SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter Ended December 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-23031
DYNAMIC HEALTH PRODUCTS, INC.
---------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
STATE OF FLORIDA 34-1711778
- --------------------------------- ------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
6950 BRYAN DAIRY ROAD, LARGO, FLORIDA 33777
--------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (727) 544-8866
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 $.01 par value
as of February 12, 1999 was 3,524,608 (exclusive of Treasury Shares).
<PAGE>
DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 353,465 $ 7,561
Accounts receivable, net 2,279,633 631,839
Inventory, net of allowance 2,828,229 620,520
Prepaids and other current assets 223,408 22,408
----------------------------
Total current assets 5,684,735 1,282,328
----------------------------
Property, plant and equipment, at cost, net 2,220,905 186,748
Deposits 50,390 16,733
Investment in LLC 5,000 --
Intangible assets, net 2,789,461 9,054
----------------------------
TOTAL ASSETS $ 10,750,491 $ 1,494,863
============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,697,658 $ 807,581
Other payables 125,687 6,800
Interest payable 13,128 1,634
Notes payable 48,220 15,199
Credit line payable 1,808,451 200,000
Related party notes payable 489,572 198,324
Unearned revenue 86,025 48,522
Current portion of long-term liabilities 459,205 15,378
----------------------------
Total current liabilities 5,727,946 1,293,438
----------------------------
Long-term liabilities:
Interest payable 42,795 --
Capital lease obligations 457,916 59,337
Notes payable 283,015 --
Mortgages payable 1,144,185 --
Minority interest in subsidiary 12,261 15,463
Current portion of long-term liabilities (459,205) (15,378)
----------------------------
Total long-term liabilities 1,480,967 59,422
----------------------------
TOTAL LIABILITIES 7,208,913 1,352,860
----------------------------
Shareholders' equity:
Common stock, at par value 31,067 23,033
Series A Convertible Preferred stock, at face value 1,550,000 --
Series B 6% Cumulative Convertible Preferred stock, at face value 75,000 --
Additional paid-in capital 2,546,868 910,020
Accumulated deficit (859,783) (853,698)
Net income 198,426 62,648
----------------------------
NET SHAREHOLDERS' EQUITY 3,541,578 142,003
----------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 10,750,491 $ 1,494,863
============================
</TABLE>
See notes to consolidated financial statements
- 2 -
<PAGE>
DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS
FOR THE THREE MONTHS AND NINE MONTHS ENDED
DECEMBER 31, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------- ----------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Distributor sales $ 10,121,021 $ 2,397,771 $ 22,858,888 $ 6,023,447
Manufacturing 1,083,935 491,089 3,142,759 1,270,792
Other revenues 226,419 -- 285,050 --
------------------------------------------------------------
TOTAL REVENUES 11,431,375 2,888,860 26,286,697 7,294,239
------------------------------------------------------------
Cost of goods sold:
Distributor sales 9,734,340 2,226,743 22,014,417 5,718,113
Manufacturing 797,009 415,656 2,159,321 959,986
Other revenues 20,631 -- 31,508 --
------------------------------------------------------------
TOTAL OF COST OF GOODS SOLD 10,551,980 2,642,399 24,205,246 6,678,099
------------------------------------------------------------
GROSS PROFIT 879,395 246,461 2,081,451 616,140
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 891,277 235,519 1,825,362 562,600
------------------------------------------------------------
OPERATING INCOME BEFORE OTHER INCOME AND EXPENSE (11,882) 10,942 256,089 53,540
Other income (expense):
Interest income 1,495 -- 7,939 --
Gain on involuntary conversion of land -- -- 81,192 --
Other income and expenses, net 7,467 6,000 27,608 28,636
Interest expense (111,629) (6,376) (240,541) (19,528)
------------------------------------------------------------
TOTAL OTHER INCOME (EXPENSE) (102,667) (376) (123,802) 9,108
------------------------------------------------------------
NET INCOME (LOSS) BEFORE MINORITY INTEREST (114,549) 10,566 132,287 62,648
Loss attributable to minority interest 62,863 -- 66,139 --
------------------------------------------------------------
NET INCOME (LOSS) (51,686) 10,566 198,426 62,648
Accrued preferred share dividends 1,142 -- 1,542 --
------------------------------------------------------------
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ (52,828) $ 10,566 $ 196,884 $ 62,648
============================================================
Basic income per share $ (0.02) $ 0.01 $ 0.08 $ 0.10
============================================================
