UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-23031
DYNAMIC HEALTH PRODUCTS, INC.
(Formerly known as Nu-Wave Health Products, Inc.,
successor to and formerly Direct Rx, Inc.)
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(Name of small business issuer in its charter)
<TABLE>
<S> <C>
STATE OF FLORIDA 34-1711778
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(State of or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
6950 Bryan Dairy Road, Largo Florida 33777
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(Address of Principal Executive Officers) (Zip Code)
</TABLE>
Issuer's telephone number: (727) 544-8866
Securities registered pursuant to Section 12(b) of the Exchange Act: None.
-----
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock (without par value)
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(Title of Class)
Indicate by check mark whether the issuer (1) filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the past 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. Yes [X] No [ ]
Indicate by check mark if there is no disclosure of delinquent filers
in response to Item 405 of Regulation S-B is not contained in this form, and no
disclosure will be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-KSB or any amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year were $2,368,285.
The aggregate market value of the voting stock held by non-affiliates
of the Registrant, cannot be determined. There is currently no established
trading market for the common stock of the Company, and the shares are not
presently listed, therefore aggregate market value cannot be determined. The
Company has filed Form 15C211 with NASDAQ to list the common stock of the
company on the OTC Bulletin Board in order to create marketability for the
stock.
Number of shares outstanding of the issuer's common stock, as of June
1, 1998 was 3,823,547.
DOCUMENTS INCORPORATED BY REFERENCE: None.
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
Direct Rx, Inc. ("Direct Rx"), an Ohio corporation, was incorporated on
June 30, 1992. Direct Rx, through it's Diabetes Supplies division, is engaged in
the mail order business of selling a broad range of diabetic equipment and
supplies and, through its wholly-owned subsidiary, in the business of creating,
manufacturing and packaging of non-prescription pharmaceutical and health
products on an international basis.
Nu-Wave Health Products, Inc. ("Nu-Wave") was a wholly-owned subsidiary
corporation of Direct Rx, Inc. 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. In September 1995, Direct Rx, Inc. acquired 80% of the issued and
outstanding common stock of Nu-Wave. On July 15, 1997, Direct Rx, Inc. acquired
the remaining 20% minority interest, resulting in Direct Rx, Inc. then owning
100% of Nu-Wave. Nu-Wave is engaged in the business of creating, manufacturing
and packaging of non-prescription medications and health products on an
international basis.
It was determined by Management that it would be in the best interest
of Direct Rx and Nu-Wave to change the domicile of the corporation or
reincorporate to the State of Florida, where its executive offices are now
located and a substantial portion of its business is now located. In addition,
all of the Directors and Officers of the Company now reside in Florida. It was
further determined to consolidate the operations of Direct Rx and Nu-Wave and to
change the name of the corporation to Nu-Wave Health Products, Inc. ("Company"),
which has significant name recognition with the Company's market. The above has
been accomplished through two merger transactions approved by the various Boards
Of Directors and Management as controlling shareholders of the Company.
First, a new wholly-owned subsidiary of the Direct Rx, Inc. was formed
under the name of Direct Rx Healthcare, Inc., incorporated on January 27, 1998,
as a Florida corporation. Direct Rx, Inc. was then merged into Direct Rx
Healthcare, Inc. on March 19, 1998, with Direct Rx Healthcare, Inc. as the
surviving corporation.
Subsequently, Nu-Wave, the already existing subsidiary of Direct Rx,
Inc., was merged into Direct Rx Healthcare, Inc. with Direct Rx Healthcare, Inc.
as the surviving corporation. Its Articles of Incorporation were amended on
April 1, 1998 to change the name of the corporation to Nu-Wave Health Products,
Inc. Subsequently, its Articles of Incorporation were amended on August 11, 1998
to change the name of the corporation to Dynamic Health Products, Inc. It is not
believed that the merger will have any material effect on the operations or the
management of the Company. All officers and management of the Company remained
the same.
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.
A. COMPANY
The Company is engaged in the business of creating, manufacturing and
packaging of a wide variety of non-prescription medications and health products
for companies that sell through numerous channels of distribution, 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 the Company has customers on an international basis, the highest
concentration of its customer base is currently located in the in the United
States.
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The Company manufactures and packages approximately 99% of its
non-prescription medications and health products. The Company's manufacturing
processes are specifically designed to insure the highest quality control.
Substantially all of the Company's products are manufactured from readily
available raw material. Significant difficulties have not been encountered in
purchasing supplies of principal raw material or finished goods.
The Company markets its manufactured products to companies, which sell
through numerous different channels of distribution, including health food,
drug, convenience and mass market stores, through direct salespersons, brokers,
manufacturer representatives, distributors, and through marketing companies.
The Diabetes Supplies division has been engaged in 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 and glucose
tablets for diabetics. The Diabetes Supplies division of the Company markets its
products of diabetic supplies and equipment to customers through print media and
manufacturer referral.
The mail-order Diabetes Supplies division is a small portion of the
business of the Company. The Company is currently considering various options of
divesting the Diabetes Supplies division in order that it may concentrate its
efforts on its manufacturing operations.
The principal office of the Company and its manufacturing facility is
currently located at 6950 Bryan Dairy Road, Largo, Florida. Additional
manufacturing operations are currently located at 5905-A Hampton Oaks Parkway,
Tampa, Florida. The Diabetes Supplies division of the Company is operated out of
its offices located at 275 Curry Hollow Road, Pittsburgh, Pennsylvania.
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.
B. COMPETITION
The industry in which the Company is engaged is characterized by
intense competition. The Company competes against established pharmaceutical and
consumer product companies that currently market products which have identical
active ingredients or are equivalent or functionally similar to or in
competition with those which the Company manufactures. In addition, numerous
companies are developing or may, in the future, engage in the development of
products competitive with those manufactured by the Company. The Company
believes it competes effectively against its competitors on the basis its
ability to develop new products, the quality of products, competitive pricing,
and service.
The industry in which the Diabetes Supplies division of the Company is
engaged is characterized by intense competition. The Company competes against
established pharmaceutical and consumer product companies that currently market
products which have identical active ingredients or are equivalent or
functionally similar to or in competition with those which the Diabetes Supplies
division markets. The Company believes it competes effectively against its
competitors on the basis of price and service.
