- $ -- $ -- $ (0.21)
============ ============ ============ ============ ============
</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 Chief Executive Officer ($150,000)
and President ($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
Distributors, Inc. 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's Board of Directors authorized a one-for-two reverse split of
common stock. All share and per share data have been adjusted for the
reverse split.
(11) Weighted average of common stock outstanding of 3,484,122. Assumes all
shares outstanding as of March 31,1999 (including shares issued for
acquisition of Becan Distributors, Inc., HealthSeek, and World Wide Web
Internet site domain name "nutriceuticals.com") have been outstanding
throughout the period.
F-31
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1,500,000 SHARES
COMMON STOCK
NUTRICEUTICALS.COM CORPORATION
----------------
PROSPECTUS
----------------
KASHNER DAVIDSON SECURITIES CORPORATION
THE DATE OF THIS PROSPECTUS IS
NOVEMBER , 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>
<S> <C>
DESCRIPTION AMOUNT
----------- ------
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>
We further undertake that:
(5) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in relaince upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(6) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus 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.
II-3
<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 November 16, 1999.
NUTRICEUTICALS.COM CORPORATION
By /s/ STEPHEN M. WATTERS
--------------------------------
Stephen M. Watters
President
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>
SIGNATURES TITLE DATE
- ------------------------------ ------------------------------------- ------------------
<S> <C> <C>
/s/ STEPHEN M. WATTERS Chief Executive Officer, November 16, 1999
- ------------------------------ Chief Financial Officer and Director
Stephen M. Watters
Director November , 1999
- ------------------------------
Howard Howell
*/s/ JEFFREY PETERSON Director November 16, 1999
------------------------------
Jeffrey Peterson
Director November , 1999
- ------------------------------
M. Lisa Shasteen
/s/ JUGAL K. TANEJA Director November 16, 1999
- ------------------------------
Jugal K. Taneja
* By:/s/ STEPHEN M. WATTERS
--------------------------
Stephen M. Watters
Attorney-in-Fact
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER 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(a) Bylaws of Registrant*
3.2(b) Amended and Restated 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*
5.2 Opinion of Jones Vargas, 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(a) Employment Agreement by and between the Registrant and Jugal K. Taneja, dated as of
April 1, 1999 *
10.2(b) Consulting Agreement by and between the Registrant and Jugal K. Taneja, dated as of
August 16, 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,
Dynamic Health Products, Inc. and Becan Distributors, Inc. dated September 9, 1999 *
10.8 Form of Escrow Agreement between the Registrant and Dynamic Health Products, Inc.*
10.9 Line of Credit Agreement in favor of First Community Bank of America, dated November 10, 1999/dagger/
21 Subsidiaries of the Registrant *
23.1(a) Consent of Kirkland, Russ, Murphy & Tapp, Independent Auditors /dagger/
23.1(b) Consent of Brimmer, Burek, Keelan & McNally LLP, Independent Auditors /dagger/
23.1(c) Consent of Shalek & Associates, CPA's Inc., Independent Auditors /dagger/
23.2(a) Consent of Schifino & Fleischer, P.A. (included in Exhibit 5.1)*
23.2(b) Consent of Jones Vargas (included in Exhibit 5.2)*
24 Power of Attorney (reference is made to the signature page) *
27 Financial Data Schedule**
</TABLE>
- ----------------
/dagger/ Filed herewith.
* Previously filed.
** Contained in electronically filed version only.
II-5
LINE OF CREDIT AGREEMENT
Nutriceuticals.Com Corporation FIRST COMMUNITY BANK OF AMERICA
6950 Bryan Dairy Rd. P.O. Box 20559
Largo, Florida St. Petersburg, Florida
33777 33742
Loan #: 23627
Date: November 10, 1999
Credit Line Amount: $250,000.00
You have extended to me a line of credit in the amount of Two Hundred
Fifty Thousand and 00/000 ($250,000.00).
You will make loans to me from time to time until 5:00 p.m. on October
10, 2000. Although the line of credit expires on that date, I will remain
obligated to perform all my duties under this agreement as long as I owe you any
money advanced according to the terms of this agreement, as evidenced by any
note or notes I have signed to repay these amounts.
This line of credit is an agreement between you and me. It is not
intended that any third party receive any benefit from this agreement, whether
by direct payment, reliance for future payment or in any other manner. This
agreement is not a letter of credit.
1. AMOUNT: This line of credit is:
[XX} OBLIGATORY: You may not refuse to make a loan to me under this
line of credit unless one of the following occurs;
a: I have borrowed the maximum amount available to me;
b: This line of credit has expired;
c: I have defaulted on the note (or notes) which show my indebtedness
under this line of credit;
d. I have violated any term of this line of credit or any note or
other agreement entered into in connection with this line of
credit;
e. N/A
[ ] DISCRETIONARY: You may refuse to make a loan to me under this line of credit
once the aggregate outstanding advances equal or exceed $.
