<PAGE>
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 September 30, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 333-92849
GO2PHARMACY, INC.
(Exact name of small business issuer as specified in its charter)
STATE OF FLORIDA 59-2600232
---------------- ----------
(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 September 30, 2000 was 3,000,000.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS.
GO2PHARMACY, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, March 31,
2000 2000
--------------- ---------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 64,320 $ -
Accounts receivable, net 407,672 727,831
Inventories, net 1,668,821 1,488,103
Prepaid registration expenses 332,022 252,356
Prepaid expenses and other current assets 76,169 16,347
Due from affiliates 522,672 311,648
--------------- ---------------
Total current assets 3,071,676 2,796,285
Property, plant and equipment, net 998,071 1,067,815
Intangible assets, net 819,890 857,917
Other assets, net 305,792 144,351
--------------- ---------------
Total assets $ 5,195,429 $ 4,866,368
=============== ===============
<CAPTION>
LIABILITIES AND SHAREHOLDER'S
EQUITY (DEFICIT)
<S> <C> <C>
Current liabilities:
Accounts payable $ 1,041,461 $ 860,876
Current portion of long-term obligations 223,127 238,353
Credit lines payable 1,141,111 1,349,284
Accrued expenses 295,270 136,105
Obligations to related parties 112,951 25,000
Obligations to affiliates 457,401 176,877
Obligations to parent 641,775 667,323
--------------- ---------------
Total current liabilities 3,913,096 3,453,818
Long-term obligations, less current portion 415,485 509,362
--------------- ---------------
Total liabilities 4,328,581 3,963,180
--------------- ---------------
Redeemable series A preferred stock, no par
value, 150,000 shares authorized; 150,000 shares
issued and outstanding, at face value 1,500,000 1,500,000
Commitments and contingencies
Shareholder's equity (deficit):
Preferred stock, no par value,5,850,000
shares authorized; no shares issued
and outstanding - -
Common stock, $.01 par value; 24,000,000 shares authorized;
3,000,000 shares issued and outstanding 30,000 30,000
Retained earnings (deficit) (663,152) (626,812)
--------------- ---------------
Total shareholder's equity (deficit) (633,152) (596,812)
--------------- ---------------
Total liabilities and shareholder's equity $ 5,195,429 $ 4,866,368
=============== ===============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
GO2PHARMACY, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
----------------------------------- ----------------------------------
2000 1999 2000 1999
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Distribution $ 327,886 $ - $ 327,886 $ -
Manufacturing 1,014,312 1,340,228 2,550,150 2,703,992
------------- -------------- ------------- -------------
Total revenues 1,342,198 1,340,228 2,878,036 2,703,992
-------------- -------------- ------------- -------------
Cost of goods sold:
Distribution 196,547 - 196,547 -
Manufacturing 661,092 891,885 1,555,351 1,913,242
------------- -------------- ------------- -------------
Total cost of goods sold 857,639 891,885 1,751,898 1,913,242
------------- -------------- ------------- -------------
Gross profit:
Distribution 131,339 - 131,339 -
Manufacturing 353,220 448,343 994,799 790,750
------------- -------------- ------------- -------------
Total gross profit 484,559 448,343 1,126,138 790,750
------------- -------------- ------------- -------------
Selling, general and
administrative expenses 609,412 470,657 1,148,112 939,674
------------- -------------- ------------- -------------
Operating income (loss) before
other income and expense (124,853) (22,314) (21,974) (148,924)
Other income (expense):
Interest income 7,305 4,184 8,197 8,199
Other income and expenses, net 112,602 2,549 112,694 103,575
Interest expense (65,204) (86,003) (130,608) (172,025)
------------- -------------- ------------- -------------
Total other income (expense) 54,703 (79,270) (9,717) (60,251)
------------- -------------- ------------- -------------
Loss before income taxes (70,150) (101,584) (31,691) (209,175)
Income taxes - - - -
------------- -------------- ------------- -------------
Net loss (70,150) (101,584) (31,691) (209,175)
Preferred stock dividends - - - -
------------- -------------- ------------- -------------
Net loss available
to common shareholders $ (70,150) $ (101,584) $ (31,691) $ (209,175)
============= ============== ============= =============
Basic loss per share $ (0.02) $ (0.03) $ (0.01) $ (0.07)
============= ============== ============= =============
Basic weighted average number
of common shares outstanding 3,000,000 3,000,000 3,000,000 3,000,000
============= ============== ============= =============
Diluted loss per share $ (0.02) $ (0.03) $ (0.01) $ (0.07)
============= ============== ============= =============
Diluted weighted average number
of common shares outstanding 3,000,000 3,000,000 3,000,000 3,000,000