Basic weighted number of common shares outstanding 3,075,482 734,096 2,352,238 612,524
============================================================
Diluted income per share $ (0.02) $ 0.01 $ 0.08 $ 0.10
============================================================
Diluted weighted number of common shares outstanding 3,411,882 734,096 2,588,938 612,524
============================================================
</TABLE>
See notes to consolidated financial statements
- 3 -
<PAGE>
DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income $ 198,426 $ 62,648
Minority interest in subsidiary (66,139) --
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 175,844 20,143
Provision for losses on accounts receivable (18,250) 11,000
Changes in operating assets and liabilities:
Accounts receivable (1,143,888) (478,292)
Inventory (1,419,501) (473,492)
Prepaid expenses (74,455) (7,160)
Accounts payable and accrued expenses 207,282 448,747
Unearned revenue (98,752) 16,333
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (2,239,433) (400,073)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Deposits 7,831 (4,446)
Purchases of property and equipment (214,858) (99,158)
Involuntary conversion of land 17,908 --
Decrease (increase) in intangible assets (25,767) (324)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (214,886) (103,928)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 1,959,527 278,835
Proceeds from shareholder loans 270,153 108,408
Distributions to stockholders (108,503) --
Proceeds from issuance of common stock 550,000 106,146
Proceeds from issuance of preferred stock 75,000 --
Principal payments of debt and capital lease obligations (392,222) (201,655)
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 2,353,955 291,734
----------- -----------
NET INCREASE (DECREASE) IN CASH (100,364) (212,267)
CASH AT BEGINNING OF PERIOD 453,829 219,828
----------- -----------
CASH AT END OF PERIOD $ 353,465 $ 7,561
=========== ===========
</TABLE>
See notes to consolidated financial statements
-4-
<PAGE>
DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
-------------- --------------
<S> <C> <C>
Supplemental cash flow information:
Cash paid during the period for interest $ 221,026 $ 33,076
Supplemental schedule of non-cash financing activities:
Capital lease obligations incurred for purchase of
property and equipment $ 109,487 $ 54,628
Acquisition of minority interest through
issuance of common stock $ -- $ 10,000
Conversion of related party notes payable and
accrued interest to common stock $ 81,331 $ 85,123
Acquisition of Energy Factors, Inc. through
issuance of 310,000 shares of preferred stock $ 1,550,000 $ --
Acquisition of Becan Distributors, Inc. through
issuance of 1,500,000 shares of common stock $ 2,250,000 $ --
Acquisition of J. Labs, Inc. through
issuance of 100,000 shares of common stock $ 150,000 $ --
Acquisition of assets through
issuance of 32,243 shares of common stock $ 80,607 $ --
</TABLE>
See notes to consolidated financial statements
-5-
<PAGE>
Dynamic Health Products, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
December 31, 1998
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 month and nine
month periods ended December 31, 1998 and 1997 are not necessarily indicative of
the results that may be expected for the year ending March 31, 1999. For further
information, refer to the consolidated financial statements and footnotes
included in the Company's Form 10-KSB/A for the year ended March 31, 1998.
NOTE B-ACQUISITIONS AND DISPOSITIONS
On June 15, 1998, the Company acquired legal title to the net assets of
Energy Factors, Inc. In exchange for the capital stock in Energy Factors, Inc.,
310,000 shares of Series A Convertible Preferred Stock of the Company were
issued to the shareholders of Energy Factors, Inc. The transaction was accounted
for as a purchase.
The aggregate cost of this acquisition was as follows:
Assumption of liabilities $2,874,000
Issuance of preferred stock 1,550,000
----------
$4,424,000
==========
The aggregate purchase price was allocated as follows:
Accounts receivable $ 26,000
Inventory 575,000
Property, plant and equipment 1,925,000
Other assets 75,000
Goodwill 1,823,000
----------
$4,424,000
==========
- 6 -
<PAGE>
On June 26, 1998, the Company acquired all of the issued and
outstanding capital stock of Becan Distributors, Inc. in exchange for 1,500,000
new shares of common stock of the Company. The merger was accounted for as a
combination of entities under common control and treated as if a "pooling of
interests". The merger resulted in goodwill of approximately $700,000 due to the
acquisition of the minority interest. The financial statements have been
retroactively adjusted to reflect the results of Becan Distributors, Inc. for
all periods presented.
