AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 28, 2000
REGISTRATION NO. 333-92849
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT #2 TO FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
GO 2 PHARMACY.COM, INC.
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(FORMERLY INNOVATIVE HEALTH PRODUCTS, INC.)
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
FLORIDA 5961 592 600 232
------------------------------- ---------------------------- ------------------------------------
<S> <C> <C>
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
</TABLE>
6950 BRYAN DAIRY ROAD
LARGO, FL 33777
(727) 544-8866
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(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
KOTHA S. SEKHARAM, PRESIDENT
6950 BRYAN DAIRY ROAD
LARGO, FL 33777
(727) 544-8866
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(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
COPIES TO:
GREGORY SICHENZIA, ESQ. ARTHUR S. MARCUS, ESQ.
SICHENZIA, ROSS & FRIEDMAN, LLP GERSTEN, SAVAGE & KAPLOWITZ, LLP
135 WEST 50TH STREET, 20TH FLOOR 101 EAST 52ND STREET
NEW YORK, NEW YORK 10020 NEW YORK, NEW YORK 10022
(212) 664-1200 (212) 752-9700
APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [X] If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] If this Form is a
post-effective amendment filed pursuant to Rule 462(c) under the Securities Act,
check the following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same offering.[ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
PLEASE CHECK THE FOLLOWING BOX. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER SECURITY(1) PRICE(1) FEE
---------------------------------- ------------- ---------------- ------------------- ------------
<S> <C> <C> <C> <C>
Common stock, $.01 par value(2) 1,150,000 $10.00 $11,500,000 $3,036
Underwriter's Warrants(3) 100,000 $0.01 $100 (4)
Common stock, $.01 par value(5) 100,000 $12.00 $1,200,000 $317
----------- ------
Total $12,700,100 $3,353
</TABLE>
(1) Estimated solely for the purpose of determining the registration fee.
(2) Includes 150,000 shares of common stock, $.01 par value per share, subject
to sale upon exercise of the Underwriter's over-allotment option.
(3) The Underwriter's Warrant is for the purchase of common stock, $.01 par
value per share.
(4) No fee pursuant to Rule 457(g). (5) Represents shares of common stock, $.01
par value per share, issuable to the underwriter upon exercise of the
underwriter's warrants.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY CHANGE. WE MAY NOT
SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION DATED JUNE 28, 2000
GO 2 PHARMACY.COM, INC.
1,000,000 SHARES OF COMMON STOCK
GO 2 PHARMACY.COM, INC.: o Our principal executive offices are located
at 6950 Bryan Dairy Road, Largo, Florida
33777 and our telephone number is (727)
544-8866.
o Proposed Nasdaq SmallCap Market Symbol: GORX
THE OFFERING: o This is the initial public offering of Go 2
Pharmacy.com, Inc. There has been no public
market for our common stock prior to this
offering.
o We are offering 1,000,000 shares of our
common stock.
o The underwriters have a 45-day option to
purchase an additional 150,000 shares of our
common stock, at the offering price to cover
any over-allotments.
YOUR INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. BEFORE
INVESTING IN OUR COMMON STOCK, YOU SHOULD CONSIDER CAREFULLY THE RISKS DESCRIBED
UNDER "RISK FACTORS" BEGINNING ON PAGE 5.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS COMPLETE OR ACCURATE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE OFFERING PER SHARE TOTAL
------------ --------- -----
Public offering price............................. $10.00 $10,000,000
Underwriting discounts............................ $ 1.00 $ 1,000,000
Proceeds to Go 2 Pharmacy.com.................... $ 9.00 $ 9,000,000
KASHNER DAVIDSON SECURITIES CORPORATION
<PAGE>
PROSPECTUS SUMMARY
GO 2 PHARMACY.COM, INC.
Our Business....................... 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. We are currently expanding
our business to launch an online
business to business portal and a
pharmacy benefit management division for
institutional customers.
Simultaneous with this offering, we will
acquire the Delaware corporation Go 2
Pharmacy.com, Inc. and launch our web
site under www.go2pharmacy.com, a
business to business portal for
healthcare and pharmacy product
resources. Through our web site, we will
provide over-the-counter drugs, durable
medical equipment, medical supplies and
health and beauty care products directly
to nursing homes, assisted living
facilities, and personal care residences
across the country. We currently have a
contracted membership roster of
approximately 70 nursing homes,
representing approximately 20,000 beds,
through a partnership with The Greater
New York Health Care Facilities
Association.
In addition, we are in the process of
forming a new pharmacy benefit manager
division which will administer drug
benefits for member based health
organizations nationwide. We intend to
enter into contractual relationships
with health maintenance organizations,
insurance companies, preferred provider
organizations, corporate health plans
and self-insured labor union plans to
provide pharmacy benefit management
services to their members.
Our Products....................... We primarily manufacture dietary
supplements, over-the-counter-drugs, and
health and beauty care products for
others (a process known as private label
manufacturing). In addition, we develop,
manufacture and distribute our own
branded dietary supplements and health
and beauty care products. Some of our
branded products include "Nutrisure(TM)"
meal replacement powder, "Physician's
Pharmaceuticals(TM)" dietary
supplements, and "Arth-Aid(TM)" roll-on
and cream for arthritis.
Our Customers...................... Our private label customers include mass
marketing companies, physicians,
universities, network marketing and
direct sales companies. Our branded
product customers are retail consumers,
marketing companies, wholesalers and
retailers, including independent
pharmacies, regional and national chain
drug stores, direct mail companies, mass
merchandisers, deep discounters and
brokers. Our institutional customers
include personal care residences,
assisted living facilities and nursing
homes. Our online customers will include
wholesale, institutional, and business
to business customers.
Our Industry....................... The total United States market for
vitamins, and nutritional and herbal
supplements is estimated at $29.9
billion by The Nutrition Business
Journal.
<PAGE>
The market for over-the-counter drugs is
$29 billion, health and beauty aids $29
billion, and vitamins and nutritional
supplements $9 billion, as estimated by
Corporate Research Group.
According to Corporate Research Group,
the pharmacy benefit management market
had revenues of approximately $20
billion in 1998, up 4% since 1997.
Membership among the top 13 pharmacy
benefit managers was 226.6 million lives
in 1998, which accounted for
approximately 38% of the 2.6 billion
prescriptions dispensed in the United
States in 1998.
Our Strategy........................ Our strategy is to build a multi-faceted
business that capitalizes on the
Internet's efficiency to link our
manufacturing operations directly to our
customers. We are developing sales and
marketing strategies to build our web
site recognition among long-term care
facilities and other health product
consumer organizations, while building
brand awareness of our proprietary
products.
Our Manufacturing
Operations........................... We conduct manufacturing operations from
our 33,222 square foot production,
laboratory and office facility, located
in Largo, Florida, and our 9,694 square
foot manufacturing facility, located in
Tampa, Florida.
Our Principal Offices................ Our principal executive offices are
located at 6950 Bryan Dairy Road, Largo,
Florida 33777 and our telephone number
is (727) 544-8866. We are a Florida
corporation.
2
<PAGE>
THE OFFERING
Shares Outstanding................... We have 6,015,000 shares of common stock
and 150,000 shares of series A preferred
stock outstanding prior to this
offering, assuming completion of the
transactions described in this
prospectus.
Shares Offered....................... We are offering 1,000,000 shares of our
common stock. Upon completion of the
offering there will be 7,015,000 shares
of common stock and 150,000 shares of
series A preferred stock outstanding. We
have granted the Underwriters of this
offering a 45-day option to purchase
150,000 shares of common stock to cover
any over-allotments.
Use of Proceeds...................... We intend to use the net proceeds of
this offering for business expansion,
web site development, marketing and
advertising efforts, debt retirement,
computer hardware and software upgrades,
and general working capital purposes
which may include the acquisition of an
institutional pharmacy.
Proposed Trading
Symbol............................... We have applied to list our common stock
on the Nasdaq SmallCap Market under the
proposed symbol "GORX."
Forward-Looking
Statements............................. This prospectus contains forward-looking
statements that address, among other
things, our expansion and acquisition
strategy, business development, use of
proceeds, projected capital
expenditures, liquidity, and our
development of additional revenue
sources. The forward-looking statements
are based on our current expectations
and are subject to risks, uncertainties
and assumptions. We base these
forward-looking statements on
information currently available to us,
and we assume no obligation to update
them. Our actual results may differ
materially from the results anticipated
in these forward-looking statements, due
to various factors.
3
<PAGE>
SUMMARY SELECTED FINANCIAL DATA
The summary financial data set forth below have been derived from our audited
and unaudited financial statements included in this prospectus beginning on page
F-1.
YEAR ENDED
MARCH 31,
----------------------------------------
1998 1999 2000
----------- ----------- -----------
STATEMENTS OF OPERATIONS DATA:
Revenues ........................... $ 1,906,935 $ 4,845,876 $ 5,831,896
Cost of goods sold ................. 1,388,816 3,419,046 3,808,640
----------- ----------- -----------
Gross profit ....................... 518,119 1,426,830 2,023,256
Selling, general and administrative
expenses ..................... 468,578 1,504,514 2,094,838
----------- ----------- -----------
Income (loss) from operations ...... 49,541 (77,684) (71,582)
Other income (expenses), net ....... 434 (158,721) (222,974)
----------- ----------- -----------
Income (loss) before income taxes .. 49,975 (236,405) (294,556)
Income taxes ....................... -- -- --
----------- ----------- -----------
Net income (loss) .................. $ 49,975 $ (236,405) $ (294,556)
=========== =========== ===========
Basic and diluted income (loss)
per share .................... $ .02 $ (.08) $ (.10)
=========== =========== ===========
Basic and diluted weighted average
number of common shares
outstanding .................. 3,000,000 3,000,000 3,000,000
=========== =========== ===========
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<CAPTION>
AS OF
MARCH 31, 2000
-------------------------
AS OF
MARCH 31, 1999 ACTUAL AS ADJUSTED
-------------- ----------- -----------
(Unaudited)
BALANCE SHEETS DATA:
<S> <C> <C> <C>
Cash and cash equivalents ................. $ 16,206 $ -- $ 6,541,070
=========== =========== ===========
Working capital (deficit) ................. $(2,347,718) $(657,533) $ 7,338,102
=========== =========== ===========
Total assets .............................. $ 5,585,046 $ 4,866,368 $35,207,438
=========== =========== ===========
Long-term obligations, less current portion $ 1,292,849 $ 509,362 $ --
=========== =========== ===========
Shareholders' equity (deficit) ............ $ (302,256) $ 903,188 $33,208,188
=========== =========== ===========
</TABLE>
The numbers in the column captioned "As Adjusted" under the heading "As of March
31, 2000" have been adjusted to reflect our sale of 1,000,000 shares of common
stock at an assumed public offering price of $10.00 per share, our application
of the estimated net proceeds and the acquisition of the Delaware corporation Go
2 Pharmacy.com, Inc.
4
<PAGE>
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. BEFORE
DECIDING WHETHER TO INVEST, YOU SHOULD READ AND CONSIDER CAREFULLY THE FOLLOWING
RISK FACTORS.
RISKS RELATED TO OUR BUSINESS AND INDUSTRY
OUR BUSINESS IS SUBJECT TO EXTENSIVE GOVERNMENT REGULATION. Numerous state and
federal government agencies extensively regulate the manufacture, packaging,
labeling, advertising, promotion, distribution and sale of our products.
Specifically, our pharmacy and dietary supplement operations are subject to
significant regulatory and licensing requirements, as are our pharmacy benefit
management services. The broad and subjective language used in legislation
regulating our business often makes strict compliance difficult to achieve,
however we employ a full-time compliance officer for this purpose. Nonetheless,
our failure or inability to comply with applicable laws and governmental
regulations may result in civil and criminal penalties that could materially and
adversely affect our business.
In addition to current government regulation, the U.S. House of Representatives
Committee on Commerce and the General Accounting Office are reviewing the
regulation of online pharmacies to curb unlicensed prescription sales over the
Internet. Current proposals before these committees include increasing industry
reporting and monitoring guidelines, as well as improving patient record
confidentiality and security standards under the Health Insurance Portability
and Accountability Act of 1996. If implemented, these regulatory changes may
increase our operating costs or effect our ability to freely transmit
confidential medical information over the Internet. Either of these changes
could materially and adversely affect our business.
OUR BUSINESS MAY EXPERIENCE SIGNIFICANT VOLATILITY IN QUARTERLY EARNINGS AND
COMMON STOCK VALUE. Our quarterly operating results could fluctuate due to many
factors, including:
o trends and general conditions in the pharmacy and health product
industry and our ability to recognize these trends and market new
products that effectively respond to them;
o our introduction of new products;
o our competitors' introduction of new products;
o the loss of one or more significant customers;
o increased media attention on the use and efficacy of dietary
supplements;
o consumers' perceptions of our products and operations, or those of our
competitors; and
o the availability of raw materials from suppliers.
Our failure to produce operating results that meet securities analysts' or
investor expectations in one or more quarters may materially and adversely
affect the price of our common stock and our business.
OUR ONLINE SERVICES MAY NOT BE ABLE TO ATTRACT AND MAINTAIN BUSINESS TO BUSINESS
CUSTOMERS. Our web site competes with both e-commerce and traditional shopping
methods for dietary, health and beauty care and pharmaceutical products. Due to
this competition, we may not be able to convert customers from traditional
shopping methods or draw them from our online competitors. Among other things,
our potential customers may be concerned with shopping at our web site due to
shipping costs, delivery time, product availability, credit security,
confidentiality, and customer service. We may be delayed in building a
substantial customer base due to these customer concerns.
OUR BUSINESS IS GREATLY AFFECTED BY MEDIA PUBLICITY. We are highly dependent
upon consumers' perceptions of the safety and quality of our products, as well
as products distributed by other companies. National media publicity associated
with mistakes in prescription deliveries or labeling, or illness or other
harmful effects caused by the use of our products (or similar products
distributed by other companies) may adversely affect our business. In addition,
future research reports on dietary supplements that contradict or suggest less
favorable results than earlier research may adversely affect our business. The
publication of reports
5
<PAGE>
suggesting that dietary supplements may be harmful or ineffective may materially
and adversely affect our business, regardless of whether the reports are
scientifically supported or based on our products' recommended dosage.
OUR BUSINESS IS SUSCEPTIBLE TO PRODUCT LIABILITY CLAIMS. We inherently face the
risk of product liability claims based on injuries caused by the use of our
products. In the event that we do not have adequate insurance, product liability
claims relating to our products may materially and adversely affect our
business.
THERE ARE NO CLINICAL STUDIES DOCUMENTING OUR PRODUCTS' LONG-TERM EFFECTS.
Although many of the ingredients in our dietary supplements are vitamins,
minerals, herbs and other substances with a long history of human consumption,
some of these products contain ingredients without such a history. In addition,
although the ingredients contained in our products are approved by various
regulatory agencies, there is little long-term experience with human consumption
of some of these product ingredients in concentrated form. We cannot assure that
our products, even when used as directed, will have the intended effects or that
they will not have harmful side effects. Such unintended effects may result in
adverse publicity or product liability claims that may materially and adversely
affect our business.
WE FACE INTENSE COMPETITION IN THE PHARMACY AND DIETARY SUPPLEMENT INDUSTRY. The
pharmacy and dietary supplement industries are highly competitive. Numerous
companies compete with us in the development, manufacture and marketing of
dietary supplements and the sale of pharmacy products. In addition, we face
strong competition in our online and traditional distribution channels from
private label supplements offered by health and natural food store chains,
drugstore chains, mass merchandisers and supermarket chains. Many of these
competitors are larger and have greater financial, personnel, manufacturing,
distribution, marketing and other resources than we do. Competition from these
companies may materially and adversely affect our business.
OUR BUSINESS IS DEPENDENT UPON OUR RAW MATERIALS SUPPLIERS. We obtain most of
the raw materials used in the manufacture of our products from third-party
suppliers. Many of the raw materials used in our products are harvested
internationally. We cannot assure that suppliers will provide the raw materials
we need, in the quantities we request, or at a price we are willing to pay. In
addition, interruptions in our suppliers' production that are beyond our control
may delay delivery of our raw materials. Our inability to obtain adequate
supplies of raw materials for our products at favorable prices, or at all, may
materially and adversely affect our business.
OUR BUSINESS IS SUSCEPTIBLE TO BREAKDOWN OR LOSS OF OUR MANUFACTURING
FACILITIES. Our operating results depend upon the continued operation of our
manufacturing facilities in Florida. The operation of dietary supplement
manufacturing plants involves many risks, including the breakdown, failure or
substandard performance of equipment, natural and other disasters, and the need
to comply with government agency directives. In addition, our manufacturing
facilities are located in central Florida, a region that has historically been
susceptible to potentially catastrophic hurricanes. Any damage to, or
destruction of, our manufacturing facilities due to any of these causes may
materially and adversely affect our business.
OUR PRODUCTS HAVE LIMITED TRADEMARK PROTECTION. Our policy is to pursue
registrations for all of the trademarks associated with our key proprietary
products. We rely on common law trademark rights to protect our unregistered
trademarks as well as our trade dress rights. Generally, common law trademark
rights are limited to the geographic area in which the trademark is actually
used, while a United States federal trademark registration enables the
registrant to stop the unauthorized use of the trademark by any third party
anywhere in the United States. We intend to register our trademarks in certain
foreign jurisdictions where our products are sold. We cannot assure that the
protection available in such jurisdictions, if any, will be as extensive as the
protection available to us in the United States. In addition, because we have no
patents on our proprietary products, another company may replicate them.
Inadequate trademark and patent protection of our proprietary products may
materially and adversely affect our business.
WE MAY NOT BE ABLE TO ADEQUATELY PROTECT OUR DOMAIN NAMES AGAINST INFRINGEMENT
IN OTHER
6
<PAGE>
COUNTRIES. We have registered the Internet domain name "Go 2 pharmacy.com" in
the United States, as well as other related names. While these domain names are
regulated by Internet agencies, this regulation may change in the United States
and other countries worldwide. These changes may establish new domain names,
registrars, or regulations on registration of domain names. As a result, we may
not acquire or maintain the "Go 2 pharmacy.com" domain name in all countries in
which we conduct business.
WE MAY FACE LIABILITY FOR OUR WEB SITE CONTENT. We may face potential liability
for negligence, trademark, copyright, patent, defamation, indecency and other
claims based on the content we post on our web site. We may also face potential
liability for unauthorized duplication of other parties' web content or
proprietary technology. In the event that such liability arises, our general
liability insurance may not cover all liability stemming from potential claims
of this type. Any such liability that our insurance does not fully cover could
materially and adversely affect our business.
OUR SALES MAY BE NEGATIVELY AFFECTED IF INTERNET SALES TAXES ARE ADOPTED. Our
Internet product sales currently are not subject to sales tax, except for
purchases made in the state of Florida. Nonetheless, if individual states or the
federal government choose to impose sales tax obligations on out-of-state
e-commerce transactions our revenues and growth potential may be materially and
adversely affected.
GOVERNMENTAL REGULATION OF THE INTERNET AND DATA TRANSMISSION OVER THE INTERNET
COULD AFFECT OUR BUSINESS. Discussions of legislation regarding Internet
communications or commerce have become more prevalent in recent sessions of the
U.S. Congress. Specifically, many government agencies and consumers have voiced
concern regarding security and confidentiality of medical and pharmaceutical
records online. Internet law, however, remains largely unsettled, and we cannot
currently determine how existing laws governing privacy, libel and taxation may
affect Internet business such as our own. In the future, more stringent consumer
protection laws in the United States and abroad could impose additional burdens
on e-commerce companies and online pharmaceutical companies in particular, due
to the sensitive nature of medical and pharmaceutical records. The adoption or
modification of such laws or regulations could adversely and materially affect
our business.
WE ARE DEPENDENT ON KEY MANAGEMENT PERSONNEL FOR OUR FUTURE SUCCESS. As a small
company, with only 48 employees, our success depends greatly on our senior
management team. The loss of one or more of these employees may materially and
adversely affect our business.
WE MAY NOT BE ABLE TO FULFILL OUR GROWTH STRATEGY IF WE ARE UNABLE TO CONSUMMATE
FUTURE ACQUISITIONS. We expect to pursue additional acquisitions in the future
as a part of our business strategy. We cannot assure that attractive acquisition
opportunities will be available to us or that we will be able to obtain funds
necessary for future acquisitions. If we are unable to consummate future
acquisitions, our business, financial condition and operating results may be
materially and adversely affected.
OUR ARTICLES OF INCORPORATION AND BYLAWS CONTAIN PROVISIONS THAT MAY DISCOURAGE
TAKEOVERS OR MAKE THEM MORE DIFFICULT. Certain provisions of our articles of
incorporation and bylaws, as well as certain sections of the Florida Business
Corporation Act, and our board of directors' ability to issue shares of
preferred stock and to establish voting rights, preferences and other terms of
our stock, may be deemed to have an anti-takeover effect and may discourage
takeover attempts that are not first approved by our board of directors. This
anti-takeover effect may discourage takeovers which shareholders may deem to be
in their best interests.
RISKS RELATED TO THIS OFFERING
OUR COMMON STOCK HAS NO PRIOR PUBLIC TRADING MARKET AND THE OFFERING PRICE OF
OUR COMMON STOCK MAY BE ARBITRARY. Prior to this offering, there has been no
active public market for our common stock. We cannot predict the extent to which
a trading market will develop, if at all, or how liquid that market may become.
The initial public offering price of our common stock for this offering will be
determined by negotiations with Kashner Davidson Securities Corporation and may
not be indicative of the market price of our common stock after this offering.
The offering price of our common stock is not related to assets, earnings, book
7
<PAGE>
value, or other criteria traditionally used to value companies. You should not
consider the offering price as representative of the actual value of our common
stock. The price of our common stock is subject to change due to market
conditions and other factors. We cannot assure that you will be able to resell
our common stock at the offering price.
OUR COMMON STOCK PRICE MAY FALL UPON THE FUTURE SALE OF ADDITIONAL SHARES OF OUR
COMMON STOCK. Future sales of our common stock in the public market, or even the
possibility of such sales, may materially and adversely affect the market price
of our common stock. There were 6,015,000 shares of common stock outstanding
before this offering, assuming completion of our acquisition of the Delaware
corporation, Go 2 Pharmacy.com, Inc. Substantially all of such shares are
"restricted securities" within the meaning of Rule 144 of the Securities Act of
1933. All of these restricted shares of our common stock will become eligible
for resale under Rule 144 one year from the day that the shares offered herein
are deemed "effective" by the Securities & Exchange Commission.
OUR CONTROLLING SHAREHOLDERS MAY EXERCISE SIGNIFICANT CONTROL OVER US FOLLOWING
THIS OFFERING. The shares offered in this prospectus represent a minority
portion of our outstanding voting shares. Before this offering, our directors,
executive officers and principal shareholders beneficially owned approximately
99.5% of the outstanding shares of our common stock. Following this offering,
they will beneficially own approximately 81.3% of our outstanding shares, or
approximately 79.6% if the over-allotment option is exercised in full. Our
shareholders do not have cumulative voting rights with respect to the election
of directors. If our principal shareholders vote together, they could
effectively elect all of our directors.
INVESTORS WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION OF OUR COMMON
STOCK'S BOOK VALUE. If you purchase our common stock in this offering, the net
tangible book value of the common stock will experience immediate and
substantial dilution. We estimate that this dilution will be approximately $8.78
per share, or approximately 87.8%.
8
<PAGE>
USE OF PROCEEDS
We estimate that we will receive net proceeds of approximately $8,255,000 from
our sale of the 1,000,000 shares of common stock offered by us with this initial
public offering (approximately $9,605,000 if the underwriter fully exercises its
over-allotment option). This estimate is based on an initial public offering
price of $10.00 per share and is after deducting estimated underwriting
discounts and commissions, the underwriter's non-accountable expense allowance
and other estimated offering expenses payable by us. We expect to use the net
proceeds of this offering for the following purposes:
AMOUNT PERCENTAGE
---------- ----------
Business expansion................................. $2,300,000 27.9%
Web site development, maintenance and upgrades..... 1,000,000 12.1%
Debt retirement.................................... 1,785,000 21.6%
Marketing.......................................... 500,000 6.1%
Computer hardware and software..................... 190,000 2.3%
Working capital and general corporate purposes..... 2,480,000 30.0%
--------- -----
Total....................................... $8,255,000 100.0%
========== ======
Business expansion includes amounts allocated for the purchase and installation
of manufacturing equipment for:
o an automated liquid line;
o an automated powder line;
o other automated equipment to meet the higher standards of
over-the-counter drug manufacturing; and
o interior construction of additional manufacturing facilities.
