SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended December 31, 1999
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 May 19, 2000 was 2,917,224 (exclusive of Treasury Shares).
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS.
DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1999 1999
------------------- -------------------
(Unaudited) (Audited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,675,657 $ 899,951
Accounts receivable, net 899,760 2,535,274
Inventories, net 1,606,513 2,580,753
Due from affiliates 63,976 -
Prepaid expenses and other current assets 457,562 221,726
------------------- -------------------
Total current assets 5,703,468 6,237,704
------------------- -------------------
Property, plant and equipment, at cost, net 2,759,447 2,476,357
Intangible assets (primarily goodwill), net 1,047,383 1,769,153
Investment in unconsolidated affiliate 8,968,531 -
Other assets 78,962 57,619
------------------- -------------------
Total assets $ 18,557,791 $ 10,540,833
=================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,096,589 $ 2,495,648
Accrued expenses 440,077 371,556
Accrued income taxes 540,050 -
Current portion of long-term obligations 328,931 643,243
Credit lines payable 1,604,557 2,388,729
Obligations to affiliates 2,468 -
Obligations to related parties 25,000 38,434
------------------- -------------------
Total current liabilities 4,037,672 5,937,610
------------------- -------------------
Deferred income taxes 3,424,417 -
Long-term obligations, less current portion 1,508,436 1,392,793
------------------- -------------------
Total liabilities 8,970,525 7,330,403
------------------- -------------------
Commitments and contingencies
Shareholders' equity:
Series A Convertible Preferred stock, $.01 par value;
400,000 shares authorized; 310,000 shares issued
and outstanding, at face value 775,000 775,000
Series B 6% Cumulative Convertible Preferred stock,
$.01 par value; 800,000 shares authorized;
30,000 shares issued and outstanding, at face value 75,000 75,000
Common stock, $.01 par value; 20,000,000 shares authorized;
3,535,224 shares issued and outstanding 35,352 35,352
Additional paid-in capital 3,397,240 3,400,615
Retained earnings (accumulated deficit) 5,304,674 (1,075,537)
------------------- -------------------
Total shareholders' equity 9,587,266 3,210,430
------------------- -------------------
Total liabilities and shareholders' equity $ 18,557,791 $ 10,540,833
=================== ===================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
------------------------------------------- --------------------------------
1999 1998 1999 1998
--------------- ----------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Revenues:
Distribution $ 7,716,038 $ 10,347,440 $ 35,106,904 $ 23,143,938
Manufacturing 1,749,760 1,083,935 4,222,215 3,142,759
--------------- ----------------- ------------------ ----------------
Total revenues 9,465,798 11,431,375 39,329,119 26,286,697
--------------- ----------------- ------------------ ----------------
Cost of goods sold:
Distribution 7,325,831 9,754,971 33,542,292 22,045,925
Manufacturing 1,059,181 1,017,009 2,970,353 2,599,321
--------------- ----------------- ------------------ ----------------
Total cost of goods sold 8,385,012 10,771,980 36,512,645 24,645,246
--------------- ----------------- ------------------ ----------------
Gross profit:
Distribution 390,207 592,469 1,564,612 1,098,013
Manufacturing 690,579 66,926 1,251,862 543,438
--------------- ----------------- ------------------ ----------------
Total gross profit 1,080,786 659,395 2,816,474 1,641,451
--------------- ----------------- ------------------ ----------------
Selling, general and
administrative expenses 1,012,805 881,590 3,112,539 1,805,988
--------------- ----------------- ------------------ ----------------
Operating income (loss) before
other income and expense 67,981 (222,195) (296,065) (164,537)
Other income (expense):
Interest income 20,735 1,495 40,335 7,939
Other income and expenses, net (38,929) 7,467 104,640 108,800
Gain on sale of subsidiary 10,877,295 - 10,877,295 -
Gain on transfer of equity securities 151,808 - 151,808 -
Equity in loss of affiliated companies (118,904) - (118,904) -
Interest expense (132,000) (111,629) (414,431) (240,541)
--------------- ----------------- ------------------ ----------------
Total other income (expense) 10,760,005 (102,667) 10,640,743 (123,802)
--------------- ----------------- ------------------ ----------------
Income (loss) before minority
interest and income taxes 10,827,986 (324,862) 10,344,678 (288,339)
(Income) loss attributable to minority interest - 14,950 - 14,950
--------------- ----------------- ------------------ ----------------
Income (loss) before income taxes 10,827,986 (339,812) 10,344,678 (303,289)
Income taxes 3,964,467 - 3,964,467 -
--------------- ----------------- ------------------ ----------------
Net income (loss) 6,863,519 (339,812) 6,380,211 (303,289)
Preferred stock dividends 1,125 1,142 3,375 1,542
--------------- ----------------- ------------------ ----------------
Net income (loss) available
to common shareholders $ 6,862,394 $ (340,954) $ 6,376,836 $ (304,831)
=============== ================= ================== ================
Basic income (loss) per share $ 1.94 $ (0.11) $ 1.80 $ (0.13)
=============== ================= ================== ================
Basic weighted number of
common shares outstanding 3,535,224 3,075,482 3,535,224 2,352,238
=============== ================= ================== ================
Diluted income (loss) per share $ 1.94 $ (0.11) $ 1.80 $ (0.13)
=============== ================= ================== ================
Diluted weighted number of
common shares outstanding 3,535,224 3,075,482 3,535,224 2,352,238
=============== ================= ================== ================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
December 31, December 31,
1999 1998
----------------- ------------------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income (loss) $ 6,380,211 $ (288,339)
Adjustments to reconcile net income (loss) to net
cash from operating activities:
Depreciation and amortization 293,271 156,470
Gain on involuntary conversion of property - (81,192)
Gain on sale of Becan (10,877,295) -
Gain on transfer of equity securities (151,808) -
Minority interest - (14,950)
Changes in operating assets and liabilities:
Accounts receivable 1,635,514 (1,162,138)
Inventory 974,240 (979,501)
Prepaid expenses and other current assets (299,812) (74,455)
Decrease (increase) in other assets (21,343) 7,831
Accounts payable (1,399,059) 742,646
Accrued expenses 84,633 (600,857)
Accrued income taxes 540,050 -
Deferred income taxes 3,424,417 -
-------------------- -----------------
Net cash provided by (used in) operating activities 583,019 (2,294,485)
-------------------- -----------------
Cash flows from investing activities:
Purchases of property and equipment (309,536) (214,858)
Proceeds from involuntary conversion of property - 99,100
Decrease (increase) in intangible assets 708,299 (25,767)
Net book value of assets sold (209,800) -
Cash paid for acquisitions, net - (18,309)
Proceeds from sale of Becan 2,000,000 -
-------------------- -----------------
Net cash provided by (used in) investing activities 2,188,963 (159,834)
-------------------- -----------------
Cash flows from financing activities:
Net change in revolving line of credit agreements (784,172) 1,780,577
Proceeds from issuance of long-term obligations 1,137,573 178,950
Payments of long-term obligations (1,336,243) (392,222)
Proceeds from issuance of shareholder loans 166,500 270,153
Payments of shareholder loans (179,934) (60,096)
Distributions to shareholders - (48,407)
Proceeds from issuance of common stock - 550,000
Proceeds from issuance of preferred stock - 75,000
-------------------- -----------------
Net cash provided by (used in) financing activities (996,276) 2,353,955
-------------------- -----------------
Net increase (decrease) in cash 1,775,706 (100,364)
Cash at beginning of period 899,951 453,829
-------------------- -----------------
Cash at end of period $ 2,675,657 $ 353,465
==================== =================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS -
CONTINUED (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
December 31, December 31,
1999 1998
-------------------- -----------------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 432,735 $ 221,026
Cash paid during the period for income taxes $ - $ -
Supplemental schedule of non-cash financing activities:
Capital lease obligations incurred for purchase of
property and equipment $ 124,941 $ 109,487
Conversion of related party notes payable and
accrued interest to common stock $ - $ 81,331
Acquisition of Energy Factors, Inc. through
issuance of 310,000 shares of preferred stock $ - $ 775,000
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
Transfer of equity securities in settlement of
other liabilities payable $ 807,000 $ -
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED DECEMBER 31, 1999 AND 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, 1999 and 1998 are not necessarily indicative of
the results that may be expected for the year ending March 31, 2000. For further
information, refer to the consolidated financial statements and footnotes
included in the Company's Form 10-KSB for the year ended March 31, 1999.
NOTE B-PRINCIPLES OF CONSOLIDATION
The accompanying condensed consolidated financial statements include
the accounts of Dynamic Health Products, Inc. and its subsidiaries, Innovative
Health Products, Inc., Becan Distributors, Inc. and its subsidiary Discount Rx,
Inc., Incredible Products of Florida, Inc., Dynamic Life, Inc., J.Labs, Inc.,
Herbal Health Products, Inc., Today's Drug, Inc., and Dynamic Financials
Corporation (collectively the "Company"). All intercompany balances and
transactions have been eliminated.
Investments in affiliates where control does not exist and where
ownership is between 20 percent to 50 percent are accounted for in accordance
with the equity method.
NOTE C-SALE OF SUBSIDIARY
On November 26, 1999, pursuant to an Agreement And Plan of
Reorganization entered into on September 8, 1999 with DrugMax.com, Inc.
("DrugMax"), formerly Nutriceuticals.com Corporation, the Company sold all of
the shares of capital stock of Becan Distributors, Inc. and its subsidiary
Discount Rx, Inc. (collectively "Becan"), a wholly-owned subsidiary of the
Company, to DrugMax, to further certain of its business objectives, including
without limitation, providing additional working capital to the Company. The
Company received 2,000,000 shares of restricted common stock of DrugMax (with an
estimated fair value of $9.00 per share) and $2,000,000 cash in exchange for all
of the issued and outstanding shares of stock of Becan.
NOTE D-INVESTMENT IN UNCONSOLIDATED AFFILIATE
Investments in net assets of affiliated companies accounted for under
the equity method amounted to $8,968,531 at December 31, 1999.
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<PAGE>
The combined results of operations and financial position of the
Company's equity-basis affiliates are summarized below:
Nine Months Ended
December 31, 1999
-----------------
Condensed Income Statement Information:
Net sales $ 7,221,279
Gross profit 81,717
Net loss (719,989)
Condensed Balance Sheet Information:
Current assets 15,108,965
Non-current assets 19,824,902
Current liabilities 5,717,328
Non-current liabilities -
Net worth 29,216,539
On December 3, 1999, the Company transferred 134,500 shares of its
investment in DrugMax.com, Inc. to certain creditors in satisfaction of $807,000
of its obligations and recorded a gain of $151,808 related to the transfer.
