-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ECX/SBYFHxQ53Bt27NL78M3nuql3vMhnNTlezVvL8b2RCpfX48aQQQqAnkwFFjnn V3EgEYJfaV8PIVinRoj2bw== 0001016843-99-000192.txt : 19990303 0001016843-99-000192.hdr.sgml : 19990303 ACCESSION NUMBER: 0001016843-99-000192 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990302 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DYNAMIC HEALTH PRODUCTS INC CENTRAL INDEX KEY: 0000949925 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CATALOG & MAIL-ORDER HOUSES [5961] IRS NUMBER: 341711778 STATE OF INCORPORATION: FL FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10QSB/A SEC ACT: SEC FILE NUMBER: 000-23031 FILM NUMBER: 99555172 BUSINESS ADDRESS: STREET 1: 6950 BRYAN DAIRY ROAD STREET 2: STE 325 CITY: LARGO STATE: FL ZIP: 33777 BUSINESS PHONE: 8136280804 MAIL ADDRESS: STREET 1: 5905-A HAMPTON OAKS PARKWAY CITY: TAMPA STATE: FL ZIP: 33610 FORMER COMPANY: FORMER CONFORMED NAME: NU WAVE HEALTH PRODUCTS INC DATE OF NAME CHANGE: 19980410 FORMER COMPANY: FORMER CONFORMED NAME: DIRECT RX INC DATE OF NAME CHANGE: 19970820 10QSB/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB/A [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter Ended December 31, 1998 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-23031 DYNAMIC HEALTH PRODUCTS, INC. --------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) STATE OF FLORIDA 34-1711778 - --------------------------------- ------------------ (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 6950 BRYAN DAIRY ROAD, LARGO, FLORIDA 33777 -------------------------------------------------- (Address of principal executive offices) (Zip Code) Issuer's telephone number, including area code: (727) 544-8866 Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No The number of shares outstanding of the Issuer's common stock at $.01 par value as of February 12, 1999 was 3,524,608 (exclusive of Treasury Shares). DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1998 AND 1997 (UNAUDITED)
DECEMBER 31, DECEMBER 31, 1998 1997 ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 353,465 $ 7,561 Accounts receivable, net 2,279,633 631,839 Inventory, net of allowance 2,828,229 620,520 Prepaids and other current assets 223,408 22,408 ---------------------------- Total current assets 5,684,735 1,282,328 ---------------------------- Property, plant and equipment, at cost, net 2,220,905 186,748 Deposits 50,390 16,733 Investment in LLC 5,000 -- Intangible assets, net 2,789,461 9,054 ---------------------------- TOTAL ASSETS $ 10,750,491 $ 1,494,863 ============================ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 2,697,658 $ 807,581 Other payables 125,687 6,800 Interest payable 13,128 1,634 Notes payable 48,220 15,199 Credit line payable 1,808,451 200,000 Related party notes payable 489,572 198,324 Unearned revenue 86,025 48,522 Current portion of long-term liabilities 459,205 15,378 ---------------------------- Total current liabilities 5,727,946 1,293,438 ---------------------------- Long-term liabilities: Interest payable 42,795 -- Capital lease obligations 457,916 59,337 Notes payable 283,015 -- Mortgages payable 1,144,185 -- Minority interest in subsidiary 12,261 15,463 Current portion of long-term liabilities (459,205) (15,378) ---------------------------- Total long-term liabilities 1,480,967 59,422 ---------------------------- TOTAL LIABILITIES 7,208,913 1,352,860 ---------------------------- Shareholders' equity: Common stock, at par value 31,067 23,033 Series A Convertible Preferred stock, at face value 1,550,000 -- Series B 6% Cumulative Convertible Preferred stock, at face value 75,000 -- Additional paid-in capital 2,546,868 910,020 Accumulated deficit (859,783) (853,698) Net income 198,426 62,648 ---------------------------- NET SHAREHOLDERS' EQUITY 3,541,578 142,003 ---------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 10,750,491 $ 1,494,863 ============================
See notes to consolidated financial statements - 2 - DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED INCOME STATEMENTS FOR THE THREE MONTHS AND NINE MONTHS ENDED DECEMBER 31, 1998 AND 1997 (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED ---------------------------- ---------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1998 1997 1998 1997 ------------ ------------ ------------ ------------ Revenues: Distributor sales $ 10,121,021 $ 2,397,771 $ 22,858,888 $ 6,023,447 Manufacturing 1,083,935 491,089 3,142,759 1,270,792 Other revenues 226,419 -- 285,050 -- ------------------------------------------------------------ TOTAL REVENUES 11,431,375 2,888,860 26,286,697 7,294,239 ------------------------------------------------------------ Cost of goods sold: Distributor sales 9,734,340 2,226,743 22,014,417 5,718,113 Manufacturing 797,009 415,656 2,159,321 959,986 Other revenues 20,631 -- 31,508 -- ------------------------------------------------------------ TOTAL OF COST OF GOODS SOLD 10,551,980 2,642,399 24,205,246 6,678,099 ------------------------------------------------------------ GROSS PROFIT 879,395 246,461 2,081,451 616,140 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 891,277 235,519 1,825,362 562,600 ------------------------------------------------------------ OPERATING INCOME BEFORE OTHER INCOME AND EXPENSE (11,882) 10,942 256,089 53,540 Other income (expense): Interest income 1,495 -- 7,939 -- Gain on involuntary conversion of land -- -- 81,192 -- Other income and expenses, net 7,467 6,000 27,608 28,636 Interest expense (111,629) (6,376) (240,541) (19,528) ------------------------------------------------------------ TOTAL OTHER INCOME (EXPENSE) (102,667) (376) (123,802) 9,108 ------------------------------------------------------------ NET INCOME (LOSS) BEFORE MINORITY INTEREST (114,549) 10,566 132,287 62,648 Loss attributable to minority interest 62,863 -- 66,139 -- ------------------------------------------------------------ NET INCOME (LOSS) (51,686) 10,566 198,426 62,648 Accrued preferred share dividends 1,142 -- 1,542 -- ------------------------------------------------------------ NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ (52,828) $ 10,566 $ 196,884 $ 62,648 ============================================================ Basic income per share $ (0.02) $ 0.01 $ 0.08 $ 0.10 ============================================================ Basic weighted number of common shares outstanding 3,075,482 734,096 2,352,238 612,524 ============================================================ Diluted income per share $ (0.02) $ 0.01 $ 0.08 $ 0.10 ============================================================ Diluted weighted number of common shares outstanding 3,411,882 734,096 2,588,938 612,524 ============================================================
See notes to consolidated financial statements - 3 - DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 AND 1997 (UNAUDITED)
DECEMBER 31, DECEMBER 31, 1998 1997 ----------- ----------- CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES: Net income $ 198,426 $ 62,648 Minority interest in subsidiary (66,139) -- Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 175,844 20,143 Provision for losses on accounts receivable (18,250) 11,000 Changes in operating assets and liabilities: Accounts receivable (1,143,888) (478,292) Inventory (1,419,501) (473,492) Prepaid expenses (74,455) (7,160) Accounts payable and accrued expenses 207,282 448,747 Unearned revenue (98,752) 16,333 ----------- ----------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (2,239,433) (400,073) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Deposits 7,831 (4,446) Purchases of property and equipment (214,858) (99,158) Involuntary conversion of land 17,908 -- Decrease (increase) in intangible assets (25,767) (324) ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES (214,886) (103,928) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings 1,959,527 278,835 Proceeds from shareholder loans 270,153 108,408 Distributions to stockholders (108,503) -- Proceeds from issuance of common stock 550,000 106,146 Proceeds from issuance of preferred stock 75,000 -- Principal payments of debt and capital lease obligations (392,222) (201,655) ----------- ----------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 2,353,955 291,734 ----------- ----------- NET INCREASE (DECREASE) IN CASH (100,364) (212,267) CASH AT BEGINNING OF PERIOD 453,829 219,828 ----------- ----------- CASH AT END OF PERIOD $ 353,465 $ 7,561 =========== ===========
See notes to consolidated financial statements -4- DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 AND 1997 (UNAUDITED)
DECEMBER 31, DECEMBER 31, 1998 1997 -------------- -------------- Supplemental cash flow information: Cash paid during the period for interest $ 221,026 $ 33,076 Supplemental schedule of non-cash financing activities: Capital lease obligations incurred for purchase of property and equipment $ 109,487 $ 54,628 Acquisition of minority interest through issuance of common stock $ -- $ 10,000 Conversion of related party notes payable and accrued interest to common stock $ 81,331 $ 85,123 Acquisition of Energy Factors, Inc. through issuance of 310,000 shares of preferred stock $ 1,550,000 $ -- Acquisition of Becan Distributors, Inc. through issuance of 1,500,000 shares of common stock $ 2,250,000 $ -- Acquisition of J. Labs, Inc. through issuance of 100,000 shares of common stock $ 150,000 $ -- Acquisition of assets through issuance of 32,243 shares of common stock $ 80,607 $ --