Debt retirement includes amounts to be expended to repay all of our indebtedness
outstanding under:
o the credit line portion of our existing credit facility with The CIT
Group/Credit Finance of approximately $663,000, including fees and
accrued and unpaid interest;
o the obligation under our existing credit facility with First
Community Bank of America of approximately $503,000, including fees
and accrued and unpaid interest;
o the term loan portion of our existing credit facility with The CIT
Group/Credit Finance of approximately $350,000, including fees and
accrued and unpaid interest;
o our obligation to First Community Bank of America of approximately
$82,000, including fees and accrued and unpaid interest;
o our capital lease obligations to JDR Capital Corporation of
approximately $165,000, including fees and accrued and unpaid
interest; and
o our capital lease obligation to Commerce Security Bank of
approximately $22,000, including fees and accrued and unpaid
interest.
Our credit facility consists of a $2,000,000 revolving line of credit, a portion
of which is in the form of a 60-month term loan. 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 secured by a blanket lien on all of our assets, exclusive of certain
leased assets.
Amounts to be expended for working capital and general corporate purposes may
include development and marketing of our branded products, hiring of additional
personnel including office, accounting, production, warehouse and management
personnel, and any cash payment required for our pharmacy acquisition.
9
<PAGE>
We routinely evaluate potential acquisitions of businesses and or product lines
that would compliment or expand our business or further our strategic goals. We
may use a portion of the net proceeds of this offering for one or more such
transactions; however, we currently have no commitments or agreements with
respect to such transactions.
DIVIDEND POLICY
We have not paid any cash dividends on our common stock and we currently intend
to retain any future earnings to fund the development and growth of our
business. Any future determination to pay dividends on our common stock will
depend upon our results of operations, financial condition and capital
requirements, applicable restrictions under any credit facilities or other
contractual arrangements and such other factors deemed relevant by our Board of
Directors. Our current credit facility with The CIT Group prohibits the payment
of dividends.
10
<PAGE>
DILUTION
As of March 31, 2000, our net tangible book value was $45,271 or $.02 per share
of common stock. Net tangible book value per share is determined by dividing a
company's tangible net worth (total assets, net of intangible assets, less total
liabilities) by the number of outstanding common shares. Our pro forma net
tangible book value as of March 31, 2000 would have been approximately
$8,550,271 or $1.22 per share, without taking into account any change in our net
tangible book value after March 31, 2000 and after deducting underwriting
discounts and commissions, the Underwriter's non-accountable expense allowance
and other estimated offering expenses. This represents an immediate increase in
the net tangible book value of $1.20 per share to existing shareholders and an
immediate dilution of $8.78 per share to new investors. The following table
illustrates this per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed public offering price per share................................ $10.00
Net tangible book value per share as of March 31, 2000.............. $.02
Increase per share attributable to this offering.................... 1.20
----
Pro forma net tangible book value per share after this offering.. 1.22
----
Dilution to new investors.............................................. $8.78 (87.8%)
===== =======
</TABLE>
The following table sets forth the number of shares of common stock purchased
from us, the total consideration paid and the average price per share paid by
the existing shareholders and by new investors in this offering on a pro forma
basis as of March 31, 2000.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders 6,000,000 85.7% $60,000 .6% $.01
New investors 1,000,000 14.3% $10,000,000 99.4% $10.00
--------- ----- ----------- -----
Total 7,000,000 100.0% $10,060,000 100.0%
========= ====== =========== ======
</TABLE>
11
<PAGE>
CAPITALIZATION
The following table summarizes our long-term obligations and capitalization as
of March 31, 2000 and as adjusted as of that date to reflect our sale of
1,000,000 shares of common stock and our application of the estimated net
proceeds, and after deducting the underwriting discounts and our estimated
offering expenses. The information in the table assumes an initial public
offering price of $10.00 per share. The information in the table should be read
in conjunction with the more detailed combined financial statements and notes
presented elsewhere in this prospectus.
<TABLE>
<CAPTION>
MARCH 31, 2000
ACTUAL AS ADJUSTED
------------ --------------
<S> <C> <C>
Long-term obligations, less current portion .......................... $ 509,362 $ --
Shareholders' equity:
Preferred stock, no par value, 5,850,000 shares authorized,
no shares issued and outstanding ................................. -- --
Series A preferred stock, no par value, 150,000 shares authorized,
150,000 shares issued and outstanding ............................ 1,500,000 1,500,000
Common stock, $.01 par value, 24,000,000 shares authorized,
3,000,000 shares issued and outstanding; 7,000,000 shares issued
and outstanding, as adjusted ................................... 30,000 70,000
Additional paid-in capital ....................................... -- 38,215,000
Accumulated deficit .............................................. (626,812) (626,812)
------------ ------------
Shareholders' equity ......................................... 903,188 39,158,188
------------ ------------
Total capitalization ................................................. $ 1,412,550 $ 39,158,188
============ ============
</TABLE>
ADDITIONAL INFORMATION ABOUT FINANCIAL PRESENTATION
OPTIONS AND WARRANTS. Unless this prospectus indicates otherwise, all
information presented in this prospectus assumes no exercise of the
Underwriter's over-allotment option, Kashner Davidson Securities Corporation's
warrants to purchase 100,000 shares of common stock in connection with this
offering, or warrants or options outstanding or available for grant under the
Company's 1999 Stock Option Plan or 1999 Non-Employee Stock Option Plan.
12
<PAGE>
SELECTED FINANCIAL DATA
The selected statement of operations data for the years ended March 31, 1999 and
2000, and the following selected balance sheet data as of March 31, 1999 and
2000 are derived from our audited financial statements included elsewhere in
this prospectus and have been audited by Brimmer, Burek & Keelan LLP. The
selected statement of operations data for the year ended March 31, 1998 and the
following selected balance sheet data as of March 31, 1998 are derived from the
audited financial statements included elsewhere in this prospectus and have been
audited by Kirkland, Russ, Murphy & Tapp. The following selected statements of
operations data for the years ended March 31, 1998, 1999 and 2000, and the
following selected balance sheet data as of March 31, 1998, 1999 and 2000, are
derived from our audited financial statements and in the opinion of our
management, contain all adjustments necessary for a fair presentation of such
data. The following selected financial data have been prepared in accordance
with generally accepted accounting principles. The financial data set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the financial statements
and notes thereto appearing elsewhere in the prospectus.
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
-------------------------------------------
1998 1999 2000
----------- ----------- -----------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues ................................... $ 1,906,935 $ 4,845,876 $ 5,831,896
Cost of goods sold ......................... 1,388,816 3,419,046 3,808,640
----------- ----------- -----------
Gross profit ............................... 518,119 1,426,830 2,023,256
Selling, general and administrative expenses 468,578 1,504,514 2,094,838
----------- ----------- -----------
Income (loss) from operations .............. 49,541 (77,684) (71,582)
Other income (expenses), net ............... 434 (158,721) (222,974)
----------- ----------- -----------
Income (loss) before income taxes .......... 49,975 (236,405) (294,556)
Income taxes ............................... -- -- --
----------- ----------- -----------
Net income (loss) .......................... $ 49,975 $ (236,405) $ (294,556)
=========== =========== ===========
Basic and diluted income (loss) per share .. $ 0.02 $ (0.08) $ (0.10)
=========== =========== ===========
Basic and diluted weighted average number of
common shares outstanding ............... 3,000,000 3,000,000 3,000,000
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31,
-------------------------------------------
1998 1999 2000
----------- ----------- -----------
<S> <C> <C> <C>
BALANCE SHEETS DATA:
Cash and cash equivalents .................. $ 239,604 $ 16,206 $ --
=========== =========== ===========
Working capital (deficit) .................. $ (17,048) $(2,347,718) $ (657,533)
=========== =========== ===========
Total assets ............................... $ 873,998 $ 5,585,046 $ 4,866,368
=========== =========== ===========
Long-term obligations, less current portion $ 258,974 $ 1,292,849 $ 509,362
=========== =========== ===========
Shareholder's equity (deficit) ............. $ (65,851) $ (302,256) $ 903,188
=========== =========== ===========
</TABLE>
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The statements contained in this prospectus are not purely historical
statements, but rather include what we believe are forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended and
Section 21E of the Securities Exchange Act of 1934, as amended. These include
statements about our expectations, beliefs, intentions or strategies for the
future, which are indicated by words or phrases such as "anticipate," "expect,"
"intend," "plan," "will," "we believe," "the company believes", "management
believes" and similar words or phrases. The forward-looking statements are based
on our current expectations and are subject to certain risks, uncertainties and
assumptions, including factors set forth in the following discussion and in the
discussions under "Risk Factors" and "Business." Our actual results could differ
materially from results anticipated in these forward-looking statements. All
forward-looking statements included in this document are based on information
available to us on the date hereof, and we assume no obligation to update any
such forward-looking statements.
We derive our revenues from developing, manufacturing and wholesaling 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. We have not experienced any
material loss of revenues and do not anticipate any significant losses in the
future.
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 our 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.
We have no income tax provision for the periods presented due to net operating
losses. These net operating losses may be carried forward for up to 20 years.
Due to our change in ownership in June 1998, the utilization of net operating
losses may be limited by Internal Revenue Code Section 382.
Concurrently with the closing of this offering, we will consummate a merger with
the Delaware corporation Go2Pharmacy.com, Inc., pursuant to which we will issue
3,000,000 shares of our common stock in exchange for all of the issued and
outstanding stock of the Delaware corporation. The Delaware corporation recently
entered into two significant agreements. The first agreement, with Care Plus
Health Plan, a Medicaid health maintenance organization located in New York,
designates the Delaware corporation Go2Pharmacy.com, Inc. to administer pharmacy
benefit management services to approximately 60% of Care Plus' membership. The
second agreement, with The Greater New York Health Care Facilities Association,
designates the Delaware corporation Go2Pharmacy.com, Inc. as an Internet based
source for the purchase of various products. In particular, upon consummation of
our merger with the Delaware corporation, we will distribute our products to the
Association's members.
RESULTS OF OPERATIONS
The following table sets forth selected statements of operations data as a
percentage of revenues for the periods indicated.
<TABLE>
PRO FORMA
YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31,
---------------------------- ----------
1998 1999 2000 2000
------ ------ ----- ------
(Unaudited)
<S> <C> <C> <C> <C>
Revenues ................................... 100.0% 100.0% 100.0% 100.0%
Cost of goods sold ......................... 72.8 70.6 65.3 65.3
------ ------ ----- ------
Gross profit ............................... 27.2 29.4 34.7 34.7
Selling, general and administrative expenses 24.6 31.0 35.9 137.9
Other expense, net ......................... -- 3.3 3.8 3.8
------ ------ ----- ------
Income (loss) before income taxes .......... 2.6 (4.9) (5.0) (107.0)
Income taxes ............................... -- -- -- --
------ ------ ------ ------
Net income (loss) .......................... 2.6% (4.9)% (5.0)% (107.0)%
====== ====== ===== ======
</TABLE>
14
<PAGE>
FISCAL YEAR ENDED MARCH 31, 2000 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1999
REVENUES. Revenues increased $986,000, or 20.4%, to $5.8 million for the
year ended March 31, 2000, as compared to $4.8 million for the year ended March
31, 1999. The increase is primarily attributable to increased volume of private
label sales resulting from continued expansion of marketing efforts and the
introduction of new products.
GROSS PROFIT. Gross profit increased $596,000, or 41.8%, to $2.0 million for the
year ended March 31, 2000, as compared to $1.4 million in the corresponding
period. Gross margin increased from 29.4% for the year ended March 31, 1999 to
34.7% for the year ended March 31, 2000. The increase was primarily attributable
to a change in the mix of sales, which yields a higher gross margin and
increased efforts of our purchasing department, which resulted in improved raw
material costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $590,000, or 39.2%, to $2.1 million for the
year ended March 31, 2000, as compared to $1.1 million in the corresponding
period. The increase was primarily due to additional promotional expenses, as
well as payroll expenses and costs associated with fringe benefits to support
increased net sales and our growth. As a percentage of sales, selling, general
and administrative expenses decreased to 35.9% for the year ended March 31,
2000, from 31.0% in the
15
<PAGE>
corresponding period.
INTEREST INCOME (EXPENSE), NET. Interest expense, net of interest income,
increased $56,000 to $308,000 for the year ended March 31, 2000, from $252,000
in the corresponding period. The increase in interest expense for the period is
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 our operations.
INCOME TAXES. We have no income tax provision for 1999 and 2000 due to net
operating losses. No tax benefit has been provided due to the uncertainty of
utilization of the loss carryforwards. These net operating losses may be carried
forward for up to 20 years.
We believe that there was no material effect on our operations or on our
financial condition as a result of inflation in 2000 and 1999. We also believe
that our business is not seasonal; however, significant promotional activities
can have a direct impact on sales volume in any given quarter.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations through available borrowings under our credit
line facilities and through borrowings from our parent company. We had a working
capital deficit of $657,500 at March 31, 2000, inclusive of current portion
of long-term obligations, obligations under our credit line facility, and
obligations to our parent company, as compared to a working capital deficit of
$2.3 million at March 31, 1999.
Net cash used in operating activities was $808,500 for the fiscal year ended
March 31, 2000, as compared to net cash used in operating activities of
$1,305,567 for the fiscal year ended March 31, 1999. The usage of cash is
primarily attributable to an increase in inventory $203,500, an increase in
prepaid expenses and other current assets of $244,200, an increase in other
assets of $46,400, a decrease in accounts payable of $313,600, a decrease in
accrued expenses of $41,000, partially offset by a decrease in accounts
receivable of $35,700.
Net cash used in investing activities was $432,800, representing the purchase of
property and equipment, and plant modifications of $451,800, partially offset by
proceeds from disposal of equipment and proceeds from notes receivable of
$3,000.
Net cash provided by financing activities was $1.2 million representing net
borrowings on lines of credit of $400,100, proceeds of long-term obligations of
$620,000, net borrowings from our parent company and affiliates of $636,200,
partially offset by repayments of long-term obligations of $297,400.
Management believes that cash expected to be generated from operations, current
cash reserves, and existing financial arrangements will be sufficient for us to
meet our capital expenditures and working capital needs for our operations as
presently conducted. Our future liquidity and cash requirements will depend on a
wide range of factors, including the level of business in existing operations,
expansion of facilities and possible acquisitions. In particular, we plan to add
additional manufacturing lines and purchase additional fully automated
manufacturing equipment to meet our present and future growth. Our plans will
require the leasing of additional facilities to accommodate a liquid processing
line. We will need the proceeds of this offering for general working capital
purposes to support future growth, the retirement of debt, and the planned
expansion of our facilities, manufacturing lines, and equipment.
In May 1998, $100,000 was loaned to Energy Factors, before Energy Factors was
acquired by Dynamic, for the purpose of assisting Energy Factors with its
working capital needs.
In June 1998, Energy Factors was acquired by our parent company, from U.S.
Diversified Technologies, Inc. which was to receive 400,000 shares of series A
convertible preferred stock of Dynamic in exchange for all of the issued and
outstanding stock of Energy Factors. As a result of the completion of the
December 31, 1997 audited financial statements for Energy Factors the number of
shares
16
<PAGE>
issued to U.S. Diversified Technologies, Inc. was reduced to 310,000, in
accordance with a right of set-off provided for in the acquisition agreement.
The series A preferred stock was valued at $2.50 per share based on several
factors, including prices of recent common stock issuances of Dynamic's common
stock. Subsequent to the acquisition, Energy Factors changed its name to
Innovative. In February 2000, its name was changed to Go2Pharmacy.com, Inc.
In February 1999, we established a $2,000,000 credit facility to provide
additional working capital to support our continued growth. A portion of the
proceeds from this 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 secured by a blanket
lien on all of our assets, exclusive of certain leased assets. The note is also
secured by all of the assets of Dynamic and by personal guarantee from our
Chairman of the Board. The credit facility provides substantial penalties for
early termination. At March 31, 2000, the outstanding principal balance on the
line of credit was approximately $856,600 and there were no additional
borrowings available under the line, due to limitations under the line.
In August and September 1999, we borrowed $86,500 from our Chairman of the
Board. The notes bear interest at 10% per annum and are payable on demand. The
notes have since been repaid.
In September 1999, we transferred our land and building in Largo, Florida to
Dynamic at net book value, which we believe approximated fair market value on
the date of transfer, based upon a recent independent appraisal of the property.
In conjunction with the transfer, Dynamic satisfied all of our outstanding
mortgages on the premises. In addition, approximately $430,000 of our obligation
to Dynamic was extinguished, which represented the difference between net book
value and amounts outstanding under existing mortgages.
In September 1999, $1.5 million of our obligation to Dynamic was converted to
150,000 shares of our series A preferred stock.
In September 1999, we agreed to lease the facility in Largo, Florida, from
Dynamic, pursuant to a ten-year lease that expires on September 30, 2009. We
have an option to renew the lease at the end of the ten-year term. The rental
under the lease is $16,000 per month subject to annual inflationary adjustments.
We believe that material affiliated transactions and loans, and business
relationships entered into by us with certain of our officers, directors and our
parent company or its affiliates were on terms no less favorable than we could
have obtained from independent third parties.
In December 1999, we established a $500,000 revolving line of credit with First
Community Bank of America, to provide us with additional working capital. The
note bears interest at a variable rate, with an initial rate of 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 parent. 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 March 31, 2000, the outstanding principal balance on
this note was approximately $493,000.
In December 1999, we established a loan with First Community Bank of America,
for the purchase of manufacturing equipment. The principal amount of the note is
approximately $90,000. 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
$2,873.24, 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 Year 2000 issue involves computer recognition of the change from the year
1999 to year 2000 by hardware and software systems and computer controlled
devices and equipment used in our operations. The
17
<PAGE>
failure of any hardware and software systems or equipment to timely and
accurately recognize such change could have resulted in partial or complete
systems failure.
We did not experience any failure of our own systems or those of any third party
with whom we conduct business, as a result of the Year 2000. We cannot predict
whether the failure of any such third party to be Year 2000 compliant will have
a materially adverse affect on our business.
18
<PAGE>
BUSINESS
OVERVIEW
At Go 2 Pharmacy.com, Inc., 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
through various outlets. We are currently expanding our business to launch an
online business to business portal and a pharmacy benefit management division
for institutional customers.
Our primary business is manufacturing private label products for a wide range of
customers worldwide. Our customers include mass marketing companies, physicians,
universities, network marketing and direct sales companies. We manufacture,
package and ship these products from our two facilities located in the Tampa
Bay, Florida area.
In addition to our private label business, we develop, manufacture and
distribute our own branded dietary supplements and health and beauty care
products. Some of our branded products include "Nutrisure" meal replacement
powder, "Physician's Pharmaceuticals" dietary supplement product line, and
"Arth-Aid" roll-on and cream for arthritis. We distribute these products to
retail consumers, marketing companies, wholesalers and retailers, including
independent pharmacies, regional and national chain drug stores, direct mail
companies, mass merchandisers, deep discounters and brokers. In addition, we
intend to distribute these branded products to institutional buyers through our
new web site, www.go2pharmacy.com. In April 2000, we formed a new subsidiary
under the name Breakthrough Engineered Nutrition, Inc. as a Florida corporation,
for the purpose of marketing and distributing our own branded product, Lean
Protein, which we believe to be the world's first zero carbohydrate, high
protein snack chip.
Simultaneous with this offering, we will launch www.go2pharmacy.com, a business
to business portal for healthcare and pharmacy products resources. Our web site
will be one of the first business to business healthcare and pharmacy product
portals of its kind. Through the web site, we will provide over-the-counter
drugs, durable medical equipment, medical supplies and health and beauty care
products directly to nursing homes, assisted living facilities, and personal
care residences across the country. We intend to develop this portal to become a
premier online provider of pharmacy products for institutional and long-term
care facilities seeking convenience and savings. Our web site's registered users
currently include approximately 70 nursing homes, representing approximately
20,000 beds. In addition, we are currently forming strategic alliances with
health maintenance organizations, insurance companies, retail chains, and other
health related associations to attract new members. We also intend to partner
with vendors who can supply products for our users' operations to enhance both
our web site and our manufacturing revenues.
We recently formed a new pharmacy benefit manager division. This division will
administer drug benefits for health maintenance organizations, insurance company
plans, preferred provider organizations, self-insured corporate health plans and
Taft-Hartley self-insured labor unions. As a pharmacy benefit manager, we manage
all member benefits in low risk plans, while taking an exclusively
administrative role in higher risk plans. Our administrative services include
claim processing, network management and customer service. We recently entered
into an agreement to provide our pharmacy benefit management services to a New
York State Health Maintenance Organization. In addition, the agreement will make
us the organization's exclusive private label over-the-counter supplier of
products including hand sanitizers, pediatric vitamin drops, and children's
chewable vitamins. We expect that this new line of business will generate
substantial revenue potential going forward.
Through the development of our manufacturing, online and pharmacy benefit
management efforts, we intend to provide wholesale and institutional customers
with an efficient source for their pharmacy product needs.
We were incorporated as Energy Factors, Inc., a Florida corporation, in 1985. In
August 1998 we
19
<PAGE>
changed our name to Innovative Health Products, Inc., and in February of this
year we changed our name to Go 2 Pharmacy.com, Inc, in anticipation of our
acquisition of the Delaware corporation Go 2 Pharmacy.com, Inc. and the positive
connotation that we believe is associated with the new name.
INDUSTRY BACKGROUND
THE GROWTH OF E-COMMERCE.
Over the past several years, the Internet has expanded rapidly to become an
important medium for finding and purchasing products and services. According to
Active Media, Internet related commerce is expected to exceed $160 billion in
the year 2000. International Data Corporation estimates that Internet users will
total 398 million by the end of the year 2002. This growth may be attributed to
many factors, including the widespread use of personal computers in the home and
workplace, the decreasing cost of personal computing, the convenience of online
shopping, and improving Internet security technology. We believe that this
dramatic growth presents significant opportunities for companies that sell
products through the Internet.
Today tens of millions of individuals are already using the Internet to access
content, purchase goods and more recently to purchase health-related products
and services. In response, healthcare organizations are adopting the Internet to
streamline core business processes and to expand their networks of trading
partners. The Internet is changing longstanding industry structures, shifting
the balance of power in many healthcare sectors and re-distributing margins
among market participants.
INSTITUTIONAL BUSINESS TO BUSINESS PORTAL
According to Corporate Research Group, the market for over-the-counter drugs,
health and beauty care products, and vitamins, minerals and supplements grew 19%
from 1996 through 1998. The retail and institutional markets for these products
are dominated by drug stores, mass merchandisers, and food stores. These
participants experience extensive inefficiencies in their purchasing cycles,
resulting in significant pricing differentials among competitors. Business to
business portals address this dilemma by providing consumers with more
information on purchase prices, quantities, timing and product lines. Internet
orders also offer the additional advantages of convenience and discount pricing.
PHARMACY BENEFITS MANAGER
The pharmacy benefits management market had revenues of approximately $20
billion in 1998, a 4% increase over 1997, according to Corporate Research Group.
Membership among the top 13 pharmacy benefit managers was 226.6 million lives in
1998. These pharmacy benefit managers processed an estimated 990 million claims
in 1998, or about 38% of the 2.6 billion prescriptions dispensed in the United
States in 1998.
NUTRITION
As the United States' population ages, society has become more conscious of
health related issues according to The Nutrition Business Journal. This "health
consciousness" has resulted in significant growth in the dietary supplement
industry. Industry researchers report that domestic sales of vitamins and
dietary and herbal supplements have grown 13% annually between 1995 and 1998.
The total United States market for these products is estimated at $29.9 billion
by The Nutrition Business Journal. We believe that United States population
dynamics dictate that this trend will continue.