NOTE E-RELATED PARTY OBLIGATIONS
In August and September 1999, the Company issued promissory notes
payable to the Chairman of the Board of the Company totaling $156,500, which
notes were repaid in December 1999. Interest on these notes accrued at a rate of
10% per annum and totaled $4,299.
NOTE F-INCOME TAXES
The Company has adopted Statement of Financial Accounting Standards No.
109 ("SFAS 109"), Accounting for Income Taxes. Under SFAS 109, the Company uses
the asset and liability method which recognizes the amount of current and
deferred taxes payable or refundable at the date of the financial statements as
a result of all events that have been recognized in the financial statements and
as measured by the provisions of enacted tax laws.
The Company has deferred tax liabilities in the amount of $3,424,417,
at December 31, 1999, as a result of the differences arising between book and
tax basis of the sale of the Company's wholly-owned subsidiary Becan
Distributors, Inc. on November 26, 1999. For book purposes, the sale was
recorded at a gain of approximately $10.8 million, whereas for tax purposes the
recognized gain was approximately $2 million and the deferred tax gain was
approximately $18 million. The deferred tax liability is the difference between
taxes as calculated on the book gain and taxes as calculated for income tax
purposes on the recognized gain.
-7-
<PAGE>
NOTE G-LONG-TERM OBLIGATIONS
On September 13, 1999, the Company established a loan with GE Capital
Small Business Finance Corporation. The principal amount of the note is
$880,000. The note bears interest at the lowest Prime Rate as published in the
Wall Street Journal (based on the prime rate in effect on the first business day
of the month in which a change occurs) plus 2.25% per annum.
The term of the note is 25 years and one month from the date of the
note, payable in equal monthly installments of principal and interest. The note
is secured by a mortgage on the Company's land and building in Largo, Florida.
The note is also secured by personal guarantee from the Company's Chairman of
the Board. Proceeds from the note were used to satisfy all outstanding mortgages
on the property and for payment of loan costs associated with the note.
NOTE H-STOCKHOLDERS' EQUITY
Basic earnings (loss) 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 (loss) per share gives effect to
convertible preferred shares which are considered to be dilutive common stock
equivalents.
NOTE I-SUBSEQUENT EVENTS
In February 2000, the Company issued $1,545,000 aggregate principal
amount of its Series A 8% Convertible Promissory Notes ("Notes") and Warrants to
purchase common stock of the Company. The Notes and Warrants were issued in
exchange for 618,000 shares of the Company's common stock, which shares were
issued in conjunction with a private placement undertaken in 1998. The Notes are
convertible, and the Warrants exercisable, for shares of the Company's common
stock at a price equal to the lesser of (i) 50% of the price at which the
Company sells its shares of common stock in an initial public offering, or (ii)
50% of the average closing price of the common stock during the five trading
days prior to receipt by the Company of written notice of conversion. The
Warrants expire if the Company does not complete an initial public offering by
December 31, 2002. Principal of and interest on the Notes is payable on each
February 1, May 1, August 1 and November 1, with the entire unpaid balance, plus
accrued interest thereon, payable in full on February 1, 2002. The 618,000
shares of the Company's common stock were subsequently cancelled by the Company.
-8-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
OVERVIEW
The Company derives its revenues from developing, manufacturing,
wholesaling and distributing a wide variety of non-prescription nutritional
supplements, and health and beauty care products. Revenues are billed and
recognized as product is produced and shipped, net of discounts, allowances,
returns and credits.
Cost of goods sold is comprised of direct personnel compensation,
statutory and other benefits associated with such personnel and other direct
manufacturing and material product costs. Cost of goods sold also includes
indirect costs relating to labor to support the warehousing of production and
manufacturing overhead. Research and development expenses are charged against
cost of goods sold as incurred, and are not material to the Company's
operations. Selling, general and administrative costs include administrative,
sales and marketing and other indirect operating costs. Interest and other
income (expense) consists primarily of interest expense associated with
borrowings to finance capital equipment expenditures and other working capital
needs.
The Company acquired Becan Distributors, Inc. on June 26, 1998. The
merger was accounted for as a combination of entities under common control and
treated as if a "pooling of interests". The financial statements have been
retroactively restated, for all periods presented, to include the results of
operations for Becan. The Company subsequently sold Becan Distributors, Inc. on
November 26, 1999. The financial statements include the results of operation for
Becan through November 26, 1999.
RESULTS OF OPERATIONS
Three Months and Nine Months ended December 31, 1999 and December 31, 1998
REVENUES. Total revenues decreased $1,965,577, or 17.2%, to $9,465,798
for the three months ended December 31, 1999, as compared to the three months
ended December 31, 1998. Total revenues increased $13,042,422, or 49.6%, to
$39,329,119 for the nine months ended December 31, 1999, as compared to the nine
months ended December 31, 1998. Distribution revenues decreased $2,631,402, or
25.4%, to $7,716,038 for the three months ended December 31, 1999, as compared
to the three months ended December 31, 1998, primarily as a result of the
November 26, 1999 sale of Becan. Distribution revenues increased $11,962,966, or
51.7%, to $35,106,904, for the nine months ended December 31, 1999, as compared
to the corresponding period. The increase was primarily due to increased sales
to existing customers and expansion of the customer base resulting from
increased marketing efforts. Manufacturing revenues increased $665,825, or
61.4%, to $1,749,760 and $1,079,456, or 34.6%, to $4,222,215 respectively, for
the three months and nine months ended December 31, 1999, as compared to the
corresponding period. The increase was primarily attributable to increased
volume of private label sales resulting from continued expansion of marketing
efforts and the introduction of new products, and the June 1998 purchase of
Innovative Health Products, Inc. ("Innovative").
GROSS PROFIT. Total gross profit increased $421,391, or 63.9%, to
$1,080,786 and $1,175,023, or 71.6%, to $2,816,474 respectively, for the three
months and nine months ended December 31, 1999, as compared to the three months
and nine months ended December 31, 1998. The total gross margin
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<PAGE>
increased to 11.4% for the three months ended December 31, 1999, from 5.8% in
the corresponding period. For the nine months ended December 31, 1999, total
gross margin increased to 7.2%, from 6.2% in the corresponding period.
Distribution gross profit decreased $202,262, or 34.1%, to $390,207 for the
three months ended December 31, 1999, as compared to the three months ended
December 31, 1998. For the nine months ended December 31, 1999, distribution
gross profit increased $466,599, or 42.5%, to $1,564,612, as compared to the
corresponding period. For the three months ended December 31, 1999, the gross
margin from distribution decreased to 5.1% from 5.7% in the corresponding
period. For the nine months ended December 31, 1999, distribution gross profit
decreased to 4.5% from 4.7% in the corresponding period. Manufacturing gross
profit increased $623,653, or 931.9%, to $690,579 and $708,424, or 130.4%, to
$1,251,862 respectively, for the three months and nine months ended December 31,
1999, as compared to the corresponding period. The gross margin from
manufacturing increased to 39.5% for the three months ended December 31, 1999,
from 6.2% in the corresponding period. For the nine months ended December 31,
1999, the gross margin from manufacturing increased to 29.7%, from 17.3% in the
corresponding period. The increases in gross margins for the periods presented
was primarily attributable to changes in the mix of sales, which yield higher
gross margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. 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
$131,215, or 14.9%, to $1,012,805 and $1,306,551, or 72.4%, to $3,112,539
respectively, for the three months and nine months ended December 31, 1999, as
compared to 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 acquisitions made
during fiscal 1999. As a percentage of net sales, selling, general and
administrative expenses increased to 10.7% for the three months ended December
31, 1999, from 7.7% for the three months ended December 31, 1998, and increased
to 7.9% for the nine months ended December 31, 1999, from 6.9% for the nine
months ended December 31, 1998.
INTEREST INCOME (EXPENSE), NET. Interest expense, net of interest
income, increased $1,131 to $111,265 for the three months ended December 31,
1999, from $110,134 for the three months ended December 31, 1998. For the nine
months ended December 31, 1999, interest expense, net of interest income
increased $141,494 to $374,096, from $232,602 in the corresponding period. The
increase was a result of greater borrowings to finance the purchase of
additional machinery and equipment, to make necessary plant modifications, and
for financing of additional working capital needs with the expansion of the
Company's operations.
INCOME TAXES. The Company has income tax expense of $3,964,467 for the
nine months ended December 31, 1999, primarily associated with the gain on the
sale of Becan, and no income tax provision for the nine months ended December
31, 1998 due to the utilization of net operating losses not previously
recognized. These net operating losses may be carried forward for up to 15
years.
Management believes that there was no material effect on operations or
the financial condition of the Company as a result of inflation for the nine
months ended December 31, 1999 and 1998. 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.
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LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations through available borrowings
under its credit line facilities, loans from within the Company, the sale of
equity securities issued by the Company and the sale of its subsidiary, Becan.
The Company had working capital of $1,665,796 at December 31, 1999, inclusive of
current portion of long-term obligations and credit facilities.
Net cash provided by operating activities was $583,019 for the nine
months ended December 31, 1999, as compared to net cash used in operating
activities of ($2,294,485) for the nine months ended December 31, 1998. Cash
provided by operating activities was attributable to net income of $6,380,211, a
decrease in accounts receivable of $1,635,514, a decrease in inventory of
$974,240, an increase in accrued expenses of $84,633, an increase in accrued
income taxes of $540,050, and an increase in deferred income taxes of
$3,424,417, partially offset by an increase in prepaid expenses and other
current assets of $299,812, an increase in other assets of $21,343, and a
decrease in accounts payable of $1,399,059, primarily as a result of the
November 1999 sale of Becan.
Net cash provided by investing activities was $2,188,963, representing
a decrease in intangible assets of $708,299, proceeds from the sale of Becan of
$2,000,000, partially offset by the purchase of property and equipment, and
plant modifications of $309,536, and the net book value of Becan's assets sold
of $209,800.
Net cash used in financing activities was $996,276, representing
repayments on lines of credit of $784,172, repayments of long-term obligations
of $1,336,243, repayments of shareholder loans of $179,934, partially offset by
proceeds from issuance of long-term obligations of $1,137,573, and proceeds from
issuance of shareholder loans of $166,500.
Management believes that cash expected to be generated from operations,
current cash reserves, and existing financial arrangements will be sufficient
for the Company to meet its capital expenditures and working capital needs for
its operations as presently conducted. The Company's future liquidity and cash
requirements will depend on a wide range of factors, including the level of
business in existing operations, expansion of facilities, expected results from
recent procedural changes in accounts receivable and inventory procurement, and
possible acquisitions. In particular, if cash flows from operations and
available credit facilities are not sufficient, it will be necessary for the
Company to seek additional financing. While there can be no assurance that such
financing would be available in amounts and on terms acceptable to the Company,
management believes that such financing would likely be available on acceptable
terms.