C. QUALITY CONTROL
The manufacture of the Company's products is in accordance with the
Good Manufacturing Practices prescribed by the FDA, all other applicable
regulatory standards, and the Company's own rigorous quality control procedures.
The Company places special emphasis on quality control. The Company has formal
written quality control procedures that outline specific procedures to be
followed from the acceptance of raw materials, production processes, inspections
during the manufacturing, labeling, and packaging process, through the testing
of finished products. See "Business - Government Regulation" below.
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<PAGE>
The Company maintains a modern well-equipped manufacturing facility,
that has the capability of adhering to any current and anticipated regulatory
requirements. Raw materials when received, are initially held in quarantine
during which time the Company's quality assurance department confirms the
product against the manufacturer's certificate of analysis. Once cleared, a lot
number is assigned, required samples are retained, and the material is processed
by formulating, blending, and encapsulating when required.
D. GOVERNMENT REGULATION
The Company is subject to regulation by one or more federal agencies in
processing, formulation, packaging, labeling and advertising of the Company's
products including the United States Food and Drug Administration ("FDA"), the
Federal Trade Commission, the Consumer Product Safety Commission, the United
States Postal Service, the United States Department of Agriculture and the
Environmental Protection Agency. Activities of the Company are also regulated by
various agencies of the states and localities in which the Company's products
are sold.
The Company manufactures vitamins, minerals, herbs, and other similar
nutritional substances ("dietary supplements") and over-the-counter drug
products. The FDA is primarily responsible for regulation of the manufacture,
labeling, and sale of vitamins and mineral supplements. The Dietary Supplement
Health and Education Act of 1994 ("DSHEA") was signed into law in October 1994.
This law, which amends the Federal Food, Drug and Cosmetic Act, defines dietary
supplements as a separate and distinct entity, and not as food additives.
Vitamins, minerals, herbs and other nutritional substances are included in this
definition. It provides for the use of third party scientific literature which
shall not be regulated as labeling by the FDA, so long as it is not false or
misleading. The DSHEA also delayed the FDA's requirements for extensive product
label changes which were to be applied to products manufactured after July 1,
1995. It directs the FDA to publish new label regulations for supplements with a
mandatory effective date of December 31, 1996, and provides a set of different
label requirements for ingredient content information. No modifications were
made on the requirements and proscriptions regarding health claims for dietary
supplements. The DSHEA also introduced the concept of Good Manufacturing
Practices to the industry of dietary supplement manufacturers. Thus far, the
Company has not incurred additional expenses in order to comply with FDA
requirements.
In house training is provided to all applicable employees and safety
meetings are frequently held to insure compliance with regulations. The record
keeping and reporting requirements of the FDA have been complied with by the
Company. The Company believes that it is in compliance with all environmental
regulations affecting the Company.
E. INDUSTRY SEGMENTS
For the year ended March 31, 1998, the Company had the following
revenues from the mail-order business, Diabetes Supplies, and from the health
products manufacturing business, Nu-Wave:
<TABLE>
<CAPTION>
REVENUE AS GROSS PROFIT AS
REVENUES A PERCENTAGE A PERCENTAGE
MARCH 31, 1998 OF TOTAL GROSS OF TOTAL
(12 MONTHS) REVENUES PROFIT REVENUES
----------- -------- ------ --------
<S> <C> <C> <C> <C>
Mail-order business, Diabetes Supplies $ 461,349 19% $ 23,500 1%
Health products manufacturer 1,906,936 81% 518,120 22%
</TABLE>
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F. EMPLOYEES
As of March 31, 1998, the Company had twenty (20) employees (deemed
leased employees) and a consultant in connection with its health products
manufacturing operation, all of which are located in the Tampa, Florida office.
The employees at the Tampa location are deemed leased employees pursuant to a
Service Agreement by and between the Company and Nations Staffing, Inc. ("NSI"),
with offices at 11701 Belcher Road, Suite 116, Largo, Florida. Pursuant to the
agreement, NSI pays all payroll and salaries of the employees and provides
workers' compensation insurance and hospital and medical benefits. The Company
had one (1) full-time and one (1) part-time employee in connection with the
mail-order Diabetes Supplies division, all of which are located in the
Pittsburgh, Pennsylvania office.
At the present time, the Company has no profit sharing or pension plan
or any other form of retirement plan for its employees, including executive
officers. The Company considers its employee relations to be satisfactory and
has experienced no work stoppages. Employees of the Company are not represented
by a labor union.
G. RISK FACTORS
If any source of a product's ingredients becomes unavailable, the
Company believes that alternative sources of supply are available at comparable
prices. In the event the Company was unable to find alternate sources at
competitive prices on a timely basis for its principal products, the Company
could be materially adversely affected.
For the year ended March 31, 1998, four (4) customers represented
approximately 67% of consolidated revenues in fiscal 1998. 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.
Any modifications to the FDA's regulatory authority could subject the
Company to additional expenses in order to comply with more stringent
requirements or could have a materially adverse impact on the Company if
products were to become limited.
H. FUTURE PLANS
Additional manufacturing and/or packaging equipment has been purchased
during fiscal year 1998 and subsequently to fiscal year end, to help meet the
expanded capacity requirements of its current and future business.
Management of the Company is considering acquiring manufacturing
companies, distribution companies, and marketing companies. In order to
accomplish its future plans, the Company is considering raising capital either
through private placement or a secondary public offering.
ITEM 2. PROPERTIES.
The Company does not own or hold any legal or equitable interest in any
real estate. The offices in Tampa, Florida are leased pursuant to a five year
lease that expires on November 30, 2000. The Company has an option to renew the
lease at the end of the five year term. The rental under the lease is $7,032.50
per month subject to yearly adjustment for shared property operating expenses.
This facility serves as the Company's corporate headquarters, manufacturing,
warehousing, and shipping facility. Management is currently seeking an
additional manufacturing facility to meet the increased capacity requirements of
growing customer demand. The Company uses offices in Pittsburgh, Pennsylvania of
one of its principal customers at no cost to the Company.