20
<PAGE>
TOTAL 1998 U.S. SALES OF PRESCRIPTION DRUGS,
OVER-THE-COUNTER DRUGS AND HEALTH AND BEAUTY AIDS(1)
($IN BILLIONS)
% OF
SEGMENT 1998 TOTAL
---- -----
Prescription drugs (2) $122 65
Over-the-counter drugs 29 15
Health and beauty aids 29 15
Vitamins and nutritional supplements 9 5
---- ----
Total $189 100
==== ====
(1) This information was provided by Corporate Research Group.
(2) Includes retail and institutional sales.
We expect that our combination of pharmacy benefit management services, online
pharmacy services and manufacturing operations will increase our penetration of
the industries in which we participate. By vertically integrating our core
business operations, we believe we will achieve increased brand recognition and
exposure, ancillary product and service revenues, and will be able to provide
competitively priced products, with quick turn around on our manufactured
products and superior customer service.
BUSINESS STRATEGY
We are building a multi-faceted company in which we will be able to maximize our
efficiencies and capitalize on our synergies through our vertical operations.
These vertical operations consist of sales and marketing, customer service,
public relations, manufacturing and distribution. We will be able to support our
own needs as well as those of our customers, from manufacturing through
distribution. We believe our Internet link will help to expedite the sales and
the distribution of our products directly to end users. We are developing sales
and marketing strategies to build our web site recognition among long-term care
facilities and other health product consumer organizations, while building brand
awareness of our proprietary products. We believe that we have a created a solid
platform to achieve our goals. To date we have:
o Assembled a management team with experience in manufacturing,
marketing, sales and technology to lead us to our sales and profit
goals.
o Entered into membership agreements with approximately 70 nursing
homes, representing approximately 20,000 beds, to provide a
business to business platform for over-the-counter drugs, health
and beauty care products, and other products used in their
operations.
o Entered into a contract with CarePlus, a New York based health
maintenance organization, to provide pharmacy benefit management
services to its members.
o Entered into a letter of intent with an experienced service
company that will provide the personnel, hardware and software
needed to fulfill our pharmacy benefit management services at
favorable rates.
o Put together manufacturing operations and are operating as a
growing manufacturing company.
o Developed several proprietary products that are being sold to our
target markets.
o Initiated development of our web site which will offer the
opportunity for long-term care facilities and other health product
consumer organizations to purchase and gain information about the
products and services which we can provide.
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SHORT-TERM GOALS
In addition to continuing the efforts described above, we intend to pursue the
following short-term goals:
o Increase sales by building the user base of our business to
business portal at www.go2pharmacy.com to include nursing homes,
assisted living facilities, and personal care residences
representing at least 30,000 beds.
o Increase sales by building a pharmacy benefit management business
that services at least 200,000 members.
o Increase sales by concentrating our marketing efforts of certain
of our branded products to specific market segments.
o Increase sales by expanding branded and private label offerings of
over-the-counter drugs.
o Increase sales by expanding branded product offerings to include
generic drugs in addition to over-the-counter drugs.
We intend to take the following steps to reach these short-term goals:
o DEVELOP A PREMIER INSTITUTIONAL PHARMACY WEB SITE. Our goal is to
develop an institutional pharmacy web site that offers secure,
convenient and easy to use access to the Internet. We intend to
develop our web site by expanding our online product lines and
incorporating easy to use, personalized web content based on a
customer's purchasing history and product usage. This personalized
approach will strengthen our customer relationships and provide us
with invaluable information to meet evolving customer needs. We
also plan to provide the hardware, software, Internet service, and
customer support that our institutional members will need to
access our web site. Our web site will be built on a state of the
art interactive commerce platform to enhance the services that we
will offer.
o DEVELOP STRATEGIC ALLIANCES AND PARTNERSHIPS. We will target trade
associations that service long-term health care facilities, as
well as private and public assisted living facilities and nursing
home chains, to form alliances and partnerships to build our
business to business customer base. We will offer discount and
rebate programs to these organizations based on the volume of
sales through our web site. The Delaware corporation Go 2
Pharmacy.com, Inc. has entered into an agreement with The Greater
New York Health Care Facilities Association to provide our
products to its members. This association is a provider
association servicing over 100 long-term care facilities
throughout the New York metropolitan area. Through these
facilities the association represents approximately 30,000 nursing
home beds, which comprises approximately 35% of the nursing home
beds in the state of New York.
o DEVELOP CONTRACTUAL RELATIONSHIPS. We will target health
maintenance organizations, insurance companies and corporate
health unions to provide pharmacy benefit management services to
their members. The Delaware corporation Go 2 Pharmacy.com, Inc.
has entered into a five year agreement to provide pharmacy benefit
management services to Care Plus Health Plan, a Medicaid health
maintenance organization located in New York. Pursuant to the
agreement, we will administer pharmacy benefit management services
to approximately 60% of CarePlus' fast growing membership. We
intend to develop a nationwide network of local and pharmacy
chains that will service our pharmacy benefit management members'
non-maintenance prescription needs.
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o PHARMACY BENEFIT MANAGEMENT SERVICES. We intend to market pharmacy
benefit management services to self-insured employers, health
maintenance organizations, and other large service organizations.
o MARKET ONLINE PHARMACY. We intend to market our products to
self-insured employers, pharmacy benefit managers and health
maintenance organizations. We will develop awareness and
recognition of our web site through a variety of marketing
techniques including comarketing agreements with major online
sites, by developing online content, and by advertising in trade
journals and through traditional media.
o MARKET EXISTING BRANDED PRODUCTS TO NURSING HOMES. We currently
manufacture several of our own branded products. Some of these
products Nutrisure, Physicians Pharmaceuticals product line, and
Arth-Aid are currently being sold to nursing homes. We will market
these products through major business to business Internet sites
and by advertising in trade journals and through traditional
media. The sale of these products through our web site is expected
to offer significant brand awareness within the long-term care
facility industry.
o DEVELOP A COMPREHENSIVE SALES AND MARKETING PROGRAM FOR OUR
BRANDED PRODUCTS. In addition to distribution through our web
site, we intend to increase marketing of our branded products to
institutional markets, health food stores, mass market retailers,
and directly to consumers. We plan to increase our sales force to
achieve market penetration into targeted geographical areas. Some
of the sales personnel we will hire, will devote a substantial
portion of their time enhancing relationships with our customer's
key personnel, informing them of new product developments and
industry trends, and aiding them in designing store displays and
merchandising programs for our branded products. We also intend to
employ additional financial resources for the implementation of
media kits, increase our newsprint advertising, our national print
media, and our direct mail marketing efforts.
o CAPITALIZE ON OUR EXTENSIVE MANUFACTURING CAPABILITIES. As a
manufacturer, we have the capability to control the product and
the process from inception of an order to the distribution of a
finished product to our customer. We have the facilities and
equipment, the manufacturing capacity, the skilled work force, as
well as the industry experience. By controlling the manufacturing
process from start to finish, we believe we can minimize product
costs. By utilizing our manufacturing capabilities, we intend to
build institutional relationships through high quality and low
cost custom product lines. In particular, one of our focal points
will be custom packaged pharmacy products for institutional
customers.
o EXPANSION OF OUR MANUFACTURING ARM TO INCLUDE FOOD AND DRUG
ADMINISTRATION APPROVED GENERIC AND OVER-THE-COUNTER DRUGS. We are
planning to expand our manufacturing facility in Largo, Florida to
manufacture generic and over-the-counter drugs. We have applied to
the Food and Drug Administration for approval to manufacture and
distribute these products. We have created a new division of the
company dedicated to the marketing and distribution of these
products through traditional retailers such as drug stores, mass
merchandisers and food stores.
o BROADEN OUR MANUFACTURING CUSTOMER BASE. We are continuously
seeking ways to expand our manufacturing customer base. We intend
to increase our market penetration of private label manufacturing
customers by reducing manufacturing time with fully-automated
high-speed manufacturing equipment, by delivering high quality
products and by providing research and development support to
improve our product offerings. We will also continue to develop
strategic alliances with manufacturing customers.
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o PROVIDE RAPID INTRODUCTION OF NEW PRODUCTS. Much of the recent
growth in the dietary supplement industry can be attributed to
emotional appeal of dietary supplements and the intense consumer
and media interest associated with that appeal. We feel that
growth can only be maintained through the rapid introduction of
products that pique the interest of health conscious consumers and
maintain their interest over the long-term. We intend to increase
our ongoing development and marketing of new products in order to
capitalize on and create market opportunities in new market
segments.
o CREATE MORE VALUE ADDED PRODUCTS. We feel that we can
differentiate ourselves from our competitors by providing
customers with more value-added products. Consequently, we intend
to produce and market additional, as well as enhanced, dietary
supplements that integrate a variety of compounds to achieve
greater bio-availability, effectiveness and product convenience.
o PROVIDE FASTER PRODUCT DEVELOPMENT RESPONSE TO OUR CUSTOMERS'
NEEDS. We believe that we can differentiate ourselves from other
dietary supplement manufacturers by providing faster and more
appropriate responses to our customers. Our development response
time for proprietary and private label products is critical to
capitalize on consumer trends and preferences. We intend to
utilize these trends and preferences to expand our customer base
and provide consumers with the most timely and well adapted
products for their needs.
o PURSUE STRATEGIC ACQUISITIONS. We believe that the health care,
pharmaceutical and dietary supplement industies are fragmented and
currently offer attractive acquisition opportunities. We intend to
pursue acquisition opportunities that will broaden our product
lines, provide efficiencies in manufacturing through economies of
scale, broaden our customer base, complement our existing
businesses and further our strategic goals.
OUR PRIVATE LABEL PRODUCTS
Sales of our private label products accounted for substantially all of our
revenues for the year ended March 31, 2000. We currently manufacture products
for over 400 private label customers in 47 states in the United States and ship
to several countries internationally. Our private label business has a widely
distributed revenue base. For the year ended March 31, 2000, we had sales of
more than 5% of total revenues to three of our private label customers, each of
which accounted for aproximately 14%, 9% and 5% of total revenues.
OUR BRANDED PRODUCTS
To date, sales of the our branded products have not accounted for a significant
portion of our revenues. We intend to employ additional marketing efforts on the
sale of our branded products, which we believe will yield higher profit margins
than our private label products. In addition to the branded products listed
below, we also have approximately 12 other branded products, and intend to
develop additional branded products. Some of our branded products include:
o "Nutrisure (TM)" is a meal replacement powder mix with nutritious
proteins, medium chain triglycerides and antioxidants that
conforms with diabetic diet requirements; and
o "Physicians' Pharmaceuticals (TM)" is a proprietary line of
dietary supplements which includes vitamins, minerals and herbal
supplements.
o "Arth-Aid (TM)" arthritis cream and easy-to-use roll-on is
designed to relieve arthritic pain, and is
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formulated with capsaicin and functional botanicals;
MANUFACTURING FACILITIES
Our primary manufacturing facility is located in 33,222 square feet of leased
space in Largo, Florida. We use this location for our executive offices and for
the manufacturing, research, development, packaging and warehousing of our
products. We should complete the addition of 16,000 square feet of manufacturing
space at this location by the fourth calendar quarter of the year 2000. Our
manufacturing facilities at this site utilize high-speed encapsulating,
tableting and production line equipment. The facility is large enough to handle
bulk orders, but versatile enough to provide quick response to customer needs.
This site also houses our graphic arts department, which designs and prints
labels for our products, and our research and development department, which
develops and improves both our proprietary and private label products.
Our second manufacturing facility is located in 9,694 square feet of leased
space in the greater Tampa Bay, Florida area. This facility is registered with
the United States Food and Drug Administration and is used for the manufacture
and packaging of over-the-counter drugs.
Currently, we can manufacture approximately 270 million tablets or capsules and
four million bottles annually. Our manufacturing facilities normally operate two
shifts per day, five days per week. Certain packaging lines or capsule and
tablet production lines run longer as demand warrants. We operate flexible
manufacturing lines that can shift output efficiently among various pieces of
equipment depending upon factors such as batch size, tablets or capsule count,
and labeling requirements. We strive to fulfill and ship all orders within 30-45
days. While we believe we can double our sales volume without expanding our
current facilities, we will expand our manufacturing capacities upon receiving
Food and Drug Administration approval for production of over-the-counter drugs.
An increase in production would require additional space and personnel for
warehousing and shipping operations, but would not necessarily require
substantial capital investment.
RESEARCH AND DEVELOPMENT
Our research and development department develops new concepts and formulations
for our branded and private label products. Dr. Sekharam, our President,
provides guidance and direction for our research and development team in product
development. Our three full-time chemists perform product research and
development, while our technical staff prepares cost estimates and samples based
on their formulations. Prior to the final manufacture of our products, this team
also develops operational procedures and pilot testing programs. Finally, our
research and development regulatory staff person prepares all dietary
information and label requirements.
Our research and development laboratory is equipped with modern laboratory test
equipment, including high pressure liquid chromatography, atomic absorption
spectroscopy, as well as instruments to test pH, viscosity, moisture, gradient
sizing, ash, melting point, refractive index, tablet hardeners and
disintegration. The laboratory also has equipment for microbiological tests and
stability chambers to test both long-term and accelerated shelf life of each
product. We believe that our laboratory facilities are in compliance with all
applicable environmental regulations.
Generally, the novelty and uniqueness of our products yields higher profit
margins. Our product development team works closely with customers to understand
their needs and strengths to create products with value adding features. As our
development response time is critical to capitalizing on consumer trends and
preferences, we focus on meeting end-user needs as quickly as possible. For
example, our touch-free arthritis relief roll-on was specially designed for
customers reporting finger irritation due to the ointment's active ingredients.
We believe that this type of flexibility and attention to customer needs results
in more valuable and marketable products.
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DISTRIBUTION
The products we manufacture for others are distributed to health food and drug
stores, and to mass merchandisers, and are directly marketed by our in-house
sales force and by various other means. Our branded products are distributed to
health food, drug and convenience stores, and will be distributed through our
web site.
MARKETING AND SALES
Our marketing and promotion strategy is targeted toward stimulating demand for
our products and increasing brand awareness and web site recognition. We
currently implement a traditional in-house sales force that markets our branded
and private label products directly to wholesale and institutional customers. We
also utilize product promotions and print media to reach new customers in
targeted markets. We intend to increase these efforts significantly in the areas
of direct sales, telesales, and traditional and online advertising.
We plan to increase direct sales marketing by hiring additional sales
representatives to contact nursing homes, assisted living facilities and
personal care residences to market our institutional online services. Similarly,
we plan to hire marketing representatives to contact self-insured employers,
health maintenance organizations, and other health benefit provider associations
to market our pharmacy benefit management services. We also intend to hire
personnel to pursue contractual arrangements with pharmacies. We also intend to
expand our sales force to initiate direct and regular contact with our
customer's key personnel, to inform them of new product developments and
industry trends, aid them in the design of store displays and create
merchandising programs that promote our branded products.
We intend to increase telesales by hiring an in-house telesales group to
prospect for customers for our branded pharmaceutical products and dietary
supplement products.
We intend to increase our advertising efforts by implementing online sales and
marketing techniques to increase brand awareness and direct traffic to our web
site. These techniques include purchasing banner advertising on search engine
web sites and Internet directories, as well as direct links from health related
web sites. We feel that these efforts will supplement our strategic agreements
and traditional advertising efforts as well.
SALES REVENUE BACKLOG
Our manufacturing revenues are generated by fulfilling sales orders received
from our customers within an average turn-around time ranging from 30-45 days.
Consequently, we have experienced a backlog for future revenues at all times. As
of March 31, 2000, we had approximately $534,000 in backlog sales orders.
PRINCIPAL SUPPLIERS
We obtain all of the raw materials for the manufacture of our products from
third-party suppliers primarily located within the United States. We do not have
contracts with any of our suppliers to provide adequate materials required for
our product manufacturing.
COMPETITION
The manufacturing, wholesale, retail and distribution industries in which we
operate are highly competitive. Numerous companies, many of which have greater
size and financial, personnel, distribution and
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other resources than us, compete with us in our development, manufacture,
distribution, wholesaling and retailing businesses. The Nutrition Business
Journal estimates that there are 1,050 manufacturers and branded marketers of
dietary supplements in the United States with at least $500,000 in annual sales.
The Nutrition Business Journal's 1997 database includes 16 companies with over
$100 million in revenues, which represents 55% of the dietary supplement market.
Our branded products face substantial competition from broad line manufacturers,
large private label manufacturers, and more recently from large pharmaceutical
companies.
Our branded products face substantial competition from broad line manufacturers,
major private label manufacturers and large pharmaceutical companies. Increased
competition from companies with greater financial, manufacturing, distribution
and marketing capabilities than our own could have a materially adverse affect
on our operations. We compete on the basis of product quality, cost and customer
service. Our branded products' success depends primarily on our increasing brand
recognition across multiple distribution channels, our ability to quickly
develop, advertise, market and promote new and existing products with high
quality and value, and our efficient distribution of these products.
The online pharmacy market is a relatively new development in e-commerce.
Consequently, this market is highly fragmented into the specialty areas of
health, beauty, wellness, personal care and pharmacy products. Some of our
competitors include:
o online pharmacy specialists, such as planetrx.com, drugstore.com,
VitaminShoppe.com, and MotherNature.com;
o Internet portals with shopping services, such as Yahoo!, Excite,
and America Online;
o chain drug stores, such as CVS and Walgreen's;
o prescription benefit managers, such as Express Scripts;
o warehouse clubs, such as BJ's and Costco;
o mail order pharmacies;
o major department stores, such as Macy's and Nordstrom; and
o health and beauty salons and spas.
Many of these competitors currently offer online ordering of their products. In
addition, many of these online and traditional competitors have longer operating
histories, greater brand recognition, and substantially greater economic,
marketing and other resources than we do. These resources may provide some of
these competitors with greater opportunities to form joint ventures and
favorable vendor agreements as this market develops. In addition, traditional
pharmacies can provide customers with the ability to see and feel products, and
may be able to address immediate customer product needs in ways that we cannot.
TRADEMARKS AND REGISTERED DOMAIN NAMES
We utilize the federally registered trademarks Nutrisure (TM), Physician
Pharmaceutical (TM) and Arth-Aid (TM). We also utilize the registered domain
names Go2Pharmacy.com and Go2Pharmacy.net. We believe that protecting our
trademarks and registered domain names is crucial to our business strategy of
building strong brand name recognition and that such trademarks have significant
value in the marketing of our products.
Our policy is to pursue registrations of all the trademarks associated with our
key products. We rely on common law trademark rights to protect our unregistered
trademarks. Common law trademark rights generally
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are limited to the geographic area in which the trademark is actually used,
while a United States federal registration of a trademark enables the registrant
to stop the unauthorized use of the trademark by any third party anywhere in the
United States. Furthermore, the protection available, if any, in foreign
jurisdictions may not be as extensive as the protection available to us in the
United States.
Although we seek to ensure that we do not infringe upon the intellectual
property rights of others, there can be no assurance that third parties will not
assert intellectual property infringement claims against us. Any infringement
claims by third parties against us may have a materially adverse affect on our
business, financial condition, results of operations and cash flows.
GOVERNMENT REGULATORY MATTERS
The manufacture, packaging, labeling, advertising, promotion, distribution and
sale of our manufactured products is subject to regulation by numerous
governmental agencies, particularly the United States Food and Drug
Administration, which regulates our products under the Federal Food, Drug and
Cosmetic Act, and the United States Federal Trade Commission, which regulates
the advertising of our products under the Federal Trade Commission Act. Our
products are also subject to regulation by, among other regulatory agencies, the
Consumer Product Safety Commission, the United States Department of Agriculture,
the United States Department of Environmental Regulation and the Occupational
Safety and Health Administration. The manufacture, labeling and advertising of
our products is also regulated by the Occupational Safety and Health
Administration through various state and local agencies as well as foreign
countries to which we distribute our products.
Our online pharmacy, dietary supplements, health and beauty products,
over-the-counter drugs, and consumer products business is subject to significant
government regulation. These products are regulated by the Food and Drug
Administration, Federal Trade Commission, Consumer Product Safety Commission, as
well as other state and federal regulatory entities. Our online pharmacy
business is also subject to significant federal and state regulatory and
licensing requirements. These regulations will likely increase, as the Internet
pharmacy industry expands and the use of the Internet expands. While we use our
best efforts to adhere to the regulatory and licensing requirements, as well as
any other requirements affecting our products, compliance with these often
requires subjective legislative interpretation. Consequently, we cannot assure
that our compliance efforts will be deemed sufficient by regulatory agencies and
commissions enforcing these requirements. Nonetheless, we employ a compliance
person to assist in these efforts. Violation of these regulations may result in
civil and criminal penalties, which could materially and adversely affect our
operations.
Recent events have suggested that the regulatory requirements governing our
industry may expand in the near future. For example, the United States House of
Representatives' Committee on Commerce, United States General Accounting Office,
and a federal interagency task force have all recently reviewed various aspects
of the online pharmacy industry. These inquiries have dealt predominantly with
laws governing pharmacy operations, prescription submission, patient
confidentiality, and licensing requirements. In addition, the Clinton
Administration proposed legislation extending federal enforcement powers and
establishing new licensing guidelines to ensure online pharmacy compliance with
state and federal laws. While we believe that we comply with existing federal
and state pharmacy licensing requirements, ratification of these changes will
likely increase our reporting and monitoring requirements.
Our manufacture of dietary supplements is subject to significant labeling
regulation. Labeling claims are governed by the Food and Drug Administration,
the Federal Food, Drug and Cosmetic Act, and the recent Dietary Supplement
Health and Education Act of 1994. Our manufacture of over-the-counter drugs must
comply with all Food and Drug Administration guidelines and Food and Drug
Administration enforced Good Manufacturing Practices regulations for those
products as set forth in official monographs of the United States Pharmacoepia
and other applicable laws enforced by the Food and Drug Administration. These
include manufacturing and product information, such as claims in a product's
labeling, package inserts, and accompanying literature. The Dietary Supplement
Health and Education Act of 1994 guidelines permit certain
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dietary supplement labeling claims without prior authorization by the Food and
Drug Administration, provided that the manufacturer has substantiation for the
claims and complies with certain notification and disclaimer requirements. The
legislation gives dietary supplement manufacturers more freedom to market their
products, while providing consumers adequate information for informed decisions
on the use of supplements.
Under the Dietary Supplement Health and Education Act of 1994 and previous food
labeling laws, supplement manufacturers may use three types of labeling claims,
with the approval of the Food and Drug Administration. These claims include
nutrient-content claims, disease claims, and nutrition-support claims, which
include "structure-function claims." Nutrient-content claims describe the level
of a nutrient in a food or dietary supplement. For example, a supplement
containing at least 200 mg of calcium per serving could carry the claim "high in
calcium." Disease claims show a link between a substance and a disease or
health-related condition. The Food and Drug Administration authorizes disease
claims based on a direct review of scientific evidence or documentation of
established diet-to-health links from highly regarded scientific bodies, such as
the National Academy of Sciences. For example, it is permissible to advertise a
link between calcium and a lower risk of osteoporosis, if the supplement
contains sufficient amounts of calcium. Nutrition-support claims describe a link
between a nutrient and deficiency diseases that may result from diets lacking
the nutrient. For example, the label of a Vitamin C supplement could state that
Vitamin C prevents scurvy. When these types of claims are used, the label must
mention the prevalence of the nutrient-deficiency disease in the United States.
Finally, structure-function claims refer to the supplement's effect on the
body's structure or function, including its overall effect on a person's
well-being. For example, a structure-function claim could state "antioxidants
maintain cell integrity." Structure-function claims must be accompanied by the
disclaimer "This statement has not been evaluated by the Food and Drug
Administration." This product is not intended to diagnose, treat, cure, or
prevent any disease." Manufacturers who plan to use a structure-function claim
on a particular product must inform the Food and Drug Administration of the use
of the claim no later than 30 days after the product is first marketed. The Food
and Drug Administration may then advise the manufacturer to change or delete the
claim.
Claims made for our dietary supplement products may include statements of
nutritional support and health and nutrient content. The Food and Drug
Administration's interpretation of what constitutes an acceptable statement of
nutritional support may change in the future thereby requiring that we revise
our labels. The Food and Drug Administration recently issued a proposed rule on
what constitutes permitted structure/function claims as distinguished from
prohibited disease claims. Although we believe our product claims comply with
the law, depending on the content of the final regulation, we may need to revise
our labels.