In May 1999, the Company formed Dynamic Life, Inc., a Florida
Corporation, as a wholly-owned subsidiary of the Company. Dynamic Life, Inc. was
formed to be the successor to Incredible Products of Florida, Inc., a subsidiary
of the Company. Its business operations commenced on July 1, 1999, at which time
all of the former assets, liabilities and business operations of Incredible
Products of Florida, Inc. were transferred to Dynamic Life, Inc.
On September 13, 1999, the Company established a loan with GE Capital
Small Business Finance Corporation. The principal amount of the note is
$880,000. The note bears interest at the lowest Prime Rate as published in the
Wall Street Journal (based on the prime rate in effect on the first business day
of the month in which a change occurs) plus 2.25% per annum.
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The term of the note is 25 years and one month from the date of the
note, payable in equal monthly installments of principal and interest. The note
is secured by a mortgage on the Company's land and building in Largo, Florida.
The note is also secured by personal guarantee from the Company's Chairman of
the Board. Proceeds from the note were used to satisfy all outstanding mortgages
on the property and for payment of loan costs associated with the note.
In September 1999, Innovative Health Products, Inc., a wholly-owned
subsidiary of the Company, transferred its land and building in Largo, Florida
to the Company at net book value, which management believes approximated fair
market value on the date of transfer, based upon a recent independent appraisal
of the property. In conjunction with the transfer, the Company satisfied all
outstanding mortgages on the premises upon its refinancing through GE Capital
Small Business Finance Corporation. In addition, approximately $430,000 of
Innovative's obligations to the Company were extinguished, which represented the
difference between net book value and amounts outstanding under existing
mortgages prior to the transfer.
On September 3, 1999, the Board of Directors of the Company unanimously
agreed that it would be in the best interest of the Company and its shareholders
to enter into an Agreement And Plan of Reorganization with DrugMax.com, Inc.
("DrugMax"), formerly Nutriceuticals.com Corporation, to sell all of the shares
of capital stock of Becan Distributors, Inc., a wholly-owned subsidiary of the
Company, to DrugMax, to further certain of its business objectives, including
without limitation, providing additional working capital to the Company.
On September 8, 1999, the Company entered into such agreement, whereby
the Company agreed to exchange all of the issued and outstanding shares of stock
of Becan to DrugMax for $2,000,000 in cash and 2,000,000 (post October 1999
one-for-two reverse stock split) restricted shares of voting common stock, $.001
par value, of DrugMax. Additional consideration of 1,000,000 (post October 1999
one-for-two reverse stock split) restricted shares of common stock, $.001 par
value, of DrugMaxs, which shares shall be placed in escrow pursuant to an escrow
agreement, and which shares would be issuable at a future date to the Company
upon the attainment by Becan of certain projected revenues and gross margins for
the fiscal years ending March 31, 2000 and 2001. The closing was subject to the
success of a public offering of DrugMax common stock. The number of shares of
DrugMax common stock to be issued by DrugMax in consideration of the shares of
Becan common stock was determined based upon the relative estimated value of
each of the companies. In addition, on October 4, 1999, the Company entered into
a Third Party Pledge Agreement with First Community Bank of America, which
provides a security interest and collateral, in the form of the Company's
Certificate of Deposit with First Community Bank of America, in the amount of
$500,000, as collateral for a Line of Credit Agreement executed by and for the
benefit of DrugMax. On November 26, 1999, following the successful completion of
a public offering by DrugMax, the Company sold Becan to DrugMax.
In December 1999, Innovative established a $500,000 revolving line of
credit with First Community Bank of America, to provide additional working
capital for the Company. The note bears interest at variable rates, commencing
at 6.5% per annum, on the unpaid outstanding principal of each advance, payable
monthly. The note is secured by a guarantee in the form of a Third Party Pledge
Agreement in favor of First Community Bank of America, from Dynamic Health
Products, Inc. The principal on the note is due and payable on November 10,
2000. The note or any portion thereof may be prepaid without penalty. At
December 31, 1999, the outstanding principal balance on this note was $483,733.
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<PAGE>
In December 1999, Innovative established a loan with First Community
Bank of America, for the purchase of equipment. The principal amount of the note
is $89,531. The note bears interest at 9.5% per annum. Principal and interest on
the note are payable in 36 equal monthly payments, in the amount of $2,873,
commencing February 5, 2000. The final payment of any unpaid balance of
principal and interest on the note will be due on January 5, 2003.
YEAR 2000 STATEMENT
The Company did not experience any failure of its own systems or those
of any third party with whom it conducts business, as a result of the Year 2000.
The Company cannot predict whether the failure of any such third party to be
Year 2000 compliant will have a material adverse effect on the Company's
business.
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<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.
None.
ITEM 3. - Not applicable.
ITEM 4. - Not applicable.
ITEM 5. OTHER INFORMATION.
Effective October 1, 1999, Innovative Health Products, Inc. issued
150,000 shares of its no par value preferred stock to the Company in
extinguishment of $1,500,000 of its obligation to the Company.
On December 15, 1999, Innovative Health Products, Inc. filed a
registration statement on Form SB-2 with the Securities and Exchange Commission
("SEC"). On May 12, 2000, Go2Pharmacy.com, Inc. (formerly Innovative Health
Products, Inc.) filed Amendment No. 1 to its registration statement on Form SB-2
with the SEC. The registration statement is subject to completion. On February
29, 2000, Innovative Health Products, Inc. changed its name to Go2Pharmacy.com,
Inc., by filing Articles of Amendment to Articles of Incorporation.
In February 2000, the Company issued $1,545,000 aggregate principal
amount of its Series A 8% Convertible Promissory Notes ("Notes") and Warrants to
purchase common stock of the Company. The Notes and Warrants were issued in
exchange for 618,000 shares of the Company's common stock, which shares were
issued in conjunction with a private placement undertaken in 1998. The Notes are
convertible, and the Warrants exercisable, for shares of the Company's common
stock at a price equal to the lesser of (i) 50% of the price at which the
Company sells its shares of common stock in an initial public offering, or (ii)
50% of the average closing price of the common stock during the five trading
days prior to receipt by the Company of written notice of conversion. The
Warrants expire if the Company does not complete an initial public offering by
December 31, 2002. Principal of and interest on the Notes is payable on each
February 1, May 1, August 1 and November 1, with the entire unpaid balance, plus
accrued interest thereon, payable in full on February 1, 2002. The 618,000
shares of the Company's common stock were subsequently cancelled by the Company.
On May 9, 2000, Grant Thornton LLP, the Company's independent auditors
for the fiscal year ended March 31, 1999, notified the Company that it was
terminating its client-accountant relationship with the Company. The report of
Grant Thornton for the fiscal year ended March 31, 1999 did not contain any
adverse opinion or disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope, or accounting principles.
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Also on May 9, 2000, the Company's audit committee approved the
appointment of Brimmer, Burek & Keelan LLP as its independent auditors for the
fiscal year ended March 31, 2000.
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 by and between Nutriceuticals.com
Corporation and Dynamic Health Products, Inc. dated September 8, 1999.
(1)
3.1 Articles of Incorporation of Dynamic Life, Inc., filed May 6, 1999. (2)
10.1 Note and Mortgage in favor of GE Capital Small Business Finance
Corporation from the Company, dated September 13, 1999. (2)
10.2 Third Party Pledge Agreement in favor of First Community Bank of
America from the Company, dated October 4, 1999. (2)
10.3 Line of Credit Agreement in favor of First Community Bank of America,
from Innovative Health Products, Inc., dated December 3, 1999.
10.4 Loan and Security Agreement in favor of First Community Bank of
America, from Innovative Health Products, Inc., dated December 29,
1999.
27.1 Financial Data Schedule (for SEC use only).
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(1) Incorporated by reference to the Company's Current Report on Form 8-K,
dated September 14, 1999, 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 September 30, 1999, file number 0-23031,
filed in Washington, D.C.
(b) REPORTS ON FORM 8-K.
During the nine months ended December 31, 1999, the Company filed three
reports on Form 8-K.
Form 8-K dated April 29, 1999, with respect to a change in the
Company's certifying accountants to Grant Thornton LLP, for the fiscal year
ended March 31, 1999.
Form 8-K dated September 14, 1999, with respect to the Company entering
into an Agreement and Plan of Reorganization on September 8, 1999, to sell all
of the shares of capital stock of Becan Distributors, Inc., a wholly-owned
subsidiary of the Company, to Nutriceuticals.com Corporation.
Form 8-K dated December 8, 1999, with respect to the Company's November
26, 1999 sale of Becan Distributors, Inc.
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<PAGE>
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: May 23, 2000 By: /S/ KOTHA S. SEKHARAM
---------------------
Kotha S. Sekharam, President
and Director
Date: May 23, 2000 By: /S/ CAROL DORE-FALCONE
---------------------
Carol Dore-Falcone,
Chief Financial Officer
-16-
<TABLE>
<S> <C> <C>
INNOVATIVE HEALTH PRODUCTS, FIRST COMMUNITY BANK OF AMERICA Loan Number 24237
INC. 6100 4TH STREET NORTH Date DECEMBER 3, 1999
6950 BRYAN DAIRY RD. ST. PETERSBURG, FL 33703 Maturity Date NOV. 10, 2000
LARGO, FL 33777 Loan Amount $500,000.00
Renewal Of _______________
BORROWER'S NAME AND ADDRESS LENDER'S NAME AND ADDRESS
"I" includes each borrower above, "You" means the lender, its
joint and severally. successors and assigns.
</TABLE>
For value received, I promise to pay to you, or your order, at your address
listed above the PRINCIPAL sum of FIVE HUNDRED THOUSAND AND NO/100 * * * * * * *
* * * Dollars $500,000.00
[ ] Single Advance: I will receive all of this principal sum on ____________.
No additional advances are contemplated under this note.
[X] Multiple Advance: The principal sum shown above is the maximum amount of
principal I can borrow under this note. On DEC. 3, 1999 I will receive the
amount of $_____________ and future principal advances are comtemplated.
Conditions: The conditions for future advances are AS PER THE TERMS OF THE
LINE OF CREDIT AGREEMENT OF EVEN DATE.
[X] Open End Credit: You and I agree that I may borrow up to the maximum
amount of principal more than one time. This feature is subject to
all other conditions and expires on NOVEMBER 10, 2000.
[ ] Closed End Credit: You and I agree that I may borrow up to the
maximum only one time (and subject to all other conditions.)