============= ============== ============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
GO2PHARMACY, INC. AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended September 30,
---------------------------------
2000 1999
------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (31,691) $ (209,175)
Adjustments to reconcile net income (loss)
to net cash from operating activities:
Depreciation and amortization 149,826 124,577
Provision for obsolete inventory 30,000 -
Changes in operating assets and liabilities
(exclusive of effect of business acquisitions):
Accounts receivable 320,159 184,802
Inventory (210,718) (164,677)
Prepaid expenses and other current assets (139,488) (61,297)
Other assets (161,441) 34,579
Accounts payable 180,585 88,996
Accrued expenses 154,516 (58,531)
------------- -------------
Net cash provided by (used in) operating activities 291,748 (60,726)
Cash flows from investing activities:
Purchases of property, plant and equipment (42,056) (49,937)
------------- -------------
Net cash used in investing activities (42,056) (49,937)
Cash flows from financing activities:
Net change in credit lines payable (208,173) (138,328)
Proceeds from issuance of long-term obligations 10,522 -
Payments of long-term obligations (119,624) (83,244)
Increase (decrease) in due to parent, net (25,548) 441,743
(Increase) decrease in due from affiliates, net 69,500 (116,095)
Proceeds from issuance of related party obligations 104,951 86,500
Payments of related party obligations (17,000) -
------------- -------------
Net cash provided by (used in) financing activities (185,372) 190,576
------------- -------------
Net increase in cash 64,320 79,913
Cash at beginning of period - 16,206
------------- -------------
Cash at end of period $ 64,320 $ 96,119
============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
GO2PHARMACY, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
September 30, September 30,
2000 1999
---------------- ----------------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 117,740 $ 166,306
================ ================
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
================ ================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
GO2PHARMACY, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
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 consolidated financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the three and
six month periods ended September 30, 2000 and 1999 are not necessarily
indicative of the results that may be expected for the year ending March 31,
2001. For further information, refer to the consolidated financial statements
and footnotes included in the Company's Form SB-2 for the years ended March 31,
2000, 1999 and 1998 and for the three month periods ended June 30, 2000 and 1999
as filed November 7, 2000.
NOTE B-PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements as of September 30, 2000
and for the three and six months ended September 30, 2000 include the accounts
of Go2Pharmacy, Inc. and its wholly-owned subsidiaries (collectively the
"Company"), Go2Pharmacy, Inc. ("Go2"), which is continuing to doing business as
Innovative Health Products, Inc. ("Innovative"), and its subsidiary Breakthrough
Engineered Nutrition, Inc. ("Breakthrough"). Significant intercompany balances
and transactions have been eliminated in consolidation.
The condensed consolidated financial statements as of March 31, 2000 and
for the three and six months ended September 30, 1999 include the accounts of
Innovative.
NOTE C-RECENTLY ISSUED AUTHORITATIVE GUIDANCE
In December 1999, Staff Accounting Bulletin 101 ("SAB 101"), "Revenue
Recognition in Financial Statements," was issued by the Securities and Exchange
Commission ("SEC"). SAB 101 provides guidance related to revenue recognition
issues based on interpretations and practices followed by the SEC. Management
has determined that the adoption of SAB 101 did not have a material impact on
its September 30, 2000 condensed consolidated financial statements.
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<PAGE>
NOTE D-SEGMENT INFORMATION
The Company has two industry segments: Distribution and Manufacturing.
The channels of distribution for its proprietary products and the channels of
distribution of the products it manufactures for others include health food,
drug, convenience and mass market stores, and direct marketing through
distributors and catalog sales throughout the United States. The Company has two
manufacturing facilities located in the greater Tampa Bay, Florida area.
The Company commenced operations for its distribution subsidiary,
Breakthrough, during April 2000. Based on the date of commencing initial
operations, Breakthrough's financial segment data related to its revenues, gross
profits, operating income are only included for the three and six months ended
September 30, 2000, with its assets presented only as of September 30, 2000.