The Food and Drug Administration issued final dietary supplement labeling
regulations in 1997 that required a new format for dietary supplement product
labels by March 23, 1999. All companies in the dietary supplement industry were
required to comply with these labeling regulations. The Food and Drug
Administration has also announced that it is considering promulgating new Good
Manufacturing Practices regulations, specific to dietary supplements. Such
regulations, if promulgated, may be significantly more rigorous than currently
applicable regulations and contain quality assurance requirements similar to
Good Manufacturing Practices regulations for drug products. Therefore, we may be
required to expend additional capital resources on upgrading manufacturing
processes and/or equipment in the future in order to comply with the law.
Our failure to comply with applicable Food and Drug Administration regulatory
requirements could result in, among other things, injunctions, product
withdrawals, recalls, product seizures, fines, and criminal prosecutions.
Our advertising of dietary supplement products is also subject to regulation by
the Federal Trade Commission under the Federal Trade Commission Act, in addition
to state and local regulation. The Federal Trade Commission Act prohibits unfair
methods of competition and unfair or deceptive acts or practices in or affecting
commerce. The Federal Trade Commission Act also provides that the dissemination
or the causing to be disseminated of any false advertisement pertaining to drugs
or foods, which would include dietary supplements, is an unfair or deceptive act
or practice. Under the Federal Trade Commission's Substantiation Doctrine, an
advertiser is required to have a "reasonable basis" for all objective product
claims before the claims
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are made. Failure to adequately substantiate claims may be considered either
deceptive or unfair practices. Pursuant to this Federal Trade Commission
requirement we are required to have adequate substantiation for all material
advertising claims made for our products.
In recent years the Federal Trade Commission has initiated numerous
investigations of dietary supplement and weight loss products and companies. The
Federal Trade Commission is reexamining its regulation of advertising for
dietary supplements and has announced that it will issue a guidance document to
assist supplement marketers in understanding and complying with the
substantiation requirement. Upon release of this guidance document we will be
required to evaluate our compliance with the guideline and may be required to
change our advertising and promotional practices. We may be the subject of
investigation in the future. The Federal Trade Commission may impose limitations
on our advertising of products. Any such limitations could materially adversely
affect our ability to successfully market our products.
The Federal Trade Commission has a variety of processes and remedies available
to it for enforcement, both administratively and judicially, including
compulsory processes, cease and desist orders, and injunctions. Federal Trade
Commission enforcement can result in orders requiring, among other things,
limits on advertising, corrective advertising, consumer redress, divestiture of
assets, rescission of contracts and such other relief as may be deemed
necessary. A violation of such orders could have a material adverse affect on
our business, financial condition and results of operations.
Governmental regulations in foreign countries where our plans to commence or
expand sales may prevent or delay entry into the market or prevent or delay the
introduction, or require the reformulation, of certain of our products.
Compliance with such foreign governmental regulations is generally the
responsibility of our distributors for those countries. These distributors are
independent contractors over whom we have limited control.
We manufacture certain products pursuant to contracts with customers who
distribute the products under their own or other trademarks. Such private label
customers are subject to government regulations in connection with their
purchase, marketing, distribution and sale of such products. We are subject to
government regulations in connection with our manufacturing, packaging and
labeling of such products. However, our private label customers are independent
companies, and their labeling, marketing and distribution of such products is
beyond our control. The failure of these customers to comply with applicable
laws or regulations could have a materially adverse effect on our business,
financial condition, results of operations and cash flows.
We may be subject to additional laws or regulations by the Food and Drug
Administration or other federal, state or foreign regulatory authorities, the
repeal of laws or regulations which we consider favorable, such as the Dietary
Supplement Health and Education Act of 1994, or more stringent interpretations
of current laws or regulations, from time to time in the future. We are unable
to predict the nature of such future laws, regulations, interpretations or
applications, nor can we predict what effect additional governmental regulations
or administrative orders, when and if promulgated, would have on our business in
the future. The Food and Drug Administration or other governmental regulatory
bodies could, however, require the reformulation of certain products to meet new
standards, the recall or discontinuance of certain products not able to be
reformulated, imposition of additional recordkeeping requirements, expanded
documentation of the properties of certain products, expanded or different
labeling and scientific substantiation. Any or all of such requirements could
have a materially adverse affect on our business, financial condition, results
of operations and cash flows.
EMPLOYEES
As of March 31, 2000, we had 48 employees. Of these employees, 5 were engaged in
marketing and sales, 32 were devoted to production and distribution and 11 were
responsible for management and administration. None of our employees are covered
by a collective bargaining agreement. We believe we have good relations with our
employees.
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LEGAL MATTERS
From time to time we are subject to litigation incidental to our business
including possible product liability claims. Such claims, if successful, could
exceed applicable insurance coverage. We are not currently a party to any legal
proceedings that we consider to be material.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS, DIRECTOR NOMINEES AND KEY EMPLOYEES
The executive officers, directors and key employees of the Company and their
ages and positions with the Company as of March 31, 2000 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Mihir K. Taneja....................................... 25 Chief Executive Officer, Secretary and Director
Kotha S. Sekharam, Ph.D............................... 48 President and Director
Carol Dore-Falcone.................................... 35 Vice President and Chief Financial Officer
Jugal K. Taneja....................................... 55 Chairman of the Board and Director
Joseph Zappala........................................ 65 Director
Bartholomew J. Lawson................................. 51 Director
Dr. David Dalton...................................... 51 Director
George L. Stuart, Jr.................................. 53 Director
</TABLE>
MIHIR K. TANEJA has served as our Chief Executive Officer, Secretary and a
Director since November of 1999. Prior to this he served as our Vice President
of Marketing since June of 1998 and our Secretary since November of 1999. He
also served as Dynamic's Vice President of Marketing from July 1996 to September
1998. Prior to joining Dynamic, Mr. Taneja served as a market and financial
analyst for Bancapital Corporation from 1994 to 1996. Mr. Taneja holds Bachelor
of Arts degrees in finance and marketing from the University of Miami. Mr.
Taneja is the son of Jugal K. Taneja.
DR. KOTHA S. SEKHARAM currently serves as our President and a Director. Prior to
this, Dr. Sekharam was a founder and director of Nu-Wave Health Products, Inc.,
a developer and manufacturer of over-the-counter analgesic roll-ons and creams,
dietary supplements and health and beauty products. Dynamic acquired 80% of
Nu-Wave in September 1995 and the additional 20% of Nu-Wave in July 1997. Dr.
Sekharam served as President of Nu-Wave from June 1996 through March 1998 and
Vice President of Nu-Wave from September 1995 until June 1996. From 1992 until
September 1995, he served as Director of Research and Development of Energy
Factors, Inc., our predecessor. He has served as President of Dynamic since June
1996 and served as our President since June 1998. Presently, he continues to
serve as our President and as President of Dynamic. Dr. Sekharam holds a Ph.D.
in food sciences from Central Food Technological Research Institute, Mysore,
India, a United Nations university center and has over fifteen years of
experience in the food and health industry.
CAROL DORE-FALCONE has served as our Vice President and Chief Financial Officer
since August 1999. She has also served as Vice President and Chief Financial
Officer of Dynamic since August 1999. Prior to joining us Ms. Dore-Falcone was
employed as an audit manager with Deloitte & Touche LLP, Certified Public
Accountants, where she had served in various capacities since January of 1990.
Ms. Dore-Falcone is a certified public accountant and holds an M.B.A. from the
University of Tampa.
JUGAL K. TANEJA has served as our Chairman of the Board since June 12, 1998.
Until June 1998, he also served as Chief Executive Officer for Dynamic. From
November 1991 until December 1998, he also served as the Chairman of the Board
and Chief Executive Officer of NuMed Home Health Care, Inc., a provider of home
health care services and contract staffing of health care employees. From June
1993 until March 1998, he was also the Chief Executive Officer of National
Diagnostics, Inc., a provider of medical diagnostic services. NuMed Home Health
Care, Inc and National Diagnostics, Inc., are publicly traded companies. Mr.
Taneja is also a Director of DrugMax.com, Inc., a public company operating as an
online business to business wholesaler and retailer of pharmaceuticals,
over-the-counter drugs, health and beauty care products and private label
dietary supplements. Although he devotes substantial time to our operations and
business, Mr. Taneja does not devote
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<PAGE>
his full time to our business. Mr. Taneja is the father of Mihir K. Taneja.
JOSEPH ZAPPALA will serve as a Director upon completion of our acquisition of
the Delaware corporation, Go 2 Pharmacy.com, Inc. Since January 1995, Mr.
Zappala has served as Chairman and a member of the board of managers of
CarePlus, LLC, a growing Medicaid and Child Health Plus health maintenance
organization. Mr. Zappala was on the Boards of Directors of the International
Thoroughbreds Association from June 1997 to January 1999 and Miami Subs, Inc.
from June 1995 to July 1999. Mr. Zappala was appointed by United States
President George Bush and served as the United States Ambassador to Spain from
1989 to 1992. Mr. Zappala has been a Florida-based business executive for over
35years with experience in various industries, including healthcare, banking,
real estate and manufacturing.
BARTHOLOMEW J. LAWSON will serve as a Director upon completion of our
acquisition of the Delaware corporation, Go 2 Pharmacy.com, Inc. Since June
1997, Mr. Lawson has served as President and Executive Director of the Greater
New York Health Care Facilities Association, a not-for-profit trade association,
representing over 150 skilled nursing and long-term care facilities, as well as
ancillary health care providers, and managed care organizations. Since June
1997, Mr. Lawson has also served as Chairman of the Board of the Local
144-Greater New York Nursing Home Industry Welfare, Pension, Skill and
Productivity Funds, which represents over $500 million of employee benefit
revenues, which has an annual operating budget of $55 million. Since January
1995, Mr. Lawson served as a member of the board of managers of CarePlus, LLC, a
growing Medicaid and Child Health Plus health maintenance organization. Mr.
Lawson is considered one of the foremost experts on long-term care in the United
States. His knowledge of health care economics has led to consulting engagements
with city, county, state, and federal legislators, health care delivery systems
and executives. During 1994 and 1995, Mr. Lawson chaired the health transition
teams for both New York State Governor Pataki and New York City Mayor Giuliani.
In August 1998, Mr. Lawson was appointed by the Minority Leader of the New York
State Assembly to the New York State Managed Care Advisory Committee.
DR. DAVID DALTON will serve as a Director upon completion of our acquisition of
the Delaware corporation, Go 2 Pharmacy.com, Inc. Dr. Dalton is a founder of and
has, since October 1996, been President and Chief Executive Officer of Health
Resources, Inc., a pharmacy benefit management company. Prior to that, Dr.
Dalton held several executive positions with Rite Aid Corporation, including
Executive Vice President from 1971 to 1989. In 1989, Dr. Dalton's management
team completed a leveraged buyout of People Drug Stores, Inc. (Western
Division), where he served as Senior Vice President, Pharmacy Operations, until
October 1998. From 1990 until 1996, he served as President and chief executive
officer for Medical Services Agency, Inc., know as MEDNET. Dr. Dalton has served
on the Boards of Directors of Blue Shield of Pennsylvania from 1980 to 1996,
National Association of Chain Drug Stores from 1989 to 1992, National Council of
Prescription Drug Programs from 1985 to 1995, and the National Health
Association from 1985 to present. He is a visiting professor at several Schools
of Pharmacy throughout the United States, receiving both national and local
honors inclusive of recognition by several United States Presidents and the
United States Senate.
GEORGE L. STUART, JR. has served as a Director since March 2000. Mr. Stuart has
been the Chief Executive Officer of DoctorSurf.com, Inc. since December 1, 1999.
From July 1997 to December 1999, Mr. Stuart was Vice President and a Director of
Leapfrog Smart Products, Inc., a high-technology smart card development company
in Orlando, Florida. From January 1995 to July 1997, Mr. Stuart was a partner in
Stuart/Cloud Enterprises, Ltd. a government relations business development and
organizational consulting firm in Tallahassee, Florida. Mr. Stuart was a Florida
State Senator from 1978 through 1990. From January 1991 to January 1995, Mr.
Stuart served as the Secretary and Chief Executive Officer of the State of
Florida's Department of Business and Professional Regulation. Mr. Stuart holds a
B.A. degree in Economics from the University of Florida and an M.B.A. from
Harvard University's Graduate School of Business.
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<PAGE>
BOARD COMMITTEES AND COMPENSATION
We reimburse each of our directors for reasonable expenses incurred in attending
meetings of our Board of Directors. Directors currently receive no other
compensation for their services as directors. Following completion of this
offering, however, we intend to pay each non-employee director a fee of $500 for
each meeting attended by such director, but not less than $2,000 per year if
they attend at least three meetings during the year. Non-employee directors who
serve on board committees will be paid a fee of $100 for each committee meeting
attended by such director. Upon completion of this offering, each non-employee
director will receive options to purchase 4,000 shares of common stock for each
full remaining year of the director's term. These options will be exercisable at
the public offering price.
The Board of Directors currently has no standing nominating committee.
EMPLOYMENT AGREEMENTS
Upon completion of this offering, we intend to enter into three year employment
agreements with Mihir K. Taneja, Chief Executive Officer, Kotha S. Sekharam,
President, and Carol Dore-Falcone, Vice President and Chief Financial Officer,
at annual salaries of $150,000, $90,000 and $110,000 respectively.
In each case, the employees will be permitted to participate in our benefits and
employee benefit plans that may be in effect from time to time, to the extent
eligible, and each employee is entitled to receive an annual bonus as determined
in the sole discretion of our Board of Directors based on the Board's evaluation
of the employee's performance and our financial performance.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation earned
by Mihir K. Taneja and Kotha S. Sekharam (the "Named Executive Officers"),
during the fiscal years ended March 31, 2000, 1999, and 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------
FISCAL YEAR
NAME AND PRINCIPAL POSITION(1) ENDED MARCH 31, SALARY ($)(2) BONUS ($)(3)
------------------------------ --------------- ------------- ------------
<S> <C> <C> <C>
Mihir K. Taneja, Chief Executive Officer 2000 60,000 --
1999 40,000 --
1998 32,615 1,624
---- ------ -----
Kotha S. Sekharam, Ph.D., President 2000 90,000 --
1999 75,000 --
1998 75,000 5,414
---- ------ -----
</TABLE>
(1) We have no officers or other individuals whose compensation from us exceeded
$100,000 in any of the past three fiscal years. (2) These salaries were paid
directly by Dynamic, the salary expense was allocated to us and we reimbursed
Dynamic through the payment of monthly management fees.
(3) Employment agreements during this period provided for annual bonuses based
on individual performance and on our financial performance.
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<PAGE>
COMPENSATION PURSUANT TO PLANS
1999 STOCK OPTION PLAN. On September 30, 1999, our Board of Directors and our
sole stockholder adopted our 1999 Stock Option Plan. The 1999 plan will enable
us to attract and retain top-quality employees, officers, directors and
consultants and to provide such employees, officers, directors and consultants
with an incentive to enhance stockholder return. The 1999 plan will allow the
grant of options to purchase a maximum aggregate of 700,000 shares of common
stock to our officers, directors, or other key employees and consultants.
The Board of Directors or a committee of the Board may administer the 1999 plan,
and has complete discretion to select the optionees and terms and conditions of
each option, subject to the provisions of the 1999 plan. Options granted under
the 1999 plan may be "incentive stock options" as defined in Section 411 of the
Internal Revenue Code of 1986 or so-called nonqualified options.
The exercise price of incentive stock options may not be less than 100% of the
fair market value of the common stock as of the date of grant (110% of the fair
market value if the grant is to an employee who owns more than 10% of the total
combined voting power of all classes of capital stock of the company). The
Internal Revenue Code currently limits to $100,000 the aggregate value of common
stock that may be acquired in any one year pursuant to incentive stock options
under the 1999 plan or any other option plan adopted by a company.
Nonqualified options may be granted under the 1999 plan at an exercise price of
not less than 100% of the fair market value of the common stock on the date of
grant. Nonqualified options also may be granted without regard to any
restriction on the amount of common stock that may be acquired pursuant to such
options in any one year.
Subject to the limitations contained in the 1999 plan, options become
exercisable at such times and in such installments (but not less than 20% per
year) as the Committee shall provide in the terms of each individual stock
option agreement. The Committee must also provide in the terms of each stock
option agreement when the option expires and becomes unexercisable, and may also
provide the option expires immediately upon termination of employment for any
reason. No option held by directors, executive officers or other persons subject
to Section 16 of the Securities Exchange Act of 1934 may be exercised during the
first six months after such option is granted.
Unless otherwise provided in the applicable stock option agreement, upon
termination of employment of an optionee, all options that were then exercisable
would terminate three months (twelve months in the case of termination by reason
of death or disability) following termination of employment. Any options which
were not fully vested and exercisable on the date of such termination would
immediately be cancelled concurrently with the termination of employment.
Options granted under the 1999 plan may not be exercised more than ten years
after the grant (five years after the grant if the grant is an incentive stock
option to an employee who owns more than 10% of the total combined voting power
of all classes of capital stock of the company). Options granted under the 1999
plan are not transferable and may be exercised only by the respective grantees
during their lifetime or by their heirs, executors or administrators in the
event of death. Under the 1999 plan, shares subject to cancelled or terminated
options are reserved for subsequently granted options. The number of options
outstanding and the exercise price thereof are subject to adjustment in the case
of certain transactions such as mergers, recapitalizations, stock splits or
stock dividends. The 1999 plan is effective for ten years, unless sooner
terminated or suspended.
1999 NON-EMPLOYEE OPTION PLAN. On September 30, 1999, our Board of Directors and
sole stockholder adopted our 1999 non-employee stock option plan. The 1999
non-employee plan enables us to attract and retain top-quality directors and
consultants and to provide such directors and consultants with an
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<PAGE>
incentive to enhance stockholder return. The 1999 non-employee plan allows the
grant of options to purchase a maximum aggregate of 100,000 shares of common
stock to non-employee directors.
The Board of Directors or a committee of the Board may administer the 1999
non-employee plan, and has complete discretion to select the optionees and terms
and conditions of each option, subject to the provisions of the 1999
non-employee plan. Options granted under the 1999 non-employee plan will not be
"incentive stock options" as defined in Section 411 of the Internal Revenue Code
of 1986, they will be so-called nonqualified options.
Nonqualified options may be granted under the 1999 non-employee plan at an
exercise price of not less than 100% of the fair market value of the common
stock on the date of grant. Nonqualified options also may be granted without
regard to any restriction on the amount of common stock that may be acquired
pursuant to such options in any one year.
Subject to the limitations contained in the 1999 non-employee plan, options
become exercisable at such times and in such installments as the Committee shall
provide in the terms of each individual stock option agreement. The Committee
must also provide in the terms of each stock option agreement when the option
expires and becomes unexercisable, and may also provide the option expires
immediately upon termination of services for us or for any other reason. No
option held persons subject to Section 16 of the Securities Exchange Act of 1934
may be exercised during the first six months after such option is granted.
Unless otherwise provided in the applicable stock option agreement, upon
termination of engagement of an optionee, all options that were then exercisable
would terminate three months (twelve months in the case of termination by reason
of death or disability) following termination of services. Any options which
were not fully vested and exercisable on the date of such termination would
immediately be cancelled concurrently with the termination.
Options granted under the 1999 non-employee plan may not be exercised more than
ten years after the grant. Options granted under the 1999 non-employee plan are
not transferable and may be exercised only by the respective grantees during
their lifetime or by their heirs, executors or administrators in the event of
death. Under the 1999 non-employee plan, shares subject to cancelled or
terminated options are reserved for subsequently granted options. The number of
options outstanding and the exercise price thereof are subject to adjustment in
the case of certain transactions such as mergers, recapitalizations, stock
splits or stock dividends. The 1999 non-employee plan is effective for ten
years, unless sooner terminated or suspended.
DIRECTOR AND OFFICER INDEMNIFICATION
Our articles of incorporation provide that we will indemnify our officers,
directors and other eligible persons to the fullest extent permitted under the
laws of the state of Florida. We have also entered into indemnification
agreements with each of our current directors and executive officers which will
provide for indemnification of, and advancement of expenses to, such persons for
expenses and liability incurred by them by reason of the fact that they are or
were a director, officer, or shareholder of Go 2 Pharmacy.com including
indemnification under circumstances in which indemnification and advancement of
expenses are discretionary under Florida law.
We believe that it is the position of the Securities and Exchange Commission
that, insofar as the foregoing provisions may be invoked to disclaim liability
for damages arising under the Securities Act of 1933, the provisions are against
public policy as expressed in the Securities Act of 1933 and are, therefore,
unenforceable.
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<PAGE>
TRANSACTIONS INVOLVING OFFICERS, DIRECTORS AND PRINCIPAL SHAREHOLDERS
Prior to this offering, we entered into transactions and business relationships
with certain of our officers, directors and principal stockholders or their
affiliates. We believe that all of the transactions were on terms no less
favorable than we could have obtained from independent third parties. Any future
transactions between us and our officers, directors or affiliates will be
subject to approval by a majority of disinterested directors or stockholders in
accordance with Florida law.
ACQUISITION OF ENERGY FACTORS, INC. In June 1998, Dynamic, our parent company,
acquired Energy Factors, Inc., a corporation wholly-owned by U.S. Diversified
Technologies, Inc., in return for 310,000 shares of Dynamic's Series A
Convertible Preferred Stock, which is convertible into 310,000 shares of
Dynamic's common stock. Shortly before the acquisition was consummated, Dynamic
loaned $100,000 to Energy Factors, which was used as working capital. Paul A.
Santostasi, our former Vice Chairman of Business Development and a former
Director, is also the President and owns approximately 30% of the issued and
outstanding equity securities of U.S. Diversified. At the time of the
acquisition, Dynamic entered into an employment agreement with Mr. Santostasi
and granted to Mr. Santostasi an option to purchase 200,000 shares of Dynamic
common stock at a purchase price of the greater of $9 per share or the price at
which the common stock is offered under a public offering of Dynamic's common
stock. The options vest over a period of three years, commencing on June 12,
1998.
EXCLUSIVE MANUFACTURING AGREEMENTS. In November 1999, we entered into exclusive
manufacturing agreements with DrugMax.com, Inc. and JavaSports.com, Inc. whereby
we agreed to manufacture all products which DrugMax.com and JavaSports.com
require and which we are capable of manufacturing.
We believe that the prices we charge this company are competitive and at no less
favorable terms than those with non-affiliated third parties. Jugal K. Taneja,
our Chairman, is a director of DrugMax.com and Chairman of Java Sports.com.
ACQUISITION OF THE DELAWARE CORPORATION, GO 2 PHARMACY.COM, INC. On the day we
close this offering, we will also acquire all of the issued and outstanding
stock of Go 2 Pharmacy.com, Inc., the Delaware corporation for a total of
3,000,000 shares of our common stock. Of such 3,000,000 shares, 1,375,000 shares
will be issued to Joseph Zappala, 500,000 shares will be issued to The Zappala
Family LLC (Mr. Zappala is not a beneficiary of the LLC but exercises voting
rights over the shares of common stock which it will own), and 260,000 shares
will be issued to Post Equities LLC (in which Mr. Zappala's wife owns
approximately 71% of the equity interests).
In February 1999, we established a $2,000,000 credit facility to provide
additional working capital to support our continued growth. The note with
respect to a portion of this debt is secured by all of our assets, all of
Dynamic's assets and by personal guarantee from our Chairman of the Board.
In August and September 1999, we borrowed $86,500 from our Chairman of the Board
which was repaid in December 1999, with interest at the rate of 10% per annum.
37
<PAGE>
In September 1999, we transferred our land and building in Largo, Florida to
Dynamic at net book value, which we believe approximated fair market value on
the date of transfer, based upon a recent independent appraisal of the property.
In conjunction with the transfer, Dynamic satisfied all of our outstanding
mortgages on the premises. In addition, approximately $621,000 of our obligation
to Dynamic was extinguished, which represented the difference between net book
value and amounts outstanding under existing mortgages. At the time of the
transfer, we agreed to lease the facility in Largo, Florida, from Dynamic,
pursuant to a ten year lease that expires on September 30, 2009. We have an
option to renew the lease at the end of the ten year term. The rental under the
lease is $16,000 per month subject to annual inflationary adjustments.