INTEREST: I agree to pay interest on the outstanding principal balance from
DECEMBER 3, 1999 at the rate of 6.500% per year until FIRST CHANGE DATE.
[X] Variable Rate: This rate may then change as stated below.
[X] Index Rate: The future rate will be 2.100% OVER the following index
rate: RATE PAID ON CERTIFICATE #30023878 HYPOTHECATED BY DYANAMIC
HEALTH PRODUCTS, INC. WHICH SERVES AS COLLATERAL FOR THIS LOAN.
[ ] No index: The future rate will not be subject to any internal or
external index. It will be entirely in your control.
[X] Frequency and Timing: The rate on this note may change as often
as DAILY. A change in the interest rate will take effect ON THE
SAME DAY.
[X] Limitations: During the term of this loan, the applicable annual
interest rate will not be more than 18.000% or less than 5.000%.
The rate may not change more than 2.000% each DAY.
Effect of Variable Rate: A change in the interest rate will have the
following effect on the payments:
[X] The amount of each scheduled payment will change.
[X] The amount of the final payment will change.
[ ] __________________________________________________________.
ACCRUAL METHOD: Interest will be calculated on a ACTUAL/365 basis.
POST MATURITY RATE: I agree to pay interest on the unpaid balance of this note
owing after maturity, and until paid in full, as stated below:
[ ] on the same fixed or variable rate basis in effect before
maturity (as indicated above).
[X] at a rate equal to 18.00%.
[X] LATE CHARGE: If a payment is made more than 10 days after it is due, I
agree to pay a late charge of 5.000% OF THE LATE PAYMENT.
[X] ADDITIONAL CHARGES: In addition to interest, I agree to pay the following
charges which [ ] are [X] are not included in the principal amount above:
DOC STAMPS - $1,750.00, LOAN FEE - $125.00, COURIER FEE - $70.00.
PAYMENTS: I agree to pay this note as follows:
[X] Interest: I agree to pay accrued interest ON THE 10TH DAY OF EACH MONTH
BEGINNING JANUARY 10, 2000
[X] Principal: I agree to pay the principal NOVEMBER 10, 2000
[ ] Installments: I agree to pay this note in _______ payments. The first
payment will be in the amount of $__________________ and will be due
__________________ . A payment of $_________________ will be due
_________________________________________ thereafter. The final payment
of the entire unpaid balance of principal and interest will be due
__________________________________________.
ADDITIONAL TERMS:
<TABLE>
<CAPTION>
<S> <C>
[X] SECURITY: This note is separately secured by PURPOSE: The purpose of this loan is BUSINESS: WORKING
(describe separate document by type and date): CAPITAL
SECURITY AGREEMENT OF EVEN DATE. SIGNATURES. I AGREE TO THE TERMS OF THIS NOTE
(INCLUDING THOSE ON PAGE 2). I have received a
copy on today's date.
(This section is for your internal use. Failure
to list a separate security document does not
mean the agreement will not secure this note.)
INNOVATIVE HEALTH PRODUCTS, INC.
Signature for Lender ------------------------------
BY: /s/ Jugal K. Taneja
-----------------------
_______________________________________ JUGAL K. TANEJA, CHAIRMAN/SECRETARY
BY: /s/ Kotha Sekharam
------------------------
_______________________________________ KOTHA SEKHARAM, PRESIDENT
_________________________________
</TABLE>
<PAGE>
DEFINITIONS: As used on page 1, "[X]" means that the terms that apply to this
loan. "I," "me" or "my" means each Borrower who signs this note and each other
person or legal entity (including guarantors, endorsers, and sureties) who
agrees to pay this note (together referred as "us"). "You" or "your" means the
Lender and its successors and assigns.
APPLICABLE LAW: The law of the state of Florida will govern this note. Any term
of this note which is contrary to applicable law will not be effective, unless
the law permits you and me to agree to such a variation. If any provision of
this agreement cannot be enforced according to its terms, this fact will not
affect the enforceability of the remainder of this agreement. No modification of
this agreement may be made without your express written consent. Time is of the
essence in this agreement.
PAYMENTS: Each payment I make on this note will first reduce the amount I owe
you for charges which are neither interest nor principal. The remainder of each
payment will then reduce accrued unpaid interest and then unpaid principal. If
you and I agree to a different application of payments, we will describe our
agreement on this note. I may prepay a part of, or the entire balance of this
loan without penalty, unless we specify to the contrary on this note. Any
partial prepayment will not excuse or reduce any later scheduled payment until
this note is paid in full (unless, when I make the prepayment, you and I agree
in writing to the contrary).
INTEREST: Interest accrues on the principal remaining unpaid from time to time,
until paid in full. If I receive the principal in more than one advance, each
advance will start to earn interest only when I receive the advance. The
interest rate in effect on this note at any given time will apply to the entire
principal advanced at that time. Notwithstanding anything to the contrary, I do
not agree to pay and you do not intend to charge any rate of interest that is
higher than the maximum rate of interest you could charge under applicable law
for the extension of credit that is agreed to here (either before or after
maturity). If any notice of interest accrual is sent and is in error, we
mutually agree to correct it, and if you actually collect more interest than
allowed by law and this agreement, you agree to refund it to me.
INDEX RATE: The index will serve only as a device for setting the rate on this
note. You do not guarantee by selecting this index, or the margin, that the rate
on this note will be the same rate charge on any other loans or class of loans
to me or other borrowers.
ACCRUAL METHOD: The amount of interest that I will pay on this loan will be
calculated using the interest rate and accrual method stated on page 1 of this
note. For the purpose of interest calculation, the accrual method will determine
the number of days in a "year." If no accrual method is stated, then you may use
any reasonable accrual method for calculating interest.
POST MATURITY RATE: For purposes of deciding when the "Post Maturity rate"
(shown on page 1) applies, the term "maturity" means the date of the last
scheduled payment indicated on page 1 of this note or the date you accelerate
payment on the note, whichever is earlier.
SINGLE ADVANCE LOANS: If this is a single advance loan, you and I expect that
you will make only one advance of principal. However you may add other amounts
to the principal if you make any payments described in the "PAYMENTS BY LENDER"
paragraph below.
MULTIPLE ADVANCE LOANS: If this is a multiple advance loan, you and I expect
that you will make more than one advance of principal. If this is closed end
credit, repaying a part of the principal will not entitle me to additional
credit.
PAYMENTS BY LENDER: If you are authorized to pay, on my behalf, charges I am
obligated to pay (such as property insurance premiums), then you may treat those
payments made by you as advances and add them to the unpaid principal under this
note, or you may demand immediate payment of the charges.
SET-OFF: I agree that you may set off any amount due and payable under this note
against any right I have to receive money from you.
"Right to receive money from you" means:
(1) any deposit account balance I have with you;
(2) any money owed to me on an item presented to you or in your possession
for collection or exchange; and
(3) any repurchase agreement or other nondeposit obligation.
"Any amount due and payable under this note" means the total amount of
which you are entitled to demand payment under the terms of this note at the
time you set off. This total includes any balance the due date for which you
properly accelerate under this note.
If my right to receive money from you is also owned by someone who has not
agreed to pay this note, your right of set-off will apply to my interest in the
obligation and to any other amounts I could withdraw on my sole request or
endorsement. Your right of set-off does not apply to an account or other
obligation where my rights are only as a representative. It also does not apply
to any Individual Retirement Account or other tax-deferred retirement account.
You will not be liable for the dishonor of any check when the dishonor
occurs because you set off this debt against any of my accounts. I agree to hold
you harmless from any such claims arising as a result of your exercise of your
right of set-off.
REAL ESTATE OR RESIDENCE SECURITY: If this note is secured by real estate or a
residence that is personal property, the existence of a default and your
remedies for such a default will be determined by applicable law, by the terms
of any separate instrument creating the security interest and, to the extent not
prohibited by law and not contrary to the terms of the separate security
instrument, by the "Default" and "Remedies" paragraphs herein.
DEFAULT: I will be in default if any one or more of the following occur:
(1) I fail to make a payment on time or in the amount due;
(2) I fail to keep the property insured, if required:
(3) I fail to pay, or keep any promise, on any debt or agreement I have with
you;
(4) any other creditor of mine attempts to collect any debt I owe him through
court proceedings;
(5) I die, am declared incomptant, make an assignment for the benefit of
creditors, or become insolvent (either because my liabilities exceed my
assets or I am unable to pay my debts as they become due;
(6) I make any written statement or provide any financial information that is
untrue or inaccurate at the time it was provided;
(7) I do or fail to do something which causes you to believe that you will
have difficulty collecting the amount I owe you;
(8) any collateral securing this note is used in a manner or for a purpose
which threatens confiscation by a legal authority;
(9) I change my name or assume an additional name without first notifying you
before making such a change;
(10) I fail to plant, cultivate and harvest crops in due season;
(11) any loan proceeds are used for a purpose that will contribute to excessive
erosion of highly erodible land or to be conversion of wetlands to produce
an agricultural commodity, as further explained in 7 C.F.R the Part 1940,
Subpart G, Exhibit M.
REMEDIES: If I am in default on this note you have, but are not limited to, the
following remedies:
(1) You may demand immediate payment of all I owe you under this note
(principal, accrued unpaid interest and other accrued charges).
(2) You may set off this debt against any right I have to the payment of money
from you, subject to the terms of the "Set-off" paragraph herein.
(3) You may demand security, additional security, or additional parties to be
obligated to pay this note as a condition for not using any other remedy.
(4) You may refuse to make advances to me or allow purchases on credit by me.
(5) You may use any remedy you have under state or federal law.
By selecting any one or more of these remedies you do not give up your right to
later use any other remedy. By waiving your right to declare an event to be a
default, you do not waive your right to later consider the event as a default if
it continues or happens again.
COLLECTION COSTS AND ATTORNEY'S FEES: I agree to pay all costs of collection,
replevin or any other or similar type of cost if I am in default. In addition,
if you hire an attorney to collect this note, I also agree to pay any reasonable
fee you incur with such attorney plus court costs (except where prohibited by
law). I agree that reasonable attorneys' fees shall be construed to mean 10% of
the principal sum named in this note, or such larger fee that the court may
determine to be reasonable and just. To the extent permitted by the United
States Bankruptcy Code, I also agree to pay the reasonable attorney's fees and
costs you incur to collect this debt as awarded by any court exercising
jurisdiction under the Bankruptcy Code.
WAIVER: I give up my rights to require you to do certain things. I will not
require you to:
(1) demand payment of amounts due (presentment);
(2) obtain official certification of nonpayment (protest); or
(3) give notice that amounts due have not been paid (notice of dishonor).
I waive any defenses I have based on suretyship or impairment of collateral.