Presented below is condensed segment information as of September 30, 2000
and as of March 31, 2000 and for the three and six months ended September 30,
2000 and 1999, as required by SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information":
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
-------------------------------------------------------
2000 1999 2000 1999
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Distribution $ 327,886 $ - $ 327,886 $ -
Manufacturing 1,014,312 1,340,228 2,550,150 2,703,992
Gross profit:
Distribution 131,339 - 131,339 -
Manufacturing 353,220 448,343 994,799 790,750
Operating income (loss):
Distribution 73,757 - 38,213 -
Manufacturing (198,610) (13,247) (60,187) (139,857)
</TABLE>
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<PAGE>
NOTE D-SEGMENT INFORMATION (continued)
<TABLE>
<CAPTION>
As of September 30, 2000 As of March 31, 2000
------------------------ --------------------
<S> <C> <C>
Assets:
Distribution $ 149,111 $ -
Manufacturing 5,046,318 4,866,368
</TABLE>
NOTE E-INCOME TAXES
The Company utilizes the guidance provided by 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 based on transactions
recorded as of and for the period presented in the consolidated financial
statements as determined by the enacted tax laws and tax rates. The company has
no current or deferred tax liability recorded as of September 30, 2000 or March
31, 2000, based on available net operating loss carryforwards.
NOTE F-RELATED PARTY TRANSACTIONS
In June 2000, Go2 established a $100,000 revolving line of credit with
Carnegie Capital, LTD, an affiliate of Jugal K. Taneja, Chairman of the Board of
the Company, to provide a source of funding for cash requirements directly
related to Go2's Registration Statement. The note bears interest at 10% per
annum. Principal and interest on the note is due and payable in full upon the
successful completion of an initial public offering of Go2's common stock. The
Company's public offering was completed during November 2000 and in accordance
with this revolving line of credit agreement, the outstanding balance was paid
in full. As of September 30, 2000, the outstanding principal balance on this
note was $45,000 and is included in obligations to related parties.
In June 2000, Go2 established a $100,000 revolving line of credit with
Joseph Zappala, a Director of DrugMax.com, Inc., an affiliate of the Company and
the President of Go2Pharmacy.com, Inc., a Delaware corporation, to provide a
source of funding for cash requirements directly related to Go2's registration
statement. The note bears interest at 10% per annum. Principal and interest on
the note is due and payable in full upon the successful completion of an initial
public offering of Go2's common stock. The Company's public offering was
completed during November 2000 and in accordance with this revolving line of
credit agreement, the outstanding balance was paid in full. As of September 30,
2000, the outstanding principal balance on this note was $45,000 and is included
in obligations to related parties.
Amounts due to affiliates, amounts due to parent and amounts due from
affiliates represent balances owed by or amounts owed to the Company for sales
occurring in the normal course of business. Amounts due to and amounts due from
these affiliates are in the nature of trade payables or receivables
-8-
<PAGE>
and fluctuate based on sales volume and payments received. All such amounts
either due to affiliates, due to parent or due from affiliates were repaid
during November 2000.
For the three month period ended September 30, 2000 and 1999,
manufacturing revenues of approximately $249,000 and $180,000, respectively,
were recorded by the Company for sales to subsidiaries and other affiliates of
Dynamic Health Products, Inc., ("Dynamic"), our parent company before the
consummation of our initial public offering (See Note G). For the six month
period ended September 30, 2000 and 1999, manufacturing revenues of
approximately $905,000 and $237,000, respectively, were recorded by the Company
for sales to subsidiaries and other affiliates of Dynamic.
NOTE G-SUBSEQUENT EVENTS
On November 7, 2000, the Securities and Exchange Commission declared
Go2's registration of 1,000,000 shares of the common stock of Go2 to be
effective. The registration was affected through the filing of Registration
Statement No. 333-92849 on Form SB-2 with the Securities and Exchange
Commission. The Company's initial public offering, pursuant to this
registration, was successfully completed on November 14, 2000. In conjunction
with this offering, 1,000,000 shares of common stock, $.01 par value, were sold
to the public for net proceeds of $6,655,705 to Go2. Simultaneously with and
conditioned upon the offering, Go2 acquired Go2Pharmacy.com, Inc., a Delaware
corporation, in exchange for 3,000,000 shares of its common stock. Go2's parent
company at that time, Dynamic Health Products, Inc., continues to own 3,000,000
shares, or 42.8% of the common stock of Go2.
-9-
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The statements contained in this Report that are not historical are forward-
looking statements, including statements regarding the Company's expectations,
intentions, beliefs or strategies regarding the future. Forward-looking
statements include the Company's statements regarding liquidity, anticipated
cash needs and availability and anticipated expense levels. All forward-looking
statements included in this Report are based on information available to the
Company on the date hereof, and the Company assumes no obligation to update any
such forward-looking statement. It is important to note that the Company's
actual results could differ materially from those in such forward-looking
statements. Additionally, the following discussion and analysis should be read
in conjunction with the Financial Statements and notes thereto appearing
elsewhere in this Report. The discussion is based upon such financial statements
that have been prepared in accordance with U.S. Generally Accepted Accounting
Principles.