In January 1998, the Company leased a second property in Tampa, Florida
which is being utilized for additional storage and warehouse for its
manufacturing operations. This lease is for a term of two years that expires on
December 30, 2000, a with an annual rental of $15,300.00.
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In the judgment of management, the leases described above reflect rent
at current fair market value.
As of March 31, 1998, the Company had furniture, equipment, and
leasehold improvements, net of accumulated depreciation, in the amount of
$176,462.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Direct Rx, Inc. (the Ohio corporation) held a meeting of its
shareholders on February 10, 1998, at the offices of the corporation, 5905-A
Hampton Oaks Parkway, Tampa, FL 33610 for approval of the merger of the
corporation into Direct Rx Healthcare, Inc. (the newly formed Florida
corporation), for the purpose of changing the domicile of the Corporation to the
State of Florida, pursuant to the Agreement and Plan of Merger. Present in
person and/or by proxy were persons holding 2,568,761 shares of common stock of
the corporation, which represented 75% of the issued and outstanding shares of
such common stock. There was therefore a quorum present. The merger was
unanimously approved by all the shareholders present holding 2,568,761 shares of
the common stock of Direct Rx, Inc.
Direct Rx Healthcare, Inc. (the Florida Corporation), being the holder
of 100% of the issued and outstanding common stock and the sole shareholder of
Nu-Wave Health Products, Inc. (the wholly-owned subsidiary) took action by
unanimous written consent, in lieu of a meeting of its shareholders, on February
28, 1998 to approve the merger of Nu-Wave Health Products, Inc. (the
wholly-owned subsidiary) into Direct Rx Healthcare, Inc. pursuant to the
Agreement and Plan of Merger. The merger was adopted by the Board of Directors
and the Shareholders of Direct Rx, Healthcare Inc. on February 28, 1998.
Direct Rx Healthcare, Inc. (the Florida Corporation), held a meeting of
its shareholders on March 2, 1998, at the offices of the corporation, 5905-A
Hampton Oaks Parkway, Tampa, FL 33610 for approval of the merger of Nu-Wave
Health Products, Inc. (the wholly-owned subsidiary) into Direct Rx Healthcare,
Inc. pursuant to the Agreement and Plan of Merger. Present in person and/or by
proxy were persons holding 2,568,761 shares of common stock of the corporation,
which represented 75% of the issued and outstanding shares of such common stock.
There was therefore a quorum present. The merger was unanimously approved by all
the shareholders present holding 2,568,761 shares of the common stock of Direct
Rx Healthcare, Inc.
Pursuant to the Articles of Merger filed March 19, 1998, effective
April 1, 1998 by and between Direct Rx Healthcare, Inc. and Nu-Wave Health
Products, Inc. the Articles of Incorporation of Direct Rx Healthcare, Inc. were
amended to change the name of the corporation to Nu-Wave Health Products, Inc.,
as per Restated and Amended Articles of Incorporation.
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<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There is currently no established trading market for the common stock
of the Company, and the shares are not presently listed. In October 1997, the
Company filed Form 10-SB with the United States Securities And Exchange
Commission. The Company has filed Form 15C211 with NASD to list the common stock
of the company on the OTC Bulletin Board in order to create marketability for
the stock
As of June 1, 1998, there were approximately 400 stockholders, each
holding shares of the Company's common stock.
Historically, the Company has not paid dividends on its common stock
and has no present intention of paying dividends.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Fiscal Year 1998 compared to Fiscal Year 1997
Net sales from the health products manufacturing business for fiscal
year ended 1998 were $1,906,936 as compared to net sales in 1997 of $789,323.
This represents a 142% increase over sales in 1997. The increase is primarily
attributable to increased volume in private label sales resulting from continued
expansion of marketing efforts and the introduction of new products. Net sales
from the mail-order diabetic supply business for fiscal year ended 1998 were
$461,349 as compares to net sales in 1997 of $171,017. This represents a 170%
increase over sales in 1997. The increase is primarily attributable to increased
sales with existing customers.
Gross profit from the health products manufacturing business increased
54%, or $185,771, to $518,120 in 1998 as compared to $347,958 in 1997. Gross
profit from the mail-order diabetic supply business increased 50%, or $7,891, to
$23,500 in 1998 as compared to $15,609 in 1997. For the fiscal year ended 1998,
gross margin from the health products manufacturing business decreased to
27.17% from 42.11% in the corresponding period. The decrease in the gross
margin from the health products manufacturing business is principally
attributable to the offering of competitive pricing to attract new customers,
and an increase in raw material and other production expenses due to certain
inefficiencies resulting from growth, which such inefficiencies have now been
corrected. It is anticipated by management that this gross margin is now
increasing. For the fiscal year ended 1998, gross margin from the mail-order
diabetic supply business decreased to 5.09% from 9.13% in the corresponding
period. The deccrease in gross margin from the diabetic supply business is
principally attributable to an increase in the mix of sales, which yields a
lower gross margin.
Selling, general and administrative expenses were $527,609 in 1998 and
$485,710 in 1997. As a percentage of sales, selling, general and administrative
expenses were 22% in 1998 and 51% in 1997. The overall decrease in the
percentage of selling, general and administrative expenses is primarily
attributable to increased management efficiency and maximum performance of
existing personnel.
Interest expense, net of interest income, was $18,272 in 1998, as
compared to $13,859 in 1997. The increase in interest expense in 1998 is a
result of greater borrowings to finance the purchase of additional machinery and
equipment, and to make additional necessary plant modifications.
The Company had no income tax expense for the fiscal years 1998 and
1997.
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Management believes that there was no material effect on operations or
the financial condition of the Company as a result of inflation in 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $173,804 and ($172,473) at the end
of 1998 and 1997, respectively.
The Company's statement of cash flows for 1998 reflects cash provided
by operating activities of $21,085. The provision of cash is primarily
attributable to an increase in accounts payable and accrued expenses $213,695,
and an increase in unearned revenues $15,341, offset by an increase in accounts
receivable ($90,561), an increase in prepaid expenses ($5,064), and an increase
in inventory ($171,964). The change in accounts payable, accounts receivable,
and inventory is a result of increased sales and operations as well as
anticipated future growth.