In September 1999, $1.5 million of our obligation to Dynamic was converted to
150,000 shares of our series A preferred stock.
In June 2000, we executed promissory notes payable to Carnegie Capital, Ltd., an
affiliate of our Chairman of the Board, and Joseph Zapala, a proposed director.
Each promissory note provides for a draw-down of up to $100,000, and bears
interest at the rate of 10% per annum. The notes are payable from the proceeds
of this offering. As of June 26, 2000, the amount outstanding under each
promissory note was $20,000. The proceeds of the notes will be used to pay the
expenses of this offering.
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<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth the beneficial ownership of Go 2 Pharmacy.com
voting securities as of the closing date of this offering, by each person known
by us to beneficially own 5% or more of the outstanding shares of our voting
securities, each of our directors, our named executive officers, and all
directors and executive officers as a group. As of June 26, 2000 there were
3,015,000 common shares issued and outstanding. The information set forth in the
table and accompanying footnotes has been furnished by the named beneficial
owners.
<TABLE>
<CAPTION>
BEFORE OFFERING AFTER OFFERING
-------------------------------------------- ----------------------------------------------
NAME OF BENEFICIAL OWNER (1) AMOUNT AND NATURE OF PERCENT OF CLASS AMOUNT AND NATURE OF PERCENT OF CLASS
BENEFICIAL OWNERSHIP (2) (%) BENEFICIAL OWNERSHIP (2) (%)
------------------------ ---------------- ------------------------ -----------------
<S> <C> <C> <C> <C>
Mihir K. Taneja 386,840 (3) 12.8 386,840 (3) 5.5
Kotha S. Sekharam 120,877 (3) 4.0 120,877 (3) 1.7
Jugal K. Taneja 1,226,313 (3) 40.7 1,226,313 (3) 17.5
Joseph Zappala -- -- 2,060,000 29.4
The Zappala Family LLC -- -- 500,000 7.1
Bartholomew J. Lawson -- -- 250,000 3.6
Dr. David Dalton -- -- -- --
George L. Stuart, Jr. -- -- -- --
Dynamic Health Products, 3,000,000 (3) 99.5 3,000,000 42.8
Inc.
William L. LaGamba 454,797 (3) 15.0 454,797 (3) 6.5
Michele LaGamba 454,797 (3) 15.0 454,797 (3) 6.5
David Spencer Gange -- -- 390,000 5.6
Manju Taneja 452,552 (3) 15.0 452,552 (3) 6.4
Mandeep K. Taneja 386,840 (3) 12.8 386,840 (3) 5.5
Carnegie Capital, Ltd. 700,572 (3) 23.2 700,572 (3) 10.0
All executive officers and
directors as a group
(7 persons) 1,734,030 (3) 57.5 4,044,030 (3) 57.7
</TABLE>
(1) Except as otherwise indicated, the address of each beneficial owner is
c/o Go 2 Pharmacy.com, Inc., 6950 Bryan Dairy Road, Largo, Florida 33777.
(2) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect
to the shares shown. Except where indicated by footnote and subject to
community property laws where applicable, the persons named in the table
have sole voting and investment power with respect to all shares of voting
securities shown as beneficially owned by them.
(3) Approximate number of shares that are indirectly beneficially owned through
ownership of the common stock of Dynamic Health Products, Inc., a
controlling shareholder of Go 2 Pharmacy.com, Inc.
The following factors have been taken into consideration in calculating the
amount and nature of beneficial ownership in Go 2 Pharmacy.com:
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<PAGE>
o As of the date hereof, Dynamic beneficially owned 3,000,000 of the
outstanding shares of Go 2 Pharmacy.com. To clarify the nature of this
ownership, we have disclosed Dynamic's total beneficial ownership and the
underlying Go 2 Pharmacy.com ownership by each Dynamic shareholder that
beneficially owns more than five percent of Dynamic. These Dynamic
shareholders include Mihir K. Taneja, Kotha S. Sekharam, Jugal K. Taneja,
William LaGamba, Michele LaGamba, Manju Taneja, Mandeep K. Taneja and
Carnegie Capital, Ltd. While Dynamic's board of directors has exclusive
control of Dynamic's ownership of Go 2 Pharmacy.com, these investors may be
deemed to have voting and investment power over these shares. Nonetheless,
each of Mihir K. Taneja, Kotha S. Sekharam, Jugal K. Taneja, William
LaGamba, Michele LaGamba, Manju Taneja, Mandeep K. Taneja and Carnegie
Capital, Ltd. disclaims beneficial ownership of Go 2 Pharmacy.com.
o Kotha Sekharam's beneficially owned shares include approximately 10,455
shares beneficially owned by Madhavi Sekharam, Dr. Sekharam's wife, as to
which Dr. Sekharam exercises no investment or voting power and disclaims
beneficial ownership.
o Jugal K. Taneja's beneficially owned shares include approximately 431,989
shares beneficially owned by his wife Manju Taneja. Mr. Taneja exercises no
investment or voting power over any of the shares owned by his wife, and
disclaims beneficial ownership of those shares.
Jugal K. Taneja's beneficially owned shares also include approximately
700,572 shares beneficially owned by Carnegie Capital, Ltd. and
approximately 73,184 shares beneficially owned by First Delhi Family
Partnership, Ltd. Mr. Taneja is the general partner of both Carnegie
Capital, Ltd. and First Delhi Family Partnership, Ltd., and holds sole
voting and investment power over these shares.
o Joseph Zappala's beneficially owned shares include 500,000 shares
beneficially owned by The Zappala Family LLC and 185,000 shares
beneficially owned by his wife, Isabel Zappala. Mr. Zappala holds sole
voting and investment power over the shares beneficially owned by The
Zappala Family LLC. Mr. Zappala exercises no investment or voting power
over any of the shares owned by his wife, and disclaims beneficial
ownership of those shares.
o William L. LaGamba's beneficially owned shares include approximately
204,920 shares beneficially owned by his wife, Michele LaGamba, and
approximately 131,735 shares held by Mr. LaGamba as custodian for their
minor children. Mr. LaGamba exercises no investment or voting power over
the shares owned by his wife and disclaims beneficial ownership of those
shares.
o Michele LaGamba's beneficially owned shares include approximately 118,141
shares beneficially owned by her husband, William L. LaGamba, and
approximately 131,735 shares beneficially owned by Mr. LaGamba as custodian
for their minor children. Mrs. LaGamba exercises no investment or voting
power over the shares owned by her husband, William L. LaGamba, or by her
husband as custodian for their minor children, and disclaims beneficial
ownership of those shares.
o Manju Taneja's beneficially owned shares include approximately 20,560
shares beneficially owned by her husband, Jugal K. Taneja, as to which Mrs.
Taneja exercises no investment or voting power and disclaims beneficial
ownership. Mrs. Taneja's beneficially owned shares do not include
approximately 700,572 shares beneficially owned by Carnegie Capital, Ltd.
and approximately 73,184 shares beneficially owned by First Delhi Family
Partnership, Ltd., as to which Mrs. Taneja exercises no investment or
voting power and disclaims beneficial ownership.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Go 2 Pharmacy.com's authorized capital stock consists of 24,000,000 shares of
common stock, par value $.01 per share, of which 3,015,000 shares were issued
and outstanding as of the date hereof, and 6,000,000 shares of "blank check"
preferred stock, of which 150,000 have been authorized and issued as series A
preferred stock and are outstanding as of March 31, 2000. An additional
3,000,000 shares of common stock will be issued on the closing of this offering
in connection with the acquisition of the Delaware corporation Go 2
Pharmacy.com, Inc.
COMMON STOCK
The holders of common stock are entitled to one vote for each share held of
record on all matters to be voted on by the shareholders. The holders of common
stock are entitled to receive dividends ratably, when, as and if declared by the
Board of Directors, out of funds legally available therefor. In the event of a
liquidation, dissolution or winding-up of Go 2 Pharmacy.com, the holders of
common stock are entitled to share equally and ratably in all assets remaining
available for distribution after payment of liabilities and after provision is
made for each class of stock, if any, having preference over the common stock.
The holders of shares of common stock, as such, have no conversion, preemptive,
or other subscription rights and there are no redemption provisions applicable
to the common stock. All of the outstanding shares of common stock are, and the
shares of common stock offered by Go 2 Pharmacy.com hereby, when issued against
the consideration set forth in this prospectus, will be, validly issued,
fully-paid and non-assessable.
PREFERRED STOCK
GENERAL. Under our articles of incorporation, our Board of Directors is
authorized, subject to any limitations prescribed by the laws of the State of
Florida, but without further action by our shareholders, to provide for the
issuance of up to 6,000,000 shares of preferred stock in one or more series, to
establish from time to time the number of shares to be included in each such
series, to fix the designations, powers, preferences and rights of the shares of
each such series and any qualifications, limitations or restrictions thereof,
and to increase or decrease the number of shares of any such series (but not
below the number of shares of such series then outstanding) without any further
vote or action by the stockholders. Our Board of Directors may authorize and
issue preferred stock with voting or conversion rights that could adversely
affect the voting power or other rights of the holders of common stock. The
issuance of preferred stock, for example in connection with a shareholder
right's plan, could have the effect of making it more difficult for a third
party to acquire, or of discouraging a third party from acquiring, a majority of
Go 2 Pharmacy.com's outstanding stock.
As of March 31, 2000, our Board of Directors has authorized for issuance 150,000
shares of series A preferred stock. Holders of series A preferred stock will
vote together with the holders of common stock with respect to all matters as to
which such shareholders vote, with each share of series A preferred stock
entitled to one vote. In the event of liquidation, dissolution or winding-up of
our operations, holders of series A preferred stock will be paid an amount equal
to $10.00 per share of series A preferred stock before any payment is made with
respect to our common stock. The series A preferred stock pays dividends at the
rate of 10% per annum, which is cumulative from the date of issuance and payable
quarterly commencing March 31, 2001. At such time as we generate a positive cash
flow, we are required to use all of such positive cash flow to redeem the series
A preferred stock, but only to the extent of such positive cash flow. Positive
cash flow is defined as our net income less amortization, depreciation and other
non-cash charges.
41
<PAGE>
OUTSTANDING WARRANTS AND OPTIONS
As of March 31, 2000, there were no outstanding warrants or options to purchase
our common stock.
CERTAIN PROVISIONS OF GO 2 PHARMACY.COM'S ARTICLES OF INCORPORATION AND BYLAWS
Our articles of incorporation provide for a classified Board of Directors. The
directors are divided into three classes, as nearly in number as possible. The
directors are elected for three-year terms, which are staggered so that the
terms of one-third of the directors expire each year. The Company's bylaws
provide that any vacancies on the Board of Directors may be filled by the
affirmative vote of a majority of the remaining directors though less than a
quorum. The articles of incorporation establish an advance notice procedures for
both nominations of director candidates and introduction of business at
shareholders' meetings and provide that special shareholder meetings may only be
called by the Chairman of the Board of Directors pursuant to a resolution
adopted by a majority of the entire Board or upon application of shareholders
owning at least 35% of the stock entitled to vote at the special meeting. The
articles of incorporation also require the affirmative vote of the holders of at
least 75% of the voting power of Go 2 Pharmacy.com entitled to vote generally in
the election of directors for any addition, change or deletion of certain
provisions.
The above-described provisions may have certain anti-takeover effects. Such
provisions, in addition to the provisions described below and the possible
issuance of preferred stock discussed above, may make it more difficult for
other persons, without the approval of Go 2 Pharmacy.com's Board of Directors,
to make a tender offer or acquisitions of substantial amounts of common stock or
to launch other takeover attempts that a shareholder might consider in such
shareholder's best interest, including attempts that might result in the payment
of a premium over the market price of the common stock held by such shareholder.
CERTAIN PROVISIONS OF FLORIDA LAW
Go 2 Pharmacy.com is subject to several anti-takeover provisions under Florida
law that apply to a public corporation organized under Florida law, unless the
corporation has elected to opt out of those provisions in its articles of
incorporation or bylaws. The Company has not elected to opt out of those
provisions. The Florida Business Corporation Act prohibits the voting of shares
in a publicly-held Florida corporation that are acquired in a "control share
acquisition" unless the holders of a majority of the corporation's voting shares
(exclusive of shares held by officers of the corporation, inside directors, or
the acquiring party) approve the granting of voting rights as to the shares
acquired in the control share acquisition. A "control share acquisition" is
defined as an acquisition that immediately thereafter entitles the acquiring
party to vote in the election of directors within each of the following ranges
of voting power: (i) one-fifth or more but less than one-third of such voting
power; (ii) one-third or more but less than a majority of such voting power; and
(iii) more than a majority of such voting power.
The Florida Business Corporation Act also contains an "affiliated transaction"
provision that prohibits a publicly-held Florida corporation from engaging in a
broad range of business combinations or other extraordinary corporate
transactions with an "interested shareholder" unless (i) the transaction is
approved by a majority of disinterested directors before the person becomes an
interested shareholder; (ii) the interested shareholder has owned at least 80%
of the corporation's outstanding voting shares for at least five years; or (iii)
the transaction is approved by the holders of two-thirds of the corporation's
voting shares other than those owned by the interested shareholder. An
interested shareholder is defined as a person who together with affiliates and
associates beneficially owns more than 10% of the corporation's outstanding
voting shares.
TRANSFER AGENT AND REGISTRAR
Registrar and Transfer Company, in Cranford, New Jersey, serves as transfer
agent and registrar for our common stock.
42
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
SHARES OUTSTANDING AND FREELY TRADABLE AFTER OFFERING. Upon completion of this
offering, we will have approximately 7,015,000 shares of common stock
outstanding. The 1,000,000 shares to be sold by Go 2 Pharmacy.com in this
offering will be freely tradable without restriction or limitation under the
Securities Act, except for any such shares held by "affiliates" of Go 2
Pharmacy.com, as such term is defined under Rule 144 of the Securities Act,
which shares will be subject to the resale limitations under Rule 144. All of
the remaining 6,015,000 outstanding shares are "restricted securities" within
the meaning of Rule 144 and may be publicly sold only if registered under the
Securities Act or sold in accordance with an applicable exemption from
registration, such as Rule 144. All of these restricted shares of common stock
will become eligible for resale under Rule 144 one year from the date that the
securities offered herein are declared "effective" by the Securities and
Exchange Commission. Go 2 Pharmacy.com's parent company, Dynamic, which owns an
aggregate of 3,000,000 shares of common stock has agreed not to sell, directly
or indirectly, any shares owned by them for a period of eighteen months after
the date of the completion of this offering without the prior written consent of
the representative. Upon the expiration of this eighteen month lock-up period
(or earlier upon the consent of the representative), all of these shares will
become eligible for sale subject to the restrictions of Rule 144.
RULE 144. In general, under Rule 144, as currently in effect, a person (or
persons whose shares are aggregated) who has beneficially owned shares for at
least one year, including an affiliate of the Company, would be entitled to
sell, within any three-month period, that number of shares that does not exceed
the greater of 1% of the then-outstanding shares of common stock (approximately
70,000 shares after this offering) and the average weekly trading volume in the
common stock during the four calendar weeks immediately preceding the date on
which the notice of sale is filed with the Commission, provided certain manner
of sale and notice requirements and requirements as to the availability of
current public information about the Company are satisfied. In addition,
affiliates of the Company must comply with the restrictions and requirements of
Rule 144, other than the one-year holding period requirement, in order to sell
shares of common stock. As defined in Rule 144, an "affiliate" of an issuer is a
person who, directly or indirectly, through the use of one or more
intermediaries controls, or is controlled by, or is under common control with,
such issuer. Under Rule 144(k), a holder of "restricted securities" who is not
deemed an affiliate of the issuer and who has beneficially owned shares for at
least two years would be entitled to sell shares under Rule 144(k) without
regard to the limitations described above.
FORM S-8 REGISTRATION OF OPTIONS. Go 2 Pharmacy.com intends to file a
registration statement on Form S-8 covering the shares of common stock that have
been reserved for issuance under its 1999 Stock Option Plan, which would permit
the resale of such shares in the public market.
EFFECT OF SUBSTANTIAL SALES ON MARKET PRICE OF COMMON STOCK. We are unable to
estimate the number of shares that may be sold in the future by our existing
shareholders or the effect, if any, that such sales will have on the market
price of the common stock prevailing from time to time. Sales of substantial
amounts of common stock, or the prospect of such sales, could adversely affect
the market price of the common stock.
43
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement, the
underwriters named below, for whom Kashner Davidson Securities Corporation is
acting as representative, have agreed to purchase from Go 2 Pharmacy.com, and Go
2 Pharmacy.com has agreed to sell to the underwriters, the number of shares of
common stock set forth opposite each underwriter's name below, excluding shares
set aside for options granted for over-allotments.
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
Kashner Davidson Securities Corporation............... 1,000,000
---------
Total................................................. 1,000,000
=========
The underwriting agreement provides that the obligations of the several
underwriters thereunder are subject to certain conditions precedent, including
the absence of any material adverse change in Go 2 Pharmacy.com's business and
the receipt of certain certificates, opinions and letters from Go 2
Pharmacy.com's counsel and independent public accountants. The nature of the
underwriters' obligation is such that they are committed to purchase and pay for
all the shares of common stock if any are purchased.
Go 2 Pharmacy.com has been advised by the representative that the underwriters
propose to offer the shares of common stock directly to the public at the public
offering price set forth on the cover page of this prospectus and to certain
securities dealers at such price less a concession not in excess of $[ ] per
share. The underwriters may allow, and such selected dealers may reallow, a
discount not in excess of $[ ] per share to certain brokers and dealers. After
the public offering of the shares, the public offering price and other selling
terms may be changed by the representative. No change in such terms shall change
the amount of proceeds to be received by Go 2 Pharmacy.com as set forth on the
cover page of this prospectus.
Go 2 Pharmacy.com's parent company, Dynamic, which owns an aggregate of
3,000,000 shares of common stock has agreed that it will not, without the prior
written consent of Kashner Davidson Securities Corporation (which consent may be
withheld in its sole discretion) and subject to certain limited exceptions,
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
sell short, purchase any option or contract to sell, grant any option, right or
warrant to purchase, lend or otherwise transfer or dispose of, directly or
indirectly, any shares of common stock or any securities convertible into or
exercisable or exchangeable for common stock, or enter into any swap or similar
agreement that transfers, in whole or in part, any of the economic consequences
of ownership of the common stock, for a period of eighteen months after the date
of completion of this offering. Kashner Davidson Securities Corporation , on
behalf of the underwriters, may, in its sole discretion and at anytime without
notice, release all or any portion of the securities subject to these lock-up
agreements. In addition, Go 2 Pharmacy.com has agreed that, for a period of
eighteen months after the date of completion of this offering, it will not,
without the consent of Kashner Davidson Securities Corporation, make any
offering, purchase, or sale or other disposition of any shares of Go 2
Pharmacy.com's common stock or other securities convertible into or exchangeable
or exercisable for shares of common stock (or agreement for such) except for (i)
the grant of options to purchase shares of common stock pursuant to the 1999
plan, (ii) shares of common stock issued pursuant to the exercise of options
granted under such plan, (iii) and except for shares issued, options granted or
shares purchased in connection with acquisitions, and (iv) pursuant to the
exercise of warrants and options outstanding prior to the sale of the common
stock in this offering.
Go 2 Pharmacy.com has agreed to issue to the representative, warrants to
purchase up to 100,000 shares of common stock at an exercise price per share
equal to 120% of the initial public offering price of the shares in this
offering. The exercise price of the representative's warrants has been
determined by negotiations between Go 2 Pharmacy.com and the representative. The
exercise price of the representative's warrants is one of the factors used by
the National Association of Securities Dealers, Inc. under its Corporate
Financing Rule to determine whether the total compensation paid to an
underwriter and its associated and related persons for services in connection
with a public
44
<PAGE>
offering is excessive. The sole factor considered by Go 2 Pharmacy.com and the
representative in negotiating the exercise price of the representative's
warrants in this offering was to select an amount that would not be considered
excessive under the National Association of Securities Dealers, Inc.'s Corporate
Financing Rule in light of the total compensation payable by Go 2 Pharmacy.com
in connection with this offering. The representative's warrants will be
exercisable for a period of five years after the date of this prospectus. The
representative's warrants include a "net" exercise provision permitting the
holders to pay the exercise price by cancellation of a number of shares with a
fair market value equal to the exercise price of the representative's warrants.
The holders of the representative's warrants will have no voting, dividend or
other stockholder rights until the representative's warrants are exercised. In
addition, Go 2 Pharmacy.com has granted certain rights to the holders of the
representative's warrants to register the common stock underlying the
representative's warrants under the Securities Act. Go 2 Pharmacy.com has agreed
to pay the representative a non-accountable expense allowance of 3% of the total
offering proceeds from the sale of shares of common stock by them, of which Go 2
Pharmacy.com has already paid $50,000.
Go 2 Pharmacy.com has agreed to retain Kashner Davidson Securities Corporation
as a financial consultant for a period of thirty-six months to commence on the
closing of this Offering, at a monthly fee of $3,000 all of which $108,000 shall
be payable in advance on the closing of the Offering. Pursuant to this
agreement, Kashner Davidson Securities Corporation will be obligated to provide
general financial advisory services to Go 2 Pharmacy.com on an "as needed" basis
with respect to possible future financing or acquisitions by Go 2 Pharmacy.com
and related matters. The agreement does not require Kashner Davidson Securities
Corporation to provide any minimum number of hours of consulting services to Go
2 Pharmacy.com.
The representative has advised Go 2 Pharmacy.com that it does not expect any
sales of the shares of common stock offered hereby to be made to discretionary
accounts controlled by the underwriters.
Go 2 Pharmacy.com's common stock has not been quoted or traded on any securities
market prior to this offering. Accordingly, Go 2 Pharmacy.com is determining the
price of the common stock in this offering in the same manner that the price of
common stock offered in an initial public offering is determined through
consultation and negotiation with the representative of the underwriters. Among
the factors to be considered in such negotiations are the preliminary demand for
the common stock, the prevailing market and economic conditions, Go 2
Pharmacy.com's results of operations, estimates of its business potential and
earnings prospects, the present state of its business operations, an assessment
of its management, the number of shares of common stock being offered and the
total number of shares to be outstanding upon completion of this offering, the
price that purchasers might be expected to pay for the common stock given the
nature of Go 2 Pharmacy.com and the general condition of the securities markets
at the time of the offering, the consideration of these factors in relation to
the market valuation of comparable companies in related businesses or whose
operations are conducted in the same geographic area as those of Go 2
Pharmacy.com and the current condition of the markets in which Go 2 Pharmacy.com
operates. There can be no assurance that an active trading market will develop
for the common stock after this offering or that the common stock will trade in
the public market subsequent to this offering at or above the initial public
offering price.
Application has been made to list the common stock for quotation on the Nasdaq
Small Cap Market under the symbol "GORX."
The underwriting agreement provides that Go 2 Pharmacy.com will indemnify the
underwriters and their controlling persons against certain liabilities under the
Securities Act or will contribute to payments the underwriters and their
controlling persons may be required to make in respect thereof. Go 2
Pharmacy.com generally obligated to indemnify the underwriters and their
respective controlling persons in connection with losses or claims arising out
of any untrue statement of a material fact contained in this prospectus or in
related documents filed with the Securities and Exchange Commission or with any
state securities administrator or arising out of any omission to state in any of
such documents any material fact required to be stated in such documents or
necessary to make the statements made in such documents, in light of the
circumstances under which they were made, not misleading. In addition, Go 2
Pharmacy.com is generally obligated to indemnify the underwriters and their
respective controlling persons in connection with losses or claims arising out
of any breach of any representation, warranty agreement or covenant of Go 2
Pharmacy.com contained in the underwriting agreement.
45
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for Go 2
Pharmacy.com by Sichenzia, Ross & Friedman LLP, New York, New York. Sichenzia,
Ross & Friedman LLP received 15,000 shares of common stock in connection with
their representation of Go 2 Pharmacy.com, Inc.
EXPERTS
On June 9, 2000, the Company engaged Brimmer, Burek & Keelan LLP as our
independent auditors for the fiscal year ended March 31, 2000.