See notes to consolidated financial statements -5- Dynamic Health Products, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) December 31, 1998 NOTE A-BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instruction to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month and nine month periods ended December 31, 1998 and 1997 are not necessarily indicative of the results that may be expected for the year ending March 31, 1999. For further information, refer to the consolidated financial statements and footnotes included in the Company's Form 10-KSB/A for the year ended March 31, 1998. NOTE B-ACQUISITIONS AND DISPOSITIONS On June 15, 1998, the Company acquired legal title to the net assets of Energy Factors, Inc. In exchange for the capital stock in Energy Factors, Inc., 310,000 shares of Series A Convertible Preferred Stock of the Company were issued to the shareholders of Energy Factors, Inc. The transaction was accounted for as a purchase. The aggregate cost of this acquisition was as follows: Assumption of liabilities $2,874,000 Issuance of preferred stock 1,550,000 ---------- $4,424,000 ========== The aggregate purchase price was allocated as follows: Accounts receivable $ 26,000 Inventory 575,000 Property, plant and equipment 1,925,000 Other assets 75,000 Goodwill 1,823,000 ---------- $4,424,000 ========== - 6 - On June 26, 1998, the Company acquired all of the issued and outstanding capital stock of Becan Distributors, Inc. in exchange for 1,500,000 new shares of common stock of the Company. The merger was accounted for as a combination of entities under common control and treated as if a "pooling of interests". The merger resulted in goodwill of approximately $700,000 due to the acquisition of the minority interest. The financial statements have been retroactively adjusted to reflect the results of Becan Distributors, Inc. for all periods presented. The Company also made other immaterial acquisitions during the three months and nine months ended December 31, 1998. The results of operations of the acquired companies are included in the accompanying consolidated financial statements since the respective date of acquisition. NOTE C-PRINCIPLES OF CONSOLIDATION The accompanying condensed consolidated financial statements include the accounts of Dynamic Health Products, Inc. ("DHP") and its subsidiaries, Innovative Health Products, Inc. ("IHP"), Becan Distributors, Inc. ("Becan") and its subsidiary Discount Rx, Inc. ("Discount"), Incredible Products of Florida, Inc. ("IP"), J.Labs, Inc. ("JL"), Herbal Health Products, Inc. ("HHP"), (collectively the "Company"). All intercompany balances and transactions have been eliminated. NOTE D-STOCKHOLDERS' EQUITY On August 11, 1998, upon the filing by the Company of Articles of Amendment to its Articles of Incorporation, a one-for-three reverse stock split of the Common Stock of the Company was effected. The accompanying unaudited condensed consolidated financial statements have been retroactively restated, as of December 31, 1997, to reflect the one-for-three reverse stock split. In conjunction with the reverse stock split, the effect of the elimination of fractional shares (which are being cashed out at $1.50 per new share) is not reflected in the accompanying condensed consolidated financial statements. The Company has adopted Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards No. 128, "Earnings Per Share". Basic earnings per common share is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share gives effect to convertible preferred shares which are considered to be dilutive common stock equivalents. Earnings per share was retroactively restated, as of December 31, 1997, to reflect FASB No. 128. Series B 6% Cumulative Convertible Preferred Stock shareholders are entitled to cumulative annual dividends, from the date of issuance, payable annually in arrears. The Company may make dividend payments on the Preferred Stock in cash or by delivery of fully paid nonassessable shares of common stock of the Company, or through a combination thereof. - 7 - Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS Three Months and Nine Months ended December 31, 1998 and December 31, 1997 Sales are recognized at the time the product is shipped. Net sales are net of discounts, allowances, and returns and credits. Distributor sales increased 322% and 279%, or $7,723,250 and $16,835,441, to $10,121,021 and $22,858,888 for the three months and nine months ended December 31, 1998, as compared to $2,397,771 and $6,023,447 in the three months and nine months ended December 31, 1997. The increase was due to increased sales with existing customers and expansion of the customer base resulting from increased marketing efforts. Manufacturing sales increased 121% and 147%, or $592,846 and $1,871,967, to $1,083,935 and $3,142,759, as compared to $491,089 and $1,270,792 in the corresponding period. The increase was primarily attributable to increased volume of the Company's private label sales resulting from continued expansion of marketing