Net cash used in investing activities was $50,346 representing the
purchase of property and equipment ($37,147) and the acquisition of other assets
($13,199).
Net cash was also provided by financing activities of $238,633,
representing proceeds from related party borrowings $20,000, and proceeds from
long-term debt $240,200, offset by repayment of capital lease obligations
($9,321), and repayment of principal borrowings ($12,246).
During fiscal year 1998, $156,146.40 of notes payable to related
parties were converted to 1,561,464 shares of common stock of the Company.
Subsequent to fiscal year end, on May 29, 1998, the remaining notes payable to
related parties of $81,331.80, including principal and unpaid accrued interest,
were converted to 813,318 shares of common stock of the Company.
The Company expects to meet its cash requirements from operations,
current cash reserves, and existing financial arrangements. In addition, the
Company is considering raising additional capital for acquisitions and working
capital either through private placement or a secondary public offering.
During 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 $.50 per 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.
In May 1998, 100,000 shares of common stock of the Company were sold to
a non-affiliated third party investor at $.50 per share, for gross proceeds of
$50,000.
On May 13, 1998, the Company loaned $100,000 to Energy Factors, Inc.
(EFI), a subsidiary of U.S. Diversified Technologies, Inc., for the purpose of
assisting EFI with its working capital needs. The note bears interest at 2% per
annum above the Prime Rate as periodically announced by THE WALL STREET JOURNAL,
and is secured by a mortgage on all real and personal property of EFI. The
Company is currently in the process of acquiring EFI.
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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.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See financial statements following Item 13 of this Annual Report on
Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following are the names and certain information regarding the
current Directors and Executive Officers of the Company:
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<CAPTION>
Name Age Position
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<S> <C> <C>
Jugal K. Taneja 53 Chairman of the Board, Chief Executive Officer,
Secretary, and Director
Kotha S. Sekharam 47 President, Treasurer, and Director
Cani I. Shuman 41 Chief Financial Officer
Mihir K. Taneja 23 Vice President of Marketing, Assistant Secretary
Martin A. Traber 51 Director
</TABLE>
All directors hold office until the next annual meeting of stockholders
and the election and qualification of their successors. Officers are elected
annually by the Board of Directors and, subject to existing employment
agreements, serve at the discretion of the Board.
No director of the Company or Nu-Wave receives any compensation or
other remuneration for serving on the Board of Directors, except for the
reimbursement of any out-of-pocket expenses, if any, incurred by any director in
connection with attendance at a meeting of the Board of Directors.
BACKGROUND OF EXECUTIVE OFFICERS AND DIRECTORS
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 Director, Chief Executive Officer, and Secretary of NuMED
Home Health Care 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.
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Kotha S. Sekharam, has been a Co-Founder, Director, President, and
Treasurer of Nu-Wave Health Products, Inc. He has a Ph.D in Food Sciences from
Central Food Technological Research Institute, Mysore, India (a United Nations
University center) and over 17 years experience in the manufacturing industry,
covering foods, supplements, pharmaceuticals, and cosmetics. Prior to Nu-Wave,
he was the Director of Research and Development at Energy Factors, Inc. a
manufacturer of health products.
Cani I. Shuman, holds a B.S. degree in Accounting from the University
of South Florida and is a Certified Public Accountant. She is presently Chief
Financial Officer of Nu-Wave Health Products, Inc. Prior to her employment with
Nu-Wave in January 1998, she was employed in public accounting for Hacker,
Johnson, Cohen & Grieb, PA, and Copeland and Company, CPAs. Prior to that, she
held accounting positions in private industry.
Mihir K. Taneja, holds a B.A. degrees in Finance and Marketing from the
University of Miami. He is presently Vice President of Marketing for Nu-Wave
Health Products, Inc. Prior to his employment with Nu-Wave in June 1997, he was
employed in various accounting and financial functions for NuMED Home Health
Care, Inc., AT Broad & Co., and Bancapital Corp.
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 25 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 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation(1)
----------------------
(a) (b) (c) (d) (e)
Name and Other Annual
Principal Position Year Salary($) Bonus($) Compensation($)
- - ------------------ ---- --------- -------- ---------------
<S> <C> <C> <C> <C>
Jugal K. Taneja, CEO 1998 $75,000 $5,414 $ -0-
1997 $ -0- $ -0- $ -0-
Kotha S. Sekharam, President 1998 $75,000 $5,414 $ -0-
1997 $52,500 $ -0- $ -0-
</TABLE>
(1) All employees, including executive officer, except for employees of the
Diabetes Supplies division of the Company, 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, F. Employees. Employees of the
Diabetes Supplies division of the Company are paid directly by the Company.
EMPLOYMENT AGREEMENTS
On July 15, 1997, the Company entered into an employment agreement with
Jugal K. Taneja. Pursuant to the agreement, Mr. Taneja is entitled to a
performance bonus based upon a percentage of net income, before taxes, and a
percentage of annual revenues.
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On July 15, 1997, the Company entered into an employment agreement with
Kotha S. Sekharam. Pursuant to the agreement, Dr. Sekharam is entitled to a
performance bonus based upon a percentage of net income, before taxes, and a
percentage of annual revenues. Dr. Sekharam was granted a stock option for a
total of 200,000 shares of the common stock of the Company. The stock option
expired December 31, 1997. In addition, Dr. Sekharam is eligible for stock
options at such times and on such terms as determined by the Company's Board of
Directors.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information, as of June 1, 1998
with respect to the beneficial ownership of the outstanding Common Stock by (i)
any holder of more than five (5%) percent; (ii) each of the Company's officers
and directors; and (iii) the directors and officers of the Company as a group.
An asterick indicates beneficial ownership of less than 1% of the outstanding
Common Stock. Except as otherwise indicated, each of the shareholders listed
below has sole voting and investment power over the shares beneficially owned.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF APPROXIMATE
TITLE OF NAME AND ADDRESS BENEFICIAL PERCENT
CLASS OF BENEFICIAL OWNER OWNERSHIP OF CLASS
- - ----- ------------------- --------- --------
<S> <C> <C> <C>
Common Manju Taneja 1,964,553 (1) 51%
c/o Dynamic Health Products, Inc.