Subject to the obligatory or discretionary limitations above, this line of
credit is:
[XX] OPEN-END (Business or Agricultural only): I may borrow up to the
maximum amount of principal more than one time.
[ ] CLOSED-END I may borrow up to the maximum only one time.
2. PROMISSORY NOTE: I will repay any advances made according to this line of
credit agreement as set out in the promissory note I signed on November 10,
1999, or any other note(s) I sign at a later time which represent advances under
this agreement. The note(s) set(s) out the terms relating to maturity, interest
rate, repayment and advances. If indicated on the promissory note, the advances
will be made as follows:
I hereby authorize Lender to pay advances against any loan with Lender
which I am a signer, maker, co-maker or guarantor; or deposit any advances
into my deposit account with Lender on which I am a signer, these advances
can be authorized by me or my designated representative in writing or
verbally, either in person or by phone. The minimum draw amount will be
$1,000.00 or the balance of the Line.
3. RELATED DOCUMENTS: I have signed the following documents in connection with
this line of credit and note(s) entered into in accordance with this line of
credit:
Security Agreement dated October 18, 1999;
Assignment of Savings Deposit dated November 10, 1999.
4. REMEDIES: If I am in default on the notes you may:
a. take any action as provided in the related documents:
b. without notice to me, terminate this line of credit:
By selecting any of these remedies you do not give up your right to later use
any other remedy. By deciding not to use any remedy should I default, you do
NOT waive your right to later consider the event a default, if it happens again.
5. COSTS AND FEES: If you hire an attorney to enforce this agreement I will pay
your reasonable attorney's fees, where permitted by law. I will also pay your
court costs and cost of collection, where permitted by law.
6. COVENANTS: For as long as this line of credit is in effect or I owe you money
for advances made in accordance with the line of credit, I will do the
following:
a. maintain books and records of my operations relating to the need for
this line of credit;
b. permit you or any of your representatives to inspect and/or copy these
records;
c. provide to you any documentation requested by you which support the
reason for making any advance under this line of credit;
d. permit you to make any advance payable to the seller (or seller and me)
of any items being purchased with that advance;
e. provide periodic financial statements as you may reasonably request from
time to time;
f. N/A
7. NOTICES: All notices and other correspondence with me should be sent to my
address stated above. The notice or correspondence shall be effective when
deposited in the mail, first class, or delivered to me in person.
8. MISCELLANEOUS: This line of credit may not be changed except by a written
agreement signed by you and me. The laws of the State of Florida will govern
this agreement. Any term of this agreement which is contrary to applicable law
will not be effective, unless the law permits you and me to agree to such a
variation.
First Community Bank of America SIGNATURES: I AGREE TO THE TERMS OF
THIS LINE OF CREDIT. I HAVE RECEIVED
A COPY ON TODAY'S DATE.
Nutriceuticals.Com Corporation
/s/ SCOTT C. BOYLE /s/ STEPHEN M. WATTERS
- ---------------------------------- --------------------------------------
Scott C. Boyle, President Stephen M. Watters, President
/s/ JUGAL K. TANEJA
--------------------------------------
Jugal K. Taneja, Secretary
<PAGE>
FUTURE ADVANCE NOTE
NUTRICEUTICALS.COM CORPORATION
6950 BRYAN DAIRY RD.
LARGO, FL 33777
BORROWER'S NAME AND ADDRESS
"I" includes each Borrower above, joint and severally.
FIRST COMMUNITY BANK OF AMERICA
6100 4TH STREET NORTH
ST. PETERSBURG, FL 33703
LENDER'S NAME AND ADDRESS
"You" means the lender, its successors and assigns.
Loan Number 23627B
-----------------------
Date NOVEMBER 10, 1999
-----------------------------
Maturity Date NOV. 17, 1999
--------------------
Loan Amount $50,000.00
----------------------
Renewal Of
-----------------------
For value received, I promise to pay to you, or your order, at your address
listed above the PRINCIPAL sum of FIFTY THOUSAND AND NO/100***************
Dollars $50,000.00
[X] SINGLE ADVANCE: I will receive all of this principal sum on NOVEMBER 10,
1999. No additional advances are contemplated under this note.
[ ] MULTIPLE ADVANCE: The principal sum shown above is the maximum amount of
principal I can borrow under this note. On __________________________
I will receive the amount of $___________________ and future principal
advances are contemplated.
CONDITIONS: The conditions for future advances are AS PER THE TERMS OF THE
LINE OF CREDIT AGREEMENT OF EVEN DATE.
____________________________________________________________________________
[ ] OPEN END CREDIT: You and I agree that I may borrow up to the maximum
amount of principal more than one time. This feature is subject to all
other conditions and expires on _________________________________.
