<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter Ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-23031
DIRECT RX, INC.
(Exact name of small business issuer as specified in its charter)
STATE OF OHIO 34-1711778
------------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5905 Hampton Oaks Parkway, Suite A, Tampa, Florida 33610
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (813) 628-0804
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
The number of shares outstanding of the Issuer's common stock at no par value
as of February 9, 1998 was 2,568,761 (exclusive of Treasury Shares).
Form 10-QSB
1
<PAGE> 2
DIRECT RX, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,561
Accounts receivable, net of allowance for doubtful
of $30,000 272,599
Inventories 204,313
Prepaids and other current assets 22,408
------------------
TOTAL CURRENT ASSETS 506,881
Property and equipment, at cost, net of accumulated
depreciation of $36,372 181,931
Intangible assets, net of accumulated amortization
of $13,062 9,379
Other assets 14,185
------------------
TOTAL ASSETS $ 712,376
==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 366,825
Accrued expenses 13,846
Customer deposits 48,522
Shareholder loan 123,324
Note payable 15,199
Current installments of long-term obligations 15,378
------------------
TOTAL CURRENT LIABILITIES 583,094
Long-term obligations:
Long-term obligations, excluding current installments 43,959
------------------
TOTAL LONG-TERM OBLIGATIONS 43,959
------------------
TOTAL LIABILITIES 627,053
Shareholders' equity:
Common stock, without par value, at stated value.
Authorized 3,000,000 shares; issued and outstanding
2,068,761 shares 500
Additional paid-in capital 898,323
Accumulated deficit (835,894)
Net income 22,394
------------------
TOTAL SHAREHOLDERS' EQUITY 85,323
------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 712,376
==================
</TABLE>
See notes to consolidated financial statements
Form 10-QSB
2
<PAGE> 3
DIRECT RX, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED DECEMBER 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
DECEMBER 31, 1997 DECEMBER 31, 1997
------------------ ------------------
<S> <C> <C>
Net revenues $ 651,975 $ 1,543,735
Cost of goods sold 498,884 1,127,504
------------------ ------------------
GROSS PROFIT 153,091 416,231
Operating expenses:
Employee leasing 81,532 223,826
Selling, general and administrative expenses 74,487 168,739
------------------ ------------------
TOTAL OPERATING EXPENSES 156,019 392,565
------------------ ------------------
OPERATING INCOME (2,928) 23,666
Other income (expense):
Other income 0 10,636
Interest expense (2,654) (11,908)
------------------ ------------------
TOTAL OTHER INCOME (EXPENSE) (2,654) (1,272)
------------------ ------------------
NET INCOME $ (5,582) $ 22,394
================== ==================
Per share of common stock $ 0.00 $ 0.01
=================== ==================
Shares used in computing per share information 2,068,761 2,068,761
</TABLE>
See notes to consolidated financial statements
Form 10-QSB
3
<PAGE> 4
DIRECT RX, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED DECEMBER 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL NET
-------------------- PAID-IN ACCUMULATED SHAREHOLDERS'
SHARES DOLLARS CAPITAL DEFICIT EQUITY (DEFICIT)
---------- ------- ------- ----------- --------------
<S> <C> <C> <C> <C> <C>
BALANCES AT MARCH 31, 1997 1,248,765 $500 $792,177 $ (835,894) $ (43,217)
Net income 22,394
Expired options not converted (341,468)
Shares issued for debt
conversion 1,061,464 106,146
Shares issued in exchange
for stock in subsidiary 100,000
----------------------------------------------------------
BALANCES AT DECEMBER 31, 1997 2,068,761 $500 $898,323 $ (813,500) $ 85,323
==========================================================
</TABLE>
See notes to consolidated financial statements
Form 10-QSB
4
<PAGE> 5
DIRECT RX, INC. AND SUBSIDIARY
CONDOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1997 (UNAUDITED)
<TABLE>
<S> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net income $ 22,394
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 19,340
Provision for losses on accounts receivable 11,000
Changes in operating assets and liabilities:
Accounts receivable (165,831)
Inventory (79,635)
Prepaid expenses (7,160)
Accounts payable and accrued expenses 141,565
Customer deposits 16,333
------------------
NET CASH USED IN OPERATING ACTIVITIES (41,994)
------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in deposits (1,898)
Purchases of property and equipment (93,538)
Increase in intangible assets (324)
------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (95,760)
------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 78,835
Proceeds from shareholder loan 33,408
Proceeds from issuance of common stock 106,146
Repayments of debt and capital lease obligations (109,655)
------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 108,734
------------------
NET INCREASE (DECREASE) IN CASH (29,020)
CASH AT BEGINNING OF PERIOD 36,581
------------------
CASH AT END OF PERIOD $ 7,561
==================
</TABLE>
See notes to consolidated financial statements
Form 10-QSB
5
<PAGE> 6
Direct Rx, Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
(Unaudited)
December 31, 1997
NOTE A-BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instruction to Form 10-QSB and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three and
nine month periods ended December 31, 1997 are not necessarily indicative of
the results that may be expected for the year ending March 31, 1998. For
further information, refer to the consolidated financial statements and
footnotes included in the Company's and Subsidiary's Form 10-SB for the year
ended March 31, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Income (Loss) for the three and nine months ended December 31,
1997 was $(5,582) and $22,394 respectively whereas net revenue during the same
period was $651,975 and $1,543,735. Gross Profit as a percentage of net
revenue for the three month period ended December 31, 1997 was 23% as compared
to 27% for the nine month period ended December 31, 1997. Gross margin for the
three months ending December 31, 1997 was affected by the UPS strike and
increased freight charges through alternate means.