The Company also made other immaterial acquisitions during the three
months and nine months ended December 31, 1998. The results of operations of the
acquired companies are included in the accompanying consolidated financial
statements since the respective date of acquisition.
NOTE C-PRINCIPLES OF CONSOLIDATION
The accompanying condensed consolidated financial statements include
the accounts of Dynamic Health Products, Inc. ("DHP") and its subsidiaries,
Innovative Health Products, Inc. ("IHP"), Becan Distributors, Inc. ("Becan") and
its subsidiary Discount Rx, Inc. ("Discount"), Incredible Products of Florida,
Inc. ("IP"), J.Labs, Inc. ("JL"), Herbal Health Products, Inc. ("HHP"),
(collectively the "Company"). All intercompany balances and transactions have
been eliminated.
NOTE D-STOCKHOLDERS' EQUITY
On August 11, 1998, upon the filing by the Company of Articles of
Amendment to its Articles of Incorporation, a one-for-three reverse stock split
of the Common Stock of the Company was effected. The accompanying unaudited
condensed consolidated financial statements have been retroactively restated, as
of December 31, 1997, to reflect the one-for-three reverse stock split. In
conjunction with the reverse stock split, the effect of the elimination of
fractional shares (which are being cashed out at $1.50 per new share) is not
reflected in the accompanying condensed consolidated financial statements.
The Company has adopted Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards No. 128, "Earnings Per Share". Basic
earnings per common share is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding during
the period. Diluted earnings per share gives effect to convertible preferred
shares which are considered to be dilutive common stock equivalents. Earnings
per share was retroactively restated, as of December 31, 1997, to reflect FASB
No. 128.
Series B 6% Cumulative Convertible Preferred Stock shareholders are
entitled to cumulative annual dividends, from the date of issuance, payable
annually in arrears. The Company may make dividend payments on the Preferred
Stock in cash or by delivery of fully paid nonassessable shares of common stock
of the Company, or through a combination thereof.
- 7 -
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Three Months and Nine Months ended December 31, 1998 and December 31, 1997
Sales are recognized at the time the product is shipped. Net sales are
net of discounts, allowances, and returns and credits. Distributor sales
increased 322% and 279%, or $7,723,250 and $16,835,441, to $10,121,021 and
$22,858,888 for the three months and nine months ended December 31, 1998, as
compared to $2,397,771 and $6,023,447 in the three months and nine months ended
December 31, 1997. The increase was due to increased sales with existing
customers and expansion of the customer base resulting from increased marketing
efforts. Manufacturing sales increased 121% and 147%, or $592,846 and
$1,871,967, to $1,083,935 and $3,142,759, as compared to $491,089 and $1,270,792
in the corresponding period. The increase was primarily attributable to
increased volume of the Company's private label sales resulting from continued
expansion of marketing efforts and the introduction of new products. Other
revenues of $226,419 and $285,050 for the three months and nine months ended
December 31, 1998 were attributable to direct marketing efforts of Incredible
Products of Florida, Inc., a 51% owned subsidiary of the Company, incorporated
on August 20, 1998.
Gross profit from distributor sales increased 126% and 177%, or
$215,653 and $539,137, to $386,681 and $844,471 for the three months and nine
months ended December 31, 1998, as compared to $171,028 and $305,334 in the
three months and nine months ended December 31, 1997. Gross profit from
manufacturing increased 280% and 216%, or $211,493 and $672,632, to $286,926 and
$983,438, as compared to $75,433 and $310,806 in the corresponding period. Gross
profit from other revenues was $205,788 and $253,542 for the three months and
nine months ended December 31, 1998. Gross margin from distributor sales
decreased to 3.82% for the three months ended December 31, 1998 from 7.13% for
the three months ended December 31, 1997. The decline was primarily attributable
to an increase in the mix of sales, which yields a lower gross margin. For the
nine months ended December 31, 1998, the gross margin from distributor sales
decreased to 3.69% from 5.07% in the corresponding period. Gross margin from
manufacturing increased to 26.47% and 31.29% for the three months and nine
months ended December 31, 1998, from 15.36% and 24.46% in the corresponding
period. Gross margin from other revenues was 90.89% and 88.95% for the three
months and nine months ended December 31, 1998.
