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FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS
UNDER SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934
DIRECT Rx, INC.
- --------------------------------------------------------------------------------
(Name of Small Business Issuer in its charter)
Ohio 34-1711778
- ---------------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
5905-A Hampton Oaks Parkway
Tampa, Florida 33610
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(Address of principal executive offices) (Zip Code)
Issuers's telephone number 813-628-0804
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Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered Each class is to be registered
- --------------------------------------- --------------------------------
- --------------------------------------- --------------------------------
Securities to be registered pursuant to Section 12(g) of the Act:
Common Capital Stock
- --------------------------------------------------------------------------------
(Title of class)
- --------------------------------------------------------------------------------
(Title of class)
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TABLE OF CONTENTS
PART I
<TABLE>
<S> <C>
ITEM 1. BUSINESS.................................................................................................4
A. Company..............................................................................................4
B. Wholly-Owned Subsidiary..............................................................................4
C. Industry Segments....................................................................................5
D. Employees............................................................................................6
E. Future Plans.........................................................................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS...............................................6
A. Management's Discussion and Analysis.................................................................6
1. Company Business and Changes................................................................6
2. Last Eighteen Months of Operations..........................................................7
3. Liquidity and Capital Resources.............................................................8
B. Selected Financial Data..............................................................................8
1. Quarterly Data..............................................................................8
2. Monthly Data................................................................................8
ITEM 3. PROPERTIES...............................................................................................9
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT..................................................................................9
A. Security Ownership of Certain beneficial Owners......................................................9
B. Security Ownership of Management....................................................................10
C. Outstanding Options and Conversion Rights...........................................................11
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS........................................................................13
A. Company.............................................................................................13
B. Nu-Wave.............................................................................................13
C. Summary of Background and Experience of Executive Officers and Key Personnel.........................14
ITEM 6. EXECUTIVE COMPENSATION..................................................................................15
A. Directors...........................................................................................15
B. Executive Officers..................................................................................15
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..........................................................17
</TABLE>
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<TABLE>
<S> <C>
ITEM 8. DESCRIPTION OF SECURITIES...............................................................................17
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND RELATED SHAREHOLDER MATTERS...........................................................18
ITEM 2. LEGAL PROCEEDINGS.......................................................................................18
ITEM 3. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS
AND FINANCIAL DISCLOSURE................................................................................19
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.................................................................19
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS...............................................................20
PART F/S
FINANCIAL STATEMENTS.............................................................................................21
PART III
ITEM 1. INDEX TO EXHIBITS.......................................................................................21
ITEM 2. DESCRIPTION OF EXHIBITS.................................................................................21
SIGNATURES.......................................................................................................22
</TABLE>
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
A. COMPANY.
Direct Rx, Inc. ("Company"), an Ohio corporation, was incorporated on June 30,
1992. It was originally formed to pursue business opportunities in the sale of
pharmaceuticals, drug items and medications both from a retail pharmacy and from
orders obtained by mail or phone and delivered directly to consumers. Currently,
the Company is engaged in the mail order business of diabetic equipment and
supplies and, through its wholly-owned subsidiary, in the business of creating,
manufacturing and packaging of non-prescription medications and health products
on an international basis. The Company is a "small business issuer" for purposes
of disclosure and filings under the Securities Act of 1933 and the Securities
Exchange Act of 1934.
In August, 1992, the Company purchased the assets of Vern's Pharmacy, Inc.
("Pharmacy") and was engaged in the retail pharmacy business. Due to negative
competitive conditions, the retail pharmacy business was discontinued on April
30, 1995, and sold on August 15, 1995. In December, 1992, the Company acquired
Diabetes Supplies of Texas, Inc., a Houston, Texas based provided of diabetic
products through mail order sales. The Company continued to and is currently
providing a broad range of equipment and supplies to diabetics on a mail order
basis.
The principal office of the Company is currently located at 5905-A Hampton Oaks
Parkway, Tampa, Florida, the location at which the offices of its wholly-owned
subsidiary is located. See"B. WhollyOwned Subsidiary" below. The mail order
Diabetic Supplies division of the Company is operated out of its offices located
at 275 Curry Hollow Road, Pittsburgh, Pennsylvania.
Since April, 1995, when the Company discontinued the retail pharmacy business,
the principal business of the Company, other than the business of its
wholly-owned subsidiary, has been the mail-order sale of diabetic supplies and
equipment for use in measuring and controlling blood sugar levels. The primary
products are testing meters and strips. The Company also sells a variety of
associated products, such as transfer pipets, glucose tablets and specially
prepared food items for diabetics.
B. WHOLLY-OWNED SUBSIDIARY.
Nu-Wave Health Products, Inc. ("Nu-Wave") is a wholly-owned subsidiary
corporation of the Company. Nu-Wave was incorporated on May 1, 1995, as a
Florida corporation under the name of Solstice, Inc. Pursuant to amended
Articles of Incorporation, its name was changed to Nu-Wave on September 25,
1995.
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On September 15, 1995, Nu-Wave purchased the assets of Ayur, Inc., a non-
prescription health product manufacturer for $32,700, $16,700 in cash and
$16,000 pursuant to an unsecured promissory note. As of the date hereof, the
promissory note has been paid in full.
The principal office of Nu-Wave also is currently located at 5905-A Hampton Oaks
Parkway, Tampa, Florida.
In September, 1995, the Company acquired 80% of the issued and outstanding
common capital stock of Nu-Wave. As of July 15, 1997, the Company issued 100,000
shares of its common capital stock to the other four (4) shareholders of Nu-Wave
in exchange for the 20 shares of common capital stock of Nu-Wave, which
constituted the remaining 20% of the issued and outstanding common capital stock
of Nu-Wave, resulting in the Company then owning 100% of Nu-Wave.
Nu-Wave is in the business of creating, manufacturing and packaging of
non-prescription medications and health products on an international basis.
These products include nutritional supplements, over-the-counter
pharmaceuticals, cosmetics, extracts, lotions, creams, gels, liquids, powders,
capsules and tablets. Depending upon the specific needs of the customer, the
products are manufactured in bulk or packaged under private label. Although
Nu-Wave has customers on an international basis, the highest concentration of
its customer currently are located in the State of Florida. As of March 31,
1997, three (3) customers represent approximately eight-five percent (85%) of
the consolidated revenue of the Company. The loss of one or more of these
customers in all likelihood would have a material adverse effect on the
financial condition of the Company, at least on a short term basis.
The business or any of the segments of the business of the Company is not
seasonal and the business or any of the segments of the business of the Company
are not in any material way dependent upon any patents, trademarks, licenses,
franchises or concessions.
C. INDUSTRY SEGMENTS
As of March 31, 1997, and for the eighteen (18) months then ended, and as of
June 30, 1997, and the three(3) months then ended, the Company had the following
revenues from the mail-order business and from the health products business
(Nu-Wave):
<TABLE>
<CAPTION>
Revenues Revenues
March 31, 1997 June 30, 1997
(18 months) (3 months)
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<S> <C> <C>
Mail-Order Diabetic Products $448,145 $393,448
Nu-Wave Health Products $844,191 $ 36,599
</TABLE>
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As of June 30, 1997, the Company had firm orders which are expected to be
completed within six (6) months of approximately $1,400,000. See "Part I, Item
2. Managment's Discussion and Analysis or Plan of Operations, A. Management's
Discussion and Analysis".
D. EMPLOYEES
The Company has three (3) employees in connection with the mail-order diabetic
operations, all of which are located in the Pittsburgh, Pennsylvania office,
except for one (1) located in the Tampa, Florida office. Nu-Wave has twelve (11)
employees and a consultant in connection with its health products operations,
all of which are located in the Tampa, Florida office.
All employees and the consultant, including executive officers, except for
Phillip J. Laird, are paid by Nu-Wave and deemed leased employees, pursuant to a
Service Agreement by and between Nu-Wave and Nations Staffing, Inc. ("NSI"),
with offices at 7557 Ulmerton Road, Suite D, Largo, Florida. Pursuant to this
agreement, NSI pays all payroll and salaries of the employees and provides
workers' compensation insurance and hospital and medical benefits. At the
present time, neither the Company nor Nu-Wave has any profit sharing or pension
plan or any other form of retirement plan for its employees, including executive
officers. Mr. Laird, the Vice-President of the Mail-Order Diabetes Division of
the Company is paid directly by the Company.
E. FUTURE PLANS
Management of the Company is considering the possibility of a merger between the
Company and Nu-Wave, its wholly-owned subsidiary. Any such merger would be
pursuant to a plan of merger adopted by the Boards of Directors of the Company
and Nu-Wave, and approved by at least a majority of the shareholders of the
Company. It is not anticipated that any such merger, if it occurs, would have
any material effect on the operations or the management of the Company as it now
exists.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following discussion and analysis and the selected financial data should be
read in conjunction with the Company's consolidated financial statements and
notes thereto which are attached hereto ("Financial Statements").
A. MANAGEMENT'S DISCUSSION AND ANALYSIS
1. COMPANY BUSINESS AND CHANGES
The Company currently is engaged in two lines of business, the mail order
business of diabetic equipment and supplies and, through its wholly-owned
subsidiary, the business of creating, manufacturing and packaging of
non-prescription medications and health products. One of the
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original lines of business, the Pharmacy was sold in August, 1995, and Nu-Wave,
the wholly-owned subsidiary of the Company, was acquired in September, 1995. See
"Part I, Item 1. Business".
Thus, some of the financial information prior to September, 1995, reflected in
the Financial Statements, although of historical significance, is not indicative
of or relevant to the present operations of the Company.
2. LAST EIGHTEEN MONTHS OF OPERATIONS
In the eighteen (18) months ended March 31, 1997, there was no Pharmacy revenue
and the mail-order diabetes supply business disrupted due to the moving of the
main office of the Company to Florida. Also, since Nu-Wave, acquired by the
Company in September, 1995, was only incorporated in may, 1995, it basically had
no revenues during its first four (4) months of operations due to the setting up
of equipment and other matters necessary to the start-up of manufacturing
operations. Therefore, the majority of Nu-Wave's revenues reflected in the
Financial Statements for the eighteen (18) months ended March 31, 1997, were
generated during the last six (6) months of that period, i.e. from October 1,
1996 to March 31, 1997.
Nu-Wave has been profitable for the last three quarters of operation, from
October 1, 1996 to June 30, 1997. During the three (3) quarters ended December
31, 1996, March 31, 1997, and June 30, 1997, respectively, the Company had
consolidated revenue of $274,976, 450,961 and 430,047, respectively, and
consolidated net income from operations of $23, 321, $40,439 and 25,971. During
those same periods, however, cost of goods sold and expenses progressively
increased.
Since October 1, 1996, the Company has increased the amount of its firm orders
for its products. As of June 30, 1997, the Company had firm orders which are
expected to be completed within six (6) months of approximately $1,400,000. See
"B. Selected Financial Data" below for the approximate amount of firm orders as
of the end of each of the first six (6) months of 1997.
The Company's firm orders are not consistent each month but somewhat cyclical in
nature. The Company receives blanket orders for between 60,000 and 100,000 units
every three (3) months. Once are supplied the Company receives another firm
order and this occurs in cycles about every three (3) months. Similarly, there
are three (3) specific clients that provide the Company with form orders every
three (3) months.
Because of the change in the lines of business and nature of the operations of
the Company, it is not meaningful to discuss any comparisons between the above
results of operations and any results of operations prior to September 30, 1996.
Despite the existence of the Company since 1992, stockholders of the Company
should view the operations of the Company as start-up in nature, beginning
October 1, 1996. Furthermore, the Company did have negative operating results
prior to September 30, 1996, and, although, in the opinion of the management of
the Company, the above data reflects positive information concerning the present
operations of the Company, there can be
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no assurance that the Company's results of operations will continue to the same
extent or in the same manner as reflected above.
Below in "B, Selected Financial Data, there is set forth certain financial
information reflecting the results of operations of the Company for the nine (9)
months ended June 30, 1997.
3. LIQUIDITY AND CAPITAL RESOURCES
The Company historically has financed its operations primarily through the use
of cash on hand, the sale of equity securities and loans to the Company from
Manju Taneja. See "Part II, Item 4. Recent Sales of Unregistered Securities" and
"Part I, Item 7. Certain Relationships and related Transactions".
Until the last quarter of 1996, the Company's operations since its inception
resulted in negative cash flow. Since that time, cash flow has been positive.
Although in the opinion of management of the Company, this positive trend will
continue, there can be no assurance that the Company will generate sufficient
cash flow from operations in the future or that sufficient capital will be
available to meet its cash flow needs. Presently, the Company does not have an
established line of credit
B. SELECTED FINANCIAL DATA
1. QUARTERLY DATA
The following table sets forth selected financial data showing the consolidated
revenue, gross profit and net income, before taxes, for the last three (3)
calendar quarters and is qualified by, and should be read in conjunction with,
the more detailed Financial Statements and notes thereto included herein and the
"Management's Discussion and Analysis or Plan of Operations" above.
<TABLE>
<CAPTION>
Calendar Quarters Ending
------------------------ Total
for
December 31, 1996 March 31, 1997 June 30, 1997 Nine Months
----------------- -------------- ------------- -----------
<S> <C> <C> <C> <C>
Revenue $274,976 $450,961 $430,047 $1,155,984
Gross Profit* $124,078 $167,555 $185,753 $ 477,386
Net Income** $ 23,321 $ 40,439 $ 25,971 $ 89,731
</TABLE>
* After deduction of costs of goods sold.
** After deduction of all expenses.
2. MONTHLY DATA
The following table sets forth selected financial data showing the consolidated
monthly revenue, gross profit and net income, before taxes, for the first six
(6) months of 1997, and the approximate
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consolidated amount of the Company's firm orders as of the end of each of the
first six (6) months of 1997, and is qualified by, and should be read in
conjunction with, the more detailed Financial Statements and notes thereto
included herein and the "Management's Discussion and Analysis or Plan of
Operations" above.
<TABLE>
<CAPTION>
1997
----
January February March April May June
------- -------- ----- ----- --- ----
<S> <C> <C> <C> <C> <C> <C>
Revenue $170,772 $138,079 $142,110 $145,900 $151,843 $132,302
Gross Profit* $ 62,465 $ 51,089 $ 54,001 $ 56,901 $ 50,108 $ 78,744
Net Income** $ 15,314 $ 12,382 $ 12,743 $ 13,276 $ 10,629 $ 2,066(1)
Firm Orders $153,000 $354,000 $ 2,000 $210,000 $ 57,000 $ 29,000
</TABLE>
* After deduction of costs of goods sold.
** After deduction of all expenses.
(1) In June, 1997, there were extraordinary expenses associated with the
moving of the mail-order diabetes supply business and accounting and
audit fees.
Although, in the opinion of the management of the Company, the above tables
reflect positive information concerning the present operations of the Company,
there can be no assurance that the Company's results of operations will continue
to the same extent or in the same manner as reflected in the above tables.
ITEM 3. DESCRIPTION OF PROPERTY
The Company or Nu-Wave do not own or hold any legal or equitable interest in any
real estate. The Company rents its offices in Pittsburgh, Pennsylvania on a
month-to-month basis and pays monthly rental of $400. The offices in Tampa,
Florida are leased pursuant to a five-year lease that expires on October 11,
2000, subject to a right to renew for an additional term of five (5) years. The
rental under the lease is $6,750 per month. As of march 31, 1997, Nu-Wave had
furniture, equipment and leasehold improvements, net of depreciation, in the
amount of $104,948.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
A. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the beneficial
ownership of the common capital stock of the Company with respect to any person
known by the Company to own beneficially more than 5% of the 2,400,000 shares of
currently issued and outstanding common capital stock of the Company:
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<TABLE>
<CAPTION>
Name and Address Shares Beneficially Percent of
Title of Class of Beneficial Owner Owned Class
- -------------- ------------------- ------------------- ---------
<S> <C> <C> <C>
Common Manju Taneja 651,235 (1) 27.13%
7270 Saw Grass Pt.
Drive, Pinellas Park,
Florida 33782
Common Dr. Kotha S. Sekharam 255,000 (2) 10.63%
5905-A Hampton Oaks
Parkway, Tampa,
Florida 33610
</TABLE>
(1) Ms. Taneja is the wife of Jugal K. Taneja, Chairman of the Board,
Secretary and Director of the Company. If you combine the Taneja family
stock, the total issued and outstanding common capital stock deemed to be
beneficially controlled by Mr. Taneja would be 753, 285 shares,
representing 31.39 % of the total issued and outstanding stock, which
consists of 12,050 shares owned by Mr. Taneja, 10,000 shares owned by Mr.
Taneja's children (over which he disclaims any ownership), 25,000 shares
owned by First Delhi Trust (a trust for the benefit of Mr. Taneja's
Children, 651,235 shares owned by Manju Taneja (over which he disclaims any
ownership) and 55,000 shares owned by Bancapital Management Corporation, a
corporation owned and controlled by Mr. Taneja.