On May 3, 2000, the Company engaged Brimmer, Burek & Keelan LLP as our
independent auditors for the fiscal year ended March 31, 1999, replacing the
firm of Grant Thornton LLP, which had previously served as our independent
auditors for the fiscal year ended March 31, 1999. The reason for the change was
to reduce our financial burden for such services.
On April 29, 1999, the Company engaged Grant Thornton LLP as our independent
auditors for the fiscal year ended March 31, 1999, replacing the firm of
Kirkland, Russ, Murphy & Tapp, CPAs, which served as our independent auditors
for the fiscal year ended March 31, 1998.
The report of Grant Thornton LLP 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.
The reports of Kirkland, Russ, Murphy & Tapp, CPAs for the fiscal year ended
March 31, 1998 did not contain any adverse opinion or disclaimer of opinion and
was not qualified or modified as to uncertainty, audit scope or accounting
principles.
There were no disagreements with Grant Thornton LLP within the meaning of
Instruction 4 to Item 304 of Regulation S-K under the Securities Exchange Act of
1934 on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure in connection with the audit of the
Company's financial statements for the fiscal year ended March 31, 1999, or for
any subsequent interim period, which disagreements if not resolved to their
satisfaction would have caused Grant Thornton LLP to make reference to the
subject matter of the disagreements in connection with its reports.
There were no disagreements with Kirkland, Russ, Murphy & Tapp, CPAs within the
meaning of Instruction 4 to Item 304 of Regulation S-K under the Securities
Exchange Act of 1934 on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure in connection
with the audits of the Company's financial statements for the fiscal years ended
March 31, 1998 and 1997, or for any subsequent interim period, which
disagreements if not resolved to their satisfaction would have caused Kirkland,
Russ, Murphy & Tapp, CPAs to make reference to the subject matter of the
disagreements in connection with its reports.
During the two most recent fiscal years and through present, there have been no
reportable events (as defined in Item 304(a)(1)(v) of Regulation S-K) of the
type required to be disclosed by that section. We did not consult with Brimmer,
Burek & Keelan LLP or Grant Thornton LLP regarding either:
o the application of accounting principles to a specified
transaction, either completed or proposed; or the type of audit
opinion that might be rendered on the Company's financial
statements; or
46
<PAGE>
o any matter that was either the subject matter of a disagreement
(as defined in Item 304(a)(1)(iv) of Regulation S-K and the
related instructions) or a reportable event (as defined in Item
304(a)(1)(v) of Regulation S-K).
Go 2 Pharmacy.com's financial statements as of March 31, 1999 and 2000 and for
the years ended March 31, 1999 and 2000 included in this prospectus have been
audited by Brimmer, Burek & Keelan LLP, independent public accountants, as
stated in their report appearing herein and are so included herein in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing.
Go 2 Pharmacy.com's financial statements as of March 31, 1998 and for the year
ended March 31, 1998 included in this prospectus have been audited by Kirkland,
Russ, Murphy & Tapp, independent public accountants, as stated in their report
appearing herein and are so included herein in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
U.S. Diversified Technologies, Inc.'s financial statements as of December 31,
1997 and for the year ended December 31, 1997 included in this prospectus have
been audited by Baum & Company, P.A. independent public accountants, as stated
in their report appearing herein and are so included herein in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
Go 2 Pharmacy.com Delaware's financial statements as of March 31, 2000 and for
the period from February 18, 2000 (date of inception) through March 31, 2000
included in this prospectus have been audited by Brimmer, Burek & Keelan LLP,
independent public accountants, as stated in their report appearing herein and
are so included herein in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
Go 2 Pharmacy.com is subject to the informational requirements of the Securities
Exchange Act of 1934, and in accordance therewith files reports, proxy or
information statements and other information with the Securities and Exchange
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
as well as at the following regional offices: Seven World Trade Center, New
York, New York 10048, and Citicorp Center, 500 W. Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C.20549, at prescribed rates. In addition, the Commission
maintains a web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. The address of the Commission's web site is http://www.sec.gov.
Go 2 Pharmacy.com has filed with the Commission, a registration statement on
Form SB-2 under the Securities Act of 1933 with respect to the common stock
being offered hereby. As permitted by the rules and regulations of the
Commission, this prospectus does not contain all the information set forth in
the registration statement and the exhibits and schedules thereto. For further
information with respect to the Company and the common stock offered hereby,
reference is made to the registration statement, and such exhibits and
schedules. A copy of the registration statement, and the exhibits and schedules
thereto, may be inspected without charge at the public reference facilities
maintained by the Commission at the addresses set forth above, and copies of all
or any part of the registration statement may be obtained from such offices upon
payment of the fees prescribed by the Commission. In addition, the registration
statement may be accessed at the Commission's web site. Statements contained in
this prospectus as to the contents of any contract or other document are not
necessarily complete and, in each instance, reference is made to the copy of
such contract or document filed as an exhibit to the registration statement,
each such statement being qualified in all respects by such reference.
47
<PAGE>
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
UNAUDITED CONSOLIDATED PRO FORMA
FINANCIAL INFORMATION
<S> <C>
Basis of Presentation........................................................................................... F-2
Unaudited Pro Forma Condensed Consolidated Balance Sheet
as of March 31, 2000......................................................................................... F-3 - F-5
Unaudited ProForma Condensed Consolidated Statement of Operations
for the year ended March 31, 2000............................................................................ F-6
AUDITED FINANCIAL STATEMENTS OF
GO2PHARMACY.COM, INC. (A FLORIDA CORPORATION)
Report of Brimmer, Burek & Keelan LLP, Independent Auditors.................................................... F-7
Report of Kirkland, Russ, Murphy & Tapp, Independent Auditors.................................................. F-8
Balance Sheets as of March 31, 1998, 1999 and 2000............................................................. F-9
Statements of Operations for each of the years ended March 31, 1998, 1999 and 2000............................. F-10
Statement of Shareholder's Equity (Deficit) for each of the years ended March
31, 1998, 1999 and 2000..................................................................................... F-11
Statements of Cash Flows for each of the years ended March 31, 1998, 1999 and 2000............................. F-12 - F-13
Notes to the Financial Statements.............................................................................. F-14 - F-27
AUDITED FINANCIAL STATEMENTS OF
GO2PHARMACY.COM, INC. (A DELAWARE CORPORATION)
(A DEVELOPMENT STAGE COMPANY)
Report of Brimmer, Burek & Keelan LLP, Independent Auditors..................................................... F-28
Balance Sheet as of March 31, 2000.............................................................................. F-29
Statements of Operations for period from February 18, 2000 (date of inception)
through March 31, 2000....................................................................................... F-30
Statement of Shareholders' Equity (Deficit) for the period from February 18,
2000 (date of inception) through March 31, 2000.............................................................. F-31
Statements of Cash Flows for the period from February 18, 2000 (date of inception) through March 31, 2000....... F-32
Notes to the Financial Statements.............................................................................. F-33 - F-35
AUDITED FINANCIAL STATEMENTS OF
U.S. DIVERSIFIED TECHNOLOGIES, INC. AND
SUBSIDIARY (ENERGY FACTORS, INC.)
Reports of Baum & Company, P.A., Independent Auditors........................................................... F-36
Consolidated Balance Sheet as of December 31, 1997.............................................................. F-37
Consolidated Statement of Income And Retained Earnings for the
year ended December 31, 1997................................................................................. F-38
Consolidated Statement of Cash Flows for the
year ended December 31, 1997................................................................................. F-39
Notes to the Consolidated Financial Statements.................................................................. F-40 - F-43
</TABLE>
F-1
<PAGE>
GO2PHARMACY.COM, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS BASIS OF
PRESENTATION
The following unaudited pro forma condensed consolidated financial statements
give effect to the acquisition of Go2Pharmacy.com, Inc., a Delaware corporation
("Go2 Acquisition") by Go2Pharmacy.com, Inc., a Florida corporation, which will
occur simultaneously with and as a condition to the closing of the initial
public offering (the "Offering") and will be accounted for using the purchase
method of accounting whereby the assets and liabilities are recorded at fair
value.
The unaudited pro forma consolidated balance sheet gives effect to the
acquisition of Go2 Acquisition as if it had occurred on March 31, 2000. The
unaudited pro forma consolidated statement of operations gives effect to the
acquisition as if it had occurred as of April 1, 1999. The pro forma
consolidated statement of operations reflects the consolidated operating results
of Go2Pharmacy.com, Inc. and Go2Acquisition for the fiscal year ended March 31,
2000.
The pro forma adjustments are based on estimates, available information, and
certain assumptions that management deems appropriate. The pro forma financial
data does not purport to represent what the financial position or results of
operations would actually have been if such transactions had occurred on those
dates and are not necessarily representative of the financial position or
results of operations for any future period. The pro forma financial statements
should be read in conjunction with the historical financial statements and notes
thereto included elsewhere in this prospectus. See "Risk Factors" included
elsewhere herein.
F-2
<PAGE>
GO2PHARMACY.COM, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
<TABLE>
<CAPTION>
GO2
PHARMACY.COM
GO2 GO2 PRO FORMA PRO FORMA
PHARMACY.COM ACQUISITION TOTAL ADJUSTMENTS CONSOLIDATED
----------- ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash $ -- $ -- $ -- $ 8,255,000 (a) $ 8,505,000
250,000 (c)
Accounts receivable, net 727,831 -- 727,831 -- 727,831
Inventories 1,488,103 -- 1,488,103 -- 1,488,103
Prepaid expenses and other
current assets 268,703 -- 268,703 -- 268,703
Due from affiliates, net 311,648 -- 311,648 -- 311,648
----------- --------- ---------- ----------- -----------
Total current assets 2,796,285 -- 2,796,285 8,505,000 11,301,285
Property and equipment,
net 1,067,815 -- 1,067,815 -- 1,067,815
Intangible assets (primarily
goodwill), net 857,917 50,200 908,117 30,000,000 (b) 24,657,917
(50,200) (d)
(250,000) (e)
(5,950,000) (f)
Other assets, net 144,351 -- 144,351 -- 144,351
----------- --------- ---------- ----------- -----------
Total assets $ 4,866,368 $ 50,200 $4,916,568 $32,254,800 $37,171,368
----------- --------- ---------- ----------- -----------
</TABLE>
F-3
<PAGE>
GO2PHARMACY.COM, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
<TABLE>
<CAPTION>
GO2
PHARMACY.COM
GO2 GO2 PRO FORMA PRO FORMA
PHARMACY.COM ACQUISITION TOTAL ADJUSTMENTS CONSOLIDATED
------------ ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Credit lines payable $ 1,349,284 $ -- $1,349,284 $ -- $ 1,349,284
Current portion of long-term
obligations 238,353 -- 238,353 -- 238,353
Accounts payable 860,876 -- 860,876 -- 860,876
Accrued expenses 136,105 40,000 176,105 (40,000) (c) 136,105
Obligations to related parties 25,000 -- 25,000 -- 25,000
Due to parent 667,323 -- 667,323 -- 667,323
Due to affiliates 176,877 -- 176,877 176,877
---------- --------- ---------- ----------- -------------
Total current liabilities 3,453,818 40,000 3,493,818 (40,000) 3,453,818
Long-term obligations, less
current portion 509,362 -- 509,362 -- 509,362
---------- --------- ---------- ----------- -------------
Total liabilities 3,963,180 40,000 4,003,180 (40,000) 3,963,180
Commitments and contingencies
Shareholders' equity
Preferred Stock -- -- -- -- --
Series A preferred stock 1,500,000 -- 1,500,000 -- 1,500,000
Common stock 30,000 30,000 60,000 10,000 (a) 100,000
30,000 (b)
Additional paid-in capital -- 50,000 50,000 29,970,000 (b) 38,555,000
8,245,000 (a)
290,000 (c)
Less subscription receivable -- (5,900) (5,900) -- (5,900)
Accumulated deficit (626,812) (63,900) (690,712) (50,200)(d) (6,940,912)
(5,950,000)(f)
(250,000)(e)
---------- --------- ---------- ----------- -------------
Total shareholders'
equity 903,188 10,200 913,388 32,294,800 33,208,188
---------- --------- ---------- ----------- -------------
Total liabilities and
shareholders' equity $4,866,368 $ 50,200 $4,916,568 $32,254,800 $ 37,171,368
========== ========= ========== =========== =============
</TABLE>
F-4
<PAGE>
GO2PHARMACY.COM, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
Adjustments reflect the following:
(a) Cash proceeds of $8,255,000 from the issuance of 1,000,000 shares of
Go2pharmacy.com common stock, net of estimated offering costs at an assumed
initial offering price of $10 per share.
(b) Purchase of Go2Acquisition for 3,000,000 shares of common stock at an
assumed price of $10 per share.
(c) Contribution to capital of $290,000 and payment of accrued expenses of
$40,000 upon the purchase of Go2Acquisition.
(d) Elimination of Go2Acquisition goodwill as of March 31, 2000.
(e) Elimination of Go2Acquisition equity in consolidation.
(f) Amortization of goodwill assuming the acquisition took place on April 1,
1999 using a 5 year life.
F-5
<PAGE>
GO2PHARMACY.COM, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
GO2
GO2 ACQUISITION
PHARMACY.COM FOR THE PERIOD FROM GO2
FOR THE FEBRUARY 18,2000 PHARMACY.COM
YEAR ENDED (DATE OF INCEPTION) PRO FORMA PRO FORMA
MARCH 31, 2000 THROUGH MARCH 31, 2000 TOTAL ADJUSTMENTS CONSOLIDATED
-------------- ---------------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 5,831,896 $ -- $ 5,831,896 $ -- $ 3,831,896
Cost of goods sold 3,808,640 -- 3,808,640 -- 3,808,640
----------- ----------- ----------- ----------- -----------
Gross profit 2,023,256 -- 2,023,256 2,023,256
Selling, general and
administrative expenses 2,094,838 63,900 2,158,738 5,886,100 (a) 8,044,838
----------- ----------- ----------- ----------- -----------
Operating income (loss) (71,582) (63,900) (135,482) (5,886,100) (6,021,582)
Other expense, net (222,974) -- (222,974) -- (222,974)
----------- ----------- ----------- ----------- -----------
Income (loss) before income
taxes (294,556) (63,900) (358,456) (5,886,100) (6,244,556)
Income taxes -- -- -- --
----------- ----------- ----------- ----------- -----------
Net income (loss) $ (294,556) $ -- $ (358,456) $(5,886,100) $(6,244,556)
=========== =========== =========== =========== ===========
Basic and diluted loss
per share $ (0.10) $ (1.04)
=========== ===========
Basic and diluted weighted
average number of common
shares outstanding 3,000,000 6,000,000
=========== ===========
</TABLE>
Adjustments reflected the following:
(a) Selling, general and administrative expenses:
Amortization of goodwill associated with Go2Acquisition
amortized over a 5 year life $5,950,000
Decrease in legal and consulting fees associated with
Go2Acquisition (63,900)
----------
$5,886,100
==========
F-6
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Go2Pharmacy.com, Inc.
Largo, Florida
We have audited the accompanying balance sheets of Go2Pharmacy.com, Inc. as of
March 31, 1999 and 2000, and the related statements of operations, shareholder's
equity (deficit), and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Go2Pharmacy.com, Inc. as of
March 31, 1999 and 2000, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ BRIMMER, BUREK & KEELAN LLP
-------------------------------
BRIMMER, BUREK & KEELAN LLP
Certified Public Accountants
Tampa, Florida
June 23, 2000
Except as to Note 15
dated June 26, 2000
F-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and
Board of Directors
Nu-Wave Health Products, Inc.
We have audited the accompanying balance sheet of Nu-Wave Health Products, Inc.
(a wholly owned subsidiary of Dynamic Health Products, Inc., formerly known as
Direct Rx Healthcare, Inc.) as of March 31, 1998 and the related statements of
operations, shareholders' equity (deficit), and cash flows for the year ended
March 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Nu-Wave Health Products, Inc.
as of March 31, 1998 and the results of its operations and its cash flows for
the year ended March 31, 1998, in conformity with generally accepted accounting
principles.
/s/ KIRKLAND, RUSS, MURPHY & TAPP
---------------------------------
Kirkland, Russ, Murphy & Tapp
Clearwater, Florida
November 1, 1999
F-8
<PAGE>
GO2PHARMACY.COM, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, MARCH 31,
1998 1999 2000
----------- ----------- -----------
ASSETS
<S> <C> <C> <C>
Current assets:
Cash $ 239,604 $ 16,206 $ --
Accounts receivable, net 179,099 763,558 727,831
Inventories 224,632 1,284,570 1,488,103
Prepaid expenses and other current assets 20,492 24,466 268,703
Due from affiliates, net -- 157,935 311,648
----------- ----------- -----------
Total current assets 663,827 2,246,735 2,796,285
Property, plant and equipment, net 176,462 2,317,212 1,067,815
Intangible assets, net 8,223 895,673 857,917
Other assets, net 25,486 125,426 144,351
----------- ----------- -----------
TOTAL ASSETS $ 873,998 $ 5,585,046 $ 4,866,368
=========== =========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Credit lines payable $ -- $ 949,139 $ 1,349,284
Current portion of long-term obligations 28,927 370,569 238,353
Accounts payable 331,715 1,174,460 860,876
Accrued expenses 72,397 177,125 136,105
Obligations to related parties -- 25,000 25,000
Due to parent 247,836 1,898,160 667,323
Due to affiliates -- -- 176,877
----------- ----------- -----------
Total current liabilities 680,875 4,594,453 3,453,818
Long-term obligations, less current portion 258,974 1,292,849 509,362
----------- ----------- -----------
TOTAL LIABILITIES 939,849 5,887,302 3,963,180
Commitments and contingencies
Shareholder's equity (deficit):
Preferred stock, no par value, 5,850,000 shares
authorized, 0, 0, and 0 issued and outstanding, respectively -- -- --
Series A preferred stock, no par value, 150,000 shares
authorized, 0, 0, and 150,000 issued and outstanding,
at face value, respectively -- -- 1,500,000
Common stock, $.01 par value; 24,000,000 shares
authorized; 3,000,000 shares issued and outstanding 30,000 30,000 30,000
Accumulated deficit (95,851) (332,256) (626,812)
----------- ----------- -----------
TOTAL SHAREHOLDER'S EQUITY (DEFICIT) (65,851) (302,256) 903,188
----------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT) $ 873,998 $ 5,585,046 $ 4,866,368
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-9
<PAGE>
GO2PHARMACY.COM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------------
1998 1999 2000
----------- ----------- -----------
<S> <C> <C> <C>
Revenues $ 1,906,935 $ 4,845,876 $ 5,831,896
Cost of goods sold 1,388,816 3,419,046 3,808,640
----------- ----------- -----------
Gross profit 518,119 1,426,830 2,023,256
Selling, general and administrative
expenses 468,578 1,504,514 2,094,838
----------- ----------- -----------
Operating income (loss) before other
income (expense) 49,541 (77,684) (71,582)
Other income (expense):
Other income, net 5,026 93,313 84,798
Interest expense, net (4,592) (252,034) (307,772)
----------- ----------- -----------
Total other income (expense) 434 (158,721) (222,974)
----------- ----------- -----------
Income (loss) before income taxes 49,975 (236,405) (294,556)
Income taxes -- -- --
----------- ----------- -----------
Net income (loss) available to common
shareholders 49,975 $ (236,405) $ (294,556)
=========== =========== ===========
Basic and diluted income (loss) per share $ 0.02 $ (0.08) $ (0.10)
=========== =========== ===========
Basic and diluted weighted average number of
common shares outstanding 3,000,000 3,000,000 3,000,000
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-10
<PAGE>
GO2PHARMACY.COM, INC.
STATEMENT OF SHAREHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK TOTAL
-------------------------- ------------------------- ADDITIONAL SHAREHOLDER'S
PAID-IN ACCUMULATED EQUITY
SHARES DOLLARS SHARES DOLLARS CAPITAL DEFICIT (DEFICIT)
----------- ----------- ----------- ----------- ---- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT MARCH 31, 1997 -- $ -- 3,000,000 $ 30,000 $-- $ (145,826) $ (115,826)
Net income -- -- -- -- -- 49,975 49,975
----------- ----------- ----------- ----------- ---- ----------- -----------
BALANCES AT MARCH 31, 1998 -- -- 3,000,000 30,000 -- (95,851) (65,851)
Net loss -- -- -- -- -- (236,405) (236,405)
----------- ----------- ----------- ----------- ---- ----------- -----------
BALANCES AT MARCH 31, 1999 -- -- 3,000,000 30,000 -- (332,256) (302,256)
Conversion of due to parent to
Series A preferred stock 150,000 1,500,000 -- -- -- -- 1,500,000
Net loss -- -- -- -- -- (294,556) (294,556)
----------- ----------- ----------- ----------- ---- ----------- -----------
BALANCES AT MARCH 31, 2000 150,000 $ 1,500,000 3,000,000 $ 30,000 $-- $ (626,812) $ 903,188
=========== =========== =========== =========== ==== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-11
<PAGE>
GO2PHARMACY.COM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------------
1998 1999 2000
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 49,975 $ (236,405) $ (294,556)
Adjustments to reconcile net income (loss) to net
cash from operating activities:
Depreciation and amortization 32,614 226,764 284,161
Loss on disposal of equipment -- -- 14,906
Gain on involuntary conversion of property -- (81,192) --
Changes in operating assets and liabilities
(exclusive of effect of business
acquisitions):
Accounts receivable (64,415) (553,010) 35,727
Inventory (116,586) (485,095) (203,533)
Prepaid expenses and other current assets (5,064) 60,540 (244,237)
Other assets (13,199) (149,477) (46,353)
Accounts payable 142,897 (31,499) (313,584)
Accrued expenses -- (56,193) (41,020)
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 26,222 (1,305,567) (808,489)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (37,147) (174,733) (451,765)
Proceeds from disposal of equipment -- -- 16,000
Proceeds from notes receivable -- -- 2,960
Proceeds from involuntary conversion of
property -- 99,100 --
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (37,147) (75,633) (432,805)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in credit lines payable -- 949,139 400,145
Proceeds from issuance of long-term obligations 240,200 620,109 309,301
Payments of long-term obligations (21,567) (831,995) (297,434)
Increase in due to/from parent, net -- 420,549 636,199
Increase in due to affiliates, net -- -- 176,877
----------- ----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 218,633 1,157,802 1,225,088
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 207,708 (223,398) (16,206)
CASH AT BEGINNING OF PERIOD 31,896 239,604 16,206
----------- ----------- -----------
CASH AT END OF PERIOD $ 239,604 $ 16,206 $ --
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-12
<PAGE>
GO2PHARMACY.COM, INC.
STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------
1998 1999 2000
------ -------- -----
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $4,592 $250,956 $281,943
Cash paid during the period for income taxes $ -- $ -- $ --
</TABLE>
During the fiscal year ended March 31, 1998, the Company incurred $63,635 of
capital lease obligations for the purchase of equipment.
During the fiscal year ended March 31, 1999, Dynamic acquired Energy Factors,
which resulted in the recording on the books of the Company of approximately
$2.8 million of tangible assets, approximately $900,000 of goodwill,
approximately $2.9 million of liabilities and approximately $800,000 of
obligations to Dynamic.
In September 1999, the Company transferred approximately $1.5 million of land
and building to its parent. In conjunction with the property transfer,
approximately $621,000 of the Company's obligations to its parent were
extinguished (See Note 7).
In September 1999, the Company issued 150,000 shares of its series A preferred
stock to its parent in conversion of $1,500,000 of the Company's obligations to
its parent.
In December 1999, the Company incurred a $89,531 note payable for the purchase
of equipment.
See accompanying notes to financial statements.
F-13
<PAGE>
GO2PHARMACY.COM, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998, 1999 AND 2000
NOTE 1 - BACKGROUND INFORMATION
Go2Pharmacy.com, Inc. (the "Company"), a Florida Corporation, is a wholly owned
subsidiary of Dynamic Health Products, Inc. ("Dynamic"). Dynamic's manufacturing
division ("NuWave") was merged with Energy Factors, Inc. ("EFI") in June 1998
when Dynamic acquired EFI with EFI as the surviving company which was renamed
Innovative Health Products, Inc. In February 2000, the Company changed its name
from Innovative Health Products, Inc. to Go2Pharmacy.com, Inc., and continues to
do business as Innovative Health Products, Inc. Subsequent to June 1998, Dynamic
became a holding company and maintained the records of the corporation.