Selling, general and administrative expenses consist primarily of
advertising and promotional expenses, personnel costs related to general
management functions, finance, accounting and information systems, payroll
expenses and sales commissions, professional fees related to legal, audit and
tax matters, and depreciation and amortization expense. Selling, general and
administrative expenses increased 278% and 224%, or $655,758 and $1,262,762, to
$891,277 and $1,825,362 for the three months and nine months ended December 31,
1998, as compared to $235,519 and $562,600 in the corresponding period. The
increase was primarily due to additional advertising, promotional and payroll
expenses to support increased net sales and the Company's growth, as well as
additional amortization of goodwill and depreciation of fixed assets associated
with the June 15, 1998 acquisition of IHP, and the June 26, 1998 acquisition of
Becan. As a percentage of net sales, selling, general and administrative
expenses decreased to 7.80% for the three months ended December 31, 1998 from
8.15% for the three months ended December 31, 1997, and decreased to 6.94% for
the nine months ended December 31, 1998 from 7.71% in the corresponding period.
- 8 -
<PAGE>
Interest expense, net of interest income, increased $103,758 and
$213,074, to $110,134 and $232,602 for the three months and nine months ended
December 31, 1998, from $6,376 and $19,528 for the three months and nine months
ended December 31, 1997. The increase was a result of increased borrowings to
finance the purchase of additional machinery and equipment and to make necessary
plant modifications, and for financing of additional working capital needs with
the June 15, 1998 acquisition of IHP.
The Company had no income tax expenses for the three months and nine
months ended December 31, 1998 and 1997.
Management believes that there was no material effect on operations or
the financial condition of the Company as a result of inflation for the three
months and nine months ended December 31, 1998 and 1997. Management also
believes that its business is not seasonal; however, significant promotional
activities can have a direct impact on sales volume in any given quarter.
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.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has financed its operations through funds from
operations and loans from within the Company. The Company had working capital of
($43,211) at December 31, 1998, as compared to ($11,110) in working capital at
December 31, 1997. The decrease was primarily due to an increase in accounts
payable and accrued expenses, an increase in a credit line, and an increase in
current portion of long-term liabilities as a result of the IHP acquisition.
Net cash used in operating activities was ($2,239,433) for the nine
months ended December 31, 1998 as compared to net cash used in operating
activities of ($400,073) for the nine months ended December 31, 1997. The usage
of cash is primarily attributable to an increase in accounts receivable
($1,143,888), as a result of increased sales by the Company during such period,
and an increase in inventory ($1,419,501), an increase in prepaid expenses
($74,455), an increase in accounts payable and accrued expenses $207,282, and an
increase in unearned revenue ($98,752), primarily attributable to the
acquisition of IHP.
Net cash used in investing activities was ($214,886), representing the
purchase of property and equipment, plant modifications, and the acquisition of
other assets, offset by a decrease representing an involuntary conversion of
land $17,908.
Net cash provided by financing activities was $2,353,955 representing
proceeds from issuance of common stock, proceeds from issuance of preferred
stock, proceeds of long-term debt, capital lease obligations, and borrowings on
lines of credit, proceeds from shareholder loans, offset by repayments of debt
and capital lease obligations ($392,222).
Management is hopeful liquidity and capital difficulties will be
resolved but provides no assurance. The Company expects to meet its cash
requirements from operations, current cash reserves, and existing financial
arrangements.
- 9 -
<PAGE>
In March and April 1998, the Company received $250,000 from investors
and issued non-negotiable promissory notes with stock warrants attached. The
notes bear interest at 10% per annum, compounded annually. The due date shall be
the earlier of (i) April 30, 1999, or (ii) the closing of a minimum of an
additional $1,000,000 of equity financing, by private placement or other
non-public offering. The note may be prepaid at any time by the Company to Payee
without any penalty or premium. The attached stock warrant entitles the Payee to
purchase common stock of the Company (based on one share for each one dollar
amount of the principal amount reflected in the note) at a purchase price of
$1.50 per new share. The stock warrant shall expire the earlier of, one year
from the closing of an additional $1,000,000 of equity financing, or December
31, 1999.