efforts and the introduction of new products. Other revenues of $226,419 and $285,050 for the three months and nine months ended December 31, 1998 were attributable to direct marketing efforts of Incredible Products of Florida, Inc., a 51% owned subsidiary of the Company, incorporated on August 20, 1998. Gross profit from distributor sales increased 126% and 177%, or $215,653 and $539,137, to $386,681 and $844,471 for the three months and nine months ended December 31, 1998, as compared to $171,028 and $305,334 in the three months and nine months ended December 31, 1997. Gross profit from manufacturing increased 280% and 216%, or $211,493 and $672,632, to $286,926 and $983,438, as compared to $75,433 and $310,806 in the corresponding period. Gross profit from other revenues was $205,788 and $253,542 for the three months and nine months ended December 31, 1998. Gross margin from distributor sales decreased to 3.82% for the three months ended December 31, 1998 from 7.13% for the three months ended December 31, 1997. The decline was primarily attributable to an increase in the mix of sales, which yields a lower gross margin. For the nine months ended December 31, 1998, the gross margin from distributor sales decreased to 3.69% from 5.07% in the corresponding period. Gross margin from manufacturing increased to 26.47% and 31.29% for the three months and nine months ended December 31, 1998, from 15.36% and 24.46% in the corresponding period. Gross margin from other revenues was 90.89% and 88.95% for the three months and nine months ended December 31, 1998. Selling, general and administrative expenses consist primarily of advertising and promotional expenses, personnel costs related to general management functions, finance, accounting and information systems, payroll expenses and sales commissions, professional fees related to legal, audit and tax matters, and depreciation and amortization expense. Selling, general and administrative expenses increased 278% and 224%, or $655,758 and $1,262,762, to $891,277 and $1,825,362 for the three months and nine months ended December 31, 1998, as compared to $235,519 and $562,600 in the corresponding period. The increase was primarily due to additional advertising, promotional and payroll expenses to support increased net sales and the Company's growth, as well as additional amortization of goodwill and depreciation of fixed assets associated with the June 15, 1998 acquisition of IHP, and the June 26, 1998 acquisition of Becan. As a percentage of net sales, selling, general and administrative expenses decreased to 7.80% for the three months ended December 31, 1998 from 8.15% for the three months ended December 31, 1997, and decreased to 6.94% for the nine months ended December 31, 1998 from 7.71% in the corresponding period. - 8 - Interest expense, net of interest income, increased $103,758 and $213,074, to $110,134 and $232,602 for the three months and nine months ended December 31, 1998, from $6,376 and $19,528 for the three months and nine months ended December 31, 1997. The increase was a result of increased borrowings to finance the purchase of additional machinery and equipment and to make necessary plant modifications, and for financing of additional working capital needs with the June 15, 1998 acquisition of IHP. The Company had no income tax expenses for the three months and nine months ended December 31, 1998 and 1997. Management believes that there was no material effect on operations or the financial condition of the Company as a result of inflation for the three months and nine months ended December 31, 1998 and 1997. Management also believes that its business is not seasonal; however, significant promotional activities can have a direct impact on sales volume in any given quarter. Although in the opinion of the management of the Company, the above data reflects positive information concerning the present operations of the Company, there can be no assurance that the Company's results of operations will continue to the same extent or in the same manner as reflected above. LIQUIDITY AND CAPITAL RESOURCES The Company historically has financed its operations through funds from operations and loans from within the Company. The Company had working capital of ($43,211) at December 31, 1998, as compared to ($11,110) in working capital at December 31, 1997. The decrease was primarily due to an increase in accounts payable and accrued expenses, an increase in a credit line, and an increase in current portion of long-term liabilities as a result of the IHP acquisition. Net cash used in operating activities was ($2,239,433) for the nine months ended December 31, 1998 as compared to net cash used in operating activities of ($400,073) for the nine months ended December 31, 1997. The usage of cash is primarily attributable to an increase in accounts