(2) Dr. Sekharam also holds an option for 200,000 shares of common capital stock
of the Company. See "C. Outstanding Options and Conversion Rights" below.
B. SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding the current
beneficial ownership of the common capital stock of the Company with respect to
each of the Company's and/or Nu-Wave's executive officers and directors and all
executive officers and directors as a group:
<TABLE>
<CAPTION>
Name and Address Shares Beneficially Percent of
Title of Class of Beneficial Owner Owned or Controlled Class
- -------------- ------------------- ------------------- ----------
<S> <C> <C> <C>
Common Jugal K. Taneja 753,285 (1) 31.39%
5905-A Hampton Oaks
Parkway, Tampa,
Florida 33610
Common Dr. Kotha S. Sekharam 255,000 (2) 10.63%
5905-A Hampton Oaks
Parkway, Tampa,
Florida 33610
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C>
Common Martin A Traber 30,000 1.25%
Foley & Lardner
100 North Tampa St.
Tampa, Florida 33602
Common Directors and executive 1,018,285 42.43%
officers as a group
</TABLE>
(1) See Footnote 1 above in "A. Security Ownership of Certain Beneficial
Owners".
(2) See Footnote 2 above in "A. Security Ownership of Certain Beneficial
Owners".
Certain executive officers and directors of the Company and Nu-Wave are not
presently beneficial owners but do hold options to purchase common capital stock
of the Company. See "C. Outstanding Options and Conversion Rights" below.
See "C. Outstanding Options and Conversion Rights" below for the table that sets
forth certain information regarding the beneficial ownership of the common
capital stock of the Company with respect to each of the Company's and/or
Nu-Wave's executive officers and directors and all executive officers and
directors as a group in the event that and at such time as all options and
rights of conversion are exercised.
C. OUTSTANDING OPTIONS AND CONVERSION RIGHTS.
As of the date hereof, there were outstanding the following options to purchase
and conversion rights with respect to the common capital stock of the Company:
1. Remaining Stock Conversion Rights to 1,382,845 shares granted to Manju
Taneja pursuant to the terms of the promissory notes representing the
indebtedness of the Company to her. See "Part II, Item 4. Recent Sales of
Unregistered Securities".
2. Stock option rights granted to Dr. Kotha S. Sekharam, in connection with his
employment, whereby he is entitled to purchase 200,000 shares of common capital
stock of the Company at an option price of $.20 per share to be exercised on or
before December 31, 1997.
3. Stock option rights granted to Phillip J. Laird, in connection with his
employment, whereby he is entitled to purchase 300,000 shares of common capital
stock of the Company at an option price of $.20 per share if exercised with his
first year of employment. To the extent not exercised during that period, Mr.
Laird may purchase the remainder of such option shares for $.50 per share during
his second year of employment.
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4. Stock option rights granted to Stephen D. Kovalik, in connection with his
employment, whereby he is entitled to purchase 50,000 shares of common capital
stock of the Company at an option price of $.40 per share to be exercised on or
before March 31, 1998.
5. Stock option rights granted to Mihir Taneja, in connection with his
employment, whereby he is entitled to purchase 50,000 shares of common capital
stock of the Company at an option price of $.40 per share to be exercised on or
before March 31, 1998.
The following table that sets forth certain information regarding the beneficial
ownership of the common capital stock of the Company with respect to each of the
Company's and/or Nu-Wave's executive officers and directors and all executive
officers and directors as a group in the event that and at such time as all
options and rights of conversion are exercised:
<TABLE>
<CAPTION>
Name and Address Shares Beneficially Percent of
Title of Class of Beneficial Owner Owned or Controlled (1) Class
- -------------- ------------------- --------------------- ----------
<S> <C> <C> <C>
Common Jugal K. Taneja 2,081,130 (2) 49.75%
5905-A Hampton Oaks
Parkway, Tampa,
Florida 33610
Common Dr. Kotha S. Sekharam 455,000 10.88%
5905-A Hampton Oaks
Parkway, Tampa,
Florida 33610
Common Martin A Traber 30,000 0.72%
Foley & Lardner
100 North Tampa St.
Tampa, Florida 33602
Common Phillip J. Laird 300,000 7.17%
5905-A Hampton Oaks
Parkway, Tampa,
Florida 33610
Common Mihir Taneja 50,000 1.20%
5905-A Hampton Oaks
Parkway, Tampa,
Florida 33610
</TABLE>
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<TABLE>
<S> <C> <C> <C>
Common Stephen D. Kovalik 50,000 1.20%
5905-A Hampton Oaks
Parkway, Tampa,
Florida 33610
Common Directors and executive 2,946,130 70.43%
officers as a group
</TABLE>
(1) Assumes additional common capital stock of the Company is authorized
and that the total issued and outstanding stock of the Company is 4,182,845
shares.
(2) Includes 12,050 shares owned by Mr. Taneja, 10,000 shares owned by Mr.
Taneja's children (over which he disclaims any ownership), 25,000 shares owned
by First Delhi Trust (a trust for the benefit of Mr. Taneja's Children,
2,034,080 shares owned by Manju Taneja (over which he disclaims any ownership)
and 55,000 shares owned by Bancapital Management Corporation, a corporation
owned and controlled by Mr. Taneja, but does not include the 50,000 shares owned
by Mihir Taneja.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
A. COMPANY
The following are the names and certain information regarding the Directors and
Executive Officers of the Company:
<TABLE>
<CAPTION>
Name Age Title of Position
---- --- -----------------
<S> <C> <C>
Jugal K. Taneja 52 Chairman of the
Board, Secretary
and Director
Dr. Kotha S. Sekharam 35 President, Treasurer
and Director
Phillip J. Laird 29 Vice-President, Mail-Order
Diabetes Supply Division
Martin A. Traber 50 Director
</TABLE>
B. NU-WAVE
The following are the names and certain information regarding the Directors and
Executive Officers and key personnel of Nu-Wave, the wholly owned subsidiary of
the Company:
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<TABLE>
<CAPTION>
Name Age Title of Position
---- --- -----------------
<S> <C> <C>
Jugal K. Taneja 52 Chairman of the
Board, Secretary
and Director
Dr. Kotha S. Sekharam 47 President, Treasurer
and Director
Prahlad R. Joshi 63 Vice-President,
Quality Assurance
Mihir Taneja 23 Assistant Vice-President,
Marketing
Stephen D. Kovalik 32 Operations Manager,
Production
</TABLE>
C. SUMMARY OF BACKGROUND AND EXPERIENCE
OF EXECUTIVE OFFICERS AND KEY PERSONNEL
A summary of the background and experience of the executive officers and key
personnel of the Company and Nu-Wave are as follows:
JUGAL K. TANEJA, has been Chairman of the Board, Chief Executive Officer and a
Director of the Company since October, 1991 and has been Chairman of the Board,
Secretary and a Director of Nu-Wave since September, 1995. Mr. Taneja also
serves as a Director, Chief Executive Officer and Secretary of national
Diagnostics, Inc. He is also a Director and Chief Executive Officer of DRx, Inc.
Prior to his association with the Company, Mr. Taneja served as Senior Vice
President of Union Commerce Bank and Huntington National Bank from 1979 to 1983.
DR. KOTHA S. SEKHAREM, has been the a Director, President and Treasurer of the
Company and Nu-Wave since 1995. He earned a Ph.D degree in Food Science in 1981
from Central Food technological Research Institute, Mysore, India ( a United
Nations University center). From 1981 to 1987, he was the founder and managing
director of a food manufacturing business. From 1987 to 1992, Dr. Sekharam was a
consultant to Kuwait based food manufacturing businesses. From January, 1992 to
October, 1995, he was Director of Research and development for Energy Factors,
Inc., manufacturers of health foods, herbal supplemental, over the counter and
cosmetic products.
PHILLIP J. LAIRD, resides in the Pittsburgh, Pennsylvania area and has been Vice
President of the Mail-Order Diabetes Supply Division of the Company since May,
1997. He received a B.S. degree in Business Administration from Robert morris
College, Coraopolis, Pennsylvania in 1983.
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From 1984 until may, 1994 he held a number of accounting and managerial
positions. From May, 1994 until may, 1997, Mr. Laird was the Retail Area Sales
Manager for FoxMeyer Drug Company, Washington Courthouse, Ohio, managing 250
retail pharmacies with four sales consultants.
PRAHLAD R. JOSHI, has been with Nu-Wave since 1995. He holds an M.B.A. degree
form Indiana Northern University. From 1961 to 1995, Mr. Joshi was employed by
American Cyananide Company in various locations as a Microbiologist, Process
Engineer and Production Manager and Section Manager capacities. He is presently
a consultant to Nu-Wave and acts as Vice President of Quality Assurance.
MIHIR TANEJA, holds a B.A. degree in finance and marketing from University of
Miami. He is presently Vice President of marketing for Nu-Wave. Prior to that he
was employed in various accounting and financial functions for NuMED Home Health
Care, Inc., AT Broad & Co., and Bancapital Corp.
STEPHEN D. KOVALIK, attended Cuyahoga Community College and Anderson College and
also received certified managerial training. He has been with Nu-Wave since
1995. Prior to that, beginning in April, 1994, Mr. Kovalik worked for Bancapital
Corp. and the Company. From December, 1990 to April, 1994, he was in sales and
service as a self-employed agent of New York Life Insurance Company.
MARTIN A. TRABER, is a partner in the Tampa, Florida office of Foley & Lardner,
a national law firm. He has practiced in the areas of corporate finance and
securities law for 24 years and is a director of numerous companies (including
several in the medical technology field). Mr. Traber graduated magna cum laude
in 1970 from Indiana University School of Law, where he was Associate Editor of
the Law Review.
ITEM 6. EXECUTIVE COMPENSATION
A. DIRECTORS
No director of the Company or Nu-Wave receives any compensation or other
remuneration for serving as such director, except for the reimbursement of any
out-of-pocket expenses, if any, incurred by any director in connection with
attendance at a meeting of directors.
B. EXECUTIVE OFFICERS
The following table sets forth the names of the compensated executive officers
and a description and amount of any and all compensation and remuneration
received by them:
15
<PAGE> 16
Compensation or Other Remuneration (1)
----------------------------------
<TABLE>
<CAPTION>
Other Compensation
Name Annual Salary or Remuneration
---- ------------- ------------------
<S> <C> <C>
Jugal K. Taneja $75,000 Performance Bonus (2)
Dr. Kotha S. Sekharam $75,000 Performance Bonus and
Eligible for Stock Options (3)
Phillip J. Laird $45,000 Performance Bonus and
Stock Options (4)
Prahlad R. Joshi $25,000 None
Mihir Taneja $40,000 Stock Options (5)
Stephen D. Kovalik $35,000 Stock Options (6)
</TABLE>
(1) All employees, including executive officers, except for Phillip J.
Laird, are paid by Nu-Wave and deemed leased employees, pursuant to a Service
Agreement by and between Nu-Wave and Nations Staffing, Inc. See "Part I, Item 1.
Business, C. Employees". Mr. Laird is paid directly by the Company.
(2) Pursuant to an employment agreement, Mr. Taneja is entitled to a
performance bonus based upon a percentage of net income, before taxes, and a
percentage of annual revenues. See "Exhibit 9".
(3) Pursuant to an employment agreement, Dr. Sekharam is entitled to a
performance bonus based upon a percentage of net income, before taxes, and a
percentage of annual revenues. In addition, Dr. Sekharam was granted a stock
option for a total of 200,00 shares of common capital stock of the Company.
Also, Dr. Sekharam is eligible for stock options at such times and on such terms
as determined by the Company's Board of Directors. See "Exhibit 8" and "Part I,
Item 4. Security Ownership of Certain Beneficial Owners and Management"
(4) Pursuant to an employment agreement, Mr. Laird is entitled to a
performance bonus based on the average monthly gross sales of the Mail-Order
Diabetes Supply Division over three months, but not to exceed 20% of the net
operating profit of the division. In addition, Mr. Laird was granted a stock
option for a total of 300,000 shares of common capital stock of the Company. See
"Exhibit 10". and "Part I, Item 4. Security Ownership of Certain Beneficial
Owners and Management".
(4) Mr. Mihir Taneja was granted a stock option for a total of 50,000
shares of common capital stock of the Company. See "Part I, Item 4. Security
Ownership of Certain Beneficial Owners and Management".
(5) Mr. Kovalik was granted a stock option for a total of 50,000 shares of
common capital stock of the Company. See "Part I, Item 4. Security Ownership of
Certain Beneficial Owners and Management".
16
<PAGE> 17
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company previously had a agreement with Bancapital Management Corporation,
which is owned and controlled by Jugal Taneja, a director, officer and
stockholder of the Company, to pay for accounting and management services. The
Company paid approximately $34,000 for such services during the eighteen months
ended march 31, 1997. This agreement was terminated effective May 13, 1996.
The Company had demand notes payable to Manju Taneja, the wife of Jugal Taneja,
in the principal amount of $210,000, and interest at the prime rate (8.5% at
March 31, 1997) payable quarterly. As of June 30, 1997, the amount due and owing
on this indebtedness, including unpaid accrued interest, was $223,408. This
indebtedness and unpaid accrued interest may be repaid in cash or, at the option
of the holder, converted into common capital stock of the Company at a
conversion price of $.10 per share. As of July 15, 1997, the Company issued
851,235 shares of the common capital stock of the Company to Manju Taneja (out
of which 200,000 were sold to Dr. Sekharam- see below) in exchange for and as a
conversion of $85,123.50 of the indebtedness of the Company to Manju Taneja in
partial payment and satisfaction of the total amount of said indebtedness in the
principal sum of $210,000, plus interest. It is the intent of Ms. Taneja and the
Company to convert the remainder of the indebtedness, including unpaid accrued
interest, into common capital stock of the Company later in 1997 ("Remaining
Stock Conversion"), after additional shares of common capital stock are
authorized by the Company pursuant to an amendment to its Articles of
Incorporation. See "Part I, Item 8. Description of Securities". Ms. Taneja
understands that there are insufficient unissued authorized shares to allow her
Remaining Stock Conversion and has agreed with the Company that such Remaining
Stock Conversion is amended and modified to the effect that it is not
exercisable until and only to the extent additional shares of common capital
stock of the Company are authorized.
As of July 15, 1997, out of the converted 851,235 shares referred to above,
200,000 shares were sold to Dr. Kotha S. Sekharam, the President and a director
of both the Company and Nu-Wave, for $.10 per share.
As of July 15, 1997, the Company issued 100,000 shares of its common capital
stock to the other four (4) shareholders of Nu-Wave in exchange for the 20
shares of common capital stock of Nu-Wave, which constituted the remaining 20%
of the issued and outstanding common capital stock of Nu-Wave, resulting in the
Company then owning 100% of Nu-Wave. Of these 100,000 exchange shares, 55,000
were issued to Dr. Kotha S. Sekharam, the President and a director of both the
Company and Nu-Wave.
ITEM 8. DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 3,000,000 shares of
common stock, no par value. As of the date hereof, there were issued and
outstanding 2,700,000 shares of common stock.
17
<PAGE> 18
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of shareholders. Cumulative voting in
the election of directors is not permitted. Holders of common stock are entitled
to receive ratably such dividends as may be declared by the Board of Directors
out of funds legally available therefor and not otherwise restricted. In the
event of liquidation, dissolution or winding up of the Company, holders of
common stock are entitled to share ratably in all assets remaining after payment
of liabilities. A holder of common stock has no conversion, preemptive or other
rights to subscribe for additional shares or other securities, and there are no
redemption or sinking fund provisions with respect to such shares. All issued
and outstanding common stock are fully paid and nonassessable.
As of the date hereof, there are no outstanding warrants, options or other
rights of purchase or conversion with respect to any of the common capital stock
of the Company, except as set forth above under "Part I, Item 4. Security
Ownership of Certain Beneficial Owners and Management".
There is currently no public trading market for the common stock of the Company.
It is anticipated that the Company will amend its Articles of Incorporation
prior to the end of 1997, to increase its total authorized common capital stock
to 10,000,000 shares, without par value.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND OTHER SHAREHOLDER MATTERS
There is currently no established trading market for the common capital stock of
the Company. The Company has agreed to register the total authorized 3,000,000
shares of the common capital stock of the Company pursuant to the filing of this
Form 10. The stock that could be sold consists of the total issued and
outstanding shares of common capital stock of the Company in the amount of
2,400,000 shares and the amount of unissued authorized common capital stock of
the Company that is subject to outstanding options in the amount of 600,000
shares. In addition, there are the Remaining Conversion Rights of Manju Taneja
which will not be subject to sale until additional shares of common capital
stock are authorized and appropriately registered. See "Part II, Item 4. Recent
Sales of Unregistered Securities" and "Part I, Item 4. Security Ownership of
Certain Beneficial Owners and Management".