To the extent permitted by law, I also waive my right to a trial by jury in
respect to any litigation arising from this note and any other agreement
executed in conjunction with this credit transaction.
OBLIGATIONS INDEPENDENT: I understand that I must pay this note even if someone
else has also agreed to pay it (by, for example, signing this form or a separate
guarantee or endorsement). You may sue me alone, or anyone else who is obligated
on this note, or any number of us together, to collect this note. You may do so
without any notice that it has not been paid (notice of dishonor). You may
without notice release any party to this agreement without releasing any other
party. If you give up any of your rights, with or without notice, it will not
affect my duty to pay this note. Any extension of new credit to any of us, or
renewal of this note by all or less than all of us will not release me from my
duty to pay it. (Of course, you are entitled to only one payment in full.) I
agree that you may at your option extend this note or the debt represented by
this note, or any portion of the note or debt, from time to time without limit
or notice and for any term without affecting my liability for payment of the
note. I will not assign my obligation under this agreement without your prior
written approval.
CREDIT INFORMATION: I agree and authorize you to obtain credit information about
me from time to time (for example, by requesting a credit report) and to report
to others your credit experience with me (such as a credit reporting agency). I
agree to provide you, upon request, any financial statement or information you
may deem necessary. I warrant that the financial statements and information I
provide to you are or will be accurate, correct and complete.
NOTICE: Unless otherwise required by law, any notice to me shall be given by
delivering it or by mailing it by first class mail addressed to me at my last
known address. My current address is on page 1. I agree to inform you in writing
of any change in my address. I will give any notice to you by mailing it first
class to your address stated on page 1 of this agreement, or to any other
address that you have designated.
<TABLE>
<CAPTION>
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DATE OF PRINCIPAL BORROWER'S INITIALS PRINCIPAL PRINCIPAL INTEREST INTEREST INTEREST PAID
TRANSACTION ADVANCE (not required) PAYMENTS BALANCE RATE PAYMENTS THROUGH:
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<S> <C> <C> <C> <C> <C> <C> <C>
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DYNAMIC HEALTH PRODUCTS, INC
6950 BRYAN DAIRY RD.
LARGO, FL 33777
Account holder's name and address: "I" means the account holder named above. If
there is more than one, "I" means all account holders jointly and each account
holder separately.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FIRST COMMUNITY BANK OF AMERICA
6100 4TH STREET NORTH
ST. PETERSBURG, FL 33703
Secured party's name and address: "You" means the secured party named above,
your successors and assigns.
- --------------------------------------------------------------------------------
Date: DECEMBER 3, 1999
Assignment of deposit or share account: For value received, I assign and
transfer to you, and I give you a security interest in the following account(s):
FIRST COMMUNITY BANK OF AMERICA CD#30023878
and any renewals or substitutions. These account(s) will be referred to as the
collateral in the rest of this agreement. The collateral is held with: FIRST
COMMUNITY BANK OF AMERICA
which will be referred to as the depository in the rest of this agreement. The
collateral includes all funds now in the accounts listed plus all additions of
any kind and from any source, made at any time before the release of this
agreement in writing.
Secured debt(s): This agreement is made to secure the payment of:
[X] all present and future debts, of every kind and description which:
NOTE OF EVEN DATE I/A/O $500,000.00
may now or hereafter owe to you, no matter how or when these debts arise.
(We intend this paragraph to be very broad. For example, "debts" include
loans or credit purchases, made by or transferred to you, as well as debts
arising from any other relationship such as check overdrafts, forgeries, or
returned deposits. These also include debts arising from any capacity
[maker, co-maker, endorser, surety, guarantor].) If more than one person or
entity is listed, then all joint and separate debts of all those listed are
secured.
[ ] the following described debt(s), plus all extensions, renewals,
modifications and substitutions:
Additional terms: The following terms are also part of this agreement:
(1) This agreement will last until you release it in writing, and you are not
required to release it until the secured debts are paid in full.
(2) While this agreement is in effect, neither I nor anyone else (except you,
the secured party) can withdraw all or any part of the collateral.
(3) No joint owner, beneficiary, surviving spouse or representative of my estate
gets any rights in the collateral in the event of my death or incapacity
until the secured debts are paid in full.
(4) You have the right to withdraw all or any part of the collateral and apply
the withdrawal toward the payment of the secured debt(s), even if the
withdrawal causes a penalty. If a secured debt is in default you can
exercise this right without any notice to me or my consent (unless such
notice or consent is required by law and cannot be waived). You have the
right to sign my name (or sign your name as my attorney in fact) to exercise
the rights given to you in this agreement.
(5) I represent and promise that no other person or entity has any rights in the
collateral that have priority over those I am giving you here and that no
part of the collateral is exempt or protected by law from this agreement.
(6) The rights and remedies I am giving you here are in addition to any stated
in any other agreements. If there is more than one debt secured, more than
one type of collateral (including collateral outside of this agreement) or
more than one debtor liable, it is entirely in your discretion as to the
order and timing of remedies you select.
(7) I neither assume nor am excused from personal liability for any of the
secured debts merely by making this agreement; my personal liability will be
determined by referring to other documents. I do assume personal liability
for the warranties and representations made in this agreement.
(8) A debt secured by this agreement (whether specifically listed or not)
includes all sums that could possibly be due under the debt.
(9) I specifically request and direct the depository to honor and accept this
agreement and its terms.
- --------------------------------------------------------------------------------
Signature(s) of account holder(s): By signing here we accept the terms of this
agreement and acknowledge receipt of a copy.
BY: /s/ Kotha Sekharam
----------------------------
KOTHA SEKHARAM, PRESIDENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Notice to depository:
Date: DECEMBER 3, 1999
To: FIRST COMMUNITY BANK
[ ] This confirms our oral notice dated:
Please take notice of this agreement. Please confirm your receipt of this notice
and your acceptance of its terms by completing the acknowledgement portion and
returning a copy to the secured party.
By:
CINDY BERNARD
- -------------------------------------
For the secured party
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Acknowledgement by the depository:
Date: DECEMBER 3, 1999
To: FIRST COMMUNITY BANK
We have received your notice of this agreement. We agree that no account holder
or any other person (other than you, the secured party) has any right to make
any withdrawals from the collateral until this agreement is released in writing
by you.
By:
- -------------------------------------
For the depository
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Release by secured party:
Date:
To: FIRST COMMUNITY BANK
This is to advise you that the assignment and security interest in the
collateral described above has been released and the original certificate, or
passbook or other evidence of the collateral (if any) has been returned to the
account holder(s).
By:
- -------------------------------------
For the secured party
- --------------------------------------------------------------------------------
(page 1 of 1)
<PAGE>
LINE OF CREDIT AGREEMENT
Innovative Health FIRST COMMUNITY BANK OF AMERICA
Products, Inc. P.O. Box 20559
6950 Bryan Dairy Rd. St. Petersburg, Florida
Largo, Florida 33777 33742
Loan #: 24237
Date: December 3, 1999
Credit Line Amount: $500,000.00
You have extended to me a line of credit in the amount of Five Hundred
Thousand and 00/100 ($500,000.00).
You will make loans to me from time to time until 5:00 p.m. on November
10, 2000. Although the line of credit expires on that date, I will remain
obligated to perform all my duties under this agreement so long as I owe you any
money advanced according to the terms of this agreement, as evidenced by any
note or notes I have signed promising to repay these amounts.
This line of credit is an agreement between you and me. It is not
intended that any third party receive any benefit from this agreement, whether
by direct payment, reliance for future payment or in any other manner. This
agreement is not a letter of credit.
1. AMOUNT: This line of credit is:
[XX] OBLIGATORY: You may not refuse to make a loan to me under this line
of credit unless one of the following occurs:
a: I have borrowed the maximum amount available to me;
b: This line of credit has expired;
c: I have defaulted on the note (or notes) which show my indebtedness under
this line of credit;
d: I have violated any term of this line of credit or any note or other
agreement entered into in connection with this line of credit;
e: N/A
[ ]DISCRETIONARY: You may refuse to make a loan to me under this line of credit
once the aggregate outstanding advances equal or exceed $N/A.
Subject to the obligatory or discretionary limitations above, this line of
credit is:
[XX] OPEN-ENDED (Business or Agricultural only): I may borrow up to the
maximum amount of principal more than one time.
[ ] CLOSE-END I may borrow up to the maximum only one time.
2. PROMISSORY NOTE: I will repay any advances made according to this line of
credit agreement as set out in the promissory note I signed on December 3, 1999,
or any other note(s) I sign at a later time which represent advances under this
agreement. The note(s) set(s) out the terms relating to maturity, interest rate,
repayment and advances. If indicated on the promissory note, the advances will
be made as follows:
I hereby authorize Lender to pay advances against any loan with Lender
which I am a signer, maker, co-maker or guarantor or deposit any advances
into my deposit account with Lender on which I am a signer, these advances
can be authorized by me or my designated representative in writing or
verbally, either in person or by phone. The minimum draw amount will be
$1,000.00 or the balance of the Line.
3. RELATED DOCUMENTS: I have signed the following documents in connection with
this line of credit and note(s) entered into in accordance with this line of
credit:
Security Agreement dated December 3, 1999;
Savings Assignment dated December 3, 1999.
4. REMEDIES: If I am in default on the notes you may:
a: take any action as provided in the related documents;
b: without notice to me, terminate this line of credit;
By selecting any of these remedies you do not give up your right to later use
any other remedy. By deciding not use any remedy should I default, you do not
waive your right to later consider the event a default, if it happens again.
5. COSTS AND FEES: If you hire an attorney to enforce this agreement I will pay
your reasonable attorney's fees, where permitted by law. I will also pay your
court costs and cost of collection, where permitted by law.
6. COVENANTS: For as long as this line of credit is in effect or I owe you money
for advances made in accordance with the line of credit, I will do the
following:
a: maintain books and records of my operations relating to the need for
this line of credit;
b: permit you or any or your representatives to inspect and/or copy these
records;
c: provide to you any documentation requested by you which support the
reason for making any advance under this line of credit;
d: permit you to make any advance payable to the seller (or seller and me)
of any items being purchase with that advance;
e: provide periodic financial statements as you may reasonably request from
time to time;
f: N/A
7. NOTICES: All notices or other correspondence with me should be sent to my
address stated above. The notice or correspondence shall be effective when
deposited in the mail, first class, or delivered to me in person.
8. MISCELLANEOUS: This line of credit may not be changed except by a written
agreement signed by you and me. The laws of the State of Florida will govern
this agreement. Any term of this agreement which is contrary to applicable law
will not be effective, unless the law permits you and me to agree to such a
variation.