[ ] CLOSED END CREDIT: You and I agree that I may borrow up to the maximum
only one time (and subject to all other conditions).
INTEREST: I agree to pay interest on the outstanding principal balance from
NOVEMBER 10, 1999 at the rate of 6.500% per year until NOVEMBER 17, 1999
[ ] VARIABLE RATE: This rate may then change as stated below.
[ ] INDEX RATE: The future rate will be ____________________ the following
index rate:_________________________________________________________________
____________________________________________________________________________
[ ] NO INDEX: The future rate will not be subject to any internal or
external index. It will be entirely in your control.
[ ] FREQUENCY AND TIMING: The rate on this note may change as often as
_________________________
A change in the interest rate will take effect _________________________
[ ] LIMITATIONS: During the term of this loan, the applicable annual
interest rate will not be more than _____% or less than _______%. The rate
may not change more than ____________% each _______________________.
EFFECT OF VARIABLE RATE: A change in the interest rate will have the
following effect on the payments:
[ ] The amount of each scheduled payment will change.
[ ] The amount of the final payment will change.
[ ]_________________________________________________________________________
ACCRUAL METHOD: Interest will be calculated on a ACTUAL/365 basis.
POST MATURITY RATE: I agree to pay interest on the unpaid balance of this note
owing after maturity, and until paid in full, as stated below:
[ ] on the same fixed or variable rate basis in effect before maturity (as
indicated above).
[X] at a rate equal to 18.0%
[ ] LATE CHARGE: If a payment is made more than 10 days after it is due, I agree
to pay a late charge of 5.000% OF THE LATE PAYMENT
[X] ADDITIONAL CHARGES: In addition to interest, I agree to pay the following
charges which [ ] are [X] are not included in the principal amount above:
DOC STAMPS - $175.00 LOAN FEE- $125.00
PAYMENTS: I agree to pay this note as follows:
[X] INTEREST: I agree to pay accrued interest AT MATURITY
____________________________________________________________________________
[X] PRINCIPAL: I agree to pay the principal NOVEMBER 17, 1999
____________________________________________________________________________
[ ] INSTALLMENTS: I agree to pay this note in ____ payments. The first payment
will be in the amount of $________________ and will be due ________________.
A payment of $______________ will be due ____________________ thereafter.
The final payment of this entire unpaid balance of principal and interest
will be due_____________________________________________.
ADDITIONAL TERMS:
SECURITY: This note is separately secured by (describe separate document by type
and date); SECURITY AGREEMENT DATED OCTOBER 18, 1999.
(This action is for your internal use. Failure to list a separate security
document does not mean the agreement will not secure this note.)
PURPOSE: The purpose of this loan is
BUSINESS: WORKING CAPITAL
____________________________________
SIGNATURES: I AGREE TO THE TERMS OF
THIS NOTE (INCLUDING THOSE ON PAGE 2).
I have received a copy on today's date.
<PAGE>
DEFINITIONS: As used on page 1, "[X]" means the terms that apply to this loan.
"I", "me" or "my" means each Borrower who signs this note and each other person
or legal entity (including guarantors, endorsers, and sureties) who agrees to
pay this note (together referred to as "us", "You" or "your" means the Lender
and its successors and assigns.
APPLICABLE LAW: The law of the state of Florida will govern this note. Any
term of this note which is contrary to applicable law will not be effective,
unless the law permits you and me to agree to such a variation. If any provision
of this agreement cannot be enforced according to its terms, this fact will not
affect the enforceability of the remainder of this agreement. No modification of
this agreement may be made without your express written consent. Time is of the
essence in this agreement.
PAYMENTS: Each payment I make on this note will first reduce the amount I owe
you for charges which are neither interest nor principal. The remainder of each
payment will then reduce accrued unpaid interest, and then unpaid principal. If
you and I agree to different application of payments, we will describe our
agreement on this note. I may prepay a part of, or the entire balance of this
loan without penalty, unless we specify to the contrary on this note. Any
partial prepayment will not excuse or reduce any later scheduled payment until
this note is paid in full (unless, when I make the prepayment, you and I agree
in writing to the contrary).
INTEREST: Interest accrues on the principal remaining unpaid from time to time,
until paid in full. If I receive the principal in more than one advance, each
advance will start to earn interest only when I receive the advance. The
interest rate in effect on this note at any given time will apply to the entire
principal advanced at that time. Notwithstanding anything to the contrary, I do
not agree to pay and you do not intend to charge any rate of interest that is
higher than the maximum rate of interest you could charge under applicable law
for the extension of credit that is agreed to here (either before or after
maturity). If any notice of interest accrual is sent and is in error, we
mutually agree to correct it, and if you actually collect more interest than
allowed by law and this agreement, you agree to refund it to me.