receivable ($1,143,888), as a result of increased sales by the Company during such period, and an increase in inventory ($1,419,501), an increase in prepaid expenses ($74,455), an increase in accounts payable and accrued expenses $207,282, and an increase in unearned revenue ($98,752), primarily attributable to the acquisition of IHP. Net cash used in investing activities was ($214,886), representing the purchase of property and equipment, plant modifications, and the acquisition of other assets, offset by a decrease representing an involuntary conversion of land $17,908. Net cash provided by financing activities was $2,353,955 representing proceeds from issuance of common stock, proceeds from issuance of preferred stock, proceeds of long-term debt, capital lease obligations, and borrowings on lines of credit, proceeds from shareholder loans, offset by repayments of debt and capital lease obligations ($392,222). Management is hopeful liquidity and capital difficulties will be resolved but provides no assurance. The Company expects to meet its cash requirements from operations, current cash reserves, and existing financial arrangements. - 9 - In March and April 1998, the Company received $250,000 from investors and issued non-negotiable promissory notes with stock warrants attached. The notes bear interest at 10% per annum, compounded annually. The due date shall be the earlier of (i) April 30, 1999, or (ii) the closing of a minimum of an additional $1,000,000 of equity financing, by private placement or other non-public offering. The note may be prepaid at any time by the Company to Payee without any penalty or premium. The attached stock warrant entitles the Payee to purchase common stock of the Company (based on one share for each one dollar amount of the principal amount reflected in the note) at a purchase price of $1.50 per new share. The stock warrant shall expire the earlier of, one year from the closing of an additional $1,000,000 of equity financing, or December 31, 1999. On March 16, 1998, Becan Distributors, Inc. established a bank line of credit. The principal amount of the note is $700,000. The note bears interest at 1% plus the Prime Rate of the Bank per annum on the unpaid outstanding principal of each advance payable monthly. The due date is March 1, 1999. The note or any portion thereof may be prepaid without penalty. The line of credit is secured by a blanket lien on all business assets of Becan and is also secured by personal guarantees from the Company's Chairman of the Board, and the Company's Chief Executive Officer. In May 1998, 100,000 shares of common stock of the Company were sold to a non-affiliated third party investor at $.50 per old share, for gross proceeds of $50,000. Proceeds were used for capital expenditures and plant modifications. On May 13, 1998, the Company loaned $100,000 to IHP, formerly Energy Factors, Inc. for the purpose of assisting Energy Factors with its working capital needs. The company has since acquired Energy Factors. On May 29, 1998, notes payable to related parties of $81,331.80, including principal and unpaid accrued interest were converted to 813,318 old shares of common stock of the Company. In June 1998, the Company established a bank line of credit. The principal amount of the note is $200,000. The note bears interest at 4.08% per annum on the unpaid outstanding principal of each advance, payable monthly. The due date is June 3, 1999. The note or any portion thereof may be prepaid without penalty. This line of credit is secured by $200,000 cash maintained in a Money Market account with the bank. Effective June 15, 1998, the Company acquired legal title to the net assets of IHP, formerly Energy Factors, Inc., in exchange for 310,000 shares of Series A Convertible Preferred Stock in the Company. Effective June 26, 1998, the Company acquired all of the issued and outstanding capital stock of Becan Distributors, Inc. in exchange for 1,500,000 new shares of common stock in the Company. In August, 1998, 20,000 shares of Series B 6% Cumulative Preferred Stock of the Company were sold to a non-affiliated third party investor at $2.50 per share, for gross proceeds of $50,000. Proceeds were used for the initial capitalization of Discount and for repayment of debt associated with IHP. - 10 - In August, 1998, 200,000 shares of common stock of the Company were sold to a non-affiliated third party investor at $2.50 per new share, for gross proceeds of $500,000. Proceeds were used for the initial capitalization of IP, and for repayment of debt associated with IHP. Effective August 20, 1998, the Company caused the formation of Incredible Products of Florida, Inc., a Florida corporation. Pursuant to an Agreement to Fund Subsidiary, dated September 1, 1998, the Company agreed to contribute $160,000 in capital to IP in exchange for 51 shares of