On March 16, 1998, Becan Distributors, Inc. established a bank line of
credit. The principal amount of the note is $700,000. The note bears interest at
1% plus the Prime Rate of the Bank per annum on the unpaid outstanding principal
of each advance payable monthly. The due date is March 1, 1999. The note or any
portion thereof may be prepaid without penalty. The line of credit is secured by
a blanket lien on all business assets of Becan and is also secured by personal
guarantees from the Company's Chairman of the Board, and the Company's Chief
Executive Officer.
In May 1998, 100,000 shares of common stock of the Company were sold to
a non-affiliated third party investor at $.50 per old share, for gross proceeds
of $50,000. Proceeds were used for capital expenditures and plant modifications.
On May 13, 1998, the Company loaned $100,000 to IHP, formerly Energy
Factors, Inc. for the purpose of assisting Energy Factors with its working
capital needs. The company has since acquired Energy Factors.
On May 29, 1998, notes payable to related parties of $81,331.80,
including principal and unpaid accrued interest were converted to 813,318 old
shares of common stock of the Company.
In June 1998, the Company established a bank line of credit. The
principal amount of the note is $200,000. The note bears interest at 4.08% per
annum on the unpaid outstanding principal of each advance, payable monthly. The
due date is June 3, 1999. The note or any portion thereof may be prepaid without
penalty. This line of credit is secured by $200,000 cash maintained in a Money
Market account with the bank.
Effective June 15, 1998, the Company acquired legal title to the net
assets of IHP, formerly Energy Factors, Inc., in exchange for 310,000 shares of
Series A Convertible Preferred Stock in the Company.
Effective June 26, 1998, the Company acquired all of the issued and
outstanding capital stock of Becan Distributors, Inc. in exchange for 1,500,000
new shares of common stock in the Company.
In August, 1998, 20,000 shares of Series B 6% Cumulative Preferred
Stock of the Company were sold to a non-affiliated third party investor at $2.50
per share, for gross proceeds of $50,000. Proceeds were used for the initial
capitalization of Discount and for repayment of debt associated with IHP.
- 10 -
<PAGE>
In August, 1998, 200,000 shares of common stock of the Company were
sold to a non-affiliated third party investor at $2.50 per new share, for gross
proceeds of $500,000. Proceeds were used for the initial capitalization of IP,
and for repayment of debt associated with IHP.
Effective August 20, 1998, the Company caused the formation of
Incredible Products of Florida, Inc., a Florida corporation. Pursuant to an
Agreement to Fund Subsidiary, dated September 1, 1998, the Company agreed to
contribute $160,000 in capital to IP in exchange for 51 shares of common stock
of IP, representing 51% interest in IP.
Effective September 30, 1998, the Company acquired all of the issued
and outstanding capital stock of J.Labs, Inc. in exchange for 100,000 shares of
common stock in the Company.
In November, 1998, 10,000 shares of Series B 6% Cumulative Preferred
Stock of the Company were sold to a non-affiliated third party investor at $2.50
per share, for gross proceeds of $25,000. Proceeds were used for repayment of
debt associated with IHP.
On November 30, 1998, Becan and its subsidiary, Discount (collectively
"BecanD") established a $2,000,000 line of credit to provide additional working
capital for BecanD to support its continued growth. Proceeds from the line of
credit were also used for repayment of the $700,000 line of credit established
on March 16, 1998. The note bears interest at 1.25% plus the Prime Rate of The
Chase Manhattan Bank in New York, New York, per annum on the unpaid outstanding
principal of each advance payable monthly. The note is to be secured by a
blanket lien on all business assets of BecanD and is also secured by personal
guarantee from the Company's Chairman of the Board.
Effective December 29, 1998, the Company caused the formation of Herbal
Health Products, Inc., a Florida corporation. Pursuant to an Asset Purchase
Agreement, dated December 29, 1998, the Company agreed to purchase certain of
the assets of the Seller and Nutrapro. Inc., a Colorado corporation, and to
assume certain of the liabilities of the Seller in return for $18,309.45, and
32,243 shares of common stock of DHP.
In January and February, 1999, 418,000 shares of common stock of the
Company were sold to non-affiliated third party investors at $2.50 per new
share, for gross proceeds of $1,045,000. Proceeds are to be used for
acquisitions and to provide additional working capital for the Company to
support its continued growth.