INDEX RATE: The index will serve only as a device for setting the rate on this
note. You do not guarantee by selecting this index, or the margin, that the rate
on this note will be the same rate you charge on any other loans or class of
loans to me or other borrowers.
ACCRUAL METHOD: The amount of interest that I will pay on this loan will be
calculated using the interest rate and accrual method stated on page 1 of this
note. For the purpose of interest calculation, the accrual method will determine
the number of days in a "year". If no accrual method is stated, then you may use
any reasonable accrual method for calculating interest.
POST MATURITY RATE: For purposes of deciding when the "Post Maturity Rate"
(shown on page 1) applies, the term "maturity" means the date of the last
scheduled payment indicated on page 1 of this note or the date you accelerate
payment on the note, whichever is earlier.
SINGLE ADVANCE LOANS: If this is a single advance loan, you and I expect that
you will make only one advance of principal. However, you may add other amounts
to the principal if you make any payments described in the "PAYMENTS BY LENDER"
paragraph below.
MULTIPLE ADVANCE LOANS: If this is a multiple advance loan, you and I expect
that you will make more than one advance of principal. If this is closed end
credit, repaying a part of the principal will not entitle me to additional
credit.
PAYMENTS BY LENDER: If you are authorized to pay, on my behalf, charges I am
obligated to pay (such as property insurance premiums), then you may treat those
payments made by you as advances and add them to the unpaid principal under this
note, or you may demand immediate payment of the charges.
SET-OFF: I agree that you may set off any amount due and payable under this
note against any right I have to receive money from you.
"Right to receive money from you" means:
(1) any deposit account balance I have with you;
(2) any money owed to me on an item presented to you or in your possession for
collection or exchange; and
(3) any repurchase agreement or other nondeposit obligation.
"Any amount due and payable under this note" means the total amount of which
you are entitled to demand payment under the terms of this note at the time you
set off. This total includes any balance the due date for which you properly
accelerate under this note.
If my right to receive money from you is also owned by someone who has not
agreed to pay this note, your right of set-off will apply to my interest in the
obligation and to any other amounts I could withdraw on my sole request or
endorsement. Your right of set-off does not apply to an account or other
obligation where my rights are only as a representative. It also does not apply
to any Individual Retirement Account or other tax-deferred retirement account.
You will not be liable for the dishonor of any check when the dishonor occurs
because you set off this debt against any of my accounts. I agree to hold you
harmless from any such claims arising as a result of your exercise of your right
of set-off.
REAL ESTATE OR RESIDENCE SECURITY: If this note is secured by real estate or a
residence that is personal property, the existence of a default and your
remedies for such a default will be determined by applicable law, by the terms
of any separate instrument creating the security interest and, to the extent not
prohibited by law and not contrary to the terms of the separate security
instrument, by the "Default" and "Remedies" paragraphs herein.
DEFAULT: I will be in default if any one or more of the following occur: (1) I
fail to make a payment on time or in the amount due; (2) I fail to keep the
property insured, if required: (3) I fail to pay, or keep any promise, on any
debt or agreement I have with you; (4) any other creditor of mine attempts to
collect any debt I ow him through court proceedings; (5) I die, am declared
incompetant, make an assignment for the benefit of creditors, or become
insolvent (either because my liabilities exceed my assets or I am unable to pay
my debts as they become due); (6) I make any written statement or provide any
financial information that is untrue or inaccurate at the time it was provided;
(7) I do or fail to do something which causes you to believe that you will have
difficulty collecting the amount I owe you; (8) any collateral securing this
note is used in a manner or for a purpose which threatens confiscation by a
legal authority; (9) I change my name or assume an additional name without
first notifying you before making such a change; (10) I fail to plant, cultivate
and harvest crops in due season; (11) any loan proceeds are used for a purpose
that will contribute to excessive erosion of highly erodible land or to the
conversion of wetlands to produce an agricultural commodity, as further
explained in 7 C.F.R. Part 1940, Subpart G, Exhibit M.
REMEDIES: If I am in default on this note you have, but are not limited to, the
following remedies:
(1) You may demand immediate payment of all I owe you under this note
(principal, accrued unpaid interest and other accrued charges).
(2) You may set off this debt against any right I have to the payment of
money from you, subject to the terms of the "Set-off" paragraph herein.
(3) You may demand security, additional security, or additional parties to be
obligated to pay this note as a condition for not using any other remedy.
(4) You may refuse to make advances to me or allow purchases on credit by me.
(5) You may use any remedy you have under state or federal law.
By selecting any one or more of these remedies you do not give up your right to
later use any other remedy. By waiving your right to declare an event to be a
default, you do not waive your right to later consider the an event as a default
if it continues or happens again.