As a result of the merger between the Company and the manufacturing operations
of Dynamic, the statement of operations for the year ended March 31, 1998
include only the NuWave operations. The statement of operations for the year
ended March 31, 1999 includes the NuWave operations from April 1, 1998 and the
operations of the Company (formerly "EFI") from June 1998 when it merged with
NuWave.
Go2Pharmacy.com creates, manufactures, develops, packages, and distributes a
wide variety of proprietary and private label dietary supplements,
over-the-counter drugs, and health and beauty care products. Go2Pharmacy.com's
primary business is the contract manufacture of products for others throughout
the United States. The channels of distribution for the products it manufactures
for others include health food, drug, convenience, and mass-market stores, and
direct marketing and catalog sales.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. RESTATEMENT
Unless otherwise noted, all information has been adjusted to retroactively
reflect the Company's common stock split to 3,000,000 shares issued and
outstanding.
B. CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
C. INVENTORIES
Inventories are stated at lower of cost or market. Cost is determined using the
first-in, first-out method.
F-14
<PAGE>
GO2PHARMACY.COM, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998, 1999 AND 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
D. PROPERTY, PLANT AND EQUIPMENT
Depreciation is provided for using the straight-line method, in amounts
sufficient to relate the cost of depreciable assets to operations over their
estimated service lives (asset categories range from three to seven years).
Leasehold improvements are amortized using the straight-line method over the
lives of the respective leases or the service lives of the improvements,
whichever is shorter. Leased equipment under capital leases is amortized using
the straight-line method over the lives of the respective leases or over the
service lives of the assets for those leases that substantially transfer
ownership. Accelerated depreciation methods are used for tax purposes.
E. INTANGIBLE ASSETS
Intangible assets consist primarily of the excess of cost over the net assets
acquired relating to the acquisition (see Note 3). The excess of cost over net
assets acquired (goodwill) is amortized for 20 years, using the straight-line
method. Accumulated amortization was approximately $9,000, $54,000, and $113,000
at March 31, 1998, 1999 and 2000, respectively. Amortization expense totaled
$3,367, $44,010, and $62,224 for the years ended March 31, 1998, 1999 and 2000,
respectively.
F. IMPAIRMENT OF ASSETS
In accordance with the provisions of Statement of Financial Accounting Standards
No. 121 (SFAS 121), ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF, the Company's policy is to evaluate whether
there has been a permanent impairment in the value of long-lived assets, certain
identifiable intangibles and goodwill when certain events have taken place that
indicate that the remaining unamortized balance may not be recoverable. When
factors indicate that the intangible assets should be evaluated for possible
impairment, the Company uses an estimate of related undiscounted cash flows.
Factors considered in the valuation include current operating results, trends
and anticipated undiscounted future cash flows. There have been no impairment
losses recorded for the fiscal years 1998, 1999 or 2000.
G. INCOME TAXES
The Company utilizes the guidance provided by Statement of Financial Accounting
Standards No. 109 (SFAS 109), ACCOUNTING FOR INCOME TAXES. Under the liability
method specified by SFAS 109, deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax basis of assets
and liabilities as measured by the enacted tax rates which will be in effect
when these differences reverse. Deferred tax expense is the result of changes in
deferred tax assets and liabilities. The Company is part of the parent company,
Dynamic Health Products, Inc.'s consolidated group tax return; accordingly, the
deferred taxes as described in Note 12, reflect that portion of the consolidated
group attributable to the Company.
F-15
<PAGE>
GO2PHARMACY.COM, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998, 1999 AND 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
H. EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per share are computed using the basic and diluted calculations
on the face of the statement of operations. Basic earnings (loss) per share are
calculated by dividing net income (loss) available to common stockholders by the
weighted average number of shares of common stock outstanding for the period.
Diluted earnings (loss) per share is calculated by dividing net income (loss) by
the weighted average number of shares of common stock outstanding for the
period, adjusted for the dilutive effect of common stock equivalents, using the
treasury stock method. There were no potentially dilutive instruments
outstanding for all periods presented.
I. USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles, requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at March 31, 1998, 1999 and 2000, as well as
the reported amounts of revenues and expenses for the fiscal years ended March
31, 1998, 1999 and 2000. The actual outcome of the estimates could differ from
the estimates made in the preparation of the financial statements.
J. CONCENTRATION OF CREDIT RISK
Concentrations of credit risk with respect to trade accounts receivable are
limited due to the distribution of sales over a large customer base as of March
31, 1998, 1999 and 2000. For the year ended March 31, 2000, three customers
represented approximately 28% of revenues derived from the Company's operations.
For the year ended March 31, 1999, three customers represented approximately 32%
of revenues derived from the Company's operations.
The Company has no concentration of customers within specific geographic areas
outside the United States that would give rise to significant geographic credit
risk.
K. REVENUE RECOGNITION
Revenues are recognized for the Company when the merchandise is shipped to the
customer.
L. ADVERTISING COSTS
The Company charges advertising costs to expense as incurred. Advertising
expense was $1,500, $24,000 and $8,000 for the years ended March 31, 1998, 1999
and 2000, respectively.
M. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company, in estimating its fair value disclosures for financial instruments,
uses the following methods and assumptions:
CASH, ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE AND ACCRUED EXPENSES: The
carrying amounts reported in the balance sheet for cash, accounts
receivable, accounts payable and accrued expenses approximate their fair
value due to their relatively short maturity.
F-16
<PAGE>
GO2PHARMACY.COM, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998, 1999 AND 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
LONG-TERM OBLIGATIONS: The fair value of the Company's fixed-rate long-term
obligations is estimated using discounted cash flow analyses, based on the
Company's current incremental borrowing rates for similar types of
borrowing arrangements. At March 31, 1998, 1999 and 2000, the fair value of
the Company's long-term obligations approximated its carrying value.
CREDIT LINES PAYABLE: The carrying amount of the Company's credit lines
payable approximates fair market value since the interest rate on these
instruments changes with market interest rates.
N. DUE TO PARENT
Amounts due to parent arise primarily as Dynamic's available cash is advanced to
the Company for purposes of consolidated cash management. The Company repays
Dynamic's cash advances, as Dynamic requires funds for operations.
A management fee is charged to the Company by Dynamic, which reflects the
Company's portion of corporate general and administrative expenses.
O. RECLASSIFICATIONS
Certain reclassifications have been made to the financial statements for the
fiscal years ended March 31, 1998 and 1999 to conform to the presentation at
March 31, 2000.
F-17
<PAGE>
GO2PHARMACY.COM, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998, 1999 AND 2000
NOTE 3 - ACQUISITION
On June 12, 1998, Energy Factors, Inc., a wholly owned subsidiary of U.S.
Diversified Technologies, Inc., was acquired by an exchange of its capital stock
for 310,000 shares of Series A Convertible Preferred Stock of Dynamic
representing a fair market value of approximately $775,000. The Preferred Stock
valuation of $2.50 per share is based on several factors, including prices of
recent common stock issuances of Dynamic. The acquisition was accounted for
under the purchase method of accounting and has been recorded on the books of
the Company. Management has determined that the goodwill of approximately
$881,000 associated with this transaction will be amortized over a 20-year life.
Subsequent to the acquisition, Energy Factors, Inc. changed its name to
Innovative Health Products, Inc. In February 2000, its name was changed to
Go2Pharmacy.com, Inc. The results of operations of Energy Factors have been
reflected in the Company's results of operations beginning immediately
subsequent to the acquisition date of June 12, 1998.
The aggregate purchase price of $775,000 was allocated as follows:
Inventory $575,000
Property, plant and equipment 2,167,000
Other assets 82,000
Goodwill 881,000
-----------
3,705,000
Less: liabilities assumed (2,930,000)
-----------
$775,000
===========
The following pro forma information has been derived from the historical
financial statements of Go2Pharmacy.com and such information has been adjusted
to give effect to the acquisition of Energy Factors, assuming that the
acquisition of Energy Factors occurred on April 1, 1997. The unaudited pro forma
financial information is not necessarily indicative of the results, which would
actually have occurred had the transaction been in effect on the dates and for
the periods indicated or which may result in the future.
YEARS ENDED MARCH 31,
------------------------------------
1998 1999 2000
(Pro Forma) (Pro Forma) (Actual)
------------------------------------
Revenues $7,661,000 $5,505,000 $5,832,000
Operating loss $ (286,000) $ (305,000) $ (72,000)
Net loss $ (316,000) $ (482,000) $ (295,000)
Net loss per common share $ (0.08) $ (0.12) $ (0.10)
F-18
<PAGE>
GO2PHARMACY.COM, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998, 1999 AND 2000
NOTE 4 - ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------------
1998 1999 2000
--------- --------- ---------
<S> <C> <C> <C>
Trade accounts receivable $ 207,599 $ 871,080 $ 843,020
Less allowance for uncollectible accounts (28,500) (107,522) (115,189)
--------- --------- ---------
$ 179,099 $ 763,558 $ 727,831
========= ========= =========
</TABLE>
NOTE 5 - INVENTORIES
Inventories consist of the following:
MARCH 31,
--------------------------------------
1998 1999 2000
---------- ---------- ----------
Raw materials $ 156,247 $1,104,822 $1,397,780
Work in process 56,048 150,721 67,102
Finished goods 12,337 29,027 23,221
---------- ---------- ----------
$ 224,632 $1,284,570 $1,488,103
========== ========== ==========
NOTE 6 - PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
MARCH 31,
---------------------------------------
1998 1999 2000
------- ------- --------
Prepaid expenses, other $20,492 $24,466 $ 16,347
Prepaid IPO expenses:
Professional fees -- -- 197,245
Underwriters' fees -- -- 50,000
Filing fees -- -- 5,111
------- ------- --------
$20,492 $24,466 $268,703
======= ======= ========
F-19
<PAGE>
GO2PHARMACY.COM, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998, 1999 AND 2000
NOTE 7 - PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant, and equipment, net, consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------------------
1998 1999 2000
----------- ----------- -----------
<S> <C> <C> <C>
Land and building $ -- $ 1,421,460 $ --
Machinery and equipment 196,784 997,827 1,151,058
Furniture, fixtures and equipment 14,998 110,252 266,996
Leasehold improvements 13,766 19,514 27,027
----------- ----------- -----------
225,548 2,549,053 1,445,081
Less accumulated depreciation and
amortization (49,086) (231,841) (377,266)
----------- ----------- -----------
$ 176,462 $ 2,317,212 $ 1,067,815
=========== =========== ===========
</TABLE>
Depreciation and leasehold amortization expense totaled $29,271, $182,755 and
$221,938 for the years ended March 31, 1998, 1999 and 2000.
In September 1999, the Company transferred land and building to its parent
company at net book value, which approximated market value. In conjunction with
the transfer, the parent satisfied all outstanding mortgages on the property and
reduced the Company's obligations to the parent by approximately $621,000, which
represented the difference between the net book value and amounts outstanding
under the then existing mortgages. Additionally, the Company agreed to lease the
property from the parent for $16,000 per month, subject to annual inflationary
adjustments, for a period of ten years.
NOTE 8 - OTHER ASSETS, NET
Other assets, net, consist of the following:
MARCH 31,
---------------------------------
1998 1999 2000
------- ------- -------
Deposits $20,486 $ 1,803 $ 15,107
Investments in joint ventures 5,000 3,892 33,668
Notes and other noncurrent receivables -- 119,731 123,880
Less allowance for uncollectible accounts
and notes receivable -- -- (28,304)
------- -------- --------
$25,486 $125,426 $144,351
======= ======== ========
F-20
<PAGE>
GO2PHARMACY.COM, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998, 1999 AND 2000
NOTE 9 - CREDIT LINES PAYABLE
In February 1999, the Company established a $2 million revolving credit facility
scheduled to mature in February 2002. The credit available to the Company is
based on a percentage of eligible accounts receivable and inventory. A portion
of the proceeds from the line of credit was funded in the form of a 60-month
term loan for approximately $491,000 (see Note 10). The credit available to the
Company under this line at March 31, 1999 and 2000 was approximately $949,000
and $856,600, respectively. The facility imposes no financial covenants. Minimum
borrowing under the agreement is $1,000,000. The agreement places limitations on
disposition of assets and debt funding to transactions within the normal course
of business and restricts the payment of dividends to any shareholder of record
of any class of Company stock during the term of the agreement. All borrowings
accrue interest at prime (6.75% at March 31, 2000) plus 2.25% and are secured by
all assets of the company. At March 31, 1999 and 2000, the Company had borrowed
approximately $949,000 and $856,600, respectively, under this facility.
In December 1999, the Company established a $500,000 revolving credit facility
with a bank. The credit facility is secured by a guarantee in the form of a
Third Party Pledge Agreement and a certificate of deposit held by Dynamic. All
borrowings accrue interest at 2.1% over the floating rate of the certificate of
deposit (4.31% at March 31, 2000) and are payable monthly. At March 31, 2000,
the Company had borrowed approximately $492,700 under this facility.
The credit lines payable are included with current liabilities instead of
long-term liabilities, as management believes that this presentation better
reflects the utility of the current assets as the source of repayment for the
credit lines payable.
NOTE 10 - LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
----------------------------
1998 1999 2000
------ -------- -------
<S> <C> <C> <C>
Notes payable collateralized by real property, due in monthly
principal payments of $12,256 plus interest at a rate of 12% through
October 2002, requiring a balloon payment due October 2002.
Transferred to the parent in September 1999 (see Note 7). $ -- $839,276 $ --
Note payable collateralized by certain equipment, due in monthly
principal payments of $8,192 plus interest through February 2004,
interest rate at prime (6.75% at March 31, 2000) plus 2.25%. --- 483,327 363,164
Note payable collateralized by certain equipment, due in monthly
principal payments of $2,200 plus interest through January 2003,
interest rate at 9.5% --- --- 85,350
Capitalized lease obligations for equipment, due in monthly principal
and interest payments of approximately $7,499 through 2004. 54,314 198,080 232,664
</TABLE>
F-21
<PAGE>
GO2PHARMACY.COM, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998, 1999 AND 2000
NOTE 10 - LONG-TERM OBLIGATIONS - (CONTINUED)
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------------------
1998 1999 2000
----------- ----------- -----------
<S> <C> <C> <C>
Unsecured 10% notes payable due at April 30, 1999 $ 225,000 $ -- $ --
Other 8,587 142,735 66,537
----------- ----------- -----------
287,901 1,663,418 747,715
Less current maturities (28,927) (370,569) (238,353)
----------- ----------- -----------
$ 258,974 $ 1,292,849 $ 509,362
=========== =========== ===========
</TABLE>
At March 31, 2000, aggregate maturities of long-term obligations are as follows:
YEAR ENDING MARCH 31,
2001 $238,353
2002 218,200
2003 171,545
2004 116,716
2005 2,901
--------
$747,715
========
NOTE 11 - RELATED PARTY TRANSACTIONS
For the fiscal year ended March 31, 1998, 1999 and 2000, revenues of
approximately $0, $297,000 and $594,000, respectively, were recorded from sales
by the Company to other companies owned by Dynamic.
In August and September 1999, the Company borrowed a total of $86,500 from the
Chairman of the Company. The notes are payable on demand and bear interest at
10% per annum. Interest totaled $2,233 for the year ended March 31, 2000. In
December 1999, the notes and related interest were paid.
In June 1998, the Company assumed a $25,000 note payable to the parent's Vice
Chairman of Business Development, associated with the June 12, 1998 Energy
Factors acquisition. The note bears interest at 10.8% per annum. Interest
totaled $229 for the year ended March 31, 1999 and $2,708 for the year ended
March 31, 2000. The note is to be repaid in 24 equal monthly payments beginning
September 1, 1999. The parties have agreed to suspend payments on the note until
the consummation of an initial public offering of common stock of the Company.
Due from affiliates represents balances owed the Company, predominantly from
Dynamic Life, Inc., a wholly owned subsidiary of the parent. The receivables
have no maturity date and are non-interest bearing.
See Note 7 for discussion of land and building transfer and property leased from
the Company's parent.
See Note 14 for issuance of series A preferred stock in exchange for the
satisfaction of $1,500,000 of obligations due to the Company's parent.
F-22
<PAGE>
GO2PHARMACY.COM, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998, 1999 AND 2000
NOTE 11 - RELATED PARTY TRANSACTIONS - (CONTINUED)
In May 1998, prior to the acquisition of Energy Factors, Inc. by Dynamic Health
Products, Inc., Dynamic loaned $100,000 to Energy Factors, Inc. In September
1999, this note was satisfied in conjunction with the land and building
transfer. See Note 3 regarding the acquisition and Note 7 regarding the land and
building transfer.
In December 1999, the Company established a $500,000 line of credit secured and
guaranteed by the Company's parent. See Note 9.
NON-COMPETE AGREEMENT
As part of the acquisition of Energy Factors, the Company entered into a
non-competition agreement with Chris Starkey (a former stockholder of the parent
of Energy Factors) for a period of three years from June 12, 1998 and covers the
geographic area of Florida.
JOINT VENTURE
The Company entered into a joint venture with a non-affiliated third party as of
March 1, 1999 whereby the Company owns 51% of the joint venture and the
non-affiliated third party owns 49%. The agreement calls for a contribution of
$45,000 of inventory by the Company and a contribution of $15,000 cash by the
non-affiliated third party. The joint venture will split profits 75% to the
Company and 25% to the non-affiliated third party until all loans by the parties
are repaid and then the profits are to be split 50/50. As of March 31, 2000, the
joint venture has had insignificant activity and the Company has advanced
approximately $33,000 to the joint venture.
F-23
<PAGE>
GO2PHARMACY.COM, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998, 1999 AND 2000
NOTE 12 - INCOME TAXES
The Company's taxable income is included in a consolidated income tax return
with its parent. The following is presented as if the Company was reported on a
stand-alone basis. Income taxes for the years ended March 31, 1998, 1999 and
2000 differ from the amounts computed by applying the effective U.S. federal
income tax rate of 34% to income before income taxes as a result of the
following:
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
---------------------------------
1998 1999 2000
-------- -------- -------
<S> <C> <C> <C>
Computed tax expense at the
statutory rate $ 17,000 $(80,000) $(100,000)
Increase (decrease) in taxes resulting from:
State income taxes, net of federal
tax benefit 2,000 (8,000) (9,000)
Effect of permanent differences,
principally non-deductible
goodwill -- 17,000 22,000
Utilization of net operating loss
carryforward (19,000) (12,000) --
Change in valuation allowance -- 83,000 87,000
-------- -------- ---------
Income tax expense $ -- $ -- $ --
======== ======== =========
</TABLE>
Temporary differences that give rise to deferred tax assets and liabilities are
as follows:
MARCH 31,
----------------------------------
1998 1999 2000
--------- --------- -------
Deferred tax assets:
Bad debts $ 11,000 $ 37,000 $ 53,000
Inventories 1,000 1,000 11,000
Accrued vacation -- 3,000 5,000
Deposits -- 31,000 31,000
Net operating loss carryforwards 13,000 315,000 178,000
--------- --------- -------
Gross deferred tax assets 25,000 387,000 278,000
Less: valuation allownace (14,000) (85,000) (56,000)
--------- ------- --------
$ 11,000 $ 302,000 $222,000
========= ========= ========
Deferred tax liabilities:
Fixed asset basis differences $ 11,000 $ 302,000 $222,000
========= ========= ========
F-24
<PAGE>
GO2PHARMACY.COM, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998, 1999 AND 2000
NOTE 12 - INCOME TAXES - (CONTINUED)
At March 31, 2000, the Company has a tax net operating loss carryforward of
approximately $1,100,000, to offset future taxable income. Approximately
$600,000 of the net operating loss carryforward was acquired in conjunction with
the acquisition. The tax net operating loss carryforwards begin to expire in
2007. The use of pre-acquisition losses is subject to limitations imposed by the
Internal Revenue Code. Realization of any portion of the net deferred tax assets
is uncertain. Accordingly, a valuation allowance has been established for the
full amount of the net deferred tax asset. Other consolidated group members may
utilize the net operating losses (other than the acquired losses) of the
Company.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company has operating leases for facilities and certain machinery and
equipment that expire at various dates through 2009. Certain leases provide an
option to extend the lease term. Certain leases provide for payment by the
Company of any increases in property taxes, insurance, and common area
maintenance over a base amount and others provide for payment of all property
taxes and insurance by the Company.
Future minimum lease payments, by year and in aggregate under non-cancelable
operating leases, consist of the following at March 31, 2000:
YEAR ENDING MARCH 31,
2001 $295,575
2002 223,080
2003 223,080
2004 217,900
2005 192,000
Thereafter 688,000
--------
Total minimum lease payments $1,839,635
==========
In conjunction with the transfer of land and building (see note 7), the Company
agreed to lease the building for a ten-year term at approximately $192,000
annually. The lease provides for an annual cost-of-living increase. Management
considers these lease terms to be comparable to those of unrelated third
parties. The future minimum lease payments as of March 31, 2000 have been
adjusted to reflect this commitment.
Total rent expense for the years ended March 31, 1998, 1999 and 2000 was
approximately $93,000, $80,000 and $197,000, respectively.
F-25
<PAGE>
GO2PHARMACY.COM, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998, 1999 AND 2000
NOTE 13 - COMMITMENTS AND CONTINGENCIES - (CONTINUED)
LITIGATION
The Company is, from time to time, involved in litigation relating to claims
arising out of its operations in the ordinary course of business. The Company
believes that none of the claims that were outstanding as of March 31, 2000
should have a material adverse impact on its financial condition or results of
operations.
YEAR 2000 ISSUE
The Year 2000 issue relates to limitations in computer systems and applications
that may prevent proper recognition of the Year 2000. The potential effect of
the Year 2000 issue on the Company will not be fully determinable until later.
To date, the Company has not had any Year 2000 problems, however, if Year 2000
problems arise within the Company, Dynamic, or entities with which the Company
conducts business, the Company's revenues, and financial condition could be
adversely impacted.
UNDERWRITER
As part of the public offering as outlined in Note 15, the Company has entered
into a letter of intent with an underwriter. The letter of intent may be
modified depending on the results of the offering and requirements of the
National Association of Stock Dealers. Pursuant to the letter of intent the
underwriter will receive a fee equal to 10% of the offering proceeds and receive
an expense reimbursement equal to 3% of the offering proceeds. In addition, the
underwriter will receive warrants to purchase additional shares of the Company's
common stock for 120% of the offering price. The number of warrants to be issued
will be based on the number of IPO shares sold. The warrants contain
anti-dilution provisions and restrictions on the issuance of additional
securities. In addition, upon closing of the initial public offering, the
underwriter will receive an advance of $108,000 for consulting services to be
rendered over the following three years. The underwriters also have a right of
first refusal relating to any public issuance of securities during the next two
years.
F-26
<PAGE>
GO2PHARMACY.COM, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998, 1999 AND 2000
NOTE 14 - SHAREHOLDER'S EQUITY
COMMON STOCK
As of March 31, 2000, the number of outstanding Common Stock shares has been
adjusted to 3,000,000 shares at $.01 par value per share, to reflect the stock
split. Subject to preferences that might be applicable to any Preferred Stock,
the holders of the Common Stock are entitled to receive dividends when, as, and
if declared from time to time by the Board of Directors out of funds legally
available therefor. Under the terms of the Company's current credit facility,
the Company is precluded from paying dividends. In the event of liquidation,
dissolution, or winding up of the Company, holders of the Common Stock are
entitled to share ratably in all assets remaining after payment of liabilities
subject to prior distribution rights of any Preferred Stock then outstanding.
The Common Stock has no preemptive or conversion rights and is not subject to
call or assessment by the Company. There are no redemption or sinking fund
provisions applicable to the Common Stock.
PREFERRED STOCK
As part of the agreement to purchase the Delaware corporation Go2Pharmacy.com,
Inc., the Company has agreed to pay the President and majority stockholder of
Go2Delaware, a consulting fee totalling $250,000. The consulting fee is to be
paid from cash flows provided by operations and covers a period of five years
from inception. In addition, it is anticipated that the preferred stock of the
Company will be redeemed together with accrued dividends and interest from the
cash flow provided by operations. The payment of the consulting fee and
preferred stock redemption will be on prorata basis of one to six.