General
We manufacture, package and ship high-quality private label dietary
supplements, over-the-counter drugs, and health and beauty care products for
companies worldwide. We also develop and manufacture our own branded dietary
supplements and health and beauty care products for distribution to consumers,
marketing companies, wholesalers and retailers. In April 2000, the Company
formed Breakthrough Engineered Nutrition, Inc. ("Breakthrough"), as a Florida
corporation, to market the Company's product line, Lean Protein(TM).
Breakthrough commenced its operations in April 2000. We are currently expanding
our business to launch an online business-to-business portal, a pharmacy
benefit management division, and a long-term care division for institutional
customers.
Results of Operations
Overview
The Company derives its revenues from developing, manufacturing,
wholesaling and distributing a wide variety of non-prescription dietary
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 manufacturing and
material product costs, direct personnel compensation and other statutory
benefits and indirect costs relating to labor to support product manufacture and
the warehousing of production and other manufacturing overhead. Research and
development expenses are charged against cost of goods sold as incurred.
Selling, general and administrative costs include management and general office
salaries, advertising and promotional expenses, 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.
-10-
<PAGE>
Three Months Ended September 30, 2000 Compared To Three Months Ended September
30, 1999
Revenues. Total revenues increased $2,000, or less than 1%, to
approximately $1,342,000 for the three months ended September 30, 2000, as
compared to approximately $1,340,000 for the three months ended September 30,
1999. Distribution revenues increased approximately $328,000 to $328,000 for the
three months ended September 30, 2000, as compared to $0 for the three months
ended September 30, 1999. The increase results from the absence of revenues in
the corresponding period, as Breakthrough commenced operations during April 2000
and recorded its first sales during July 2000. Manufacturing revenues
decreased approximately $326,000, or 24.3%, to approximately $1.0 million for
the three months ended September 30, 2000, as compared to $1.3 million for the
corresponding period. The decrease was primarily attributable to decreased
volume of certain less profitable private label sales due to our implementation
of more stringent gross profit benchmarks for the acceptance of product
manufacturing sales orders.
Gross profit. Total gross profit increased approximately $36,000, or 8%,
to approximately $485,000 for the three months ended September 30, 2000, as
compared to approximately $448,000 for the three months ended September 30,
1999. Total gross margins increased from 33.5% for the three months ended
September 30, 1999, to 36.1% for the three months ended September 30, 2000.
Distribution gross profit increased approximately $131,000 to $131,000 for the
three months ended September 30, 2000, as compared to $0 for the three months
ended September 30, 1999. Distribution gross margin was 40.0% for the three
months ended September 30, 2000. The increases are primarily attributable to the
absence of revenues and related gross profits in the corresponding period, as
Breakthrough commenced operations during April 2000. Manufacturing gross profit
decreased approximately $95,000, or 21.2%, to approximately $353,000 for the
three months ended September 30, 2000, as compared to approximately $448,000 in
the corresponding period in 1999. For the three months ended September 30, 2000,
manufacturing gross margin increased to 34.8%, from 33.4% in the corresponding
period in 1999. The increase is primarily attributable to a change in our sales
portfolio that yields higher gross margin and improved purchase costs for
certain raw materials.
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
approximately $138,000, or 29.5%, to approximately $609,000 for the three months
ended September 30, 2000, as compared to approximately $471,000 in the
corresponding period. The increase is primarily attributable to additional
advertising and promotional expenses associated with our distribution segment,
rents, as well as payroll expenses and costs associated with fringe benefits to
support our plans for distribution and manufacturing growth. As a percentage of
sales, selling, general and administrative expenses increased to 45.4% for the
three months ended September 30, 2000 from 35.1% in the corresponding period in
1999.
Interest income (expense), net. Interest expense, net of interest income,
decreased approximately $24,000 to approximately $58,000 for the three months
ended September 30, 2000, from approximately $82,000 for the three months ended
September 30, 1999. The decrease in net interest expense is primarily
attributable to decreased balances outstanding due to continued principal
payments as applied to outstanding obligations.
-11-
<PAGE>
Income taxes. At September 30, 2000, the Company had neither amounts
recorded for a current or a deferred income tax liability, nor any income tax
expense recorded for the three months ended September 30, 2000, due to available
operating loss carryforwards.