6950 Bryan Dairy Road
Largo, FL 33777
Common Jugal K. Taneja 484,229 (2) 13%
c/o Dynamic Health Products, Inc.
6950 Bryan Dairy Road
Largo, FL 33777
Common Kotha S. Sekharam 255,000 7%
c/o Dynamic Health Products, Inc.
6950 Bryan Dairy Road
Largo, FL 33777
Common Cani I. Shuman -0- -0-
c/o Dynamic Health Products, Inc.
6950 Bryan Dairy Road
Largo, FL 33777
Common Mihir K. Taneja 5,000 *
c/o Dynamic Health Products, Inc.
6950 Bryan Dairy Road
Largo, FL 33777
Common Martin A. Traber 30,000 *
Foley & Lardner
100 North Tampa Street
Tampa, FL 33602
Common All officers and directors as
a group (5 persons) 774,229 (3) 20%
</TABLE>
- - -----------------------------
*Less than one percent.
-11-
<PAGE>
(1) Excludes beneficial ownership of (i) 59,000 shares of common stock owned by
Jugal Taneja, (ii) 210,229 shares of common stock owned by Carnegie Capital,
(iii) 210,000 shares of common stock owned by First Delhi Trust, (iv) 5,000
shares of common stock owned by Mandeep Taneja, as to which Mrs. Taneja
exercises no voting or disposition rights.
(2) Includes beneficial ownership of (i) 210,229 shares of common stock owned by
Carnegie Capital, (ii) 210,000 shares of common stock owned by First Delhi
Trust, (iii) 5,000 shares of common stock owned by Mandeep Taneja. Excludes
1,964,553 shares beneficially owned by his wife, Manju Taneja, as to which Mr.
Taneja exercises no voting or disposition rights.
(3) Includes shares beneficially owned by Jugal Taneja, Kotha Sekharam, Cani
Shuman, Mihir Taneja, and Martin Traber.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On July 15, 1997, the Company issued 100,000 shares of its common stock
for the remaining 20% of the issued and outstanding common stock of Nu-Wave,
resulting in Direct Rx, Inc. then owning 100% of Nu-Wave. Of the 100,000 shares
of the Company's common stock issued to the shareholders of Nu-Wave, Kotha
Sekharam was issued 55,000 shares of the Company's common stock.
On August 12, 1997, the Company entered into a joint venture agreement
to form 21st Century Health Care Products, LLC ("21st Century"), an Ohio limited
liability company. Under the terms of the agreement, the Company will have a 50%
ownership and will share profits and losses equally. 21st Century was
specifically formed to develop and distribute a children's multivitamin and
vegetable supplement product, "Jungle Jerry's Gummy Pals".
During fiscal 1998, the Company began manufacturing products for
J.Labs, Inc. (J.Labs). J.Labs is a company which holds trademarks for various
products which the Company manufactures. The Company pays royalty/brokerage fees
for each unit of product sold for which J.Labs holds a trademark. J.Labs is a
corporation owned by Manju Taneja (the spouse of Jugal Taneja), Mandeep Taneja
(the son of Jugal Taneja), Mihir Taneja, Kotha Sekharam, and Madhavi Sekharam
(the wife of Kotha Sekharam). The Company is presently considering acquiring
J.Labs.
As of March 31, 1998, the Company owed related parties, the sum of
$79,145. The notes bear interest at the prime rate (8.5% at March 31, 1998)
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 of the Company at
$.10 per share. During fiscal year 1998, $156,146.40 of notes payable and
accrued interest were converted into 1,561,464 shares of the common stock of the
Company. On May 29, 1998, $81,313.80 of notes payable and unpaid interest, were
converted into 813,318 shares of the common stock of the Company.
The Company believes that material affiliated transactions and loans
between the Company and its directors, officers, principal shareholders or any
affiliates thereof have been and will be in the future on terms no less
favorable than could be obtained from unaffiliated third parties.
-12-
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS.
<TABLE>
<S> <C>
Index to Consolidated Financial Statements and Schedules F-1
Independent Auditors' Report F-2
Consolidated Balance Sheets as of March 31, 1998 and 1997 F-3
Consolidated Statements of Operations for the years ended
March 31, 1998 and 1997 F-4
Consolidated Statements of Shareholders' Equity(Deficit) for
the years ended March 31, 1998 and 1997 F-5
Consolidated Statements of Cash Flows for the years ended
March 31, 1998 and 1997 F-6 - F-7
Notes to Consolidated Financial Statements F-8 - F-15
</TABLE>
(a)(2) EXHIBITS.
The following exhibits are filed with this report:
<TABLE>
<S> <C>
2.1 Articles of Merger between Direct Rx Healthcare, Inc. and Direct Rx,
Inc. filed March 19, 1998.(1)
2.2 Articles of Merger between Direct Rx Healthcare, Inc. and Nu-Wave
Health Products, Inc. filed March 19, 1998, effective April 1,1998.(1)
3.1 Articles of Incorporation of Direct Rx Healthcare, Inc., filed January
27, 1998.(1)
10.1 Service Agreement between the Company and Nations Staffing, Inc. dated
December 23, 1996.(1)
10.2 Employment Agreement between the Company and Jugal K. Taneja dated July
15, 1997.(1)
10.3 Employment Agreement between the Company and Dr. Kotha S. Sekharam
dated July 15, 1997.(1)
10.4 Promissory Note in favor of the Company from Energy Factors, Inc. dated
May 13, 1998.(1)
10.5 Revolving Line of Credit Agreement between the Company and Republic
Bank dated June 3, 1998.(1)
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
(1) Incorporated by Reference to the Company's Annual Report on
Form 10-KSB for the year ended March 31, 1998, file number 0-23031,
filed in Washington, D.C.
(b) REPORTS ON FORM 8-K.
The Company filed a report on Form 8-K dated April 1, 1998 in
connection with the merger, change of domicile and change of name of the
company.
-13-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DYNAMIC HEALTH PRODUCTS, INC.