COLLECTION COSTS AND ATTORNEY'S FEES: I agree to pay all costs of collection,
replevin, or any other or similar type of cost if I am in default. In addition,
if you hire an attorney to collect this note, I also agree to pay any reasonable
fee you incur with such attorney plus court costs (except where prohibited by
law). I agree that reasonable attorneys' fees shall be construed to mean 10% of
the principal sum named in this note, or such larger fee that the court may
determine to be reasonable and just. To the extent permitted by the United
States Bankruptcy Code, I also agree to pay the reasonable attorney's fees and
costs you incur to collect this debt as awarded by any court exercising
jurisdiction under the Bankruptcy Code.
WAIVER: I give up my right to require you to do certain things. I will not
require you to:
(1) demand payment of amounts due (presentment);
(2) obtain official certification of nonpayment (protest); or
(3) give notice that amounts due have not been paid (notice of dishonor).
I waive any defenses I have based on suretyship or impairment of collateral.
TO THE EXTENT PERMITTED BY LAW, I ALSO WAIVE MY RIGHT TO A TRIAL BY JURY IN
RESPECT TO ANY LITIGATION ARISING FROM THIS NOTE AND ANY OTHER AGREEMENT
EXECUTED IN CONJUNCTION WITH THIS CREDIT TRANSACTION.
OBLIGATIONS INDEPENDENT: I understand that I must pay this note even if someone
else has also agreed to pay it (by, for example, signing this form or a separate
guarantee or endorsement). You may sue me alone, or anyone else who is obligated
on this note, or any number of us together, to collect this note. You may do so
without any notice that it has not been paid (notice of dishonor). You may
without notice release any party to this agreement without releasing any other
party. If you give up any of your rights, with or without notice, it will not
affect my duty to pay this note. Any extension of new credit to any of us, or
renewal of this note by all or less than all of us will not release me from my
duty to pay it. (Of course, you are entitled to only one payment in
full). I agree that you may at your option extend this note or the debt
represented by this note, or any portion of the note or debt, from time to time
without limit or notice and for any term without affecting my liability for
payment of the note, I will not assign my obligation under this agreement
without your prior written approval.
CREDIT INFORMATION; I agree and authorize you to obtain credit information about
me from time to time (for example, by requesting a credit report) and to report
to others your credit experience with me (such as a credit reporting agency). I
agree to provide you, upon request, any financial statement or information you
may deem necessary. I warrant that the financial statements and information I
provide to you are or will be accurate, correct and complete.
NOTICE: Unless otherwise required by law, any notice to me shall be given by
delivering it or by mailing it by first class mail addressed to me at my last
known address. My current address is on page 1. I agree to inform you in writing
of any change in my address. I will give any notice to you by mailing it first
class to your address stated on page 1 of this agreement, or to any other
address that you have designated.
<TABLE>
<CAPTION>
DATE OF PRINCIPAL BORROWER'S PRINCIPAL PRINCIPAL INTEREST INTEREST INTEREST
TRANSACTION ADVANCE INITIALS PAYMENTS BALANCE RATE PAYMENTS PAID
(NOT REQUIRED) THROUGH
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
/ / $ $ $ % $ / /
- ---------------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
RENEWAL & CONSOLIDATION NOTE
NUTRICEUTICALS.COM CORPORATION
6950 BRYAN DAIRY RD.
LARGO, FL 33777
BORROWER'S NAME AND ADDRESS
"I" includes each Borrower above, joint and severally.
FIRST COMMUNITY BANK OF AMERICA
6100 4TH STREET NORTH
ST. PETERSBURG, FL 33703
LENDER'S NAME AND ADDRESS
"You" means the lender, its successors and assigns.
Loan Number 23627
-----------------------
Date NOVEMBER 10, 1999
-----------------------------
Maturity Date OCTOBER 10, 2000
--------------------
Loan Amount $250,000.00
----------------------
Renewal Of
-----------------------
For value received, I promise to pay to you, or your order, at your address
listed above the PRINCIPAL sum of TWO HUNDRED FIFTY THOUSAND AND NO/100*********
Dollars $250,000.00
[ ] SINGLE ADVANCE: I will receive all of this principal sum on _______________.
No additional advances are contemplated under this note.
[X] MULTIPLE ADVANCE: The principal sum shown above is the maximum amount of
principal I can borrow under this note. On NOV. 10, 1999 I will receive the
amount of $200,000,000 and future principal advances are contemplated.
CONDITIONS: The conditions for future advances are AS PER THE TERMS OF THE
LINE OF CREDIT AGREEMENT OF EVEN DATE.
____________________________________________________________________________
[X] OPEN END CREDIT: You and I agree that I may borrow up to the maximum
amount of principal more than one time. This feature is subject to all
other conditions and expires on OCTOBER 10, 2000.