First Community Bank of America SIGNATURES: I AGREE TO THE TERMS OF
THIS LINE OF CREDIT. I HAVE
RECEIVED A COPY ON TODAY'S DATE.
Innovative Health Products, Inc.
<Signature Appears here> <Signature Appears here>
- ------------------------- -----------------------------------
Scott C. Boyle, President Jugal K. Taheja, Chairman/Secretary
<Signature Appears here>
-----------------------------------
Kotha Seharam, President
INNOVATIVE HEALTH PRODUCTS, INC.
6950 BRYAN DAIRY ROAD
LARGO, FL 33777
BORROWER'S NAME AND ADDRESS
"I" includes each Borrower above, joint and severally.
FIRST COMMUNITY BANK OF AMERICA
6100 4TH STREET NORTH
ST. PETERSBURG, FL 33703
LENDER'S NAME AND ADDRESS
"You" means the lender, its successors and assigns.
Loan Number 22131
-----------------------
Date DECEMBER 29, 1999
-----------------------------
Maturity Date JANUARY 5, 2003
--------------------
Loan Amount $89,530.60
----------------------
Renewal Of
-----------------------
For value received, I promise to pay to you, or your order, at your address
listed above the PRINCIPAL sum of EIGHTY NINE THOUSAND FIVE HUNDRED THIRTY AND
60/100* * * * * * * * * * * * * * Dollars $89,530.60
[X] SINGLE ADVANCE: I will receive all of this principal sum on DECEMBER 29,
1999. No additional advances are contemplated under this note.
[ ] MULTIPLE ADVANCE: The principal sum shown above is the maximum amount of
principal I can borrow under this note. On _______________ I will
receive the amount of $___________________ and future principal
advances are contemplated.
CONDITIONS: The conditions for future advances are__________________________
____________________________________________________________________________
[ ] OPEN END CREDIT: You and I agree that I may borrow up to the maximum
amount of principal more than one time. This feature is subject to all
other conditions and expires on _________________.
[ ] CLOSED END CREDIT: You and I agree that I may borrow up to the maximum
only one time (and subject to all other conditions).
INTEREST: I agree to pay interest on the outstanding principal balance from
DECEMBER 29, 1999 at the rate of 9.500% per year until JANUARY 5, 2003.
[ ] VARIABLE RATE: This rate may then change as stated below.
[ ] INDEX RATE: The future rate will be ___________ the following index
rate:__________________________________________________________________
_______________________________________________________.
[ ] NO INDEX: The future rate will not be subject to any internal or
external index. It will be entirely in your control.
[ ] FREQUENCY AND TIMING: The rate on this note may change as often as
__________________________________________________________________.
A change in the interest rate will take effect ___________________.
[ ] LIMITATIONS: During the term of this loan, the applicable annual
interest rate will not be more than _______% or less than ______%. The
rate may not change more than _______% each ________.
EFFECT OF VARIABLE RATE: A change in the interest rate will have the
following effect on the payments:
[ ] The amount of each scheduled payment will change.
[ ] The amount of the final payment will change.
[ ] ______________________________________________.
ACCRUAL METHOD: Interest will be calculated on a ACTUAL/365 basis.
POST MATURITY RATE: I agree to pay interest on the unpaid balance of this note
owing after maturity, and until paid in full, as stated below:
[ ] on the same fixed or variable rate basis in effect before maturity (as
indicated above).
[X] at a rate equal to 18.00%
[X] LATE CHARGE: If a payment is made more than 10 days after it is due, I agree
to pay a late charge of 5.000% OF THE LATE PAYMENT.
[X] ADDITIONAL CHARGES: In addition to interest, I agree to pay the following
charges which [X] are [ ] are not included in the principal amount above:
DOC STAMPS - $313.60, UCC-I FILING FEE - $34.00, LOAN FEE - $125.00.
PAYMENTS: I agree to pay this note as follows:
[ ] INTEREST: I agree to pay accrued interest _____________________________
_______________________________________________________________________.
[ ] PRINCIPAL: I agree to pay the principal _______________________________.
[X] INSTALLMENTS: I agree to pay this note in 36 payments. The first payment
will be in the amount of $2,873.24 and will be due FEBRUARY 5,2000.
A payment of $2,873.24 will be due ON THE 5TH DAY OF EACH MONTH thereafter.
The final payment of this entire unpaid balance of principal and interest
will be due JANUARY 5, 2003.
ADDITIONAL TERMS:
[X] SECURITY: This note is separately secured by (describe separate document by
type and date); SECURITY AGREEMENT OF EVEN DATE.
(This section is for your internal use. Failure to list a separate security
document does not mean the agreement will not secure this note.)
Signature for Lender
____________________________________
____________________________________
PURPOSE: The purpose of this loan is
BUSINESS: PURCHASE EQUIPMENT.
SIGNATURES: I AGREE TO THE TERMS OF
THIS NOTE (INCLUDING THOSE ON PAGE 2).
I have received a copy on today's date.
INNOVATIVE HEALTH PRODUCTS, INC.
- -------------------------------------
BY: /s/ KOTHA SEKHARAM
- -------------------------------------
KOTHA SEKHARAM, PRESIDENT
BY: /s/ MIHIR TANEJA
- -------------------------------------
MIHIR TANEJA, VP
<PAGE>
DEFINITIONS: As used on page 1, "[X]" means the terms that apply to this loan.
"I", "me" or "my" means each Borrower who signs this note and each other person
or legal entity (including guarantors, endorsers, and sureties) who agrees to
pay this note (together referred to as "us", "You" or "your" means the Lender
and its successors and assigns.
APPLICABLE LAW: The law of the state of Florida will govern this note. Any
term of this note which is contrary to applicable law will not be effective,
unless the law permits you and me to agree to such a variation. If any provision
of this agreement cannot be enforced according to its terms, this fact will not
affect the enforceability of the remainder of this agreement. No modification of
this agreement may be made without your express written consent. Time is of the
essence in this agreement.
PAYMENTS: Each payment I make on this note will first reduce the amount I owe
you for charges which are neither interest nor principal. The remainder of each
payment will then reduce accrued unpaid interest, and then unpaid principal. If
you and I agree to different application of payments, we will describe our
agreement on this note. I may prepay a part of, or the entire balance of this
loan without penalty, unless we specify to the contrary on this note. Any
partial prepayment will not excuse or reduce any later scheduled payment until
this note is paid in full (unless, when I make the prepayment, you and I agree
in writing to the contrary).
INTEREST: Interest accrues on the principal remaining unpaid from time to time,
until paid in full. If I receive the principal in more than one advance, each
advance will start to earn interest only when I receive the advance. The
interest rate in effect on this note at any given time will apply to the entire
principal advanced at that time. Notwithstanding anything to the contrary, I do
not agree to pay and you do not intend to charge any rate of interest that is
higher than the maximum rate of interest you could charge under applicable law
for the extension of credit that is agreed to here (either before or after
maturity). If any notice of interest accrual is sent and is in error, we
mutually agree to correct it, and if you actually collect more interest than
allowed by law and this agreement, you agree to refund it to me.
INDEX RATE: The index will serve only as a device for setting the rate on this
note. You do not guarantee by selecting this index, or the margin, that the rate
on this note will be the same rate you charge on any other loans or class of
loans to me or other borrowers.
ACCRUAL METHOD: The amount of interest that I will pay on this loan will be
calculated using the interest rate and accrual method stated on page 1 of this
note. For the purpose of interest calculation, the accrual method will determine
the number of days in a "year". If no accrual method is stated, then you may use
any reasonable accrual method for calculating interest.
POST MATURITY RATE: For purposes of deciding when the "Post Maturity Rate"
(shown on page 1) applies, the term "maturity" means the date of the last
scheduled payment indicated on page 1 of this note or the date you accelerate
payment on the note, whichever is earlier.
SINGLE ADVANCE LOANS: If this is a single advance loan, you and I expect that
you will make only one advance of principal. However, you may add other amounts
to the principal if you make any payments described in the "PAYMENTS BY LENDER"
paragraph below.
MULTIPLE ADVANCE LOANS: If this is a multiple advance loan, you and I expect
that you will make more than one advance of principal. If this is closed end
credit, repaying a part of the principal will not entitle me to additional
credit.
PAYMENTS BY LENDER: If you are authorized to pay, on my behalf, charges I am
obligated to pay (such as property insurance premiums), then you may treat those
payments made by you as advances and add them to the unpaid principal under this
note, or you may demand immediate payment of the charges.
SET-OFF: I agree that you may set off any amount due and payable under this
note against any right I have to receive money from you.
"Right to receive money from you" means:
(1) any deposit account balance I have with you;
(2) any money owed to me on an item presented to you or in your possession for
collection or exchange; and
(3) any repurchase agreement or other nondeposit obligation.
"Any amount due and payable under this note" means the total amount of which
you are entitled to demand payment under the terms of this note at the time you
set off. This total includes any balance the due date for which you properly
accelerate under this note.
If my right to receive money from you is also owned by someone who has not
agreed to pay this note, your right of set-off will apply to my interest in the
obligation and to any other amounts I could withdraw on my sole request or
endorsement. Your right of set-off does not apply to an account or other
obligation where my rights are only as a representative. It also does not apply
to any Individual Retirement Account or other tax-deferred retirement account.
You will not be liable for the dishonor of any check when the dishonor occurs
because you set off this debt against any of my accounts. I agree to hold you
harmless from any such claims arising as a result of your exercise of your right
of set-off.
REAL ESTATE OR RESIDENCE SECURITY: If this note is secured by real estate or a
residence that is personal property, the existence of a default and your
remedies for such a default will be determined by applicable law, by the terms
of any separate instrument creating the security interest and, to the extent not
prohibited by law and not contrary to the terms of the separate security
instrument, by the "Default" and "Remedies" paragraphs herein.
DEFAULT: I will be in default if any one or more of the following occur: (1) I
fail to make a payment on time or in the amount due; (2) I fail to keep the
property insured, if required: (3) I fail to pay, or keep any promise, on any
debt or agreement I have with you; (4) any other creditor of mine attempts to
collect any debt I ow him through court proceedings; (5) I die, am declared
incompetant, make an assignment for the benefit of creditors, or become
insolvent (either because my liabilities exceed my assets or I am unable to pay
my debts as they become due); (6) I make any written statement or provide any
financial information that is untrue or inaccurate at the time it was provided;
(7) I do or fail to do something which causes you to believe that you will have
difficulty collecting the amount I owe you; (8) any collateral securing this
note is used in a manner or for a purpose which threatens confiscation by a
legal authority; (9) I change my name or assume an additional name without
first notifying you before making such a change; (10) I fail to plant, cultivate
and harvest crops in due season; (11) any loan proceeds are used for a purpose
that will contribute to excessive erosion of highly erodible land or to the
conversion of wetlands to produce an agricultural commodity, as further
explained in 7 C.F.R. Part 1940, Subpart G, Exhibit M.