DATED: March 1, 1999 By:/s/ WILLIAM L. LAGAMBA
--------------------------------
William L. LaGamba, Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- - --------- ----- ----
<S> <C> <C>
/s/ Jugal K. Taneja Chairman of the Board, March 1, 1999
- ------------------------ Secretary, and Director
Jugal K. Taneja
/s/ Kotha S. Sekharam President, Treasurer, and Director March 1, 1999
- ------------------------
Kotha S. Sekharam
/s/ Martin A. Traber Director March 1, 1999
- ------------------------
Martin A. Traber
/s/ WILLIAM L. LAGAMBA Chief Executive Officer March 1, 1999
- ------------------------
William L. LaGamba
/s/ Cani I. Shuman Chief Financial Officer March 1, 1999
- ------------------------
Cani I. Shuman
</TABLE>
-14-
<PAGE>
DYNAMIC HEALTH PRODUCTS, INC.
(FORMERLY NU-WAVE HEALTH PRODUCTS, INC.,
FORMERLY DIRECT RX HEALTHCARE, INC.)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<S> <C>
Independent Auditors' Report F-2
Consolidated Balance Sheets as of March 31, 1998 and 1997 F-3
Consolidated Statements of Operations for the years ended
March 31, 1998 and 1997 F-4
Consolidated Statements of Shareholders' Equity(Deficit) for
the years ended March 31, 1998 and 1997 F-5
Consolidated Statements of Cash Flows for the years ended
March 31, 1998 and 1997 F-6 - F-7
Notes to Consolidated Financial Statements F-8 - F-15
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and
Board of Directors
Direct Rx Healthcare, Inc.:
We have audited the accompanying consolidated balance sheets of Direct Rx
Healthcare, Inc. and Subsidiary as of March 31, 1998 and 1997 and the related
consolidated statements of operations, shareholders' equity (deficit), and cash
flows for the years ended March 31, 1998 and 1997. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Direct
Rx Healthcare, Inc. and Subsidiary as of March 31, 1998 and 1997 and the results
of its consolidated operations and its consolidated cash flows for the years
ended March 31, 1998 and 1997, in conformity with generally accepted accounting
principles.
By: /s/Kirkland, Russ, Murphy & Tapp
--------------------------------
Kirkland, Russ, Murphy & Tapp
May 7, 1998
F-2
<PAGE>
DIRECT RX HEALTHCARE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 245,953 36,581
Accounts receivable, net of allowance for uncollectible
accounts of $33,500 in 1998 and $19,000 in 1997 193,829 117,768
Inventory, net of reserve for obsolescence of $4,000
in 1998 and $3,000 in 1997 296,642 124,678
Prepaid expenses 20,492 15,428
--------- --------
Total current assets 756,916 294,455
Furniture, equipment and leasehold improvements, net 176,462 104,948
Intangible assets, net 17,869 12,021
Investment in joint venture 5,000 --
Other assets 20,486 12,287
--------- --------
$ 976,733 423,711
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt $ 8,587 5,633
Current portion of capital lease obligation 20,340 --
Accounts payable and accrued expenses 427,510 239,106
Related party notes payable 79,145 190,000
Unearned revenue 47,530 32,189
--------- --------
Total current liabilities 583,112 466,928
--------- --------
Long-term debt 225,000 --
Capital lease obligations 33,974 --
--------- --------
Total liabilities 842,086 466,928
--------- --------
Shareholders' equity (deficit):
Common stock, no par value, 3,000,000 shares authorized,
2,910,229 and 1,248,765 shares issued and outstanding 500 500
Additional paid-in capital 958,323 792,177
Accumulated deficit (824,176) (835,894)
--------- --------
Net shareholders' equity (deficit) 134,647 (43,217)
--------- --------
$ 976,733 423,711
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
DIRECT RX HEALTHCARE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Revenues:
Diabetic supplies $ 461,349 171,017
Manufacturing 1,906,936 789,323
---------- ---------
Total revenues 2,368,285 960,340
Cost of goods sold:
Diabetic supplies 437,849 155,408
Manufacturing 1,388,816 456,974
---------- ---------
Total of cost of goods sold 1,826,665 612,382
---------- ---------
Gross profit 541,620 347,958
General and administrative expenses 527,609 485,710
---------- ---------
Operating income (loss) 14,011 (137,752)
Other income (expense):
Management fees -- (5,700)
Interest (18,272) (13,859)
Other income and expenses, net 15,976 (35,134)
---------- ---------
(2,296) (54,693)
---------- ---------
Income (loss) before
income taxes 11,718 (192,445)
Income taxes -- --
---------- ---------
Net income (loss) $ 11,718 (192,445)
========== ========
Basic and diluted income (loss) per share $ .01 (.15)
========== =========
Basic and diluted weighted number of common shares outstanding 2,058,446 1,248,765
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
DIRECT RX HEALTHCARE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
YEARS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
ADDITIONAL NET
COMMON STOCK PAID-IN ACCUMULATED SHAREHOLDERS'
SHARES DOLLARS CAPITAL DEFICIT EQUITY (DEFICIT)
--------- ------------ ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Balances at March 31, 1996 1,248,765 $500 792,177 (643,449) 149,228
Net loss -- -- -- (192,445) (192,445)
--------- ---- ------- -------- --------
Balances at March 31, 1997 1,248,765 500 792,177 (835,894) (43,217)
Acquisition of minority interest
at $.10 per share 100,000 -- 10,000 -- 10,000
Conversion of note payable to
stock at $.10 per share 1,561,464 -- 156,146 -- 156,146
Net income -- -- -- 11,718 11,718
--------- ---- ------- -------- --------
Balances at March 31, 1998 2,910,229 $500 958,323 (824,176) 187,647
========= ==== ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
DIRECT RX HEALTHCARE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 11,718 (192,445)
Adjustment to reconcile net loss to net cash from
operating activities:
Depreciation and amortization 33,420 28,128
Allowance for uncollectible accounts 14,500 19,000
Gain on disposal of assets -- (6,245)
Changes in operating assets and liabilities:
Accounts receivable (90,561) (101,270)
Inventory (171,964) 16,192
Prepaid expenses (5,064) (15,428)
Accounts payable and accrued expenses 213,695 140,274
Unearned revenue 15,341 32,188
--------- --------
Net cash provided by (used in)
operating activities 21,085 (79,606)
--------- --------
Cash flows from investing activities:
Decrease (increase) in other assets (13,199) 11,427
Proceeds from sale of equipment -- 2,000
Purchases of property and equipment (37,147) (27,530)
Decrease in related party advances -- 33,100
--------- --------
Net cash provided by (used in)
investing activities (50,346) 18,997
--------- --------
Cash flows from financing activities:
Proceeds from related party notes payable 20,000 99,022
Principal payments on capital lease obligations (9,321) (7,267)
Proceeds from long-term debt 240,200 --
Repayments of long-term debt (12,246) --
--------- --------
Net cash provided by financing activities 238,633 91,755
--------- --------
Net increase in cash 209,372 31,146
Cash at beginning of year 36,581 5,435
--------- --------
Cash at end of year $ 245,953 36,581
========= ========
</TABLE>
(continued)
F-6
<PAGE>
DIRECT RX HEALTHCARE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
1998 1997
-------- -----
<S> <C> <C>
Supplemental cash flow information:
Cash paid during the year for interest $ 31,097 3,921
======== =====
Supplemental schedule of non-cash financing activities:
Capital lease obligations incurred for purchase of
property and equipment $ 63,635 --
======== =====
Acquisition of minority interest through issuance of
common stock $ 10,000 --
======== =====
Conversion of related party notes payable and
accrued interest to common stock $156,146 --
======== =====
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
DIRECT RX HEALTHCARE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BUSINESS ACTIVITY
Direct Rx Healthcare, Inc. and its wholly-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 Healthcare, Inc. and its wholly-owned subsidiary,
Nu-Wave Health Products, Inc. Significant intercompany balances
and transactions have been eliminated in consolidation.