[ ] CLOSED END CREDIT: You and I agree that I may borrow up to the maximum
only one time (and subject to all other conditions).
INTEREST: I agree to pay interest on the outstanding principal balance from
NOVEMBER 10, 1999 at the rate of 6.500% per year until OCTOBER 10, 2000
[ ] VARIABLE RATE: This rate may then change as stated below.
[ ] INDEX RATE: The future rate will be ____________________ the following
index rate:_________________________________________________________________
____________________________________________________________________________
[ ] NO INDEX: The future rate will not be subject to any internal or
external index. It will be entirely in your control.
[ ] FREQUENCY AND TIMING: The rate on this note may change as often as
_________________________
A change in the interest rate will take effect _________________________
[ ] LIMITATIONS: During the term of this loan, the applicable annual
interest rate will not be more than _____% or less than _______%. The rate
may not change more than ____________% each _______________________.
EFFECT OF VARIABLE RATE: A change in the interest rate will have the
following effect on the payments:
[ ] The amount of each scheduled payment will change.
[ ] The amount of the final payment will change.
[ ]_________________________________________________________________________
ACCRUAL METHOD: Interest will be calculated on a ACTUAL/365 basis.
POST MATURITY RATE: I agree to pay interest on the unpaid balance of this note
owing after maturity, and until paid in full, as stated below:
[ ] on the same fixed or variable rate basis in effect before maturity (as
indicated above).
[X] at a rate equal to 18.0%
[ ] LATE CHARGE: If a payment is made more than 10 days after it is due, I agree
to pay a late charge of 5.000% OF THE LATE PAYMENT
[ ] ADDITIONAL CHARGES: In addition to interest, I agree to pay the following
charges which [ ] are [ ] are not included in the principal amount above:
PAYMENTS: I agree to pay this note as follows:
[X] INTEREST: I agree to pay accrued interest ON THE 10TH DAY OF EACH MONTH
BEGINNING DECEMBER 10, 1999
____________________________________________________________________________
[X] PRINCIPAL: I agree to pay the principal OCTOBER 10, 2000
____________________________________________________________________________
[ ] INSTALLMENTS: I agree to pay this note in ____ payments. The first payment
will be in the amount of $________________ and will be due ________________.
A payment of $______________ will be due ____________________ thereafter.
The final payment of this entire unpaid balance of principal and interest
will be due_____________________________________________.
ADDITIONAL TERMS:
SECURITY: This note is separately secured by (describe separate document by type
and date); SECURITY AGREEMENT DATED OCTOBER 18, 1999.
(This action is for your internal use. Failure to list a separate security
document does not mean the agreement will not secure this note.)
URPOSE: The purpose of this loan is
BUSINESS: WORKING CAPITAL
____________________________________
SIGNATURES: I AGREE TO THE TERMS OF
THIS NOTE (INCLUDING THOSE ON PAGE 2).
I have received a copy on today's date.
<PAGE>
DEFINITIONS: As used on page 1, "[X]" means the terms that apply to this loan.
"I", "me" or "my" means each Borrower who signs this note and each other person
or legal entity (including guarantors, endorsers, and sureties) who agrees to
pay this note (together referred to as "us", "You" or "your" means the Lender
and its successors and assigns.
APPLICABLE LAW: The law of the state of Florida will govern this note. Any
term of this note which is contrary to applicable law will not be effective,
unless the law permits you and me to agree to such a variation. If any provision
of this agreement cannot be enforced according to its terms, this fact will not
affect the enforceability of the remainder of this agreement. No modification of
this agreement may be made without your express written consent. Time is of the
essence in this agreement.
PAYMENTS: Each payment I make on this note will first reduce the amount I owe
you for charges which are neither interest nor principal. The remainder of each
payment will then reduce accrued unpaid interest, and then unpaid principal. If
you and I agree to different application of payments, we will describe our
agreement on this note. I may prepay a part of, or the entire balance of this
loan without penalty, unless we specify to the contrary on this note. Any
partial prepayment will not excuse or reduce any later scheduled payment until
this note is paid in full (unless, when I make the prepayment, you and I agree
in writing to the contrary).
INTEREST: Interest accrues on the principal remaining unpaid from time to time,
until paid in full. If I receive the principal in more than one advance, each
advance will start to earn interest only when I receive the advance. The
interest rate in effect on this note at any given time will apply to the entire
principal advanced at that time. Notwithstanding anything to the contrary, I do
not agree to pay and you do not intend to charge any rate of interest that is
higher than the maximum rate of interest you could charge under applicable law
for the extension of credit that is agreed to here (either before or after
maturity). If any notice of interest accrual is sent and is in error, we
mutually agree to correct it, and if you actually collect more interest than
allowed by law and this agreement, you agree to refund it to me.