REMEDIES: If I am in default on this note you have, but are not limited to, the
following remedies:
(1) You may demand immediate payment of all I owe you under this note
(principal, accrued unpaid interest and other accrued charges).
(2) You may set off this debt against any right I have to the payment of
money from you, subject to the terms of the "Set-off" paragraph herein.
(3) You may demand security, additional security, or additional parties to be
obligated to pay this note as a condition for not using any other remedy.
(4) You may refuse to make advances to me or allow purchases on credit by me.
(5) You may use any remedy you have under state or federal law.
By selecting any one or more of these remedies you do not give up your right to
later use any other remedy. By waiving your right to declare an event to be a
default, you do not waive your right to later consider the an event as a default
if it continues or happens again.
COLLECTION COSTS AND ATTORNEY'S FEES: I agree to pay all costs of collection,
replevin, or any other or similar type of cost if I am in default. In addition,
if you hire an attorney to collect this note, I also agree to pay any reasonable
fee you incur with such attorney plus court costs (except where prohibited by
law). I agree that reasonable attorneys' fees shall be construed to mean 10% of
the principal sum named in this note, or such larger fee that the court may
determine to be reasonable and just. To the extent permitted by the United
States Bankruptcy Code, I also agree to pay the reasonable attorney's fees and
costs you incur to collect this debt as awarded by any court exercising
jurisdiction under the Bankruptcy Code.
WAIVER: I give up my right to require you to do certain things. I will not
require you to:
(1) demand payment of amounts due (presentment);
(2) obtain official certification of nonpayment (protest); or
(3) give notice that amounts due have not been paid (notice of dishonor).
I waive any defenses I have based on suretyship or impairment of collateral.
TO THE EXTENT PERMITTED BY LAW, I ALSO WAIVE MY RIGHT TO A TRIAL BY JURY IN
RESPECT TO ANY LITIGATION ARISING FROM THIS NOTE AND ANY OTHER AGREEMENT
EXECUTED IN CONJUNCTION WITH THIS CREDIT TRANSACTION.
OBLIGATIONS INDEPENDENT: I understand that I must pay this note even if someone
else has also agreed to pay it (by, for example, signing this form or a separate
guarantee or endorsement). You may sue me alone, or anyone else who is obligated
on this note, or any number of us together, to collect this note. You may do so
without any notice that it has not been paid (notice of dishonor). You may
without notice release any party to this agreement without releasing any other
party. If you give up any of your rights, with or without notice, it will not
affect my duty to pay this note. Any extension of new credit to any of us, or
renewal of this note by all or less than all of us will not release me from my
duty to pay it. (Of course, you are entitled to only one payment in
full). I agree that you may at your option extend this note or the debt
represented by this note, or any portion of the note or debt, from time to time
without limit or notice and for any term without affecting my liability for
payment of the note, I will not assign my obligation under this agreement
without your prior written approval.
CREDIT INFORMATION; I agree and authorize you to obtain credit information about
me from time to time (for example, by requesting a credit report) and to report
to others your credit experience with me (such as a credit reporting agency). I
agree to provide you, upon request, any financial statement or information you
may deem necessary. I warrant that the financial statements and information I
provide to you are or will be accurate, correct and complete.
NOTICE: Unless otherwise required by law, any notice to me shall be given by
delivering it or by mailing it by first class mail addressed to me at my last
known address. My current address is on page 1. I agree to inform you in writing
of any change in my address. I will give any notice to you by mailing it first
class to your address stated on page 1 of this agreement, or to any other
address that you have designated.
<TABLE>
<CAPTION>
DATE OF PRINCIPAL BORROWER'S PRINCIPAL PRINCIPAL INTEREST INTEREST INTEREST
TRANSACTION ADVANCE INITIALS PAYMENTS BALANCE RATE PAYMENTS PAID
(NOT REQUIRED) THROUGH
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
/ / $ $ $ % $ / /
- ---------------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- ---------------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- ---------------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
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/ / $ $ $ % $ / /
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/ / $ $ $ % $ / /
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/ / $ $ $ % $ / /
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/ / $ $ $ % $ / /
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/ / $ $ $ % $ / /
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/ / $ $ $ % $ / /
- ---------------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
INNOVATIVE HEALTH PRODUCTS, INC.
6950 BRYAN DAIRY ROAD
LARGO, FLORIDA 33777
TAXPAYER I.D. NUMBER: 59-2600232
DEBTOR'S NAME, ADDRESS AND SSN OR TIN
("I" means each Debtor who signs.)
FIRST COMMUNITY BANK OF AMERICA
6100 4TH STREET NORTH
ST. PETERSBURG, FL 33703
SECURED PARTY'S NAME AND ADDRESS
("You" means the Secured Party, its successors and assigns.)
I am entering into this security agreement with you on DECEMBER 29, 1999 (date).
SECURED DEBTS. I agree that this security agreement will secure the payment and
performance of the debts, liabilities or obligations described below that
(Check one) [X] / [ ] (name)_________________________________________________
__________________________________________ owe(s) to you now or in the future:
(Check one below):
[X] Specific Debt(s). The debt(s), liability or obligations evidenced by
(describe): NOTE OF EVEN DATE IN THE AMOUNT OF $89,530.60 and all
extensions, renewals, refinancings, modifications and replacements of
the debt, liability or obligation.
[ ] All Debt(s). Except in those cases listed in the "LIMITATIONS"
paragraph on page 2, each and every debt, liability and obligation of
every type and description (whether such debt, liability or obligation
now exists or is incurred or created in the future and whether it is or
may be direct or indirect, due or to become due, absolute or
contingent, primary or secondary, liquidated or unliquidated, or joint
several or joint and several.
SECURITY INTEREST. To secure the payment and performance of the above described
Secured Debts, liabilities and obligations, I give you a security interest in
all of the property described below that I now own and that I may own in the
future (including but not limited to, all parts, accessories, repairs,
improvements, and accessions to the property), wherever the property is or may
be located, and all proceeds and products from the property.
[ ] INVENTORY: All inventory which I hold for ultimate sale or lease, or which
has been or will be supplied under contracts of service, or which are raw
materials, work in process, or materials used or consumed in my business.
[ ] EQUIPMENT: All equipment including, but not limited to, all machinery,
vehicles, furniture, fixtures, manufacturing equipment, farm machinery and
equipment, shop equipment, office and recordkeeping equipment, and parts
and tools. All equipment described in a list or schedule which I give to
you will also be included in the secured property, but such a list is not
necessary for a valid security interest in my equipment.
[ ] FARM PRODUCTS: All farm products including, but not limited to:
(a) all poultry and livestock and their young, along with their products,
produce and replacements;
(b) all crops, annual or perennial, and all products of the crops; and
(c) all feed, seed, fertilizer, medicines, and other supplies used or
produced in my farming operations.
[ ] ACCOUNTS, INSTRUMENTS, DOCUMENTS, CHATTEL PAPER AND OTHER RIGHTS TO
PAYMENT: All rights I have now and that I may have in the future to the
payment of money including, but not limited to:
(a) payment for goods and other property sold or leased or for services
rendered, whether or not I have earned such payment by performance,
and
(b) rights to payment arising out of all present and future debt
instruments, chattel paper and loans and obligations receivable.
The above include any rights and interests (including all liens and
security interests) which I may have by law or agreement against any
account debtor or obligor of mine.
[ ] GENERAL INTANGIBLES: All general intangibles including, but not limited to
tax refunds, applications for patents, patents, copyrights, trademarks,
trade secrets, good will, trade names, customer lists, permits and
franchises, and the right to use my name.
[ ] GOVERNMENT PAYMENTS AND PROGRAMS: All payments, accounts, general
intangibles, or other benefits (including, but not limited to, payments in
kind, deficiency payments, letters of entitlement, warehouse receipts,
storage payments, emergency assistance payments, diversion payments, and
conservation reserve payments) in which I now have and in the future may
have any rights or interest and which arise under or as a result of any
preexisting, current or future Federal or state governmental program
(including, but not limited to, all programs administered by the Commodity
Credit Corporation and the ASCS).
[X] The secured property includes, but is not limited by the following:
IMA 4OF INTERMITTENT CAPSULE FILLING MACHINE SERIAL #44506
If this agreement covers timber to be cut, minerals (including oil and gas),
fixtures or crops growing or to be grown, the legal description is:
I am a(n) [ ] individual [ ] partnership [X] corporation
[ ] __________________________________________________
[ ] If checked, file this agreement in the real estate records.
Record Owner (if not me): ________________________________________
__________________________________________________________________
__________________________________________________________________
The property will be use for [ ] personal [X] business
[ ] agricultural [ ] ______________________ reasons.
FIRST COMMUNITY BANK OF AMERICA
- ------------------------------------------------------------------
(Secured Party's Name)
By:_______________________________________________________________
SCOTT C. BOYLE
Title: PRESIDENT/CEO
------------------------------------------------------------
I AGREE TO THE TERMS SET OUT ON BOTH PAGE 1 AND PAGE 2 OF THIS AGREEMENT. I have
received a copy of this document on today's date.
INNOVATIVE HEALTH PRODUCTS, INC.
- ------------------------------------------------------------------
(Debtor's Name)
By: /s/ KOTHA SEKHARAM
----------------------
KOTHA SEKHARAM
Title: PRESIDENT
-------------------
By: /s/ MIHIR TANEJA
----------------------
MIHIR TANEJA
Title: VP
-------------------
<PAGE>
GENERALLY - "You" means the Secured Party identified on page 1 of this
agreement. "I", "me" and "my" means each person who signs this security
agreement as Debtor and who agrees to give the property described in this
agreement as security for the Secured Debts. All terms and duties under this
agreement are joint and individual. No modification of this security agreement
is effective unless made in writing and signed by you and me. This security
agreement remains in effect, even if the note is paid and I owe no other debt to
you, until discharged in writing. Time is of the essence in this agreement.
APPLICABLE LAW - I agree that this security agreement will be governed by the
law of the state in which you are located. If property described in this
agreement is located in another state, this agreement may also, in some
circumstances, be governed by the law of the state in which the property is
located.
To the extent permitted by law, the terms of this agreement may vary
applicable law. If any provision of applicable law may not be varied by
agreement, any provision of this agreement that does not comply with that law
will not be effective. If any provision of this agreement cannot be enforced
according to its terms, this fact will not affect the enforceability of the
remainder of this agreement.