On February 2, 1999, DHP and its subsidiary, IHP established a
$2,000,000 line of credit to provide additional working capital in support of
Accounts Receivable and Inventory, for the Company to support its continued
growth. A portion of the proceeds from the line of credit were funded in the
form of a 60 month Term Loan, for repayment of certain capital lease obligations
of the DHP and IHP. The note bears interest at 2.25% plus the Prime Rate of The
Chase Manhattan Bank in New York, New York, per annum on the unpaid outstanding
principal of each advance payable monthly. The note is to be secured by a
blanket lien on all business assets of DHP and IHP, with the exception of
certain permitted liens. The note is also secured by personal guarantee from the
Company's Chairman of the Board.
The Company is also in the process of negotiating a loan to refinance
the land and building of the Company, but provides no assurance as to the
success of establishing the refinance.
- 11 -
<PAGE>
Part II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
From time to time the Company is subject to litigation incidental to
its business. Such claims, if successful, could exceed applicable insurance
coverage. The Company is not currently a party to any material legal
proceedings.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
In November, 1998, 10,000 shares of Series B 6% Cumulative Preferred
Stock of the Company were sold to a non-affiliated third party investor at $2.50
per share, for gross proceeds of $25,000. Proceeds were used for repayment of
debt associated with IHP.
Effective December 29, 1998, the Company caused the formation of Herbal
Health Products, Inc., a Florida corporation. Pursuant to an Asset Purchase
Agreement, dated December 29, 1998, the Company agreed to purchase certain of
the assets of the Seller and to assume certain of the liabilities of the Seller
and Nutrapro. Inc., a Colorado corporation, in return for $18,309.45, and 32,243
shares of common stock of DHP.
In January and February, 1999, 418,000 shares of common stock of the
Company were sold to non-affiliated third party investors at $2.50 per new
share, for gross proceeds of $1,045,000. Proceeds are to be used for
acquisitions and to provide additional working capital for the Company to
support its continued growth.
Item 3. - Not applicable.
Item 4. - Not applicable.
- 12 -
<PAGE>
Item 5. OTHER INFORMATION.
The Company has determined not to complete its Form 15C211 filing with
NASDAQ at this time. However, if the Company completes a public offering of its
common stock, it intends to list its common stock for trading over the Nasdaq
Stock Market.
It was incorrectly stated in Form 10-QSB for the quarter ended
September 30, 1998 that in August, 1998, 220,000 shares of Series B 6%
Cumulative Preferred Stock of the Company was sold to non-affiliated third party
investors at $2.50 per share, for gross proceeds of $550,000. The correct
statements are as follows:
In August, 1998, 20,000 shares of Series B 6% Cumulative Preferred
Stock of the Company were sold to a non-affiliated third party investor
at $2.50 per share, for gross proceeds of $50,000. Proceeds were used
for the initial capitalization of Discount and for repayment of debt
associated with IHP.
In August, 1998, 200,000 shares of common stock of the Company were
sold to a non-affiliated third party investor at $2.50 per new share,
for gross proceeds of $500,000. Proceeds were used for the initial
capitalization of IP, and for repayment of debt associated with IHP.