On July 15, 1997, the Company acquired the remaining 20%
interest in its' subsidiary through a stock exchange. The
Company exchanged 100,000 shares of its common stock (valued at
$.10 per share, its fair market value) for the outstanding stock
held by the minority interest. The transaction was accounted for
by the purchase method of accounting.
(c) MANAGEMENT ESTIMATES
The preparation of consolidated 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, 1998 and 1997 and revenues and expenses for the years then
ended. The actual outcome of the estimates could differ from the
estimates made in the preparation of the consolidated financial
statements.
(d) REVENUE RECOGNITION
Revenue is recognized for the health products manufacturing
operations when the production process is complete and the
merchandise is shipped to the customer. Revenue is recognized
for the mail-order diabetes supplies operations when the
merchandise is shipped to the customer.
(e) INVENTORY
Inventory is stated at the lower of cost or market. Cost is
determined by the first-in, first-out method.
(f) PROPERTY AND EQUIPMENT
Property and equipment 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.
(continued)
F-8
<PAGE>
DIRECT RX HEALTHCARE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(g) 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. Goodwill is being amortized
over twenty years using the straight-line method.
(h) INCOME TAXES
The Company utilizes the guidance of Financial Accounting
Standards No. 109 to account for income taxes. Under the asset
and liability method of Statement No. 109, deferred tax assets
and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. Under Statement No. 109,
the effect on deferred tax asset and liabilities of a change in
tax rates is recognized in income in the period that includes
the enactment date.
(i) CONCENTRATION OF CREDIT RISK
Four customers represented approximately 67% of consolidated
revenues in 1998.
Cash balances are maintained in a financial institution.
Occasionally, deposits exceed amounts insured by the Federal
Deposit Insurance Corporation.
(j) EARNINGS PER SHARE
In the fourth quarter of fiscal 1998, the Company adopted
Statement of Financial Accounting Standards No. 128, EARNINGS
PER SHARE (SFAS 128). Under SFAS 128, basic net income (loss)
per share of common stock is computed by dividing income
available to common stockholders by the weighted average number
of common shares actually outstanding during the period. Diluted
net income (loss) per share of common stock presents income
attributable to common shares actually outstanding plus dilutive
potential common shares outstanding during the period. The
Company's options and warrants were not included in computing
dilutive net income (loss) per common stock because their
effects were anti-dilutive.
(continued)
F-9
<PAGE>
DIRECT RX HEALTHCARE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) PROPERTY AND EQUIPMENT
At March 31, 1998 and 1997, property and equipment consists of the
following:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Machinery and equipment $196,784 107,814
Furniture and fixtures 2,708 2,798
Office equipment 12,199 9,849
Leasehold improvements 13,766 4,304
-------- --------
225,547 124,765
Less accumulated depreciation and
amortization (19,085) (19,817)
-------- --------
$176,462 104,948
======== ========
</TABLE>
(3) INTANGIBLE ASSETS
At March 31, 1998 and 1997, intangible assets consists of the
following:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Covenants not to compete $16,726 16,726
Organization costs -- 5,391
Goodwill 10,000 --
------- -------
26,726 22,117
Less accumulated amortization (8,857) (10,096)
------- -------
$17,869 12,021
======= =======
</TABLE>
(4) RELATED PARTY TRANSACTIONS
At March 31, 1998, the Company has demand notes payable to the spouse
of the Chairman of the Company totaling $79,145, which may be increased
as determined by the Board of Directors. The notes bear interest at the
prime rate (8.5% at March 31, 1998) 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. During
fiscal year 1998, $156,146 of notes payable and accrued interest were
converted into 1,561,464 shares of common stock.
(continued)
F-10
<PAGE>
DIRECT RX HEALTHCARE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) INCOME TAXES
The Company had no income tax expense for the years ended 1998 and
1997.