INDEX RATE: The index will serve only as a device for setting the rate on this
note. You do not guarantee by selecting this index, or the margin, that the rate
on this note will be the same rate you charge on any other loans or class of
loans to me or other borrowers.
ACCRUAL METHOD: The amount of interest that I will pay on this loan will be
calculated using the interest rate and accrual method stated on page 1 of this
note. For the purpose of interest calculation, the accrual method will determine
the number of days in a "year". If no accrual method is stated, then you may use
any reasonable accrual method for calculating interest.
POST MATURITY RATE: For purposes of deciding when the "Post Maturity Rate"
(shown on page 1) applies, the term "maturity" means the date of the last
scheduled payment indicated on page 1 of this note or the date you accelerate
payment on the note, whichever is earlier.
SINGLE ADVANCE LOANS: If this is a single advance loan, you and I expect that
you will make only one advance of principal. However, you may add other amounts
to the principal if you make any payments described in the "PAYMENTS BY LENDER"
paragraph below.
MULTIPLE ADVANCE LOANS: If this is a multiple advance loan, you and I expect
that you will make more than one advance of principal. If this is closed end
credit, repaying a part of the principal will not entitle me to additional
credit.
PAYMENTS BY LENDER: If you are authorized to pay, on my behalf, charges I am
obligated to pay (such as property insurance premiums), then you may treat those
payments made by you as advances and add them to the unpaid principal under this
note, or you may demand immediate payment of the charges.
SET-OFF: I agree that you may set off any amount due and payable under this
note against any right I have to receive money from you.
"Right to receive money from you" means:
(1) any deposit account balance I have with you;
(2) any money owed to me on an item presented to you or in your possession for
collection or exchange; and
(3) any repurchase agreement or other nondeposit obligation.
"Any amount due and payable under this note" means the total amount of which
you are entitled to demand payment under the terms of this note at the time you
set off. This total includes any balance the due date for which you properly
accelerate under this note.
If my right to receive money from you is also owned by someone who has not
agreed to pay this note, your right of set-off will apply to my interest in the
obligation and to any other amounts I could withdraw on my sole request or
endorsement. Your right of set-off does not apply to an account or other
obligation where my rights are only as a representative. It also does not apply
to any Individual Retirement Account or other tax-deferred retirement account.
You will not be liable for the dishonor of any check when the dishonor occurs
because you set off this debt against any of my accounts. I agree to hold you
harmless from any such claims arising as a result of your exercise of your right
of set-off.
REAL ESTATE OR RESIDENCE SECURITY: If this note is secured by real estate or a
residence that is personal property, the existence of a default and your
remedies for such a default will be determined by applicable law, by the terms
of any separate instrument creating the security interest and, to the extent not
prohibited by law and not contrary to the terms of the separate security
instrument, by the "Default" and "Remedies" paragraphs herein.
DEFAULT: I will be in default if any one or more of the following occur: (1) I
fail to make a payment on time or in the amount due; (2) I fail to keep the
property insured, if required: (3) I fail to pay, or keep any promise, on any
debt or agreement I have with you; (4) any other creditor of mine attempts to
collect any debt I ow him through court proceedings; (5) I die, am declared
incompetant, make an assignment for the benefit of creditors, or become
insolvent (either because my liabilities exceed my assets or I am unable to pay
my debts as they become due); (6) I make any written statement or provide any
financial information that is untrue or inaccurate at the time it was provided;
(7) I do or fail to do something which causes you to believe that you will have
difficulty collecting the amount I owe you; (8) any collateral securing this
note is used in a manner or for a purpose which threatens confiscation by a
legal authority; (9) I change my name or assume an additional name without
first notifying you before making such a change; (10) I fail to plant, cultivate
and harvest crops in due season; (11) any loan proceeds are used for a purpose
that will contribute to excessive erosion of highly erodible land or to the
conversion of wetlands to produce an agricultural commodity, as further
explained in 7 C.F.R. Part 1940, Subpart G, Exhibit M.
REMEDIES: If I am in default on this note you have, but are not limited to, the
following remedies:
(1) You may demand immediate payment of all I owe you under this note
(principal, accrued unpaid interest and other accrued charges).
(2) You may set off this debt against any right I have to the payment of
money from you, subject to the terms of the "Set-off" paragraph herein.
(3) You may demand security, additional security, or additional parties to be
obligated to pay this note as a condition for not using any other remedy.
(4) You may refuse to make advances to me or allow purchases on credit by me.
(5) You may use any remedy you have under state or federal law.
By selecting any one or more of these remedies you do not give up your right to
later use any other remedy. By waiving your right to declare an event to be a
default, you do not waive your right to later consider the an event as a default
if it continues or happens again.