ITEM 2. LEGAL PROCEEDINGS
The Company or Nu-Wave is not a party to any material legal proceedings or any
claims or investigations involving any governmental entities or agencies.
Further, no director, executive officer, affiliate, or any beneficial owner of
more than 5% of the common capital stock of the Company or Nu-Wave, or any
associate of any such person, is a party to any proceeding adverse to the
Company or Nu-Wave.
18
<PAGE> 19
ITEM 3. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE.
During the last two most recent fiscal years, the Company changed independent
accountants engaged to audit the Company's financial statements, See"Financial
Statements". The reason for the change was due solely to considerations of cost
and location and was not because (I) the principal accountant's report on the
financial statements for either of the past two years contained an adverse
opinion or a disclaimer of opinion, or was qualified or modified as to
uncertainty, audit scope, or accounting principles or (ii) there were any
disagreements with the former accountant on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure,
which disagreements, if not resolved to the satisfaction of the former
accountant, would have caused it to make reference to the subject matter of the
disagreements in connection with its report.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
In 1992 and 1993, the Company instituted an offering of 200,000 Units at $1.00
per Unit, each Unit consisting of one (1) share of common capital stock of the
Company, together with common stock purchase warrants to purchase five (5)
shares at an exercise price of $1.00 per share, increasing up to $2.50 per share
over a specified period of time. This offering and the securities offered
thereby were not registered under the Securities Act of 1933 ("Act"), as
amended, and were offered and sold as an intra-state offering only to residents
of the State of Ohio in reliance upon the exemption provided in Section 3(a)(11)
of the Act and Rule 147 promulgated thereunder, and in compliance with
applicable Ohio securities laws.
In July, 1995, the Company initiated a warrant call which required warrant
holders to convert their outstanding warrants to common capital stock before
October 16, 1995, at a ration of one share for each five warrants. As a result,
1,463,650 warrants were converted to 286,730 shares of common capital stock.
This exchange offer was not registered under the Securities Act of 1933 ("Act"),
as amended, and was offered and sold pursuant to Rule 504 of Regulation D under
the Act, and in compliance with applicable Ohio securities laws.
There have been no recent sales of the common capital stock of the Company,
other than the following sales, exchanges and conversions involving directors,
officers or shareholders and related parties:
1. As of July 15, 1997, the Company issued 100,000 shares of its common capital
stock to the other four (4) shareholders of Nu-Wave in exchange for the 20
shares of common capital stock of NuWave, which constituted the remaining 20% of
the issued and outstanding common capital stock of Nu-Wave, resulting in the
Company then owning 100% of Nu-Wave.
2. As of July 15, 1997, the Company issued 851,235 shares of the common capital
stock of the Company to Manju Taneja in exchange for and as a conversion of
$85,123.50 of the indebtedness of the Company to Manju Taneja in partial payment
and satisfaction of the total amount of said indebtedness in the principal sum
of $210,000, plus interest. Pursuant to the terms of the promissory
19
<PAGE> 20
notes, the principal amount of $210,000 and any unpaid accrued interest, at the
option of the holder, may be converted into common capital stock of Company
based on a price of $.10 per share ("Stock Conversion"). It is the intent of
Manju Taneja and the Company to convert the remainder of the indebtedness,
including unpaid accrued interest, into common capital stock of the Company
later in 1997 ("Remaining Stock Conversion"), after additional shares of common
capital stock are authorized by the Company pursuant to an amendment to its
Articles of Incorporation. See "Part I, Item 8. Description of Registrant's
Securities". Manju Taneja understands and has consented to the fact that there
are insufficient unissued authorized shares to allow her Remaining Stock
Conversion and has agreed with the Company that such Remaining Stock Conversion
is amended and modified to the effect that it is not exercisable until and only
to the extent additional shares of common capital stock of the Company are
authorized.
3. As of July 15, 1997, out of the converted 851,235 shares referred to in No.
2 above, 200,000 shares were sold to Dr. Kotha S. Sekharam for $.10 per share.
The Company has granted certain stock options for the purchase of common capital
stock of the Company in various amounts and for various option prices. See "Part
I, Item 4. Security Ownership of Certain Beneficial Owners and Management".
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation and By-Laws provide and grant to any
person who is or was a director or officer of the Company ("Qualified
Indemnified Person"), and to their respective heirs, executors and
administrators, rights of indemnification as provided for in the provisions of
the Ohio General Corporation Law.
Therefore, and pursuant to the provisions of the Ohio General Corporation Law, a
Qualified Indemnified Person generally is indemnified as to any action, suit, or
proceeding, whether civil or criminal, against expenses, including attorney
fees, judgments, fines and amounts paid in settlement, if such Qualified
Indemnified Person acted in good faith and in a manner reasonably believed by
him or her to be in or not opposed to the best interests of the Company.
The Company has been informed, however, that insofar as the above
indemnification may be deemed to cover any liabilities under the Securities Act
of 1933, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy and is therefore unenforceable.
20
<PAGE> 21
PART F/S
Attached hereto and incorporated herein by reference are the following
financial statements:
1. Balance Sheets for the two fiscal years ended September 30, 1994 and 1995,
the related Statements of Operations for each of the two years in the period
ended September 30, 1995, and the related Statements of Cash Flows for each of
the two years in the period ended September 30, 1995, audited by Coopers &
Lybrand LLP, independent auditors, as stated in their report appearing therein.
Page 23
2. Consolidated Balance Sheet for the eighteen months ended March 31, 1997, the
related Consolidated Statements of Operations for the eighteen months in the
period ended March 31, 1997, the related Consolidated Statement of Shareholders'
Deficit for the eighteen months in the period ended March 31, 1997, and the
related Consolidated Statements of Cash Flows for the eighteen months in the
period ended March 31, 1997, audited by Kirkland, Brakeman, Russ, Murphy & Tapp,
independent auditors, as stated in their report appearing therein.
Page 32
3. Consolidated Balance Sheet for the three months ended June 30, 1997, and the
related Consolidated Statement of Income for the three month in the period ended
June 30, 1997, which has not been audited or reviewed, but has compiled by
Kirkland, Brakeman, Russ, Murphy & Tapp, independent certified public
accountants.
Page 45
PART III
ITEM 1. INDEX TO EXHIBITS.
The following is the Index to the Exhibits:
<TABLE>
<CAPTION>
Exhibit Page
------- ----
<S> <C>
3.1 (i) Copy of the Articles of Incorporation of Direct Rx,
Inc. in the State of Ohio ............................................... 51
3.1 (ii) Copy of the By-Laws of Direct Rx, Inc. as duly
adopted by its Board of Directors ...................................... 54
3.2 (i) Copy of the Articles of Incorporation of Nu-Wave
Health Products, Inc. in the State of Florida .......................... 61
3.2 (ii) Copy of the By-Laws of Nu-Wave Health Products, Inc.
as duly adopted by its Board of Directors .............................. 66
10.1 Copy of the Employment Agreement dated July 15, 1997,
by and between Dr. Kotha S. Sekharam and Direct Rx, Inc................. 72
10.2 Copy of the Employment Agreement dated July 15, 1997,
by and between Jugal K. Taneja and Direct Rx, Inc. ..................... 78
10.3 Copy of the Employment Agreement dated May 2, 1997, by
and between Phillip J. Laird and Direct Rx, Inc. ....................... 84
</TABLE>
21
<PAGE> 22
ITEM 2. DESCRIPTION OF EXHIBITS.
The following is a brief description of each of the Exhibits:
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
3.1 (i) Copy of the Articles of Incorporation of Direct Rx,
Inc. in the State of Ohio
3.1 (ii) Copy of the By-Laws of Direct Rx, Inc. as duly
adopted by its Board of Directors
3.2 (i) Copy of the Articles of Incorporation of Nu-Wave
Health Products, Inc. in the State of Florida
3.2 (ii) Copy of the By-Laws of Nu-Wave Health Products, Inc.
as duly adopted by its Board of Directors
10.1 Copy of the Employment Agreement dated July 15, 1997,
by and between Dr. Kotha S. Sekharam and Direct Rx,
Inc.
10.2 Copy of the Employment Agreement dated July 15, 1997,
by and between Jugal K. Taneja and Direct Rx, Inc.
10.3 Copy of the Employment Agreement dated May 2, 1997, by
and between Phillip J. Laird and Direct Rx, Inc.
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed on
behalf of the undersigned, thereto duly authorized.
DIRECT Rx, INC.
- --------------------------------------------------------------------------------
(Registrant)
Date August 18, 1997
----------------------------------------------------------
By Kotha S. Sekharam /s/
----------------------------------------------------------------------------
President
22
<PAGE> 23
[COOPERS & LYBRAND LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
Direct Rx, Inc.
We have audited the accompanying balance sheet of Direct Rx, Inc. as of
September 30, 1995, and the related statements of operations, shareholders'
equity, and cash flows for the year 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. The financial
statements of Direct Rx, Inc. for the year ended September 30, 1994, were
audited by other auditors, whose report dated March 10, 1995, 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1995 financial statements referred to above present fairly,
in all material respects, the financial position of Direct Rx, Inc. as of
September 30, 1995, and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
/s/ COOPERS & LYBRAND LLP
Cleveland, Ohio
December 21, 1995
<PAGE> 24
BALANCE SHEETS
September 30, 1995 and 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
--------- ---------
<S> <C> <C>
Current assets:
Cash $ 109,658 $ 205,983
Accounts receivable, net of allowance for uncollectible accounts of $3,293 in
1995 and $3,000 in 1994 38,498 54,817
Inventory 140,961 165,392
Prepaid expenses 5,929
--------- ---------
Total current assets 289,117 432,121
Furniture, equipment and leasehold improvements, net 44,517 58,245
Intangible assets, net 54,814 81,344
Other non-current assets 6,650 6,650
--------- ---------
Total assets $ 395,098 $ 578,360
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 109,896 $ 70,455
Current portion of long-term debt 7,202
--------- ---------
Total current liabilities 109,896 77,657
Shareholders' equity:
Common stock, stated value, 3,000,000 shares authorized, 962,035 shares
issued and outstanding in 1995 (971,035 in 1994) 500 500
Additional paid-in capital 792,177 816,757
Accumulated deficit (507,475) (316,554)
--------- ---------
285,202 500,703
--------- ---------
Total liabilities and shareholders' equity $ 395,098 $ 578,360
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
DIRECT RX, INC. 2
<PAGE> 25
STATEMENTS OF OPERATIONS
for the years ended September 30, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
---------- -----------
<S> <C> <C>
Revenues:
Pharmacy $ 938,669 $ 1,134,801
Diabetes supplies 361,421 505,532
Other 56,576 41,693
---------- -----------
Total revenues 1,356,666 1,682,026
Cost of goods sold 1,067,508 1,384,440
---------- -----------
Gross profit 289,158 297,586
General and administrative expenses
Salaries and benefits 171,726 197,581
Occupancy 57,875 58,790
Advertising 6,007 36,930
Professional fees 105,307 69,784
Telephone 9,106 16,164
Office 3,650 9,940
Directors' fees 2,500 2,500
Computer services 6,899 2,992
State taxes 1,784 2,478
Bad debt expense 293 4,548
Other expenses 19,641 20,468
---------- -----------
Total general and administrative 384,788 422,175
---------- -----------
(95,630) (124,589)
Other income (expense):
Interest income 1,593 7,654
Interest expense (126) (890)
Amortization and depreciation (40,258) (40,260)
Provision for loss on sale of pharmacy (56,500)
---------- -----------
(95,291) (33,496)
---------- -----------
Net loss $ (190,921) $ (158,085)
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
DIRECT RX, INC. 3
<PAGE> 26
STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended September 30, 1995 and 1994
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------- PAID-IN ACCUMULATED SHAREHOLDERS'
SHARES DOLLARS CAPITAL DEFICIT EQUITY
-------- ------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance at October 1, 1993 949,685 $ 500 $ 794,257 $ (158,469) $ 636,288
Shares issued 30,350 31,500 31,500
Shares retired (9,000) (9,000) (9,000)
Net loss (158,085) (158,085)
-------- ----- --------- ---------- ----------
Balance at September 30, 1994 971,035 500 816,757 (316,554) 500,703
Shares retired (9,000) (9,000) (9,000)
Offering expenses (15,580) (15,580)
Net loss (190,921) (190,921)
-------- ----- --------- ---------- ----------
Balance at September 30, 1995 962,035 $ 500 $ 792,177 $ (507,475) $ 285,202
======== ===== ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
DIRECT RX, INC. 4
<PAGE> 27
STATEMENTS OF CASH FLOWS
for the years ended September 30, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (190,921) $ (158,085)
Adjustment to reconcile net loss to cash used by operating activities:
Depreciation and amortization 40,258 40,260
Provision for loss on sale of pharmacy 56,500
Changes in operating assets and liabilities:
Accounts receivable 16,319 9,851
Inventory 24,431 67,708
Prepaid expenses 5,929 68,882
Accounts payable and accrued expenses (17,059) 35,311
---------- ----------
Net cash used in operations (64,543) (6,695)
Cash flows from investing activities:
Decrease in certificate of deposit 125,000
---------- ----------
Net cash provided by investing activities 125,000
Cash flows from financing activities:
Proceeds from issuance of common stock 31,500
Payments on retirement of common stock (9,000) (9,000)
Payments for offering expenses (15,580)
Payments on short-term borrowings (6,708)
Principal payments on debt (7,202) (10,740)
---------- ----------
Net cash (used in) provided by financing activities (31,782) 5,052
---------- ----------
Net (decrease) increase in cash (96,325) 123,357
Cash at beginning of year 205,983 82,626
---------- ----------
Cash at end of year $ 109,658 $ 205,983
========== ==========
Supplemental cash flow information:
Cash paid during the year for interest $ 126 $ 890
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
DIRECT RX, INC. 5
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS
1. SUMARY OF SIGNIFICANT ACCOUNTING POLICIES: Business Activity:
Direct Rx, Inc. (the "Company") provides prescription and non-prescription
medications through the mail and through a retail pharmacy.
INVENTORY: Inventory is stated at the lower of cost or market. Cost is
determined by the first-in, first-out method.
FURNITURE AND EQUIPMENT:
Furniture and equipment are recorded at cost. Depreciation expense is
computed
using the straight-line basis over the estimated useful lives of the assets
which range from three to ten years.
INTANGIBLE ASSETS: Leasehold improvements
are amortized over 20 years using the straight-line basis. The cost of the
customer list is amortized using the straight-line basis over five years.
Covenants not to compete are amortized using the straight-line basis over the
five-year terms of the agreements. Organization costs represent the legal and
other costs incurred when organizing the Company. The costs are being
amortized using the straight-line basis over five years.
REVENUES: The Company recognizes
revenue at the point of sale or at the time of shipment of its product for
mail-order sales. The Company has arrangements with certain third-party
payors under which the amounts billed at the point of sale are at amounts
less than established charges. Revenues are reported net of contractual
discounts. The Revenues earned from third-party payors for the years ended
September 30, 1995 and 1994 were approximately $432,832 and $597,000,
respectively. As of September 30, 1995 and 1994, accounts receivable from
such third parties were approximately $25,122 and $37,000, respectively.
RECLASSIFICATION: Certain items in the 1994 financial statements have been
reclassified to conform to the 1995 presentation.
2. FURNITURE AND EQUIPMENT:
At September 30, 1995 and 1994, furniture and equipment consist of the
following:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Furniture and fixtures $ 11,331 $ 11,331
Computer equipment and software 40,381 40,381
Leasehold improvements 28,738 28,738
-------- --------
80,450 80,450
Less accumulated depreciation 35,933 22,205
-------- --------
$ 44,517 $ 58,245
======== ========
</TABLE>
DIRECT RX, INC. 6
<PAGE> 29
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. INTANGIBLE ASSETS:
At September 30, 1995 and 1994, intangible assets consist of the following:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Customer list $ 71,189 $ 71,189
Covenants not to compete 31,881 31,881
Organization costs 28,955 28,955
-------- --------
132,025 132,025
Less accumulated amortization 77,211 50,681
-------- --------
$ 54,814 $ 81,344
======== ========
</TABLE>
4. OPERATING LIASE:
The Company has an operating lease for office space that expires in 1998 with
options to renew for three additional five-year periods. Future minimum lease
payments as of September 30, 1995 are as follows:
<TABLE>
YEARS ENDING SEPTEMBER 30:
<S> <C>
1996 $ 39,894
1997 39,894
1998 33,245
--------
Total minimum lease payments $113,033
========
</TABLE>
Rent expense for the operating lease was $45,600 and $44,559 for the years
ended September 30, 1995 and 1994, respectively.