common stock of IP, representing 51% interest in IP. Effective September 30, 1998, the Company acquired all of the issued and outstanding capital stock of J.Labs, Inc. in exchange for 100,000 shares of common stock in the Company. In November, 1998, 10,000 shares of Series B 6% Cumulative Preferred Stock of the Company were sold to a non-affiliated third party investor at $2.50 per share, for gross proceeds of $25,000. Proceeds were used for repayment of debt associated with IHP. On November 30, 1998, Becan and its subsidiary, Discount (collectively "BecanD") established a $2,000,000 line of credit to provide additional working capital for BecanD to support its continued growth. Proceeds from the line of credit were also used for repayment of the $700,000 line of credit established on March 16, 1998. The note bears interest at 1.25% plus the Prime Rate of The Chase Manhattan Bank in New York, New York, per annum on the unpaid outstanding principal of each advance payable monthly. The note is to be secured by a blanket lien on all business assets of BecanD and is also secured by personal guarantee from the Company's Chairman of the Board. Effective December 29, 1998, the Company caused the formation of Herbal Health Products, Inc., a Florida corporation. Pursuant to an Asset Purchase Agreement, dated December 29, 1998, the Company agreed to purchase certain of the assets of the Seller and Nutrapro. Inc., a Colorado corporation, and to assume certain of the liabilities of the Seller in return for $18,309.45, and 32,243 shares of common stock of DHP. In January and February, 1999, 418,000 shares of common stock of the Company were sold to non-affiliated third party investors at $2.50 per new share, for gross proceeds of $1,045,000. Proceeds are to be used for acquisitions and to provide additional working capital for the Company to support its continued growth. On February 2, 1999, DHP and its subsidiary, IHP established a $2,000,000 line of credit to provide additional working capital in support of Accounts Receivable and Inventory, for the Company to support its continued growth. A portion of the proceeds from the line of credit were funded in the form of a 60 month Term Loan, for repayment of certain capital lease obligations of the DHP and IHP. The note bears interest at 2.25% plus the Prime Rate of The Chase Manhattan Bank in New York, New York, per annum on the unpaid outstanding principal of each advance payable monthly. The note is to be secured by a blanket lien on all business assets of DHP and IHP, with the exception of certain permitted liens. The note is also secured by personal guarantee from the Company's Chairman of the Board. The Company is also in the process of negotiating a loan to refinance the land and building of the Company, but provides no assurance as to the success of establishing the refinance. - 11 - Part II - OTHER INFORMATION Item 1. LEGAL PROCEEDINGS. From time to time the Company is subject to litigation incidental to its business. Such claims, if successful, could exceed applicable insurance coverage. The Company is not currently a party to any material legal proceedings. Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. In November, 1998, 10,000 shares of Series B 6% Cumulative Preferred Stock of the Company were sold to a non-affiliated third party investor at $2.50 per share, for gross proceeds of $25,000. Proceeds were used for repayment of debt associated with IHP. Effective December 29, 1998, the Company caused the formation of Herbal Health Products, Inc., a Florida corporation. Pursuant to an Asset Purchase Agreement, dated December 29, 1998, the Company agreed to purchase certain of the assets of the Seller and to assume certain of the liabilities of the Seller and Nutrapro. Inc., a Colorado corporation, in return for $18,309.45, and 32,243 shares of common stock of DHP. In January and February, 1999, 418,000 shares of common stock of the Company were sold to non-affiliated third party investors at $2.50 per new share, for gross proceeds of $1,045,000. Proceeds are to be used for acquisitions and to provide additional working capital for the Company to support its continued growth. Item 3. - Not applicable. Item 4. - Not applicable. - 12 - Item 5. OTHER INFORMATION. The Company has determined not to complete its Form 15C211 filing with NASDAQ at this time. However, if the Company completes a public offering of its common stock, it intends to list its common stock for trading over the Nasdaq Stock Market. It was incorrectly stated in Form 10-QSB for the quarter ended September 30, 1998 that in August, 1998, 220,000 shares of Series B 6% Cumulative Preferred Stock of the Company was sold to non-affiliated third party investors at $2.50 per share, for gross proceeds of $550,000. The correct statements are as follows: In August, 1998, 20,000 shares