The diabetic supply division of the Company has been gaining in
revenue, and due to low margin it has come to break even based upon net revenue
of $93,855 for the three months ended December 31, 1997.
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 no assurance that the Company's results of operations
will continue to the same extent or in the same manner as reflected above.
Form 10-QSB
6
<PAGE> 7
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital position is poor. Thus far, the
Company's principal sources of liquidity are internally generated funds and
loans from within the Company. The Company is in the process of exploring the
possibility of private placement or equity infusion. The Company is also
currently negotiating a line of credit with the bank.
Management is hopeful liquidity and capital difficulties will be
resolved but provides no assurance.
Form 10-QSB
7
<PAGE> 8
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - NOT APPLICABLE
ITEMS 2 THROUGH 4. - NOT APPLICABLE
ITEM 5. OTHER INFORMATION
The Company has filed Form 15C211 with NASD and is in the process of
listing its outstanding capital stock on Pink Sheets.
The Company, a corporation duly organized and presently incorporated
pursuant to and under the laws of the State of Ohio, is also in the process of
merging into Direct Rx Healthcare, Inc., a newly formed corporation duly
organized and incorporated pursuant to and under the laws of the State of
Florida and a wholly owned subsidiary of the Company ("Florida Company"), for
the purpose of changing the domicile of (reincorporating) the Company to the
State of Florida. The Florida Company will be the surviving corporation. In
connection with this merger, the Company will do a stock conversion whereby the
common capital stock of the Company will be converted into the common capital
stock of the Florida Company on a one-to-one basis. Thereafter, in all
probability, Nu-Wave Health Products, Inc., a wholly owned subsidiary of the
Company that generates a substantial portion of the revenues of the Company,
will be merged into the Florida Company. As a result of the above, all of the
Company's present and future business will be operated through one corporation,
the Florida Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
27 - Financial Data Schedule (for SEC use only).
(b) REPORTS ON FORM 8-K. The Company did not file any reports on Form 8-K
during the quarter ended December 31, 1997.
Form 10-QSB
8
<PAGE> 9
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DIRECT RX, INC.
Date: February 9, 1998 By: /s/ Jugal K. Taneja
----------------------------
Jugal K. Taneja
Chairman of the Board,
Chief Executive Officer
Date: February 9, 1998 By: /s/ Cani I. Shuman
-----------------------------
Cani I. Shuman
Chief Financial Officer
Form 10-QSB
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 7,561
<SECURITIES> 0
<RECEIVABLES> 302,599
<ALLOWANCES> 30,000
<INVENTORY> 204,313
<CURRENT-ASSETS> 506,881
<PP&E> 218,303
<DEPRECIATION> 36,372
<TOTAL-ASSETS> 712,376
<CURRENT-LIABILITIES> 583,094
<BONDS> 0
0
0
<COMMON> 500
<OTHER-SE> 84,823
<TOTAL-LIABILITY-AND-EQUITY> 712,376
<SALES> 1,543,735
<TOTAL-REVENUES> 1,543,735
<CGS> 1,127,504
<TOTAL-COSTS> 1,127,504
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 30,000
<INTEREST-EXPENSE> 11,908
<INCOME-PRETAX> 22,394
<INCOME-TAX> 0
<INCOME-CONTINUING> 22,394
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,394
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