5. SHAREHOLDERS' EQUITY:
The Company's initial stock offering in fiscal 1992 consisted of 100,000
shares of common stock at $.25 per share with ten warrants attached to each
share. The warrants were immediately detachable from the common shares and
are exercisable by the holders thereof as described below.
Also during fiscal 1992, the Company issued 200,000 units (each unit
consisting of one share of common stock and five warrants to purchase
additional shares of common stock) pursuant to an intrastate offering. The
warrants were immediately detachable from the common shares and are
exercisable by the holders thereof anytime prior to the earlier of 60 days
after the warrants are called by the Company or June 30, 1996 unless extended
by the Company.
DIRECT RX, INC. 7
<PAGE> 30
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. SHAREHOLDERS' EQUITY, CONTINUED:
As of September 30, 1995, the Company has 1,334,950 warrants outstanding and
exercise prices for the warrants are $2.25 per warrant until December 31,
1995 and $2.50 per warrant until June 30, 1996.
During fiscal 1995, 9,000 shares were retired at $1.00 per share in
connection with a consulting agreement with a former officer of the
Company. During fiscal 1994, the Company issued a share of common stock
for each of 12,350 warrants exercised at $1.25. In addition, 18,000 and
9,000 shares were issued and retired, respectively, during fiscal 1994 at
$1.00 per share in connection with a consulting agreement with a former
officer of the Company.
During fiscal 1993, the Board of Directors authorized a stock option plan by
reserving 100,000 shares of common stock for selected employees and
directors. As of September 30, 1995, no options have been granted under the
plan.
On July 17, 1995, the Company executed an exchange offering which entitled
each shareholder to exchange all shares of common stock currently owned for
an equal number of newly issued shares of common stock. The purpose of the
exchange offering was to ensure that the outstanding shares of the Company's
common stock are freely transferable without restriction under the
Securities Act of 1933, as amended. In addition, the Company initiated a
warrant call which required warrant holders to convert their outstanding
warrants to common stock at a ratio of 5 to 1 before October 16, 1995.
Subsequent to September 30, 1995, 1,274,750 warrants were converted to
254,950 shares of common stock.
During August 1995, the Board of Directors approved an agreement which
allows the President of Direct Rx, Inc. the option to purchase 10% of the
stock of the Company at book value.
6. RELATED PARTIES:
The Company has an agreement with Bancapital Corporation, which is owned and
controlled by a stockholder of Direct Rx, Inc., to pay a fee for accounting
and management services. The agreement is automatically extended unless
canceled. The Company paid approximately $57,100 and $14,000 in fiscal 1995
and 1994, respectively, for such services.
The Company paid $20,630 and $19,486 in fiscal years 1995 and 1994,
respectively, to NuMED Surgical, Inc. (NuMED), a related company, for
services performed by its president. The president of NuMED was also the
president of Direct Rx, Inc. through April 1, 1995.
The Company also has a consulting agreement with the previous president
of Direct Rx, Inc. The agreement was executed on March 1, 1994 and expired
on March 31, 1995. The Company has paid $18,000 in fiscal years 1995 and
1994, respectively, for these consulting services.
The Company had an agreement with Bancapital Management Corporation, which
is owned and controlled by a stockholder of Direct Rx, Inc., to pay a fee
relating to the processing of payroll. The Company paid approximately $900
and $1,200 in fiscal years 1995 and 1994, respectively, for such services.
DIRECT RX, INC. 8
<PAGE> 31
NOTES TO FINANCIAL STATEMENTS, CONTINUED
7. INCOME TAXES:
The liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will
be in effect when the differences are expected to reverse.
Direct Rx, Inc. has available approximately $440,780 of net operating
loss carryforwards for income tax reporting purposes, which expire in
various years through 2009. As of September 30, 1995, deferred tax assets of
approximately $205,190 relating to the Company's net operating loss
carryforwards and the provision for loss on sale of pharmacy were fully
offset by a valuation allowance as, in management's opinion, there is
sufficient doubt about the ultimate realization of the deferred tax assets.
8. DISCONTINUED OPERATIONS:
On November 29, 1995, the Company sold the net assets of its retail
pharmacy, Vern's Pharmacy, for $20,000 plus the cost of inventory of
approximately $90,400. The net assets of the pharmacy were sold at a loss of
approximately $56,500 and is reflected as a provision for loss on sale in
the Statement of Operations for the year ended September 30, 1995.
Vern's Pharmacy is the primary segment of the Company's operations. Revenues
of Vern's Pharmacy represented approximately 70% and 67% of total revenues
for fiscal 1995 and 1994, respectively. As a result, revenues, cost of goods
sold, and general and administrative expenses for Vern's Pharmacy have not
been presented as discontinued operations in the Statement of Operations for
fiscal 1995 and 1994.
The mail order diabetes supply segment of the Company which generated
revenues of $361,421 and $505,532 for fiscal 1995 and 1994, respectively,
will continue to be operated by the Company with the business acquired on
October 2, 1995 (see Note 9).
9. SUBSEQUENT EVENTS:
On September 15, 1995, the Company purchased an 80 percent interest in
NuWave Health Products, Inc. ("NuWave") for $8. On October 2, 1995, NuWave
purchased certain assets of Ayur, Inc. for $32,700. Shareholders of Ayur,
Inc. are also non-controlling shareholders of NuWave. This transaction will
be accounted for using the purchase method of accounting.
During February 1996, the Chairman and President of the Company agreed
to provide loans to the Company in an initial amount of $150,000. The loans
will be evidenced by convertible subordinated notes ("notes") which will
bear interest quarterly at prime. The notes and accrued interest will be
repaid in cash or at the holders opinion converted into common stock at $.10
per share.
DIRECT RX, INC. 9
<PAGE> 32
[LOGO] KIRKLAND, BRAKEMAN, RUSS, MURPHY & TAPP
CERTIFIED PUBLIC ACCOUNTANTS
13577 Feather Sound Drive, Suite 400
Clearwater, Florida 34622-5539
(813) 572-1400 Fax (813) 571-1933
INDEPENDENT AUDITORS' REPORT
To the Shareholders and
Board of Directors
Direct Rx, Inc.:
We have audited the accompanying consolidated balance sheet of Direct Rx, Inc.
and subsidiary as of March 31, 1997 and the related consolidated statements of
operations, shareholders' deficit, and cash flows for the eighteen months 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.
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 Direct
Rx, Inc. and subsidiary as of March 31, 1997 and the results of its
consolidated operations and its consolidated cash flows for the eighteen months
then ended, in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the consolidated
financial statements taken as a whole. The supplemental information included in
Schedules 1 and 2 is presented for the purpose of additional analysis of the
consolidated financial statements rather than to present the financial
position, results of operations and cash flows of the individual companies. The
supplemental information has been subjected to the auditing procedures applied
in the audit of the consolidated financial statements and, in our opinion, is
fairly stated in all material respects in relation to the consolidated
financial statements taken as a whole.
/s/ Kirkland, Brakeman, Russ, Murphy & Tapp
May 23, 199
<PAGE> 33
DIRECT Rx, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash $ 36,581
Accounts receivable, net of allowance for uncollectible
accounts of $19,000 117,768
Inventory, net of reserve for obsolescence of $3,000 124,678
Prepaid expenses 15,428
---------
Total current assets 294,455
Furniture, equipment and leasehold improvements, net 104,948
Intangible assets, net 12,021
Other assets 12,287
---------
$ 423,711
=========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses 239,106
Shareholder loan 190,000
Acquisition note payable 5,633
Unearned revenue 32,189
---------
Total liabilities 466,928
---------
Shareholders' deficit:
Common stock, stated value, 3,000,000 shares authorized,
1,248,765 shares issued and outstanding 500
Additional paid-in capital 792,177
Accumulated deficit (835,894)
---------
Net shareholders' deficit (43,217)
---------
$ 423,711
=========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 34
DIRECT Rx, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE EIGHTEEN MONTHS ENDED MARCH 31, 1997
<TABLE>
<S> <C>
Revenues:
Diabetic supplies $ 442,021
Manufacturing 829,152
---------
Total revenues 1,271,173
Cost of goods sold:
Diabetic supplies 402,021
Manufacturing 468,846
---------
Total of cost of goods sold 870,867
---------
Gross profit 400,306
General and administrative expenses 669,296
---------
Operating loss (268,990)
Other income (expense):
Management fees (34,057)
Interest (14,267)
Other income and expenses, net (11,105)
---------
(59,429)
---------
Net loss $(328,419)
=========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 35
DIRECT RX, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT
FOR THE EIGHTEEN MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL NET
----------------------- PAID-IN ACCMULATED SHAREHOLDERS'
SHARES DOLLARS CAPITAL DEFICIT DEFICIT
--------- ------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C>
Balances at September 30, 1995 962,035 $500 792,177 (507,475) 285,202
Warrant conversion 286,730 -- -- -- --
Net loss -- -- -- (328,419) (328,419)
--------- ---- ------- -------- -------
Balances at March 31, 1997 1,248,765 $500 792,177 (835,894) (43,217)
========= ==== ======= ======== =======
</TABLE>
See accompanying notes to financial statements.
<PAGE> 36
DIRECT Rx, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE EIGHTEEN MONTHS ENDED MARCH 31, 1997
<TABLE>
<S> <C>
Cash flows used in operating activities:
Net loss $(328,419)
Adjustment to reconcile net loss to net cash used by operating activities:
Depreciation and amortization 34,446
Provision for bad debt 19,000
Loss on disposal of assets 2,399
Loss on sale of pharmacy 12,481
Changes in operating assets and liabilities:
Accounts receivable (98,269)
Inventory (67,822)
Prepaid expenses (15,428)
Accounts payable and accrued expenses 191,159
Unearned revenue 32,188
---------
Net cash used by operating activities (218,265)
---------
Cash flows from investing activities:
Increase in deposits (12,287)
Proceeds from sale of pharmacy 111,334
Proceeds from sale of equipment 2,000
Purchases of property and equipment (118,792)
Acquisition of Ayur, Inc. (16,700)
---------
Net cash used by investing activities (34,445)
---------
Cash flows from financing activities:
Proceeds from shareholder loan 190,000
Principal payments on borrowing (10,367)
---------
Net cash provided by financing activities 179,633
---------
Net decrease in cash (73,077)
Cash at beginning of year 109,658
---------
Cash at end of year $ 36,581
=========
Supplemental cash flow information:
Cash paid during the year for interest $ 3,921
=========
Supplemental schedule of non-cash financing activities:
Borrowing on purchase of Ayur, Inc. $ 16,000
=========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 37
DIRECT Rx, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Business Activity
Direct Rx, Inc. and its eighty percent-owned subsidiary,
Nu-Wave Health Products, Inc. (Company) sell diabetic
supplies through the mail to customers located throughout the
United States and manufacturer and package non-prescription
medications on a contractual basis for customers located
primarily in Florida.
(b) Basis of Presentation
The consolidated financial statements include the accounts of
Direct Rx, Inc. and its 80% owned subsidiary, Nu-Wave Health
Products, Inc. Significant intercompany balances and
transactions have been eliminated in consolidation.
(c) Management 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 at March 31, 1997 and
revenues and expenses for the eighteen months then ended. The
actual outcome of the estimates could differ from the
estimates made in the preparation of the financial
statements.
(d) Inventory
Inventory is stated at the lower of cost or market. Cost is
determined by the first-in, first-out method.
(e) Furniture, Equipment and Leasehold Improvements
Furniture, equipment and leasehold improvements are recorded
at cost. Depreciation expense is computed using the
straight-line basis over the estimated useful lives of the
furniture and equipment, which range from five to seven
years. Leasehold improvements are depreciated over the life
of the lease.
(f) Intangible Assets
Covenants not to compete are amortized using the
straight-line basis over the five year term of the
agreements. Organization costs represent legal and other
costs incurred when organizing the Company. The costs are
being amortized using the straight-line basis over five
years.
(continued)
<PAGE> 38
DIRECT Rx, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(g) Concentration of Credit Risk
Three customers represent approximately eighty-five percent
of consolidated revenue.
(2) FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
At March 31, 1997, furniture, equipment and leasehold improvements
consist of the following:
<TABLE>
<S> <C>
Machinery and equipment $107,814
Furniture and fixtures 2,798
Office equipment 9,849
Leasehold improvements 4,304
--------
124,765
Less accumulated depreciation and amortization (19,817)
--------
$104,948
========
</TABLE>
(3) INTANGIBLE ASSETS
At March 31, 1997, intangible assets consist of the following:
<TABLE>
<S> <C>
Covenants not to compete $ 16,726
Organization costs 5,391
--------
22,117
Less accumulated amortization (10,096)
--------
$ 12,021
========
</TABLE>
(4) RELATED PARTY TRANSACTIONS
The Company has terminated an agreement with Bancapital Management
Corporation effective May 13, 1996, which was owned and controlled by
a stockholder of Direct Rx, Inc., to pay a fee for accounting and
management services. The Company paid approximately $34,000 for such
services during the eighteen months ended March 31, 1997.
The Company has demand notes payable to the spouse of the Chairman of
the Company totaling $190,000, which may be increased as determined by
the Board of Directors. The notes bear interest at the prime rate
(8.5% at March 31, 1997) which is payable quarterly. The notes and
unpaid accrued interest may be repaid in cash or at the holder's
option, converted into common stock at $.10 per share.
(continued)
<PAGE> 39
DIRECT Rx, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) ACQUISITION FROM AYUR, INC.
On October 2, 1995, the Company acquired the assets of Ayur, Inc., a
non-prescription health product manufacturer, for $32,700 ($16,700
cash; $16,000 note). The purchase price was allocated as follows:
<TABLE>
<S> <C>
Inventory $ 6,929
Fixed assets 9,045
Non-compete agreements 16,726
--------
$ 32,700
========
</TABLE>
In connection with the purchase, the Company entered into an unsecured
loan from Ayur, Inc. for $16,000. The loan bears interest at 7.5%
with principal payments monthly until maturity in May 1997.
(6) INCOME TAXES
The liability method is used in accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based
on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that
will be in effect when the differences are expected to reverse.
At March 31, 1997, Direct Rx, Inc. has deferred tax assets of
approximately $440,000, relating primarily to net operating loss
carryforwards for income tax reporting purposes, which expire in
various years through 2009. These deferred income tax assets were
fully offset by a valuation allowance as, in management's opinion,
there is sufficient doubt about the ultimate realization of the
deferred tax assets.
(7) COMMITMENTS
The Company has an operating lease for office space that expires in
November 2000, with the option to extend the lease for five years.
Future minimum lease payments as of March 31, 1997 are as follows:
<TABLE>
<CAPTION>
Year Ending March 31:
--------------------
<S> <C>
1998 $ 57,587
1999 57,587
2000 38,392
---------
Total minimum lease payments $ 153,566
=========
</TABLE>
(continued)
<PAGE> 40
DIRECT Rx, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The monthly rent payments on real property also include payments for
common area maintenance and real estate taxes.
Rent expense for the operating lease was $121,548 for the eighteen
months ended March 31, 1997.
(8) SHAREHOLDERS' EQUITY
The Company initiated a warrant call which required warrant holders to
convert their outstanding warrants to common stock at a ratio of one
common share for five warrants before October 16, 1995. As a result,
1,463,650 warrants were converted to 286,730 shares of common stock.
During fiscal 1993, the Board of Directors authorized a stock option
plan by reserving 100,000 shares of common stock for selected
employees and directors. As of March 31, 1997, no options have been
granted under the plan.
<PAGE> 41
SCHEDULE 1
DIRECT Rx INC. AND SUBSIDIARY
CONSOLIDATING SCHEDULE - BALANCE SHEET INFORMATION
MARCH 31, 1997
ASSETS
<TABLE>
<CAPTION>
NU-WAVE CONSOLIDATED
HEALTH PRODUCTS, DIRECT Rx, INC.
DIRECT Rx INC. ELIMINATIONS AND SUBSIDIARY
--------- --------------- ------------ ----------------
<S> <C> <C> <C> <C>
Current assets:
Cash $ 4,685 31,896 -- 36,581
Accounts receivable, net 3,084 114,684 -- 117,768
Investment in affiliate (115,826) -- 115,826 --
Due from affiliate 188,572 -- (188,572) --
Inventory, net 16,632 108,046 -- 124,678
Prepaid expenses -- 15,428 -- 15,428
--------- -------- -------- --------
Total current assets 97,147 270,054 (72,746) 294,455
Furniture, equipment and
leasehold improvements, net -- 104,948 -- 104,948
Intangible assets, net 452 11,569 -- 12,021
Other assets -- 12,287 -- 12,287
--------- -------- -------- --------
$ 97,599 398,858 (72,746) 423,711
========= ========= ======== ========
</TABLE>
<PAGE> 42
SCHEDULE 1 - (CONTINUED)
LIABILITIES AND SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
NU-WAVE CONSOLIDATED
HEALTH PRODUCTS, DIRECT Rx, INC.