COLLECTION COSTS AND ATTORNEY'S FEES: I agree to pay all costs of collection,
replevin, or any other or similar type of cost if I am in default. In addition,
if you hire an attorney to collect this note, I also agree to pay any reasonable
fee you incur with such attorney plus court costs (except where prohibited by
law). I agree that reasonable attorneys' fees shall be construed to mean 10% of
the principal sum named in this note, or such larger fee that the court may
determine to be reasonable and just. To the extent permitted by the United
States Bankruptcy Code, I also agree to pay the reasonable attorney's fees and
costs you incur to collect this debt as awarded by any court exercising
jurisdiction under the Bankruptcy Code.
WAIVER: I give up my right to require you to do certain things. I will not
require you to:
(1) demand payment of amounts due (presentment);
(2) obtain official certification of nonpayment (protest); or
(3) give notice that amounts due have not been paid (notice of dishonor).
I waive any defenses I have based on suretyship or impairment of collateral.
TO THE EXTENT PERMITTED BY LAW, I ALSO WAIVE MY RIGHT TO A TRIAL BY JURY IN
RESPECT TO ANY LITIGATION ARISING FROM THIS NOTE AND ANY OTHER AGREEMENT
EXECUTED IN CONJUNCTION WITH THIS CREDIT TRANSACTION.
OBLIGATIONS INDEPENDENT: I understand that I must pay this note even if someone
else has also agreed to pay it (by, for example, signing this form or a separate
guarantee or endorsement). You may sue me alone, or anyone else who is obligated
on this note, or any number of us together, to collect this note. You may do so
without any notice that it has not been paid (notice of dishonor). You may
without notice release any party to this agreement without releasing any other
party. If you give up any of your rights, with or without notice, it will not
affect my duty to pay this note. Any extension of new credit to any of us, or
renewal of this note by all or less than all of us will not release me from my
duty to pay it. (Of course, you are entitled to only one payment in
full). I agree that you may at your option extend this note or the debt
represented by this note, or any portion of the note or debt, from time to time
without limit or notice and for any term without affecting my liability for
payment of the note, I will not assign my obligation under this agreement
without your prior written approval.
CREDIT INFORMATION; I agree and authorize you to obtain credit information about
me from time to time (for example, by requesting a credit report) and to report
to others your credit experience with me (such as a credit reporting agency). I
agree to provide you, upon request, any financial statement or information you
may deem necessary. I warrant that the financial statements and information I
provide to you are or will be accurate, correct and complete.
NOTICE: Unless otherwise required by law, any notice to me shall be given by
delivering it or by mailing it by first class mail addressed to me at my last
known address. My current address is on page 1. I agree to inform you in writing
of any change in my address. I will give any notice to you by mailing it first
class to your address stated on page 1 of this agreement, or to any other
address that you have designated.
<TABLE>
<CAPTION>
DATE OF PRINCIPAL BORROWER'S PRINCIPAL PRINCIPAL INTEREST INTEREST INTEREST
TRANSACTION ADVANCE INITIALS PAYMENTS BALANCE RATE PAYMENTS PAID
(NOT REQUIRED) THROUGH
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
/ / $ $ $ % $ / /
- ---------------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
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
- --------------------------------
Kirkland, Russ, Murphy & Tapp
Clearwater, Florida
November 16, 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
- ---------------------------------------
Brimmer, Burek, Keelan & Mcnally LLP
Clearwater, Florida
November 16, 1999
EXHIBIT 23.1(c)
SHALEK & ASSOCIATES, CPA'S INC.
Board of Directors
Nutriceuticals.com Corporation
We consent to the use of our reports related to Becan Distributors, Inc.
included herein and to the reference to our firm under the heading "experts" in
the prospectus.
/s/ Shalek & Associates, CPA's Inc.
- -----------------------------------
Shalek & Associates, CPA's Inc.
Independence Ohio
November 16, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 4,633
<SECURITIES> 0
<RECEIVABLES> 10,850
<ALLOWANCES> 0
<INVENTORY> 23,292
<CURRENT-ASSETS> 241,873
<PP&E> 50,000
<DEPRECIATION> (8,704)
<TOTAL-ASSETS> 322,925
<CURRENT-LIABILITIES> 494,506
<BONDS> 0
0
0
<COMMON> 2,697
<OTHER-SE> (174,278)
<TOTAL-LIABILITY-AND-EQUITY> 322,925
<SALES> 50,697
<TOTAL-REVENUES> 50,697
<CGS> 26,590
<TOTAL-COSTS> 26,590
<OTHER-EXPENSES> 270,118
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (4,416)
<INCOME-PRETAX> (249,508)
<INCOME-TAX> 0
<INCOME-CONTINUING> (249,508)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (249,508)
<EPS-BASIC> (.09)
<EPS-DILUTED> (.09)
</TABLE>