of Series B 6% Cumulative Preferred Stock of the Company were sold to a non-affiliated third party investor at $2.50 per share, for gross proceeds of $50,000. Proceeds were used for the initial capitalization of Discount and for repayment of debt associated with IHP. In August, 1998, 200,000 shares of common stock of the Company were sold to a non-affiliated third party investor at $2.50 per new share, for gross proceeds of $500,000. Proceeds were used for the initial capitalization of IP, and for repayment of debt associated with IHP. The Company will file an amendment to its Form 10-QSB for that period. Item 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. The following exhibits are filed with this report: 2.1 Agreement and Plan of Reorganization dated June 12, 1998, effective June 15, 1998, by and among Nu-Wave Health Products, Inc., Nu-Wave Acquisition, Inc., Energy Factors, Inc., U.S. Diversified Technologies, Inc., Paul Santostasi, Chris Starkey, and Marvin Deutsch. (2) 2.2 Agreement and Plan of Reorganization dated June 26, 1998, effective June 26, 1998, by and between Nu-Wave Health Products, Inc., buyer, and Manju Taneja, Mihir K. Taneja, Mandeep K. Taneja, William LaGamba custodian for Anthony LaGamba, William LaGamba custodian for Nicholl LaGamba, William LaGamba custodian for Courtney LaGamba, Michele LaGamba, and Phillip J. Laird and William LaGamba, each individually a seller, each of which is a stockholder of Becan Distributors, Inc. (2) 2.3 Agreement to Fund Subsidiary dated September 1, 1998, by and between Dynamic Health Products, Inc., Incredible Products of Florida, Inc., and Gary A. Shawkey. (3) 2.4 Agreement and Plan of Reorganization dated September 1, 1998, by and between Incredible Products of Florida, Inc., buyer and Gary A.Shawkey, seller. (3) 2.5 Agreement to Exchange Shares dated September 1, 1998, by and between the Company and Gary A. Shawkey. (3) - 13 - 2.6 Stock Purchase Agreement dated September 30, 1998, by and among Dynamic Health Products, Inc. and J. Labs, Inc. (3) 2.7 Asset Purchase Agreement dated December 29, 1998, by and between Herbal Health Products, Inc. and Gerald Schmoling.(4) 3.1 Articles of Incorporation of Nu-Wave Acquisition, Inc., dated June 11, 1998 and filed June 12, 1998. (2) 3.2 Articles of Amendment to Articles of Incorporation of Dynamic Health Products, Inc., dated July 22, 1998 and filed July 23, 1998. (2) 3.3 Articles of Amendment to Articles of Incorporation of Nu-Wave Health Products, Inc., dated August 10, 1998. (2) 3.4 Articles of Incorporation of Incredible Products of Florida, Inc. dated August 20, 1998, filed August 20, 1998. (3) 3.5 Articles of Incorporation of Herbal Health Products, Inc. dated December 16, 1998, filed December 29, 1998.(4) 10.1 Promissory Note in favor of the Company from Energy Factors, Inc. dated May 13, 1998.(1) 10.2 Revolving Line of Credit Agreement between Becan Distributors, Inc. and Mellon Bank dated March 16, 1998. (2) 10.3 Revolving Line of Credit Agreement between the Company and Republic Bank dated June 3, 1998. (1) 10.4 Loan And Security Agreement between Becan Distributors, Inc. and Discount Rx, Inc. and The CIT Group/Credit Finance, Inc. dated November 30, 1998.(4) 27.1 Financial Data Schedule (for SEC use only). (1) Incorporated by reference to the Company's Annual Report on Form 10-KSB for the fiscal year ended March 31, 1998, file number 0-23031, filed in Washington, D.C. (2) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB for the quarter ended June 30, 1998, file number 0-23031, filed in Washington, D.C. (3) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB for the quarter ended September 30, 1998, file number 0-23031, filed in Washington, D.C. (4) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB for the quarter ended December 30, 1998, file number 0-23031, filed in Washington, D.C. - 14 - (b) Reports on Form 8-K. During the three months ended December 31, 1998, the Company filed no reports on Form 8-K. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dynamic Health Products, Inc. Date: March 1, 1999 By: /S/WILLIAM L. LAGAMBA ---------------------- William L. LaGamba Chief Executive Officer Date: March 1, 1999 By: /S/CANI I. SHUMAN ------------------ Cani I. Shuman Chief Financial Officer - 15 - EXHIBIT INDEX Exhibit 27.1 Financial Data Schedule (for SEC use only). EX-27 2
5 The schedule contains summary financial information extracted from the financial statements and is qualified in its entirety by reference to such financial statements. 3-MOS MAR-31-1999 DEC-31-1998 353,465 0 2,318,883 (39,250) 2,828,229 5,684,735 2,372,702 151,797 10,750,491 5,727,946 0 1,625,000 0 31,067 1,885,510 10,750,491 11,431,375 11,431,375 10,551,980 10,551,980 0 0 111,629 (52,828) 0 (52,828) 0 0 0 (52,828) (0.02) (0.02)
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