DIRECT Rx INC. ELIMINATIONS AND SUBSIDIARY
--------- --------------- ------------ ----------------
<S> <C> <C> <C> <C>
Current liabilities:
Accounts payable and
accrued expenses $ 40,816 198,290 -- 239,106
Shareholders loan 100,000 90,000 -- 190,000
Acquisition note payable -- 5,633 -- 5,633
Due to affiliate -- 188,572 (188,572) --
Unearned revenue -- 32 189 -- 32,189
--------- -------- -------- --------
Total liabilities 140,816 514,684 (188,572) 466,928
--------- -------- -------- --------
Shareholders' deficit:
Common stock 500 0.80 (0.80) 500
Additional paid-in capital 792,177 7.20 (7.20) 792,177
Accumulated deficit (835,894) (115,834) 115,834 (835,894)
--------- -------- -------- --------
Net shareholders' deficit (43,217) (115,826) 115,826 (43,217)
--------- -------- -------- --------
$ 97,599 398,858 (72,746) 423,711
========= ======== ======== ========
</TABLE>
See accompanying independent auditors' report.
<PAGE> 43
SCHEDULE 2
DIRECT Rx, INC. AND SUBSIDIARY
CONSOLIDATING SCHEDULE - STATEMENT OF OPERATIONS
EIGHTEEN MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
NU-WAVE CONSOLIDATED
HEALTH PRODUCTS, DIRECT Rx, INC.
DIRECT Rx INC. ELIMINATIONS AND SUBSIDIARY
--------- --------------- ------------ --------------
<S> <C> <C> <C> <C>
Revenue $ 442,021 829,152 -- 1,271,173
Cost of sales 402,021 468,846 -- 870,867
--------- -------- -- ----------
Gross profit 40,000 360,306 -- 400,306
General and administrative
expenses:
Advertising 2,316 3,185 -- 5,501
Amortization 7,916 5,157 -- 13,073
Bank charges 1,805 595 -- 2,400
Bad debt 1,000 18,000 -- 19,000
Credit card 12,584 -- -- 12,584
Depreciation 1,078 20,295 -- 21,373
Insurance 638 50,514 -- 51,152
Occupancy -- 121,548 -- 121,548
Payroll 50,088 206,395 -- 256,483
Taxes 7,642 17,094 -- 24,736
Repairs and maintenance -- 2,711 -- 2,711
Telephone 8,658 14,122 -- 22,780
Professional fees 22,046 23,433 -- 45,479
Travel 93 11,405 -- 11,498
Utilities 3,295 9,252 -- 12,547
Penalties -- 3,655 -- 3,655
Office 1,728 6,253 -- 7,981
Commissions -- 3,200 -- 3,200
Temporary labor 1,315 6,496 -- 7,811
Postage 3,370 1,530 -- 4,900
Printing and reproduction 1,378 2,839 -- 4,217
Automobile -- 5,095 -- 5,095
Miscellaneous 6,816 2,756 -- 9,572
--------- -------- -- ----------
Total general and
administrative
expenses 133,766 535,530 -- 669,296
--------- -------- -- ----------
Operating loss (93,766) (175,224) -- (268,990)
</TABLE>
(continued)
<PAGE> 44
SCHEDULE 2 (CONTINUED)
DIRECT Rx, INC. AND SUBSIDIARY
CONSOLIDATING SCHEDULE - STATEMENT OF OPERATIONS - CONTINUED
<TABLE>
<CAPTION>
NU-WAVE CONSOLIDATED
HEALTH PRODUCTS, DIRECT Rx, INC.
DIRECT Rx INC. ELIMINATIONS AND SUBSIDIARY
--------- --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Other income (expenses):
Management income -- 63,300 (63,300) --
Management fees (97,357) -- 63,300 (34,057)
Interest (7,484) (6,783) -- (14,267)
Other income and
expenses, net (13,978) 2,873 -- (11,105)
--------- -------- ------- --------
(118,819) 59,390 -- (59,429)
--------- -------- ------- --------
Equity loss in subsidiary 115,834 -- 115,834
--------- -------- ------- --------
Net loss $(328,419) (115,834) 115,834 (328,419)
========= ======== ======= ========
</TABLE>
See accompanying independent auditors' report.
<PAGE> 45
DIRECT RX, INC. AND SUBSIDIARY
-------------------------------
FINANCIAL STATEMENTS
FOR THE MONTH AND THREE MONTHS ENDED
JUNE 30, 1997
45
<PAGE> 46
DIRECT RX, INC. AND SUBSIDIARY
CONSOLIDATED INCOME STATEMENT
FOR THE THREE MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
NU-WAVE HEALTH
DIRECT RX, INC. PRODUCTS, INC. ELIMINATIONS CONSOLIDATED
--------------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
REVENUES
Diabetic Supplies Sale $ 38,599 $ - $ $ 36,599
Discounts (8,894) - (8,894)
Manufactured Product Sales - 392,888 392,888
Freight and Other Sales 972 562 1,534
--------------- -------------- -------------
Total Revenues 28,677 393,448 422,125
0
COST OF GOODS SOLD 19,314 206,606 225,920
--------------- ------------- -------------
GROSS PROFIT 9,363 186,842 196,205
GENERAL AND ADMINISTRATIVE
EXPENSE:
Accounting Fees - 8,000 8,000
Advertising 48 - 48
Amortization Expense 90 836 926
Auto Expense - 125 125
Bank Charges 592 160 752
Consulting Fees - 8,888 6,686
Depreciation Expense - 4,611 4,811
Insurance 1,203 24,476 25,679
Interest Expense - - 0
Legal Fees - 6,146 6,146
Mail Order 10,643 - 10,643
Miscellaneous Expense - 18 18
Office Expense 2,146 4,502 6,648
Outside Services - 152 152
Payroll Tax Expense 180 - 180
Postage 229 357 586
Rent - 21,351 21,351
Repairs & Maintenance - 1,797 1,797
Salaries 7,070 65,715 72,785
Telephone 259 2,038 2,297
Travel & Entertainment 253 1,551 1,804
Utilities - 2,492 2,492
-------------- --------------- -------------
Total G & A Expense 22,713 151,013 173,728
-------------- --------------- -------------
NET OPERATING INCOME (13,350) 35,829 22,479
OTHER INCOME (Expense)
Management Income - 3,500 (3,500) 0
Other Income (expense) 2,020 1,508 3,500 7,028
Interest Expense (3,536) - (3,536)
--------------- --------------- -------------
Total Other Inc. (Exp) (1,516) 5,008 3,492
--------------- --------------- -------------
NET INCOME (LOSS) $ (14,866) $ 40,837 $ $ 25,971
=============== =============== =============
</TABLE>
UNAUDITED - INTERNAL USE ONLY
46
<PAGE> 47
DIRECT RX, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1997
<TABLE>
<CAPTION>
NU-WAVE HEALTH
DIRECT RX, INC. PRODUCTS, INC. ELIMINATIONS CONSOLIDATED
--------------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 22,027 $ 5,371 $ $ 27,398
Accounts Receivable 8,093 120,770 128,863
Receivable from Nu-Wave 269,108 - (269,108) 0
Allowance for Bad Debts (1,000) (18,000) (19,000)
Prepaid Insurance - 8,337 6,337
Prepaid Rent - 8,784 6,764
Inventory: 0
Diabetes Supplies 24,271 - 24,271
Finished Product - 30,690 30,690
Packaging material - 42,817 42,817
Raw Material - 52,031 52,031
Allowance for Obsolesence (2,993) - (2,993)
--------------- -------------- ------------
Total Inventory 21,278 125,538 146,816
--------------- -------------- ------------
Total Current Assets 319,506 246,780 297,178
0
FIXED ASSETS 0
Furniture and Fixtures - 2,798 2,798
Leasehold Improvements - 10,445 10,445
machinery and Equipment - 118,946 118,946
Office Equipment - 4,827 4,827
Accumulated Deprecitation - (24,430) (24,430)
--------------- -------------- ------------
Total Fixed Assets 0 112,586 112,586
OTHER ASSETS
Deposits - 12,287 12,287
Investment in Nu-Wave 8 - (8) 0
Non-Compete Agreements - 16,726 16,726
Organizational Costs 5,391 - 5,391
Accumulated Amortization (5,208) (5,993) (11,201)
--------------- -------------- ------------
Total Other Assets 191 23,020 23,203
--------------- -------------- ------------
TOTAL ASSETS 319,697 $ 382,386 $ $ 432,967
=============== ============== ============
</TABLE>
UNAUDITED - INTERNAL USE ONLY
47
<PAGE> 48
DIRECT RX, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1997
<TABLE>
<CAPTION>
NU-WAVE HEALTH
DIRECT RX, INC. PRODUCTS, INC. ELIMINATIONS CONSOLIDATED
--------------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
LIABILITIES
CURRENT LIABILITIES
Accounts Payable 25,220 $ 134,093 $ (269,108) $ 159,313
Payable to Direct RX - 269,108 0
Taxes Payable 2,805 - 2,605
Lease Payable - Forklift - 8,708 8,708
Premuim Financing Payable - 3,211 3,211
Rent Payable - 5,648 5,648
Interest Payable 4,383 - 4,383
Customer Deposits - 18,569 18,569
Accrued Vacation Pay - 3,000 3,000
Note Payable - Taneja 223,408 - 223,406
--------------- -------------- ------------
255,616 442,337 428,845
EQUITY
Common Stock 500 1 (1) 500
Paid in Capital 792,177 7 (7) 792,177
Retained Earnings (713,730) (100,796) (814,526)
Current Income (Loss) (14,866) 40,837 25,971
--------------- -------------- ------------
Total Equity 64,081 (59,951) 4,122
--------------- -------------- ------------
TOTAL LIABILITY
AND EQUITY $ 319,697 $ 382,386 $ $ 432,967
=============== ============== ============
</TABLE>
UNAUDITED - INTERNAL USE ONLY
48
<PAGE> 49
NU WAVE HEALTH PRODUCTS, INC.
INCOME STATEMENT
FOR THE MONTH AND THREE MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
YEAR TO DATE
JUNE 30 APRIL 1 THRU JUNE 30
------- --------------------
Revenues
<S> <C> <C>
Manufactured Product Sale $ 95,212 $ 393,886
Freight and Other Sales 293 562
----------- --------------------
Total Revenues 95,505 393,448
Cost of Goods Sold 48,997 206,606
----------- --------------------
Gross Profit 46,508 186,842
General and Administrative
Expense:
Accounting Fees -- 8,000
Amortization Expense 279 836
Auto Expense -- 125
Bank Charges 25 160
Consulting Fees 5,304 6,686
Depreciation Expense 1,537 4,611
Insurance 11,010 24,476
Interest Expense 96 --
Legal Fees 2,961 6,146
Miscellaneous Expense 339 18
Office Expense 2,025 4,502
Outside Services 85 152
Postage 142 357
Rent 6,799 21,351
Repairs & Maintenance 450 1,797
Salaries 19,786 65,715
Telephone 607 2,038
Travel & Entertainment 177 1,551
Utilities 1,059 2,492
----------- --------------------
Total G & A Expense 52,681 151,013
----------- --------------------
Net Operating income (6,173) 35,829
Other Income (Expense)
Management Income -- 3,500
Other Income -- 1,508
Interest Expense -- --
----------- --------------------
Total Other Inc. (Exp.) 0 5,008
----------- --------------------
Net Income (Loss) $ (6,173) $ 40,837
=========== ====================
</TABLE>
UNAUDITED - INTERNAL USE ONLY
49
<PAGE> 50
DIRECT RX, INC.
INCOME STATEMENT
FOR THE MONTH AND THREE MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
YEAR TO DATE
JUNE 30, 1997 APRIL 1 THRU JUNE 30
------------- --------------------
<S> <C> <C>
REVENUES
Diabetic Supplies Sales $ 20,992 $ 36,599
Discounts 1,552 (8,894)
Manufactured Product Sales - -
Freight and Other Sales 445 972
------------- ------------------
Total Revenues 22,989 28,677
COST OF GOODS SOLD 21,909 19,314
------------- ------------------
GROSS PROFIT 1,080 9,363
GENERAL AND ADMINISTRATIVE
EXPENSE:
Accounting Fees - -
Advertising 48 48
Amortization Expense 90 90
Auto Expense - -
Bank Charges 592 592
Consulting Fees - -
Depreciation Expense - -
Insurance 1,203 1,203
Interest Expense - -
Legal Fees - -
Mail Order 10,643
Miscellaneous Expense - -
Office Expense 1,837 2,146
Outside Services - -
Payroll Tax Expense 145 180
Postage 229 229
Rent - -
Repairs & Maintenance - -
Salaries 5,382 7,070
Telephone 259 259
Travel & Entertainment 253 253
Utilities - -
------------- ------------------
Total G & A Expense 10,038 22,713
------------- ------------------
NET OPERATING INCOME (8,958) (13,350)
OTHER INCOME (EXPENSE)
Management Income - -
Other Income 1,920 2,020
Interest Expense (1,451) (3,536)
------------- ------------------
Total Other Inc. (Exp.) 469 (1,516)
------------- ------------------
NET INCOME (LOSS) $ (8,489) $ (14,866)
============= ==================
</TABLE>
UNAUDITED - INTERNAL USE ONLY
50
<PAGE> 1
ARTICLES OF INCORPORATION
OF
DIRECT RX, INC.
The undersigned, being an Ohio corporation and desiring to form a
corporation for profit under the General Corporation Law, Chapter 1701 of the
Ohio revised Code, does hereby certify:
FIRST: The name of the Corporation shall be DIRECT RX, INC.
SECOND: The place in Ohio where the principal office of the
Corporation is to be located is the City of Independence,
County of Cuyahoga.
THIRD: The purpose for which the Corporation is formed is to engage
in any lawful act or activity for which corporations may be
formed under Sections 1701.01 to 1701.98, inclusive, of the
Ohio Revised Code.
FOURTH: The number of shares which the Corporation is authorized to
have outstanding is Three Million (3,000,000), all of which
are common shares without par value.
FIFTH: The Corporation may, from time to time, pursuant to
authorization by its Directors and without action by the
shareholders, purchase or otherwise acquire shares of the
Corporation of any class or classes in such manner, upon such
terms and in such amounts as the Directors shall determine, to
the extent permitted by law; subject, however, to such
limitation or restriction, if any, as may be imposed by the
terms or provisions of any class of shares or other securities
of the Corporation outstanding at the time of the purchase or
acquisition in question.
SIXTH: The Corporation shall indemnify such persons as it is
permitted to indemnify by Section 1701.13(E) of the Ohio
General Corporation Law, and the heirs, executors, and
administrators of such persons, to the full extent permitted
by, but in accordance with
51
<PAGE> 2
the provisions of that Section. Reference to Section
1701.13(E) in the previous sentence shall constitute a
reference to any legislation hereafter enacted by the Ohio
Legislature on the same general subject as present Section
1701.31(E), whether by amendment of that Section or by
substitution of differently numbered material for it.
Notwithstanding the foregoing, except as otherwise required by
Section 1701.31(E), a person who would be entitled to
indemnity only as an agent (a director, officer, employee or
trustee not to be considered an "agent" for purposes of this
sentence) of the Corporation or only as an agent of another
entity, shall not be entitled to indemnity.
SEVENTH: Notwithstanding any provision of the Ohio Revised Code now or
hereafter in force requiring for any purpose the vote,
consent, waiver, approval, adoption or release of the holders
of shares entitling them to exercise two-thirds, or any other
proportion, of the voting power of the Corporation or any
class of classes of shares thereof, such action, unless
otherwise expressly required by statute, may be taken by the
vote, consent, waiver, approval, adoption or release of the
holders of shares entitling them to exercise a majority of the
voting power of the Corporation or of such class or classes.
EIGHTH: No holder of any class of shares of the Corporation shall have
any preemptive or preferential right to subscribe to or
purchase any shares of any class of stock of the Corporation,
whether now or hereafter authorized and whether unissued or in
the treasury, or any obligations convertible into shares of
any class of stock of the Corporation, at any time issued or
sold, or any right to subscribe to or purchase any thereof.