Income taxes for the years ended March 31, 1998 and 1997 differ from
the amounts computed by applying the effective U.S. federal income tax
rate of 34% to income before income taxes as a result of the following:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Computed "expected" tax expense $ 4,000 (65,000)
Increase (decrease) in taxes resulting from:
State income taxes, net of federal tax benefit 1,000 (8,000)
Change in valuation allowance (5,000) 73,000
------- -------
Income tax expense $ -- --
======= =======
</TABLE>
Temporary differences which give rise to deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
Deferred tax assets:
Bad debts $ 13,000 8,000
Inventories 2,000 1,000
Net operating loss carryforwards 294,000 294,000
--------- --------
Gross deferred tax assets 309,000 303,000
Less: valuation allowance (295,000) (300,000)
--------- --------
$ 14,000 3,000
========= ========
Deferred tax liabilities:
Fixed asset $ 14,000 3,000
========= ========
</TABLE>
(6) COMMITMENTS
The Company has operating leases for office and warehouse space that
expire in 2000. The lease for the office space has an option to extend
the lease for five years. Future minimum lease payments as of March 31,
1998 are as follows:
<TABLE>
<CAPTION>
Year Ending March 31:
---------------------
<S> <C>
1999 $ 72,888
2000 53,692
--------
Total minimum lease payments $126,580
========
</TABLE>
(continued)
F-11
<PAGE>
DIRECT RX HEALTHCARE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) COMMITMENTS - CONTINUED
The monthly rent payments on the office space also include payments for
common area maintenance and real estate taxes.
Rent expense for the operating lease was $93,386 and $77,695 for the
years ended March 31, 1998 and 1997, respectively.
The Company is obligated under various capital leases for certain
machinery and equipment. The gross amount of related property and
equipment at March 31, 1998 subject to lease is as follows:
<TABLE>
<S> <C>
Machinery and equipment $63,635
Less accumulated depreciation and
amortization (3,781)
-------
$59,854
=======
</TABLE>
The present value of future minimum capital lease payments as of March
31, 1998 are as follows:
<TABLE>
<CAPTION>
Year Ending March 31,:
----------------------
<S> <C>
1999 $ 27,672
2000 23,677
2001 15,194
--------
Total minimum lease payments 66,543
Less amount representing interest (12,228)
--------
Obligations under capital leases 54,314
Current installment of capital lease
obligations (20,340)
--------
Capital lease obligations, less current
installments $ 33,974
========
</TABLE>
(continued)
F-12
<PAGE>
DIRECT RX HEALTHCARE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) LONG-TERM DEBT
Long-term debt consists of the following at March 31, 1998:
<TABLE>
<S> <C>
Unsecured 9% note payable, due in installments of
$1,759, including interest, through August 1998 $ 8,587
Unsecured 10% note payable due on April 30, 1999 with
interest 35,000
Unsecured 10% note payable due on April 30, 1999 with
interest $ 25,000
Unsecured 10% note payable due on April 30, 1999 with
interest 40,000
Unsecured 10% note payable due on April 30, 1999 with
interest 25,000
Unsecured 10% note payable due on April 30, 1999 with
interest 100,000
--------
233,587
Less current installments (8,587)
--------
$225,000
========
</TABLE>
Scheduled maturities of long-term debt at March 31, 1998 as follows:
<TABLE>
<S> <C>
1999 $ 8,587
2000 225,000
========
</TABLE>
Unsecured 10% notes payable may be due earlier than April 30, 1999,
should the Company complete an equity offering, as defined, prior to
April 30, 1999.
Subsequent to March 31, 1998, the holders of unsecured 10% notes
payable were issued common stock purchase warrants. Each stock warrant
entitles the holder to purchase one (1) share of common stock for each
$1 of principal amount lent at $.50 per share and expire the earlier
of, one year from the closing of an equity financing, as defined, or
December 31, 1999.
The fair market value of the common stock purchase warrants are
immaterial to the financial statements at date of issuance.
(continued)
F-13
<PAGE>
DIRECT RX HEALTHCARE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) STOCK OPTIONS
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" (SFAS 123). Accordingly, no compensation cost has been
recognized for the Company's granted stock options. Had compensation
and other costs for the Company's granted stock options been determined
based on the fair value at the grant date or issuance for awards in
1998 consistent with the provisions of SFAS 123, the impact of net
income would have been immaterial.
AGGREGATE STOCK OPTION ACTIVITY
The following table summarizes information about the aggregate stock
option activity for the years ended March 31, 1998 and 1997:
<TABLE>
<CAPTION>
MARCH 31, 1998 MARCH 31, 1997
-------------------- -------------------
Weighted Weighted
average average
Number exercise Number exercise
of shares price of shares price
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Outstanding, beginning of year -- -- -- --
Granted 600,000 $.23 -- --
Exercised -- -- -- --
Expired 600,000 .23 -- --
------- ---- ---- ----
Outstanding, end of year -- -- -- --
------- ---- ---- ----
Options vested, end of year -- -- -- --
------- ---- ---- ----
</TABLE>
(9) JOINT VENTURE AGREEMENT
On August 12, 1997, the Company entered into a joint venture agreement
with a group to form an Ohio limited liability company to market one of
its products. Under the terms of the agreement, the Company will have a
50% ownership and will share profits and losses equally. The Company is
required to contribute half of the costs incurred in the initial
marketing of the product.
The Company will account for the investment under the equity method of
accounting.
(continued)
F-14
<PAGE>
DIRECT RX HEALTHCARE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) SUBSEQUENT EVENT
Effective April 1, 1998, the Company merged with its subsidiary and
became Nu-Wave Health Products, Inc.
In May 1998, the Company entered into a non-binding letter of intent to
provide certain working capital financing to U.S. Diversified
Technologies, Inc. Additionally, the Companies have agreed to combine
upon completion of certain items, including a public stock offering.
F-15
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27.1 Financial Data Schedule
<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> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 245,953
<SECURITIES> 0
<RECEIVABLES> 227,329
<ALLOWANCES> (33,500)
<INVENTORY> 296,642
<CURRENT-ASSETS> 756,916
<PP&E> 225,547
<DEPRECIATION> 19,085
<TOTAL-ASSETS> 976,733
<CURRENT-LIABILITIES> 583,112
<BONDS> 0
0
0
<COMMON> 500
<OTHER-SE> 134,147
<TOTAL-LIABILITY-AND-EQUITY> 976,933
<SALES> 2,368,285
<TOTAL-REVENUES> 2,358,285
<CGS> 1,826,665
<TOTAL-COSTS> 1,826,665
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,272
<INCOME-PRETAX> 11,718
<INCOME-TAX> 0
<INCOME-CONTINUING> 11,718
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,718
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