OWNERSHIP AND DUTIES TOWARD PROPERTY - I represent that I own all of the
property, or to the extent his is a purchase money security interest I will
acquire ownership of the property with the proceeds of the loan. I will defend
it against any other claim. Your claim to the property is ahead of the claims of
any other creditor. I agree to do whatever you require to protect your security
interest and to keep your claim in the property ahead of the claims of other
creditors. I will not do anything to harm your position.
I will keep books, records and accounts about the property and my business
in general. I will let you examine these records at any reasonable time. I will
prepare any report or accounting you request, which deals with the property.
I will keep the property in my possession and will keep it in good repair
and use it only for the purpose(s) described on page 1 of this agreement. I will
not change this specified use without your express written permission. I
represent that I am the original owner of the property and, if I am not, that I
have provided you with a list of prior owners of the property.
I will keep the property at my address listed on page 1 of this agreement,
unless we agree I may keep it at another location. If the property is to be used
in another state, I will give you a list of those states. I will not try to sell
the property unless it is inventory or I receive your written permission to do
so. If I sell the property I will have the payment made payable to the order of
you and me.
You may demand immediate payment of the debt(s) if the debtor is not a
natural person and without your prior written consent (1) a beneficial interest
in the debtor is sold or transferred or (2) there is a change in either the
identity or number of members of a partnership or (3) there is a change in
ownership of more than 25 percent of the voting stock of a corporation.
I will pay all taxes and charges on the property as they become due. You
have the right of reasonable access in order to inspect the property. I will
immediately inform you of any loss or damage to the property.
LIMITATIONS - This agreement will not secure a debt described in the section
entitled "Secured Debts" on page 1:
1) if you fail to make any disclosure of the existence of this security
interest required by law for such other debt;
2) if this security interest is in my principal dwelling and you fail to
provide (to all persons entitled) any notice of right or rescission
required by law for such other debt;
3) to the extent that this security interest is in "household goods" and
the other debt to be secured is a "consumer" loan (as those terms are
defined in applicable federal regulations governing unfair and deceptive
credit practices);
4) if this security interest is in margin stock subject to the requirements
of 12 C.F.R. Section 207 or 221 and you do not obtain a statement of
purpose if required under these regulations with respect to that debt;
or
5) if this security interest is unenforceable by law with respect to that
debt.
PURCHASE MONEY SECURITY INTEREST - For the sole purpose of determining the
extent of a purchase money security interest arising under this security
agreement: (a) payments on any non-purchase money loan also secured by this
agreement will not be deemed to apply to the purchase money loan, and (b)
payments on the purchase money loan will be deemed to apply first to the
non-purchase money portion of the loan, if any, and then to the purchase money
obligations in the order which the items of collateral were acquired or if
acquired at the same time, in the order selected by you. No security interest
will be terminated by application of this formula. "Purchase money loan" means
any loan the proceeds of which, in whole or in part, are used to acquire any
collateral securing the loan and all extensions, renewals, consolidations and
refinancings of such loan.
AUTHORITY OF SECURED PARTY TO MAKE ADVANCES AND PERFORM FOR DEBTOR - I agree to
pay you on demand any sums you advanced on my behalf including, but not limited
to, expenses incurred in collecting, insuring, conserving, or protecting the
property or in any inventories, audits, inspections or other examinations by you
in respect to the property. If I fail to pay such sums, you may do so for me,
adding the amount paid to the other amounts secured by this agreement. All such
sums will be due on demand and will bear interest at the highest rate provided
in any agreement, note or other instrument evidencing the Secured Debt(s) and
permitted by law at the time of the advance.
If I fail to perform any of my duties under this security agreement, or any
mortgage, deed of trust, lien or other security interest, you may without notice
to me perform the duties or cause them to be performed. I understand that this
authorization includes, but is not limited to, permission to: (1) prepare, file,
and sign my name to any necessary reports or accountings; (2) notify any account
debtor of your interest in this property and tell the account debtor to make the
payments to you or someone else you name, rather than me; (3) place on any
chattel paper a note indicating your interest in the property; (4) in my name,
demand, collect, receive and give a receipt for, compromise, settle, and handle
any suits or other proceedings involving the collateral; (5) take any action you
feel is necessary in order to realize on the collateral, including performing
any part of a contract or endorsing it in my name; and (6) make an entry on my
books and records showing the existence of the security agreement. Your right to
perform for me shall not create an obligation to perform and your failure to
perform will not preclude you from exercising any of your other rights under the
law or this security agreement.
INSURANCE - I agree to buy insurance on the property against the risks and for
the amounts you require and to furnish you continuing proof of coverage. I will
have the insurance company name you as loss payee on any such policy. You may
require added security if you agree that insurance proceeds may be used to
repair or replace the property. I will buy insurance from a firm licensed to do
business in the state where you are located. The firm will be reasonable
acceptable to you. The insurance will last until the property is released from
this agreement. If I fail to buy or maintain the insurance (or fail to name you
as loss payee) you may purchase it yourself.
WARRANTIES AND REPRESENTATIONS - If this agreement includes accounts, I will not
settle any account for less than its full value without your written permission.
I will collect all accounts until you tell me otherwise. I will keep the
proceeds from all the accounts and any goods which are returned to me or which I
take back in trust for you. I will not mix them with any other property of mine.
I will deliver them to you at your request. If you ask me to pay you the full
price on any returned items or items retaken by myself, I will do so.
If this agreement covers inventory, I will not dispose of it except in my
ordinary course of business at the fair market value for the property, or at a
minimum price established between you and me.
If this agreement covers farm products I will provide you, at you request,
a written list of the buyers, commission merchants or selling agents to or
through whom I may sell my farm products. In addition to those parties named on
this written list, I authorize you to notify at your sole discretion any
additional parties regarding your security interest in my farm products. I
remain subject to all applicable penalties for selling my farm products in
violation of my agreement with you and the Food Security Act. In this paragraph
the terms farm products, buyers, commission merchants and selling agents have
the meanings given to them in the Federal Food Security Act of 1985.
DEFAULT - I will be in default if any one or more of the following occur: (1) I
fail to make a payment on time or in the amount due; (2) I fail to keep the
property insured, if required; (3) I fail to pay, or keep any promise, on any
debt or agreement I have with you; (4) any other creditor of mine attempts to
collect any debt I owe him through court preceedings; (5) I die, am declared
incompetent, make an assignment for the benefit of creditors, or become
insolvent (either because my liabilities exceed my assets or I am unable to pay
my debts as they become due); (6) I make any written statement or provide any
financial information that is untrue or inaccurate at the time it was provided;
(7) I do or fail to do something which causes you to believe that you will have
difficulty collecting the amount I owe you; (8) I change my name or assume an
additional name without first notifying you before making such a change; (9)
failure to plant, cultivate and harvest crops in due season; (10) if any loan
proceeds are used for a purpose that will contribute to excessive erosion of
highly erodible land or to the conversion of wetlands to produce an agricultural
commodity, as further explained in 7 C. F. R. Part 1940, Subpart G, Exhibit M.
REMEDIES - If I am in default on this agreement, you have the following
remedies:
1) You may demand immediate payment of all I owe you under any obligation
secured by this agreement.
2) You may set off any obligation I have to you against any right I have to
the payment of money from you.
3) You may demand more security or new parties obligated to pay any debt I
owe you as a condition of giving up any other remedy.
4) You may make use of any remedy you have under state or federal law.
5) If I default by failing to pay taxes or other charges, you may pay them
(but you are not required to do so). I will repay to you the amount you
paid plus interest at the highest contract rate.
6) You may require me to gather the property and make it available to you
in a reasonable fashion.
7) You may repossess the property and sell it as provided by law. You may
repossess the property so long as the repossession does not involve a
breach of the peace or an illegal entry onto my property. You may sell
the property as provided by law. You may apply what you receive from the
sale of the property to: your expenses; your reasonable attorneys' fees
and legal expenses (where not prohibited by law); any debt I owe you. If
what you receive from the sale of the property does not satisfy the
debts, you may take me to court to recover the difference (where
permitted by law).
I agree that 10 days written notice sent to my address listed on page 1
by first class mail will be reasonable notice to me under the Uniform
Commercial Code.
If any items not otherwise subject to this agreement are contained in
the property when you take possession, you may hold these items for me
at my risk and you will not be liable for taking possession of them.
8) In some cases, you may keep the property to satisfy the debt. You may
enter upon and take possession of all or any part of my property, so
long as you do not breach the peace or illegally enter onto the
property, including lands, plants, buildings, machinery, and equipment
as may be necessary to permit you to manufacture, produce, process,
store or sell or complete the manufacture, production, processing,
storing or sale of any of the property and to use and operate the
property for the length of time you feel is necessary to protect your
interest all without payment or compensation to me.
By choosing any one or more of these remedies, you do not waive your right
to later use any other remedy. You do not waive a default if you choose not to
use any remedy, and by electing not to use any remedy, you do not waive your
right to later consider the event a default and to immediately use any remedies
if it continues or occurs again.
FILING - A carbon, photographic or other reproduction of this security agreement
or the financing statement covering the property described in this agreement may
be used as a financing statement where allowed by law. Where permitted by law,
you may file a financing statement which does not contain my signature, covering
the property secured by this agreement.
CO-MAKERS - If more than one of us has signed this agreement, we are all
obligated equally under the agreement. You may sue any one of us or any of us
together if this agreement is violated. You do not have to tell me if any term
of the agreement has not been carried out. You may release any co-signer and I
will still be obligated under this agreement. You may release any of the
security and I will still be obligated under this agreement. Waiver by you of
any of your rights will not affect my duties under this agreement. Extending
this agreement or new obligations under this agreement will not affect my duty
under the agreement.
<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
financialstatements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,675,657
<SECURITIES> 0
<RECEIVABLES> 1,021,028
<ALLOWANCES> 121,268
<INVENTORY> 1,606,513
<CURRENT-ASSETS> 5,703,468
<PP&E> 3,141,571
<DEPRECIATION> 382,124
<TOTAL-ASSETS> 18,557,791
<CURRENT-LIABILITIES> 4,037,672
<BONDS> 0
850,000
0
<COMMON> 35,352
<OTHER-SE> 8,701,914
<TOTAL-LIABILITY-AND-EQUITY> 18,557,791
<SALES> 9,465,798
<TOTAL-REVENUES> 9,465,798
<CGS> 8,385,012
<TOTAL-COSTS> 8,385,012
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 132,000
<INCOME-PRETAX> 10,827,986
<INCOME-TAX> 3,964,467
<INCOME-CONTINUING> 6,863,519
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,863,519
<EPS-BASIC> 1.94
<EPS-DILUTED> 1.94
</TABLE>