NINTH: A Director or officer of the Corporation shall not be
disqualified from dealing or contracting with the Corporation
as vendor, purchaser, employee, agent or otherwise; nor shall
any transaction, contract, or other act of the Corporation be
void or voidable or in any way affected or invalidated by the
fact that any Director or officer or any firm in which such
Director or officer is a member, or any corporation of which
such Director or officer is a member, or any corporation of
which such Director or officer is a shareholder, director or
officer is
52
<PAGE> 3
in any way interested in such transaction, contract, or other
act, provided the fact that such Director, officer, firm or
corporation is so interested shall be disclosed or shall be
known to the Board of Directors or such members thereof who
shall be present at any meeting of the Board of Directors at
which action upon any such transaction, contract or other act
shall be taken, nor shall any such Corporation for or in
respect of any such transaction, contract, or other act of the
Corporation or for any gains or profits realized by him by
reason of the fact that he or any firm of which he is a member
or any corporation of which he is a shareholder, director or
officer is interested in such transaction, contract, or other
act; and any such Director at any meeting of the Board of
Directors of the Corporation which shall authorize to take
action in respect of any such transaction, contract, or other
act, may vote thereat to authorize, ratify, or approve any
such transaction, contract or other act, with like force and
effect as if he or any firm of which he is a member, or any
corporation of which he is a shareholder, director or officer
were not interested in such transaction, contract or other
act.
IN WITNESS WHEREOF, A&H Statutory Service Corp. has hereunto caused to
be subscribed its name this 25th day of June, 1992.
A&H Statutory Service Corp.
By /s/ William W. Taft
-----------------------------------------
Vice President
INCORPORATOR
53
<PAGE> 1
CODE OF REGULATIONS
OF
DIRECT RX, INC.
ARTICLE I
Shareholders
Section 1 - Annual Meeting
The annual meeting of the shareholders shall be held at the principal
office of the Corporation in Independence, Ohio, or at such other place as the
Board of Directors may designate and cause to be stated in the notice of such
meeting given to shareholders at 10:00 A.M. Eastern Standard Time, on the first
Monday of the fourth month following the close of each fiscal year of the
Corporation, if not a legal holiday, and if a legal holiday, then on the next
successive business day, for the purpose of electing Directors and of
considering reports to be laid before said meeting. Upon due notice there may
also be considered and acted upon at an annual meeting any matter which could
properly be considered and acted upon at a special meeting, in which case and
for which purpose the annual meeting shall also be considered as, and shall be,
a special meeting. In the event the annual meeting is not held or if Directors
are not elected thereat, a special meeting may be called and held for that
purpose.
Section 2 - Place of Meetings
Any meeting of the shareholders of the Corporation may be held within
or without the State of Ohio.
Section 3 - Special Meetings
Special meetings of the shareholders may be called by the President of
the Corporation at any time, and the President shall call such a special meeting
when so requested in writing by the holders of not less than a majority of the
shares entitled to vote thereat. Special meetings shall be held at a time and
place designated by the President and shall be confined to the purpose and
transaction of business and specified in the call of the meeting and stated in
the notice thereof sent to the shareholders.
54
<PAGE> 2
ARTICLE II
Board of Directors
Section 1 - Powers, Number and Term of Office
All the capacity of the Corporation shall be vested in and all its
authority, except as otherwise provided by law or by the Articles in regard to
action required to be taken, authorized or approved by shareholders, shall be
exercised by a Board of Directors of not less than three (3) persons; provided
that, where all shares of the Corporation are owned of record by one or two
shareholders, the number of directors may be less than three but not less than
the number of shareholders. The Board of Directors shall manage and conduct the
business of the Corporation. Directors shall be elected at the annual meeting of
the shareholders, or if not so elected, at a special meeting of the shareholders
called for that purpose, and shall hold office for one year or until their
successors are chosen and qualified, subject, however, to provisions of law, the
Articles and the Regulations as to removals and the creation of vacancies.
Section 2 - Changes in Number of Directors
The number of Directors may be fixed or changed by resolution adopted
by the vote of the shareholders present in person or by proxy at a meeting
called to elect Directors, entitled to exercise a majority of the voting power
of the shares represented at such meeting and entitled to vote at such election
but no reduction of the number of directors shall have the effect of removing
any Director prior to the expiration of his term of office.
Section 3 - Vacancies
The office of a Director shall become vacant if he dies or resigns.
The Board of Directors may remove any Director and thereby create a
vacancy in the Board if he be declared of unsound mind by any order.
Any vacancy in the Board of Directors may be filled for the unexpired
term by the remaining Director or Directors, though less than a majority of the
whole Board, by a vote of a majority of their number. Within the meaning of this
section, a vacancy or vacancies shall be deemed to exist in case the
shareholders shall increase the authorized number of Directors but shall fail at
the meeting at which such increase is authorized, or an adjournment thereof, to
elect the additional Directors so provided for, or in case the shareholders fail
at any time to elect the whole authorized number of Directors.
55
<PAGE> 3
Section 4 - Meetings
Meetings of the Board of Directors may be held at any time within or
without the State of Ohio.
Regular meetings of the Board of Directors shall be held immediately
after the annual meetings of the shareholders and at such other stated times as
may be fixed by the Board of Directors, and such regular meetings may be held
without further notice.
Special meetings of the Board of Directors may be called by the
President of the Corporation, or by not less than one-third of the Directors.
Notice of the time and place of such meetings shall be served upon or telephoned
to each Director at least twenty-four hours, or given by mail, telegram or
cablegram to each Director at his address as shown by the books of the
Corporation at least forty-eight hours, prior to the time of the meeting. Such
notice may be waived in writing by any Director, either before or after the
meeting. Attendance at the meeting by a Director without protesting proper
notice, shall constitute waiver of such notice by such Director.
Section 5 - Quorum
A majority of the whole authorized number of Directors is necessary to
constitute a quorum for a meeting of the Directors, except that a majority of
the Directors in office constitutes a quorum for filling a vacancy in the Board.
The act of a majority of the Directors present at a meeting at which a quorum is
present is the act of the Board, unless the act of a greater number is required
by the Articles or these Regulations.
Section 6 - Committees
The Board of Directors may from time to time create an Executive
Committee, a Finance Committee and such other Committees as it may deem to be
advisable and may delegate to any such Committee any of the powers of the Board
of Directors, other than that of filling vacancies among the Directors or in any
committee of the Directors. Any such committee shall be composed of not less
than three members of the Board of Directors to serve until otherwise ordered by
the Board of Directors and shall act only in the interval between meetings of
the Board of Directors and shall be subject at all times to the control and
direction of the Board of Directors. The Board of Directors may appoint one or
two more Directors as alternate members of any such Committee, who may take the
place of any absent member or members at any meeting of such committee.
Any such Committee may act by a majority of its members at a meeting or
by a writing or writings signed by all its members.
56
<PAGE> 4
Any act or authorization of an act by any such Committee within the scope of the
powers delegated to it shall be as effective for all purposes as the act or
authorization of the Board of Directors.
ARTICLE III
Section 1 - Officers
The Corporation shall have a President (who shall be a member of the
Board of Directors), a Secretary and a Treasurer, who shall be elected by the
Board of Directors. The Corporation may also have one or more Vice Presidents.
The Corporation may have Assistant Secretaries, Assistant Treasurers, and such
other officers as the Board may deem advisable, all of whom shall be elected for
one year or until their successors are elected and qualified, unless otherwise
specified by the Board of Directors; provided, however, that any officer shall
be subject to removal, with or without cause, at any time by the vote of a
majority of the Board of Directors. The election of an officer for a given term,
or a general provision in the Articles or these Regulations with respect to term
of office, shall not be deemed to create contract rights.
Any two or more offices may be held by the same person, but no officer
shall execute, acknowledge or verify any instrument in more than one capacity if
such instrument is required by law or by the Articles or these Regulations to be
executed, acknowledged or verified by two or more officers.
Section 2 - The President
The President, when present, shall preside at all meetings of the
shareholders and of the Board of Directors. Subject to the direction of the
Board of Directors and the Executive Committee, he shall have general charge and
authority over the business of the Corporation. He shall from time to time make
such reports of the business of the Corporation as the Board of Directors may
require. The President shall perform such other duties and have such powers as
are assigned to or vested in him by the Board of Directors.
Section 3 - The Vice President
The Vice President, or, if there be more than one, the Vice Presidents,
in order of their seniority by designation (or if not designated, in order of
their seniority of election), shall perform the duties of the President in his
absence or during his disability to act. The Vice Presidents shall have such
other duties and powers as may be assigned to or vested in them by the Board of
Directors or the Executive Committee.
57
<PAGE> 5
Section 4 - The Secretary
The Secretary shall issue notices of all meetings for which notice is
required to be given, shall keep the minutes of all meetings, shall have charge
of the corporate seal and corporate record books, and have such other powers and
perform such other duties as are assigned to or vested in him by the Board of
Directors or the Executive Committee.
Section 5 - The Treasurer
The Treasurer shall be the financial officer of the Corporation. He
shall have the custody of all moneys and securities of the Corporation and shall
keep adequate and correct accounts of the Corporation's receipts and
disbursements, including records of customers' credits and collections. The
funds of the Corporation shall be deposited in the name of the Corporation by
the Treasurer in such depositories as the Board of Directors may from time to
time designate. He shall have such other powers and perform such other duties as
are assigned to or vested in him by the Board of Directors or the Executive
Committee.
Section 6 - Other Officers
Other officers of the Corporation shall have such powers and duties as
may be assigned to or vested in them by the Board of Directors or the Executive
Committee.
Section 7 - Authority to Sign
Share certificates shall be signed as hereinafter in ARTICLE IV
provided. Except as otherwise specifically provided by the Board of Directors or
the Executive Committee of the Corporation, checks, notes, drafts, contracts or
other instruments authorized by the Board of Directors or the Executive
Committee may be executed and delivered on behalf of the Corporation by the
President or a Vice President and by the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer.
Section 8 - Duties of Officers may be Delegated
In case of the absence or disability of an officer of the Corporation,
or for any other reason that may seem sufficient to the Board, the Board of
Directors may, for the time being, delegate his powers and duties to any other
officer or to any Director.
Section 9 - Compensation Salaries and Indemnity
(a) The Board of Directors may fix the pay of all officers. The Board
may also allow compensation to members of any committee.
58
<PAGE> 6
The Board may vote compensation to any Directors for attendance at meetings or
for any special services.
(b) Each person who is, has been, or shall hereafter be, a director or
officer of the Corporation, or who is serving, may have served, or shall serve
at its request as a director or officer of another corporation, shall be
indemnified by the Corporation to the full extent to which indemnification is
permitted by subsections E(1) through E(9) of Section 1701.13 of the Ohio
Revised Code.
The foregoing rights of indemnification shall inure to the benefit of
the personal representatives of such persons, and shall be in addition to any
other rights to which any such persons may be entitled to at law or agreement or
otherwise.
ARTICLE IV
Section 1 - Certificates
Each shareholder of the Corporation shall be entitled to a certificate
signed by the President or a Vice President and by the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer, evidencing the number and
class of paid-up shares held by him in the Corporation, but no certificate for
shares shall be executed or delivered until such shares are fully paid.
Such certificates shall be in such form as shall be approved by the
Board of Directors and shall contain such statements as are required by the Ohio
General Corporation Law.
Section 2 - Transfer and Registration
The Board of Directors shall have authority to make such rules and
regulations, not inconsistent with law, the Articles or these Regulations, as it
deems expedient concerning the execution, delivery, transfer and registration of
share certificates and may appoint incorporated transfer agents and registrars
thereof.
Transfer books may be kept in any state of the United States or in any
foreign country for the purpose of transferring shares issued by the
Corporation; but if no transfer agent is appointed to act in this State, the
Corporation shall keep an office in this State at which shares shall be
transferable; and at which it shall keep books in which shall be recorded the
names and addresses of all shareholders, and all transfers of shares.
59
<PAGE> 7
ARTICLE V
Section 1 - Voting Upon Stocks
Unless otherwise ordered by the Board of Directors, the President, a
Vice President, the Secretary or the Treasurer, of the Corporation, or a proxy
appointed by any such officer, shall have full power and authority on behalf of
the Corporation to attend, to act and to vote at any meeting of shareholders of
and to execute consents, waivers, and releases relating to the affairs of any
other corporation, domestic or foreign, for profit or nonprofit, in which the
Corporation may hold stock or membership, and at any such meeting shall possess
and may exercise any and all of the rights and powers incident to the ownership
of such stock and which as the owner thereof the Corporation would have
possessed and might have exercised if present. The Board of Directors by
resolution from time to time may confer like powers upon any other person or
persons.
ARTICLE VI
Section 1 - Amendments
The Regulations of the Corporation may be amended or added to by the
affirmative vote of the shareholders of record entitled to exercise a majority
of the voting power on such proposal or, without a meeting, by the written
consent of the shareholders of record entitled to exercise a majority of the
voting power on such proposal; provided, however, that if an amendment is
adopted by written consent without a meeting of the shareholders, it shall be
the duty of the Secretary to enter the amendment in the records of the
Corporation and to mail a copy of such amendment to each shareholder of record
who would be entitled to vote thereon and did not participate in the adoption
thereof.
60
<PAGE> 1
ARTICLES OF INCORPORATION
OF
SOLSTICE, INC.
THE UNDERSIGNED, acting as sole incorporator of SOLSTICE, INC.,
hereinafter the "Corporation", under the Florida Business Corporation Act,
Chapter 607 of the Florida Statutes, as hereafter amended and modified
(the"FBCA"), hereby adopts the following Articles of Incorporation for the
Corporation:
ARTICLE I. Name
The name of the Corporation is:
SOLSTICE, INC.
ARTICLE II. Business and Activities
The Corporation may, and is authorized to, engage in any activity or
business permitted under the laws of the United States and of the
State of Florida.
ARTICLE III. Shares
The total number of shares which the Corporation shall have the
authority to issue shall be One Thousand (1,000) shares, consisting of
a single class of common stock having a par value of $0.01 per share.
ARTICLE IV. Preemptive Rights
No shareholder of the Corporation shall have any preferential or
preemptive right to subscribe for or purchase from the Corporation any
new or addtitional shares of captial stock or securities convertible
into shares of captial stock, of the Corporation, whether now or
hereafter authorized.
ARTICLE V. Principal Office
The address of the Principal Office of the Corporation is 6505 Rockside
Road, Suite 400, Independence, Ohio 44131. The location of the
Principal Office shall be subject to change as may be provided in
bylaws duly adopted by the Corporation.
ARTICLE VI. Mailing Address
The mailing address of the Corporation is 6505 Rockside Road, Suite
400, Independence, Ohio 44131.
61
<PAGE> 2
ARTICLE VII. Initial Registered Office and Agent
The address of the initial Registered Office of the Corporation is 1200
S.Pine Island Road, Plantation, Florida 33324, and the initial Registered Agent
at such address is CT Corporation System.
ARTICLE VIII. Initial Board of Directors
The number of Directors constituting the initial Board of Directors of
the Corporation is one (1). The number of Directors may be increased or
decrease from time to time, but in no event shall the number of Directors be
less than one (1).
ARTICLE IX Incorporator
The name and address of the Incorporator of the Corporation is: Martin
A. Traber of Foley & Lardner, 100 North Tampa Street, Suite 2700, Tampa,
Florida 33602
IN WITNESS WHEREOF, these Articles have been signed by the undersigned
incorporator this 27 day of April, 1995.
FOLEY & LARDNER
By:/s/ Martin A. Traber
----------------------------
Martin A. Traber,
Incorporator
ACCEPTANCE OF APPOINTMENT BY INITIAL
REGISTERED AGENT
THE UNDERSIGNED, a corporation resident of the State of Florida, having been
named in Article VII of the foregoing Articles of Incorporation as initial
Registered Agent at the office designated therein, hereby accepts such
appointment and agrees to act in such capacity. The undersigned hereby states
that it is familiar with, and hereby accepts, the obligations set forth in
Section 607.0505, Florida Statutes, and the undersigned will further comply
with any other provisions of law made applicable to him as Registered Agent of
the corporation.
DATED, this 28th day of April ,1995.
CT Corporation System
By: /s/ Babara A. Burke
-------------------------------
BABARA A. BURKE
SPECIAL ASSISTANT SECRETARY
62
<PAGE> 3
[SEAL]
FLORIDA DEPARTMENT OF STATE
Sandra B. Mortham
Secretary of State
October 3, 1995
WILLIAM LARION
6505 ROCKSIDE RD.
SUITE 325
INDEPENDENCE, OH 44131
Re: Document Number P95000035951
The Articles of Amendment to the Articles of Incorporation of SOLSTICE, INC.
which changed its name to NU-WAVE HEALTH PRODUCTS, INC., a Florida corporation,
were filed on September 25, 1995.
Should you have any questions regarding this matter, please telephone
(904) 487-6050, the Amendment Filing Section.
Nancy Hendricks
Corporate Specialist
Division of Corporations Letter Number: 895A00044980
63
Division of Corporations - P.O. BOX 6327 - Tallahassee, Florida 32314
<PAGE> 4
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
0F
- -------------------------------------------------------------------------------
SOLSTICE, INC.