Six Months Ended September 30, 2000 Compared To Six Months Ended September 30,
1999
Revenues. Total revenues increased approximately $174,000, or 6.4%, to
approximately $2,878,000 for the six months ended September 30, 2000, as
compared to approximately $2,704,000 for the six months ended September 30,
1999. Distribution revenues increased approximately $328,000 to $328,000 for the
six months ended September 30, 2000, as compared to $0 for the six months ended
September 30, 1999. The increase results from the absence of revenues in the
corresponding period as Breakthrough commenced operations during April 2000 and
recorded its initial revenues during July 2000. Manufacturing revenues decreased
approximately $154,000, or 5.7%, to approximately $2,550,000 for the six months
ended September 30, 2000, as compared to $2,704,000 for the corresponding period
in 1999. The decrease was primarily attributable to decreased volume of certain
less profitable private label sales due to our implementation of more stringent
gross profit benchmarks for the acceptance of product manufacturing sales
orders.
Gross profit. Total gross profit increased approximately $335,000, or
42.4%, to approximately $1,126,000 for the six months ended September 30, 2000,
as compared to approximately $791,000 for the six months ended September 30,
1999. Total gross margins increased from 29.2% for the six months ended
September 30, 1999, to 39.1% for the six months ended September 30, 2000.
Distribution gross profit increased approximately $131,000 to $131,000 for the
six months ended September 30, 2000, as compared to $0 for the six months ended
September 30, 1999. Distribution gross margin was 40.0% for the six months ended
September 30, 2000. The increase results from the absence of revenues in the
corresponding period, as Breakthrough commenced operations during April 2000 and
recorded its first sales during July 2000.
Manufacturing gross profit increased approximately $204,000, or 25.8%, to
approximately $995,000 for the six months ended September 30, 2000, as compared
to approximately $791,000 in the corresponding period. For the six months ended
September 30, 2000, manufacturing gross margin increased to 39.0%, from 29.2% in
the corresponding period. The increase is primarily attributable to a change in
our sales portfolio that yields higher gross margin and improved purchase costs
for certain raw materials.
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
approximately $208,000, or 22.2%, to approximately $1,148,000 for the six months
ended September 30, 2000, as compared to approximately $940,000 in the
corresponding period in 1999. The increase was primarily attributable to
additional advertising and promotional expenses associated with our distribution
segment, rents, as well as payroll expenses and costs associated with fringe
benefits to support our plans for growth in the areas of distribution and
manufacturing. As a percentage of sales, selling, general and administrative
expenses increased to 39.9% for the six months ended September 30, 2000 from
34.8% in the corresponding period in 1999.
-12-
<PAGE>
Interest income (expense), net. Interest expense, net of interest income,
decreased approximately $41,000 to approximately $122,000 for the six months
ended September 30, 2000 from approximately $164,000 for the six months ended
September 30, 1999. The decrease in net interest expense was a result of
decreased balances outstanding due to continued principal payments as applied
to outstanding obligations.
Income taxes. At September 30, 2000, the Company had neither amounts
recorded for a current or a deferred income tax liability, nor any income tax
expense recorded for the six months ended September 30, 2000, due to available
operating loss carryforwards.
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 and
six months ended September 30, 2000 and 1999, respectively. 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.
Financial Condition, Liquidity and Capital Resources
The Company has financed its operations through available borrowings under
its credit line facilities, loans from within the Company and from cash provided
by operations. The Company had working capital deficit of $841,000 at September
30, 2000, inclusive of current portion of long-term obligations and credit
facilities, as compared to a working capital deficit of approximately $657,000
at March 31, 2000. Management addressed this working capital deficiency through
an initial public offering of the Company's securities, which was completed
November 14, 2000.
Net cash provided by operating activities was approximately $292,000 for
the six months ended September 30, 2000, as compared to net cash used in
operating activities of $61,000 for the six months ended September 30, 1999.
Cash provided was primarily attributable to a decrease in accounts receivable of
approximately $320,000, an increase in accounts payable of approximately
$181,000, an increase in accrued expenses of approximately $155,000, all of
which is partially offset by an increase in inventory of approximately $211,000,
an increase in prepaid registration expenses of approximately $80,000, an
increase in prepaid expenses and other current assets of approximately $60,000,
and an increase in other assets of approximately $161,000.
Net cash used in investing activities was approximately $42,000,
representing the purchase of plant equipment and plant leasehold modifications.