The Company will file an amendment to its Form 10-QSB for that period.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
The following exhibits are filed with this report:
2.1 Agreement and Plan of Reorganization dated June 12, 1998, effective
June 15, 1998, by and among Nu-Wave Health Products, Inc., Nu-Wave
Acquisition, Inc., Energy Factors, Inc., U.S. Diversified Technologies,
Inc., Paul Santostasi, Chris Starkey, and Marvin Deutsch. (2)
2.2 Agreement and Plan of Reorganization dated June 26, 1998, effective
June 26, 1998, by and between Nu-Wave Health Products, Inc., buyer, and
Manju Taneja, Mihir K. Taneja, Mandeep K. Taneja, William LaGamba
custodian for Anthony LaGamba, William LaGamba custodian for Nicholl
LaGamba, William LaGamba custodian for Courtney LaGamba, Michele
LaGamba, and Phillip J. Laird and William LaGamba, each individually a
seller, each of which is a stockholder of Becan Distributors, Inc. (2)
2.3 Agreement to Fund Subsidiary dated September 1, 1998, by and between
Dynamic Health Products, Inc., Incredible Products of Florida, Inc.,
and Gary A. Shawkey. (3)
2.4 Agreement and Plan of Reorganization dated September 1, 1998, by and
between Incredible Products of Florida, Inc., buyer and Gary A.Shawkey,
seller. (3)
2.5 Agreement to Exchange Shares dated September 1, 1998, by and between
the Company and Gary A. Shawkey. (3)
- 13 -
<PAGE>
2.6 Stock Purchase Agreement dated September 30, 1998, by and among Dynamic
Health Products, Inc. and J. Labs, Inc. (3)
2.7 Asset Purchase Agreement dated December 29, 1998, by and between Herbal
Health Products, Inc. and Gerald Schmoling.(4)
3.1 Articles of Incorporation of Nu-Wave Acquisition, Inc., dated June 11,
1998 and filed June 12, 1998. (2)
3.2 Articles of Amendment to Articles of Incorporation of Dynamic Health
Products, Inc., dated July 22, 1998 and filed July 23, 1998. (2)
3.3 Articles of Amendment to Articles of Incorporation of Nu-Wave Health
Products, Inc., dated August 10, 1998. (2)
3.4 Articles of Incorporation of Incredible Products of Florida, Inc. dated
August 20, 1998, filed August 20, 1998. (3)
3.5 Articles of Incorporation of Herbal Health Products, Inc. dated
December 16, 1998, filed December 29, 1998.(4)
10.1 Promissory Note in favor of the Company from Energy Factors, Inc. dated
May 13, 1998.(1)
10.2 Revolving Line of Credit Agreement between Becan Distributors, Inc. and
Mellon Bank dated March 16, 1998. (2)
10.3 Revolving Line of Credit Agreement between the Company and Republic
Bank dated June 3, 1998. (1)
10.4 Loan And Security Agreement between Becan Distributors, Inc. and
Discount Rx, Inc. and The CIT Group/Credit Finance, Inc. dated November
30, 1998.(4)
27.1 Financial Data Schedule (for SEC use only).
(1) Incorporated by reference to the Company's Annual Report on Form
10-KSB for the fiscal year ended March 31, 1998, file number 0-23031,
filed in Washington, D.C.
(2) Incorporated by reference to the Company's Quarterly Report on Form
10-QSB for the quarter ended June 30, 1998, file number 0-23031, filed
in Washington, D.C.
(3) Incorporated by reference to the Company's Quarterly Report on Form
10-QSB for the quarter ended September 30, 1998, file number 0-23031,
filed in Washington, D.C.
(4) Incorporated by reference to the Company's Quarterly Report on Form
10-QSB for the quarter ended December 30, 1998, file number 0-23031,
filed in Washington, D.C.
- 14 -
<PAGE>
(b) Reports on Form 8-K.
During the three months ended December 31, 1998, the Company filed no
reports on Form 8-K.
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.
Dynamic Health Products, Inc.
Date: March 1, 1999 By: /S/WILLIAM L. LAGAMBA
----------------------
William L. LaGamba
Chief Executive Officer
Date: March 1, 1999 By: /S/CANI I. SHUMAN
------------------
Cani I. Shuman
Chief Financial Officer
- 15 -
<PAGE>
EXHIBIT INDEX
Exhibit
27.1 Financial Data Schedule (for SEC use only).
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the financial
statements and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1998
<CASH> 353,465
<SECURITIES> 0
<RECEIVABLES> 2,318,883
<ALLOWANCES> (39,250)
<INVENTORY> 2,828,229
<CURRENT-ASSETS> 5,684,735
<PP&E> 2,372,702
<DEPRECIATION> 151,797
<TOTAL-ASSETS> 10,750,491
<CURRENT-LIABILITIES> 5,727,946
<BONDS> 0
1,625,000
0
<COMMON> 31,067
<OTHER-SE> 1,885,510
<TOTAL-LIABILITY-AND-EQUITY> 10,750,491
<SALES> 11,431,375
<TOTAL-REVENUES> 11,431,375
<CGS> 10,551,980
<TOTAL-COSTS> 10,551,980
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 111,629
<INCOME-PRETAX> (52,828)
<INCOME-TAX> 0
<INCOME-CONTINUING> (52,828)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (52,828)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