- -------------------------------------------------------------------------------
(present name)
PURSUANT TO THE PROVISIONS OF SECTION 607.1006, FLORIDA STATUTES, THIS
CORPORATION ADOPTS THE FOLLOWING ARTICLES OF AMENDMENT TO ITS ARTICLES OF
INCORPORATION:
FIRST: AMENDMENT(S) ADOPTED: (INDICATE ARTICLE NUMBER(S) BEING AMENDED, ADDED
OR DELETED)
Change of Corporation's Name.
RESOLVED: That Articles "First" of the Corporation's Articles of
Incorporation shall be deleted, and, in lieu of thereof, the
following be inserted:
FIRST: The name of the corporation is:
Nu-Wave Health Products, Inc.
No further business is transacted.
SECOND: IF AN AMENDMENT PROVIDES FOR AN EXCHANGE, RECLASSIFICATION OR
CANCELLATION OF ISSUED SHARES, PROVISIONS FOR IMPLEMENTING THE AMENDMENT
IF NOT CONTAINED INT HE AMENDMENT ITSELF, ARE AS FOLLOWS:
64
THIRD: The date of each amendment's adoption: September 15, 1995.
---------------------
<PAGE> 5
FOURTH: Adoption of Amendment(s) (CHECK ONE)
/x/ The amendment(s) was/were approved by the shareholders. The number of
votes cast for the amendment(s) was/were sufficient for approval.
/ / The amendment(s) was/were approved by the shareholders through voting
groups. The following statements must be separately provided for each
voting group entitled to vote separately on the amendment(s):
"The number of votes cast for the amendment(s) was/were sufficient for
approval by _____________________________________________."
voting group
/ / The amendment(s) was/were adopted by the board of directors without
shareholder action and shareholder action was not required.
/ / The amendment(s) was/were adopted by the incorporators without shareholder
action and shareholder action was not required.
Signed this day 20th of September, 1995.
Signature /s/ Wm. L. Larion, President
---------------------------------------------
(By the Chairman or Vice Chairman of the Board of Directors,
President or other officer if adopted by the shareholders)
OR
(By a director if adopted by the directors)
OR
(By an incorporator if adopted by the incorporators)
____________________________________________
Typed or printed name
____________________________________________
Title
65
<PAGE> 1
BY-LAWS
OF
SOLSTICE, INC.
ARTICLE I
OFFICES
SECTION 1 - PRINCIPAL OFFICE
The principal office of the Corporation shall be located in the City of
Independence, Ohio.
SECTION 2 - OTHER OFFICES OR PLACE OF BUSINESS
The Corporation also may have offices or places of business at such
other places, within or without the State of Ohio and Florida, where the
Corporation is qualified to do business, as the Board of Directors may
designate or as the business of the Corporation may require.
ARTICLE II
SHAREHOLDERS
SECTION 1 - ANNUAL MEETING
The annual meeting of the shareholders shall be held any time during
the second quarter of the Corporation's fiscal year, for the purpose of
electing officers and of considering reports presented to such meeting. Upon
due notice there also may be considered and acted upon at an annual meeting any
matter which could properly be considered and acted upon at a special meeting,
in which case and for which purpose the annual meeting also shall be considered
as, and shall be, a special meeting. In the event the annual meeting is not
held, or if Directors are not elected thereat, a special meeting may be called
and held for that purpose.
SECTION 2 - PLACE OF MEETING
Any meeting of the shareholders of the Corporation may be held within
or without the State of Ohio or Florida, or at such other place as the Board of
Directors may designate and cause to be stated in the notice of such meeting
given to shareholders.
66
<PAGE> 2
SECTION 3 - SPECIAL MEETINGS
Special meetings of the shareholders of the Corporation shall be called
by the Chairman or, upon the written request of a majority of the Directors, or
by shareholders representing at least twenty-five percent (25%) of the shares
issued and entitled to vote. Calls for special meetings shall specify the
time, place, and object or object thereof, and no business other than that
specified in the call therefor shall be considered at any such meetings.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1 - POWERS, NUMBER, AND TERM OF OFFICE
All the capacity of the Corporation shall be vested in an all its
authority, except as otherwise provided by law or by the Articles of
Incorporation of the Corporation (the "Articles") relating to any action
required to be taken, authorized, or approved by shareholders, shall be
exercised by a Board of Directors of three (3) persons; provided that, where
all shares of the Corporation are owned of record by one or two shareholders,
the number of Directors may be less than three. The Board of Directors shall
manage and conduct the business of the Corporation. Directors shall be elected
at the annual meeting of the shareholders or, if not so elected, at a special
meeting of the shareholders called for that purpose, and shall hold office for
one year or until their successors are duly elected and qualified, subject,
however, to provisions of law, the Articles, and these By-laws as to removals
or the creation of vacancies.
SECTION 2 - CHANGES IN NUMBER OF DIRECTORS
The number of Directors may be fixed or changed by resolution adopted
by action of the Board of Directors, or by a vote of the shareholders, present
in person or by proxy at a meeting called to elect Directors, entitled to
exercise two-thirds of the voting power of the shares represented at such
meeting and entitled to vote at such election, but no reduction of the number
of Directors shall have the effect or removing any Director prior to the
expiration of his term of office.
SECTION 3 - VACANCIES
The office of a Director shall become vacant if a Director dies or
resigns.
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The Board of Directors may remove any Director and thereby create a
vacancy in the Board of Directors in the event a Director is declared of
unsound mind by any judicial order.
Any vacancy in the Board of Directors may be filled for the unexpired
term by the remaining Director or Directors, though less than a majority of
the whole Board of Directors, by a vote of a majority of their number. Within
the meaning of this Section 3, a vacancy or vacancies shall be deemed to exist
in case the shareholders shall increase the authorized number of Directors but
shall fail at the meeting at which such increase is authorized, or an
adjournment thereof, to elect the additional Directors so provided for, or in
case the shareholders fail at any time to elect the whole authorized number of
Directors.
SECTION 4 - MEETINGS
Meetings of the Board of Directors will be held immediately after the
annual meeting of the Shareholders, and at such other stated times as may be
fixed by the Board of Directors, and such regular meetings may be held without
further notice.
Special meetings of the Board of Directors may be called by the
Chairman of the Corporation, or by not less than two-thirds of the Directors.
Notice of the time and place of such meetings shall be served upon or
telephoned to each Director at least twenty-four hours, or given by mail,
telegram, or cablegram to each Director at his address as shown by the books of
the Corporation at least forty-eight hours prior to the time of the meeting.
Such notice may be waived in writing by any Director, either before or after
the meeting. Attendance at the meeting by a Director without protesting proper
notice shall constitute waiver of such notice by such Director.
SECTION 5 - QUORUM
A majority of the whole authorized number of Directors is necessary to
constitute a quorum for a meeting of the Directors, except that a majority of
the Directors in office constitutes a quorum for filling a vacancy in the Board
of Directors. The act of a majority of the Directors present at a meeting at
which a quorum is present is the act of the Board of Directors unless the act
of a greater number is required by the Articles or these By-laws.
SECTION 6 - COMMITTEES
The Board of Directors from time to time may create an Executive
Committee, a Finance Committee, and such other Committees as it may deem to be
advisable and may delegate to any such Committee any of the powers of the Board
of Directors, other than that of filling vacancies among the Directors or in
any Committee of the Directors. Any such Committee shall be composed of not
less
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than two members of the Board of Directors to serve until otherwise ordered by
the Board of Directors and shall act only in the interval between meetings of
the Board of Directors and shall be subject at all times to the control and
direction of the Board of Directors. The Board of Directors may appoint one or
more Directors as alternate members of any such Committee, who may take the
place of any absent member or members at any meeting of such Committee.
Any such Committee may act by a majority of its members at a meeting or
by a writing or writings signed by all its members. Any act or authorization
of an act by any such Committee within the scope of the powers delegated to it
shall be as effective for all purposes as the act or authorization of the Board
of Directors.
ARTICLE IV
OFFICERS
SECTION 1 - OFFICERS
The Corporation shall have a President, a Chief Executive Officer, a
Secretary or Assistant Secretary, and a Treasurer, who shall be elected by the
Board of Directors. The Corporation also may have one or more Vice Presidents,
Assistant Secretaries, Assistant Treasurers, and such other officers as the
Board of Directors may deem advisable, all of whom shall be elected for one
year or until their successors are duly elected and qualified, unless otherwise
specified by the Board of Directors; provided, however, that any officer shall
be subject to removal, with or without cause, at any time by the vote of a
majority of the Board of Directors. The election of an officer for a given
term, or a general provision in the Articles or these By-laws with respect to
term of office, shall not be deemed to create contract rights.
Any two or more offices may be held by the same person, but no officer
shall execute, acknowledge, or verify any instrument in more than one capacity
if such instrument is required by law or by the Articles or these By-laws to be
executed, acknowledged, or verified by two or more officers.
The officers of the Corporation shall have such powers, duties, and
responsibilities as may be assigned to or vested in them by the Board of
Directors. The powers, duties, and responsibilities of the officers will be
exercised or performed at the direction of the Board of Directors.
SECTION 2 - AUTHORITY TO SIGN
Share Certificates shall be signed as described in ARTICLE V. Except
as otherwise specifically provided by the Board of Directors
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or the Executive Committee of the Corporation, notes, contracts, or other
instruments authorized by the Board of Directors or the Executive Committee may
be executed and delivered on behalf of the Corporation by the President or the
Chief Executive Officer of the Corporation. Each officer of the Corporation is
authorized to execute checks under the amount of $1,000 for and on behalf of
the Corporation, while checks in an amount in excess of $1,000 require the
signatures of the President and the Chief Executive Officer.
SECTION 3 - DUTIES OF OFFICERS MAY BE DELEGATED
In case of the absence or disability of an officer of the Corporation,
or for any other reason which may seem sufficient to the Board of Directors,
the Board of Directors may, for the time being, delegate the powers and duties
of the absent or disabled officer to any other officer or to any Director of
the Corporation.
SECTION 4 - COMPENSATION, SALARIES, AND INDEMNITY
The Board of Directors may fix the compensation of all officers. The
Board also may allow compensation to members of any Committee. The Board may
vote compensation to any Directors for attendance at meetings or for any
special services.
Each person who is, has been, or hereafter shall be a Director or
officer of the Corporation, or who is serving, may have served, or shall serve
at its request as a director or officer of another corporation, shall be
indemnified by the Corporation to the fullest extent to which indemnification
is permitted by Florida corporation law.
The foregoing rights of indemnification shall inure to the benefit of
the personal representatives of such persons, and shall be in addition to any
other rights to which any such persons may be entitled to at law or agreement
or otherwise.
ARTICLE V
SHARE CERTIFICATES
SECTION 1 - CERTIFICATES
Each shareholder of the Corporation shall be entitled to a Certificate
signed by the President and by the Secretary or an Assistant Secretary,
evidencing the number and class of paid-up shares held by each such shareholder
in the Corporation, but no Certificate for Shares shall be executed or
delivered until such shares are fully paid.
Such Certificates shall be in such form as shall be approved
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by the Board of Directors and shall contain such statements as are required by
law.
SECTION 2 - TRANSFER AND REGISTRATION
The Board of Directors shall have authority to make such rules and
regulations, not inconsistent with law, the Articles, or these By-laws, as it
deems expedient concerning the execution, delivery, transfer, and registration
of Share Certificates, any may appoint incorporated transfer agents and
registrars thereof.
Transfer books may be kept in any State of the United States or in any
foreign country for the purpose of transferring shares issued by the
Corporation; but if no transfer agent is appointed to act in this State, the
Corporation shall keep an office in this State at which shares shall be
transferable, and at which it shall keep books in which shall be recorded the
names and addresses of all shareholders and all transfer of shares.
ARTICLE VI
AMENDMENTS
SECTION 1 - AMENDMENTS
The By-laws of the Corporation may be amended or added to by the
affirmative vote of the shareholders of record entitled to exercise a majority
of the voting power on such proposal or, without a meeting, by the unanimous
written consent of the shareholders of record entitled to vote on such
proposal.
* * * * *
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EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into on July 15, 1997, by and
between DIRECT Rx, INC. an Ohio corporation (the "Company"), and DR. KOTHA S.
SEKHARAM ("Executive") currently holding the position of President.
W I T N E S S E T H:
WHEREAS, the Company believes that the attraction and retention of key
employees such as Executive is essential to the Company's growth and success;
and
WHEREAS, the Company desires to employ Executive as its President and
Executive desires to accept such employment, all on the terms and conditions as
hereinafter provided.
NOW, THEREFORE, in consideration of the premises and covenants set
forth in this Agreement, the parties hereto agree as follows:
I. TERM
1.1 The Company hereby employs Executive and Executive hereby accepts
employment by the Company for a period of two years beginning on the
date of this Agreement, subject to the terms and conditions contained
in this Agreement. This Agreement will be renewed automatically
thereafter for successive periods of one year, unless not less than
thirty days prior to the end of the initial two year period or prior to
the end of any one year renewal period, one of the parties sends
written notice to the other party of its intent to terminate this
Agreement at the end of such period.
II. DUTIES
2.1 Executive shall hold the office of and shall function as President. In
such capacities, Executive will supervise the Company's research and
production operations and report to the Board of Directors.
III. BASE SALARY
3.1 As compensation for the services to be rendered by Executive hereunder
and all services as an officer of the Company, the Company agrees to
pay or cause to be paid to Executive an annual base salary of not less
than Seventy-five Thousand Dollars ($75,000), payable in equal
bi-weekly installments in accordance with the Company's standard
payroll schedule. Executive's base salary shall be increased annually
by an amount to be determined in the sole discretion of the Board of
Directors based upon the Boards's review of Executive's individual
performance and the financial performance of the Company.
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3.2 This salary is based on the assumption that Executive continues to
accept the responsibilities assigned to him by the Board of Directors,
meets the Company's goals agreed to by the Executive and the Board of
Directors, and continues to satisfactorily perform the duties of
President, as presented in this Agreement and as indicated to the Board
of Directors.
IV. PERFORMANCE BONUS AND STOCK OPTIONS
4.1 As additional compensation, Executive shall receive an annual bonus in
the first year of this Agreement as determined in the sole discretion
of the Board of Directors based upon the Board's evaluation of
Executive's individual performance and the financial performance of the
Company.
4.2 Executive shall receive an annual bonus in the second year of this
Agreement in an amount to be determined as set forth below, with any
such amount to be subject to an increase or decrease as determined by
the Board of Directors based upon the Board's evaluation of Executive's
individual performance and the financial performance of the Company:
4.2.1 Two and one-half percent (2.5%,) of income before federal and
state income taxes, and
4.2.2 Two percent (2 %) of annual revenues exceeding the "Base"".
Executive's bonus for Year 2 will have a base equal to the
total audited revenues for Year 1. Subsequent years will be
calculated in the same manner.
4.3 The bonus shall be paid to Executive, or Executive's designee, as soon
as practicable following the close of the Company's fiscal year and the
preparation of the Company's financial statements. This bonus shall
continue as long as Executive is employed by the Company. Upon
termination of Executive's employment, Executive shall receive a pro
rata amount of this Bonus through the date of such termination.
4.4 Subject to the grant and approval of the Board of Directors, Executive
shall be eligible for the grant of stock options to purchase additional
common shares of the Company at such times and on such terms as shall
be determined by the Board of Directors.
V. FULL TIME
5.1 Executive agrees to devote 100* of his professional time, attention and
energies during each normal business day to the performance of the
business of the Company, except as may otherwise be authorized by the
Board of Directors, or except for minor personal matters.
VI. FRINGES
6.1 Executive shall be entitled to vacations, health care benefits, fringe
benefits and
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reimbursement for reasonable out-of-pocket expenses, including but not
limited to those hereinafter detailed, in accordance with the Company's
practices covering executive personnel. The Company shall use
reasonable efforts to seek waivers of waiting periods, if any,
applicable to particular benefits. Such benefits shall include:
6.1.1 Health Insurance coverage with major medical, dental and
disability insurance benefits equal to those benefits
available to employees; the Company will pay 100% of the
monthly premiums for Executive and immediate family members;
6.1.2 Reimbursement of all properly approved travel and business
related expenses normally paid by the Company. All expense
reports must be approved by the President or the Board of
Directors prior to reimbursement;
6.1.3 Paid vacation per calendar year of not more than 3 weeks
unless otherwise authorized by the Board of Directors at any
time or times selected by Executive taking into account the
convenience of the Company. Executive shall give the Board of
Directors of the Company at least 14 calendar days prior
notice of selected vacation times of one week or more. Unused
vacation time will not be cumulative from year to year unless
approved by the Board of Directors.