Net cash used in financing activities was approximately $185,000,
representing repayments on revolving lines of credit of approximately $208,000,
repayments of long-term obligations of approximately $120,000, all of which is
as partially offset by net proceeds from issuance of related party obligations
of approximately $88,000, and by decreases in amounts due from affiliates of
approximately $70,000.
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
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<PAGE>
operations, expansion of facilities, expected results from recent procedural
changes surrounding the acceptance of manufacturing sales orders, 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. There can be no assurance that such financing would be
available in amounts and on terms acceptable to the Company.
In February 1999, the Company established a $2,000,000 credit facility to
provide additional working capital in support of accounts receivable and
inventory and 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
approximately $491,000, for repayment of certain capital lease obligations. The
remainder of this credit facility is in the form of a revolving line of credit.
The note bears interest at the Prime Rate of The Chase Manhattan Bank in New
York, New York, plus 2.25% per annum on the unpaid outstanding principal of each
advance, payable monthly. The note is to be secured by a blanket lien on all
assets of the Company, exclusive of certain leased assets. The note is also
secured by a personal guarantee from the Company's Chairman of the Board. The
credit facility provides substantial penalties for early termination. At
September 30, 2000, the outstanding principal balance on the line of credit was
approximately $640,000.
In December 1999, we 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 the Company's parent, Dynamic
Health Products, Inc.. The principal on the note is due and payable in November
2000. The note or any portion thereof may be prepaid without penalty. At
September 30, 2000, the outstanding principal balance on this note was $500,000.
During November 2000, this note was paid in full using the proceeds received
from the Company's initial public offering.
In June 2000, Go2 established a $100,000 revolving line of credit with
Carnegie Capital, LTD, an affiliate of Jugal K. Taneja, Chairman of the Board of
Directors of the Company, to provide a source of funding for cash requirements
directly related to Go2's registration of shares for a public offering. The note
bears interest at 10% per annum. Principal and interest on the note is due and
payable in full upon the successful completion of a public offering of Go2's
common stock. As of September 30, 2000, the outstanding principal
balance on this note was $45,000. This note was repaid during November 2000.
In June 2000, Go2 established a $100,000 revolving line of credit with
Joseph Zappala, a Director of DrugMax.com, Inc., an affiliate of the Company and
the President of Go2Pharmacy.com, Inc., a Delaware corporation, to provide a
source of funding for cash requirements directly related to Go2's registration
statement. The note bears interest at 10% per annum. Principal and interest on
the note is due and payable in full upon the successful completion of a public
offering of Go2's common stock. As of September 30, 2000, the outstanding
principal balance on this note was $45,000. This note was repaid during November
2000.
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<PAGE>
On November 7, 2000, the Securities and Exchange Commission declared Go2's
registration of 1,000,000 shares of the common stock of Go2 to be effective. The
registration was affected through the filing of Registration Statement No. 333-
92849 on Form SB-2 with the Securities and Exchange Commission. The Company's
initial public offering, pursuant to this registration, was successfully
completed on November 14, 2000. In conjunction with this offering, 1,000,000
shares of common stock, $.01 par value, were sold to the public for net proceeds
of $6,655,705 to Go2. Simultaneously with and conditioned upon the offering, Go2
acquired Go2Pharmacy.com, Inc., a Delaware corporation, in exchange for
3,000,000 shares of its common stock. Go2's parent company at that time, Dynamic
Health Products, Inc., continues to own 3,000,000 shares, or 42.8% of the common
stock of Go2.
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.
The Company made an initial public offering of 1,000,000 shares of its
common stock, $.001 par value, pursuant to a registration statement declared
effective by the Commission on November 7, 2000, File No. 333-92849 on Form SB-2
("Registration Statement"). The shares of common stock were sold at a price of
$7.875 per share, for total proceeds to the Company of $7,875,000 . The public
offering was underwritten by Utendahl Capital Partners, L.P. as managing
underwriter.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
Item 5. OTHER INFORMATION.
None.
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<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
The following exhibits are filed with this report:
Exhibit Number Exhibit
-------------- -------
27.1 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the applicable
period.
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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.
Go2Pharmacy, Inc.
Date: December 22, 2000 By: /s/ Mihir K. Taneja
--------------------
Mihir K. Taneja
Chief Executive Officer, Secretary and
Director
Date: December 22, 2000 By: /s/ Carol Dore-Falcone
----------------------
Carol Dore-Falcone
Vice President, Chief Financial Officer
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