6.1.4 5 days paid sick leave annually;
6.1.5 A holiday on the following days with full pay: New Year's Day,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
Christmas Day, the Executive's birthday, one floating holiday
and such other holidays or personal days as the Company shall
declare;
VII. TERMINATION
7.1 Executive's employment by the Company may be terminated by the
Company at any time upon:
7.1.1 the death or disability of Executive (as defined below);
7.1.2 the termination of this Agreement by the Company for
justifiable cause (as defined below); or
7.1.3 a decision by the Board of Directors of the Company, in the
exercise of their reasonable business judgment, to cease to
conduct operations.
7.2 In the event that this Agreement is terminated as a result of the
Executive's death or disability, the Company shall pay to Executive or
Executive's estate or beneficiary Executive's base salary as provided
in Section III for a period of three months following the
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date of death or termination for disability as defined in 7.3.
7.3 The term "disability" shall mean the inability of Executive, due to
illness, accident, or any other physical or mental incapacity, to
perform Executive's duties in a normal manner for a period of twelve
(12) consecutive weeks or for a total of twenty (20) weeks (whether or
not consecutive) in any twelve-month period during the term of this
Agreement.
7.4 The term "justifiable cause,' shall be defined as the commission by the
Executive of (a) fraud, (b) embezzlement, (c) a felony, or (d) an act
which (I) involves moral turpitude, (ii) action that brings the Company
into public disrespect or disgrace, (iii)action that injures the
goodwill of the Company, or (iv) causes material harm to its customer,
supplier, or employee relations or the operations or business prospects
of the Company (unless such act was expressly authorized or ratified by
the Board). If there is a dispute as to whether or not "justifiable
cause" shall exist, the parties agree to settle the dispute by
arbitration in accordance with the commercial arbitration rules of the
American Arbitration Association and the judgment upon award of the
arbitrators may be entered in any court having jurisdiction thereof.
7.5 If Executive terminates this Agreement, Executive shall be entitled to
receive Executive's base salary earned through the date of termination
by Executive and a pro rata amount of the performance bonus and fringe
benefits, including vacation through the date of such termination. No
additional remuneration shall be payable by the Company to Executive
and the Company shall have no other obligations or liabilities to
Executive, except to the extent provided by law.
7.6 Notwithstanding any other provisions of this Agreement, the Company can
terminate Executive's employment at any time upon giving not less than
four weeks advance notice of such termination to Executive, and, if the
Company so terminates Executive, the Company shall pay to Executive as
consideration for the Executive's covenants set forth below in Section
VIII:
7.6.1 Executive's base salary through the end of the then applicable
term of this Agreement pursuant to Section I; and
7.6.2 any bonus payable to Executive pursuant to Section IV.
VIII. NONDISCLOSURE, NONSOLICITATION AND AGREEMENT NOT TO COMPETE
8.1 Executive understands and agrees that Executive will acquire certain
confidential information regarding the Company, including, without
limitation, information concerning customers, accounts, employees;
suppliers, prices, business methods, competitive and marketing
strategies, and similar business matters, (the "Confidential
Information") . Executive further understands and agrees that use or
disclosure of the Confidential
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Information to compete, directly or indirectly, with the Company, will
result in irreparable harm and financial loss to the Company.
For a period of three (3) years after termination of this Agreement,
Executive shall not without prior written consent of the Company:
8.1.1 disclose directly or indirectly any Confidential Information
to any individual, firm, company, or other entity, or use any
of the Confidential Information to Executive's own-benefit;
8.1.2 contact or solicit, directly or indirectly, any of the
Company's customers, accounts, or vendors for purposes of
diverting such customers, accounts, or vendors to Executive's
benefit or for the benefit of any individual, entity, or
person (other than the Company) which is engaged or intends to
engage in the same or substantially the same businesses) in
which the Company is then engaged.
8.1.3 engage in any business in which the Company is then engaged,
or otherwise compete with the Company in any manner in the
markets in which the Company operates in the United States and
Canada;
8.1.4 offer employment to any present employee of the Company or
offer any independent Contractor relationship to any
contractor of the Company.
IX. REPRESENTATION
9.1 Executive represents and warrants that Executive is free to enter into
this Agreement and that Executive is not a party to or otherwise bound
by any employment contracts, restrictive covenants or any other
contracts preventing full performance of Executive's duties hereunder.
X. INDEMNIFICATION
10.1 The Company agrees to indemnify Executive to the maximum extent
permitted by the corporate laws of the State of Ohio including all
amendments thereto, if such are applicable; subject, however, to the
limitations of other applicable laws, if any.
XI. ENTIRE AGREEMENT/BINDING EFFECT
11.1 This Agreement contains the entire agreement of the parties and
supersedes all prior understandings and agreements between the parties,
including but not limited to the Employment Agreement by and between
Solstice, Inc and Dr. Kotha S. Sekharam dated September 15, 1995, with
respect to the subject matter hereof. This Agreement shall be binding
upon the legal representatives, heirs, distributees, successors and
assigns of the parties and may not be changed orally but only by a
writing signed by the parties. It is agreed that a waiver by either
party of a breach of any provision of this Agreement shall not
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operate or be construed as a waiver of any subsequent breach by that same
party. This Agreement shall be governed by the laws of the State of Ohio.
IN WITNESS WHEREOF, the parties hereto have caused this Employment Agreement to
be executed the day and year first above written.
EXECUTIVE: DIRECT RX, INC.
Dr. Kotha S. Sekharam /s/ By: Jugal Taneja /s/
------------------------- ---------------------------------------
Dr. Kotha S. Sekharam Jugal Taneja, Chairman of the Board
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EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into on July 15, 1997, by and
between DIRECT Rx, INC. an Ohio corporation (the "Company") , and JUGAL K.
TUNEJA ("Executive") currently holding the position of President.
W I T N E S S E T H:
WHEREAS, the Company believes that the attraction and retention of key
employees such as Executive is essential to the Company's growth and success;
and
WHEREAS, the Company desires to employ Executive as its Chairman of the
Board and Secretary and Executive desires to accept such employment, all on the
terms and conditions as hereinafter provided.
NOW, THEREFORE, in consideration of the premises and covenants set
forth in this Agreement, the parties hereto agree as follows:
I. TERM
1.1 The Company hereby employs Executive and Executive hereby accepts
employment by the Company for a period of two years beginning on the
date of this Agreement, subject to the terms and conditions contained
in this Agreement. This Agreement will be renewed automatically
thereafter for successive periods of one year, unless not less than
thirty days prior to the end of the initial two year period or prior to
the end of any one year renewal period, one of the parties sends
written notice to the other party of its intent to terminate this
Agreement at the end of such period.
II. DUTIES
2.1 Executive shall hold the office of and shall function as Chairman of
the Board and Secretary. In such capacities, Executive shall perform
such duties as determined by the Board of Directors and will report to
the Board of Directors.
III. BASE SALARY
3.1 As compensation for the services to be rendered by Executive hereunder
and all services as an officer of the Company, the Company agrees to
pay or cause to be paid to Executive an annual base salary of not less
than Seventy-Five Thousand Dollars ($75,000), payable in equal
bi-weekly installments in accordance with the Company's standard
payroll schedule. Executive's base salary shall be increased annually
by an amount to be determined in the sole discretion of the Board of
Directors based upon the Boards's review of Executive's individual
performance and the financial performance of the Company.
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3.2 This salary is based on the assumption that Executive continues to
accept the responsibilities assigned to him by the Board of Directors,
meets the Company's goals agreed to by the Executive and the Board of
Directors, and continues to satisfactorily perform the duties of
President, as presented in this Agreement and as indicated to the Board
of Directors.
IV. PERFORMANCE BONUS AND STOCK OPTIONS
4.1 As additional compensation, Executive shall receive an annual bonus in
the first year of this Agreement as determined in the sole discretion
of the Board of Directors based upon the Board's evaluation of
Executive's individual performance and the financial performance of the
Company.
4.2 Executive shall receive an annual bonus in the second year of this
Agreement in an amount to be determined as set forth below, with any
such amount to be subject to an increase or decrease as determined by
the Board of Directors based upon the Board's evaluation of Executive's
individual performance and the financial performance of the Company:
4.2.1 Two and one-half percent (2.5%,) of income before federal and
state income taxes, and
4.2.2 Two percent (2 %) of annual revenues exceeding the "Base"".
Executive's bonus for Year 2 will have a base equal to the
total audited revenues for Year 1. Subsequent years will be
calculated in the same manner.
4.3 The bonus shall be paid to Executive, or Executive's designee, as soon
as practicable following the close of the Company's fiscal year and the
preparation of the Company's financial statements. This bonus shall
continue as long as Executive is employed by the Company. Upon
termination of Executive's employment, Executive shall receive a pro
rata amount of this Bonus through the date of such termination.
4.4 Subject to the grant and approval of the Board of Directors, Executive
shall be eligible for the grant of stock options to purchase additional
common shares of the Company at such times and on such terms as shall
be determined by the Board of Directors.
V. FULL TIME
5.1 Executive agrees to devote 100* of his professional time, attention and
energies during each normal business day to the performance of the
business of the Company, except as may otherwise be authorized by the
Board of Directors, or except for minor personal matters.
VI. FRINGES
6.1 Executive shall be entitled to vacations, health care benefits, fringe
benefits and
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reimbursement for reasonable out-of-pocket expenses, including but not
limited to those hereinafter detailed, in accordance with the Company's
practices covering executive personnel. The Company shall use
reasonable efforts to seek waivers of waiting periods, if any,
applicable to particular benefits. Such benefits shall include:
6.1.1 Health Insurance coverage with major medical, dental and
disability insurance benefits equal to those benefits
available to employees; the Company will pay 100% of the
monthly premiums for Executive and immediate family members;
6.1.2 Reimbursement of all properly approved travel and business
related expenses normally paid by the Company. All expense
reports must be approved by the President or the Board of
Directors prior to reimbursement;
6.1.3 Paid vacation per calendar year of not more than 3 weeks
unless otherwise authorized by the Board of Directors at any
time or times selected by Executive taking into account the
convenience of the Company. Executive shall give the Board of
Directors of the Company at least 14 calendar days prior
notice of selected vacation times of one week or more. Unused
vacation time will not be cumulative from year to year unless
approved by the Board of Directors.
6.1.4 5 days paid sick leave annually;
6.1.5 A holiday on the following days with full pay: New Year's Day,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
Christmas Day, the Executive's birthday, one floating holiday
and such other holidays or personal days as the Company shall
declare;
VII. TERMINATION
7.1 Executive's employment by the Company may be terminated by the
Company at any time upon:
7.1.1 the death or disability of Executive (as defined below);
7.1.2 the termination of this Agreement by the Company for
justifiable cause (as defined below); or
7.1.3 a decision by the Board of Directors of the Company, in the
exercise of their reasonable business judgment, to cease to
conduct operations.
7.2 In the event that this Agreement is terminated as a result of the
Executive's death or disability, the Company shall pay to Executive or
Executive's estate or beneficiary Executive's base salary as provided
in Section III for a period of three months following the
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date of death or termination for disability as defined in 7.3.
7.3 The term "disability" shall mean the inability of Executive, due to
illness, accident, or any other physical or mental incapacity, to
perform Executive's duties in a normal manner for a period of twelve
(12) consecutive weeks or for a total of twenty (20) weeks (whether or
not consecutive) in any twelve-month period during the term of this
Agreement.
7.4 The term "justifiable cause,' shall be defined as the commission by the
Executive of (a) fraud, (b) embezzlement, (c) a felony, or (d) an act
which (I) involves moral turpitude, (ii) action that brings the Company
into public disrespect or disgrace, (iii)action that injures the
goodwill of the Company, or (iv) causes material harm to its customer,
supplier, or employee relations or the operations or business prospects
of the Company (unless such act was expressly authorized or ratified by
the Board). If there is a dispute as to whether or not "justifiable
cause" shall exist, the parties agree to settle the dispute by
arbitration in accordance with the commercial arbitration rules of the
American Arbitration Association and the judgment upon award of the
arbitrators may be entered in any court having jurisdiction thereof.
7.5 If Executive terminates this Agreement, Executive shall be entitled to
receive Executive's base salary earned through the date of termination
by Executive and a pro rata amount of the performance bonus and fringe
benefits, including vacation through the date of such termination. No
additional remuneration shall be payable by the Company to Executive
and the Company shall have no other obligations or liabilities to
Executive, except to the extent provided by law.
7.6 Notwithstanding any other provisions of this Agreement, the Company can
terminate Executive's employment at any time upon giving not less than
four weeks advance notice of such termination to Executive, and, if the
Company so terminates Executive, the Company shall pay to Executive as
consideration for the Executive's covenants set forth below in Section
VIII:
7.6.1 Executive's base salary through the end of the then applicable
term of this Agreement pursuant to Section I; and
7.6.2 any bonus payable to Executive pursuant to Section IV.
VIII. NONDISCLOSURE, NONSOLICITATION AND AGREEMENT NOT TO COMPETE
8.1 Executive understands and agrees that Executive will acquire certain
confidential information regarding the Company, including, without
limitation, information concerning customers, accounts, employees;
suppliers, prices, business methods, competitive and marketing
strategies, and similar business matters, (the "Confidential
Information"). Executive further understands and agrees that use or
disclosure of the Confidential
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Information to compete, directly or indirectly, with the Company, will
result in irreparable harm and financial loss to the Company.
For a period of three (3) years after termination of this Agreement,
Executive shall not without prior written consent of the Company:
8.1.1 disclose directly or indirectly any Confidential Information
to any individual, firm, company, or other entity, or use any
of the Confidential Information to Executive's own-benefit;
8.1.2 contact or solicit, directly or indirectly, any of the
Company's customers, accounts, or vendors for purposes of
diverting such customers, accounts, or vendors to Executive's
benefit or for the benefit of any individual, entity, or
person (other than the Company) which is engaged or intends to
engage in the same or substantially the same businesses) in
which the Company is then engaged.
8.1.3 engage in any business in which the Company is then engaged,
or otherwise compete with the Company in any manner in the
markets in which the Company operates in the United States and
Canada;
8.1.4 offer employment to any present employee of the Company or
offer any independent Contractor relationship to any
contractor of the Company.
IX. REPRESENTATION
9.1 Executive represents and warrants that Executive is free to enter into
this Agreement and that Executive is not a party to or otherwise bound
by any employment contracts, restrictive covenants or any other
contracts preventing full performance of Executive's duties hereunder.
X. INDEMNIFICATION
10.1 The Company agrees to indemnify Executive to the maximum extent
permitted by the corporate laws of the State of Ohio including all
amendments thereto, if such are applicable; subject, however, to the
limitations of other applicable laws, if any.
XI. ENTIRE AGREEMENT/BINDING EFFECT
11.1 This Agreement contains the entire agreement of the parties and
supersedes all prior understandings and agreements between the parties
with respect to the subject matter hereof. This Agreement shall be
binding upon the legal representatives, heirs, distributees, successors
and assigns of the parties and may not be changed orally but only by a
writing signed by the parties. It is agreed that a waiver by either
party of a breach of any provision of this Agreement shall not operate
or be construed as a waiver of any subsequent breach by that same
party. This Agreement shall be governed by the laws of the State of
Ohio
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IN WITNESS WHEREOF, the parties hereto have caused this Employment Agreement to
be executed the day and year first above written.
EXECUTIVE: DIRECT RX, INC.
Jugal K. Taneja /s/ By: Dr. Kotha S. Sekharam /s/
------------------- ----------------------------------
Jugal K. Taneja Dr. Kotha S. Sekharam, President
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DIRECT RX, INC.
May 2, 97
Dear Phil:
Thanks for your interest in accepting the leadership position in Diabetes
Supplies, Division of Direct Rx, Inc. This letter will confirm the following
terms and conditions for your employment.
Position: Vice President
Salary: $3,750 per month, semi-monthly.
Bonus: Average monthly gross Monthly bonus
sales over 3 months
$ 75,000 $ 500
$ 100,000 $ 1,250
$ 150,000 $ 2,250
$ 200,000 $ 3,250
$ 250,000 $ 4,250
$ 300,000 $ 5,250
$ 350,000 $ 6,250
$ 400,000 $ 7,250
$ 450,000 $ 8,250
$ 500,000 $ 9,250
Bonus will be in addition to monthly base salary and will not exceed 20% of net
operating profit.
Direct Rx will also grant an option to purchase 300,000 shares at 20 cents per
share for a period of one year from the start of your employment. If this is
not exercised during first year, Direct Rx will grant an option to purchase the
balance of 300,000 shares at 50 cents per share for the second year of
employment.
If the above profit goals are not reached, the granting of options will be at
the sole discretion of the Direct Rx Board of directors.
In addition to this compensation package, standard benefits will be provided as
established for Direct Rx and it's subsidiaries.
Looking forward to work with you soon.
Thanking you.
/s/ Kotha Sekharsm
- ---------------------
Kotha Sekharsm, Ph. D
President
5905-A Hampton Oaks Pky. Tampa, FL 33610. Ph: (813) 628-0804 Fax:
(813) 612-9604
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