STOCK OPTION PLAN
On September 30, 1999, the Company adopted a Company Stock Option Plan, which
provides for the grant to employees of incentive or non-qualified options to
purchase up to 700,000 shares of Common Stock. The exercise price represents the
estimated fair value of the Company's Common Stock at the time of the grant or
the proposed public offering price, whichever is greater, as approved by the
Board of Directors. All outstanding options vest upon the change in control of
the Company. Options granted under the Plan expire not later than ten years
after the date granted or sooner in the event of death, disability, retirement,
or termination of employment. As of March 31, 2000 no options had been granted.
THE NON-EMPLOYEE PLAN
The Non-Employee Plan provides for the grant of nonqualified stock options to
purchase up to 100,000 shares of Common Stock to members of the Board of
Directors who are not employees of the Company. As of the date of these
financial statements, such members held no options under the Non-Employee Plan.
Upon the completion of the offering, each non-employee director will be granted
options to purchase 4,000 shares of Common Stock for each full remaining year of
the director's term at the offering price. Thereafter, on the date on which a
new non-employee director is first elected or appointed, he will automatically
be granted options to purchase 4,000 shares of Common Stock for each year of his
initial term. Each non-employee director will be granted options to purchase
4,000 shares of Common Stock for each year of any subsequent term to which he is
elected. All options become exercisable ratably over the director's term and
have an exercise price equal to the fair market value of the Common Stock on the
date of grant.
F-27
<PAGE>
GO2PHARMACY.COM, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998, 1999 AND 2000
NOTE 15 - SUBSEQUENT EVENTS
STOCK FOR LEGAL SERVICES
On April 2, 2000, the Company agreed to issue 50,000 shares of its Common Stock
to its legal counsel in lieu of payment of legal fees in conjunction with an
initial public offering. Subsequently, the parties agreed to a renegotiated
number of shares totalling 15,000.
PUBLIC OFFERING
The Company filed a registration statement with the Securities and Exchange
Commission to offer up to 1,150,000 shares of common stock to the public. The
gross proceeds are projected to be approximately $10,000,000 and the proceeds of
the offering are to be generally used to fund expansion of the business,
retirement of debt and working capital.
PENDING PURCHASE OF COMPANY
Simultaneously with the public offering, the Company has an agreement to acquire
the Delaware corporation Go2Pharmacy.com, Inc. (Go2Delaware) for 3,000,000
shares of common stock.
PREFERRED STOCK
GENERAL. The Company is authorized, to issue up to 6,000,000 shares of
preferred stock in one or more series, and to establish the number of shares,
the designations, powers, preferences, rights, qualifications, limitations or
restrictions of any such series without any further vote or action by the
stockholders. The Board of Directors may authorize and issue preferred stock
with voting or conversion rights that could adversely affect the voting power or
other rights of the holders of common stock.
In September 1999, the Company issued 150,000 shares of series A preferred stock
to its parent in satisfaction of $1,500,000 of outstanding liabilities. Holders
of series A preferred stock will vote together with the holders of common stock
with respect to all matters as to which such shareholders vote, with each share
of series A preferred stock entitled to one vote. In the event of liquidation,
dissolution or winding-up of our operations, holders of series A preferred stock
will be paid an amount equal to $10.00 per share of series A preferred stock
before any payment is made with respect to our common stock. The series A
preferred stock pays dividends at the rate of 10% per annum, which is cumulative
from the date of issuance and payable quarterly commencing March 31, 2001. At
such time as we generate a positive cash flow, we are required to use all of
such positive cash flow to redeem the series A preferred stock, but only to the
extent of such positive cash flow. Positive cash flow is defined as our net
income less amortization, depreciation and other non-cash charges.
RELATED PARTY OBLIGATIONS
In June 2000, the Company executed a promissory note payable to Carnegie
Capital, Ltd., an affiliate of the Chairman of the Board of the Company, for a
maximum loan amount of $100,000. The note bears interest at 10% per annum.
Principal and accrued interest are due and payable upon the successful
completion of an initial public offering of common stock of the Company.
Proceeds are used for expenses related to the offering and are in the form of
draws which totalled $20,000 as of June 26, 2000.
In June 2000, the Company executed a promissory note payable to Joseph Zappala,
a majority shareholder of the Delaware corporation Go2Pharmacy.com Inc., for a
maximum loan amount of $100,000. The note bears interest at 10% per annum.
Principal and accrued interest are due and payable upon the successful
completion of an initial public offering of common stock of the Company.
Proceeds are used for expenses related to the offering and are in the form of
draws which totalled $20,000 as of June 26, 2000.
EMPLOYMENT AGREEMENTS
Simultaneously with the public offering, the Company intends to enter into three
year employment agreements with the Chief Executive Officer, President and Chief
Financial Officer at annual salaries of $150,000, $90,000 and $110,000,
respectively.
DIRECTORS' COMPENSATION
Following the completion of the public offering, the Company intends to pay
directors fees of $500 each per meeting and not less than $2,000 per year. In
addition, each non-employee director will receive options to purchase 4,000
shares of common stock for each year remaining of the director's term
exercisable at the public offering price.
BREAKTHROUGH ENGINEERED NUTRITION, INC.
In April 2000, the Company formed a new wholly owned subsidiary to market and
distribute the Company's own branded product, Lean Protein.
F-28
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Go2Pharmacy.com, Inc.
New York, New York
We have audited the accompanying balance sheet of Go2Pharmacy.com, Inc. as of
March 31, 2000, and the related statement of operations, shareholders' equity,
and cash flows for the period from February 18, 2000 (date of inception) to
March 31, 2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Go2Pharmacy.com, Inc. as of
March 31, 2000, and the results of its operations and its cash flows for the
period from February 18, 2000 (date of inception) to March 31, 2000, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is a development stage
enterprise engaged in Internet pharmacy services. As discussed in Note 6 to
the financial statements, the Company's operating loss since inception raises
substantial doubt about its ability to continue as a going concern. Management's
plans concerning these matters are also described in Note 6. The financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.
/s/ BRIMMER, BUREK & KEELAN LLP
-------------------------------
BRIMMER, BUREK & KEELAN LLP
Certified Public Accountants
Tampa, Florida
June 23, 2000
Except as to Note 7
dated June 26, 2000
F-29
<PAGE>
GO2PHARMACY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
MARCH 31, 2000
ASSETS
Current assets:
Cash $ --
--------
Total current assets --
Intangible assets, net 50,200
--------
TOTAL ASSETS $ 50,200
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accrued expenses $ 40,000
--------
Total current liabilities 40,000
--------
TOTAL LIABILITIES 40,000
Commitments and contingencies
Shareholders' equity:
Common stock, $.01 par value; 4,000,000 shares
authorized; 3,000,000 shares issued and outstanding 30,000
Additional paid-in capital 50,000
Accumulated deficit (63,900)
--------
16,100
Less subscription receivable (5,900)
--------
TOTAL SHAREHOLDERS' EQUITY 10,200
--------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 50,200
========
See accompanying notes to financial statements.
F-30
<PAGE>
GO2PHARMACY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
PERIOD FROM FEBRUARY 18, 2000 (DATE OF INCEPTION) TO MARCH 31, 2000
OPERATING EXPENSES:
General and administrative $ 63,900
----------
Total operating expenses 63,900
----------
Loss before income taxes (63,900)
Income taxes --
----------
Net loss $ (63,900)
==========
Net loss available to common
shareholders $ (63,900)
==========
Basic and diluted loss per share $ (.02)
==========
Basic and diluted weighted average number of
common shares outstanding 3,000,000
See accompanying notes to financial statements.
F-31
<PAGE>
GO2PHARMACY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY
PERIOD FROM FEBRUARY 18, 2000 (DATE OF INCEPTION) TO MARCH 31, 2000
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING TOTAL
PAID-IN SUBSCRIPTION DEVELOPMENT SHAREHOLDERS'
SHARES DOLLARS CAPITAL RECEIVABLE STAGE EQUITY
--------- --------- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
INITIAL STOCK
ISSUED FOR SERVICES,
AND RECEIVABLE
FEBRUARY 18, 2000 2,980,000 $ 29,800 $ -- $ (5,900) $ -- $ 23,900
STOCK ISSUED FOR ASSETS OF
NDS ENTERPRISES, INC. 20,000 200 -- -- -- 200
CONTRIBUTION OF CAPITAL
BY MAJORITY STOCKHOLDER -- -- 50,000 -- -- 50,000
NET LOSS FOR THE PERIOD
FROM FEBRUARY 18, 2000 (DATE OF
INCEPTION) TO MARCH 31, 2000 -- -- -- -- (63,900) (63,900)
--------- --------- --------- --------- ---------- ---------
BALANCES AT MARCH 31, 2000 3,000,000 $ 30,000 $ 50,000 $ (5,900) $ (63,900) $ 10,200
========= ========= ========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-32
<PAGE>
GO2PHARMACY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
PERIOD FROM FEBRUARY 18, 2000 (DATE OF INCEPTION) TO MARCH 31, 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(63,900)
Adjustments to reconcile net loss to net
cash from operating activities:
Common stock issued for services 23,900
Changes in operating assets and
liabilities:
Accrued expenses 40,000
--------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES --
--------
NET INCREASE (DECREASE) IN CASH --
CASH AT BEGINNING OF PERIOD --
-------
CASH AT END OF PERIOD $ --
========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ --
========
Cash paid during the period for income taxes $ --
========
Contribution to capital $ 50,000
========
Common stock issued for receivable $ 5,900
========
See accompanying notes to financial statements.
F-33
<PAGE>
GO2PHARMACY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
PERIOD FROM FEBRUARY 18, 2000 (DATE OF INCEPTION) TO MARCH 31, 2000
NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS
Go2Pharmacy.com, Inc. (the "Company"), was formed on February 18, 2000 as a
Delaware corporation, under the name of JZ Holdings, Inc., to provide Internet
pharmacy services. The Company subsequently changed its name to Go2Pharmacy.com,
Inc. as a result of its acquisition of certain assets of NDS Enterprises, Inc.,
("NDS") a Delaware corporation, formerly known as Go2Pharmacy.com, Inc. NDS was
formed on April 12, 1999 and had no operations from inception with the exception
of accrued liabilities. (See Note 4)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As reflected in the financial
statements, the Company is a development stage enterprise, which has yet to
generate revenues to support further operations. In order to fund operations to
date, the Company has relied on funding from the Company's majority stockholder.
The Company's operating losses since inception and the contingency surrounding
the proposed sale of the Company to Go2Pharmacy.com, Inc., a Florida corporation
("Go2Florida"), raise substantial doubt about its ability to continue as a going
concern.
The Company's success is dependent upon its ability to raise additional,
sufficient investment capital to support the fulfillment under various supply
contracts, thereby generating revenues to continue to fund operations.
Management has executed a letter of intent for the Company to be acquired by
Go2Florida. The letter of intent is subject to the closing of an initial public
offering by Go2Florida.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
INTANGIBLE ASSETS
Intangible assets consist primarily of the excess of cost over the net assets
acquired relating to the acquisition (see Note 4). The excess of cost over net
assets acquired (goodwill) is amortized over 5 years, using the straight-line
method. Accumulated amortization was $ -0- at March 31, 2000.
IMPAIRMENT OF ASSETS
In accordance with the provisions of Statement of Financial Accounting Standards
No. 121 (SFAS 121), ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF, the Company's policy is to evaluate whether
there has been a permanent impairment in the value of long-lived assets, certain
identifiable intangibles and goodwill when certain events have taken place that
indicate that the remaining unamortized balance may not be recoverable. When
factors indicate that the intangible assets should be evaluated for possible
impairment, the
F-34
<PAGE>
GO2PHARMACY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
PERIOD FROM FEBRUARY 18, 2000 (DATE OF INCEPTION) TO MARCH 31, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
IMPAIRMENT OF ASSETS (CONTINUED)
Company uses an estimate of related undiscounted cash flows. Factors considered
in the valuation include current operating results, trends and anticipated
undiscounted future cash flows. There have been no impairment losses recorded
for the period from February 18, 2000 (date of inception) through March 31,
2000.
INCOME TAXES
The Company utilizes the guidance provided by Statement of Financial Accounting
Standards No. 109 (SFAS 109), ACCOUNTING FOR INCOME TAXES. Under the liability
method specified by SFAS 109, deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax basis of assets
and liabilities as measured by the enacted tax rates which will be in effect
when these differences reverse. Deferred tax expense is the result of changes in
deferred tax assets and liabilities. The Company is a development stage company
with no operating history and no known sources of revenue. Therefor, no
provision or deferred tax has been provided for.
LOSS PER COMMON SHARE
Loss per share are computed using the basic and diluted calculations on the face
of the statement of operations. Basic loss per share is calculated by dividing
net loss available to common stockholders by the weighted average number of
shares of common stock outstanding for the period. Diluted loss per share is
calculated by dividing net loss by the weighted average number of shares of
common stock outstanding for the period, adjusted for the dilutive effect of
common stock equivalents, using the treasury stock method. There were no
potentially dilutive instruments outstanding for the period presented.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles, requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at March 31, 2000, as well as the reported
amounts of revenues and expenses for the period from February 18, 2000 (date of
inception) through March 31, 2000. The actual outcome of the estimates could
differ from the estimates made in the preparation of the financial statements.
REVENUE RECOGNITION
The Company had no revenues for the period from February 18, 2000 (date of
inception) through March 31, 2000, and has not yet generated revenues.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company, in estimating its fair value disclosures for financial instruments,
uses the following methods and assumptions:
CASH AND ACCRUED EXPENSES: The carrying amounts reported in the balance
sheet for cash and accrued expenses approximate their fair value due to
their relatively short maturity.
F-35
<PAGE>
GO2PHARMACY.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
PERIOD FROM FEBRUARY 18, 2000 (DATE OF INCEPTION) TO MARCH 31, 2000
NOTE 3 - RELATED PARTY TRANSACTIONS
The majority stockholder paid $50,000 of legal fees assumed by the Company in
its acquisition of the assets of NDS Enterprises, Inc. Certain stockholders
of the Company provided consulting services valued at $23,900 in exchange for
2,390,000 shares of common stock of the Company.
NOTE 4 - ACQUISITION
In February 2000, the Company acquired certain assets of NDS in exchange for
20,000 shares of common stock of the Company and the assumption of $50,000 in
liabilities of NDS. The assets of NDS consisted of the web site domain name
"go2pharmacy.com" and certain confidentiality agreements. The acquisition was
recorded as a purchase and the value was determined to be the amount of the
liabilities assumed and the par value of the stock given in the exchange, thus
resulting in goodwill in the amount of $50,200.
NOTE 5 - PENDING SALE OF COMPANY
In February 2000, the Company entered into a letter of intent with Go2Florida
whereby the Company will be sold to Go2Florida in exhange for 3,000,000 shares
of common stock of Go2Florida. The sale is subject to the consummation of an
initial public offering of Go2Florida. As part of the agreement, the majority
stockholder of the Company will contribute $250,000 in cash to the Company, as a
contribution to capital.
NOTE 6 - GOING CONCERN
The Company is a development stage Company and has just recently entered into
various supply contracts, which management believes will provide revenue for the
Company. Its prospects for revenues are primarily dependent on its ability to
obtain financing, additional capital, sufficient knowledgeable personnel and
other resources to carry out the Company's responsibilities under the recently
obtained contracts. Management of the Company believes that its acquisition by
Go2Florida will provide the necessary financing, additional capital, personnel
and other resources which would be necessary to complete the Company business
plans under the contracts. If the acquisition does not take place, the Company
will have to seek other alternatives to satisfy its financial and other
obligations under the contracts, in order to continue in existence.
NOTE 7 - SUBSEQUENT EVENT
On June 26, 2000, the Company signed an agreement to sell the Company to
Go2Florida contingent upon the closing of an initial public offering of
Go2Florida's common stock. The majority stockholder of the Company has agreed to
contribute $250,000 to capital coincident with the closing of the sale. The sale
provides for an exchange of stock whereby the shareholders of the Company will
receive one share of Go2Florida common stock for each share of common stock
owned in the Company. In addition, conditioned upon the sale, Go2Florida has
agreed to pay a consulting fee to the President and major stockholder of the
Company in the amount of $250,000. The consulting agreement is for a term of
five years and is to be paid from the cash flows provided by operations of
Go2Florida.
F-36
<PAGE>
BAUM & COMPANY, P.A.
CERTIFIED PUBLIC ACCOUNTANTS
1515 UNIVERSITY DRIVE - SUITE 209
CORAL SPRINGS, FLORIDA 33071
(954) 752-1712
INDEPENDENT AUDITOR'S REPORT
BOARD OF DIRECTORS
U.S. DIVERSIFIED TECHNOLOGIES, INC., AND SUBSIDIARY LARGO, FLORIDA
We have audited the accompanying Consolidated Balance Sheet of U.S. Diversified
Technologies, Inc. and its wholly owned subsidiary Energy Factors, Inc. as of
December 31, 1997 and the related Consolidated Statements of Income and Retained
Earnings and Cash Flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of U.S. Diversified Technologies,
Inc. and its wholly owned subsidiary Energy Factors, Inc. as of December 31,
1997 and the results of its operations and cash flows for the year then ended in
conformity with generally accepted accounting principles.
/s/ BAUM & COMPANY, P.A.
------------------------
Baum & Company, P.A.
Coral Springs, Florida
June 10, 1998
F-37
<PAGE>
U.S. DIVERSIFIED TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
ASSETS
CURRENT ASSETS
Cash in Bank $ 58,508
Accounts Receivable (Net of allowance
of $25,000 for doubtful account) 224,532
Inventory (Note 1) 671,239
-----------
Total Current Assets 954,279
-----------
PROPERTY, PLANT & EQUIPMENT (Net) (Note 1 and 2) 1,487,075
-----------
OTHER ASSETS
Deposits and Other Assets 17,096
Deferred Tax Asset (Note 1) 200,000
-----------
Total Other Assets 217,096
-----------
Total Assets $ 2,658,450
===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Current portion of long-term debt (Note 3, 4, and 5) $ 284,905
Note payable - related party (Note 8) 61,500
Current portion of capitalized leases payable (Note 6) 110,253
Advances from Customers 259,995
Accounts Payable and Accrued Expenses 765,545
-----------
Total Current Liabilities 1,482,198
-----------
LONG-TERM LIABILITIES
Long-term debt (Note 3, 4, and 5) 900,593
Capitalized Leases Payable (Note 6) 273,906
-----------
Total Long-term Liabilities 1,174,499
-----------
Total Liabilities 2,656,697
-----------
STOCKHOLDER'S EQUITY
Common Stock 40,000,000 shares authorized; $.01 par value;
10,042,400 issued and outstanding 100,424
Retained Earnings (Deficit) (98,671)
-----------
Total Stockholders' Equity 1,753
-----------
Total Liabilities & Stockholders' Equity $ 2,658,450
===========
See Accountant's Report and Accompanying Notes to Financial Statements.
F-38
<PAGE>
U.S. DIVERSIFIED TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
YEAR ENDED DECEMBER 31, 1997
Gross Sales $ 5,753,821
Cost of Goods Sold 4,558,525
-----------
Gross Profit 1,195,296
General & Administrative Expenses 1,530,973
-----------
Net (loss) before other income (expenses) (335,677)
Other Income (Expense)
Interest Expense (230,593)
-----------
Net (loss) before provision for income taxes (566,270)
Provision for Income Taxes
Deferred tax benefit (Note 1) 200,000
-----------
Net (Loss) (366,270)
Retained Earnings - Beginning 267,599
-----------
Retained Earnings (Deficit) - Ending $ (98,671)
===========
See Accountant's Report and Accompanying Notes to Financial Statements.
F-39
<PAGE>
U.S. DIVERSIFIED TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Cash Flows From Operating Activities
Net Income (Loss) $(366,270)
Adjustments to Reconcile Net Income
to net Cash Provided by Operating Activities:
Depreciation and amortization 171,940
Deferred tax asset (200,000)
Changes in Operating Assets & Liabilities:
Decrease in accounts receivable 31,002
Decrease in inventory 268,750
Decrease in deposits and other assets 15,583
(Decrease) in accounts payable and
accrued expenses (409,472)
Increase in advances from customers 259,995
---------
Net Cash Used for Operations (228,472)
---------
Cash Flow from Investing Activities:
Acquisition of fixed assets (5,538)
---------
Cash Flow from Financing Activities:
Proceeds from note payable from related party 62,000
Principal payments on note payable from related party (500)
Proceeds from long-term debt 219,667
Principal payments on long-term debt (58,349)
Principal payments on capitalized leases payable (53,105)
---------
Net cash provided by financing activities 169,713
---------
Net (Decrease) (64,297)
Cash in Bank - Beginning of Year 122,805
---------
Cash in Bank - End of Year $ 58,508
=========
</TABLE>
See Auditor's Report and Accompanying Notes to Financial Statements.
F-40
<PAGE>
U.S. DIVERSIFIED TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies of U.S. Diversified
Technologies, Inc. is presented to assist in understanding the Company's
financial statements. The financial statements and notes are representations of
the Company's management which is responsible for their integrity and
objectivity. The accounting policies conform to generally accepted accounting
principles and have been consistently applied in the preparation of the
financial statements.
BUSINESS AND ORGANIZATION
The Company, incorporated in the state of Florida on September 27, 1989, is a
holding company. It's wholly-owned subsidiary consist of Energy Factors, Inc.
Energy Factors, Inc. manufactures food grade supplements and health/diet
products.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of U.S. Diversified
Technologies, Inc. and its wholly-owned subsidiary, Energy Factors, Inc.
Significant intercompany balances and transactions have been eliminated in
consolidation.
MANAGEMENT ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
December 31, 1997 and revenues and expenses for the year ended. The actual
outcome of the estimates could differ from the estimates made in the preparation
of the consolidated financial statements.
INVENTORY
Inventory is valued at the lower of cost (first-in, first-out method) or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Provision for depreciation is
computed using the straight line method over the estimated useful lives.
Maintenance and repairs are charged to operations. Additions and betterments
which extend the useful lives of property, plant and equipment are capitalized.
Upon retirement or disposal of the operating property and equipment, the cost
and accumulated depreciation are eliminated from the accounts and the resulting
gain or loss is reflected in operations.
F-41
<PAGE>
U.S. DIVERSIFIED TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenue is recognized for the health products manufacturing operations when the
production process is complete and the merchandise is shipped to the customer.
Revenue is recognized for the mail-order operations when the merchandise is
shipped to the customer.
INCOME TAXES
The Company has incurred a net operating loss in the current year thus no
provision has been provided for income taxes. This net operating loss may be
carried back for three years or carried forward for up to 15 years against net
income.
In accordance with FASB No. 109, the Company has reflected a deferred tax
benefit of $200,000 for its net operation losses.
NOTE 2 - PROPERTY AND EQUIPMENT
As of December 31, 1997, property and equipment consists of the following:
Land $ 100,000
Building and Improvements 1,064,507
Factory Equipment 990,035
Office Furniture and Equipment 82,442
Transportation Vehicle 34,901
-----------
2,271,885
Less: Accumulated Depreciation
And Amortization (784,810)
-----------
$ 1,487,075
NOTE 3 - MORTGAGE PAYABLE
On October 22, 1992, the Company acquired an office and manufacturing facility
for $800,000. The Company executed a purchase money mortgage for $800,000,
payable interest only for seven months, and the remaining payments, for ten
years, with interest based on the bank's prime rate plus 4%, but never less than
10% or greater than 15%. There is a balloon payment due and payable at the end
of the ten year period.
On June 23, 1993, the Company obtained an additional mortgage of $235,000 to
fund the costs of a building addition.
F-42
<PAGE>
U.S. DIVERSIFIED TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 4 - NOTE PAYABLE - BANK
Installment obligation to finance vehicle.
NOTE 5 - NOTE PAYABLE - FACTOR
The Company has entered into an agreement with a factoring company to finance
its accounts receivable.
NOTE 6 - CAPITALIZED LEASE PAYABLE
The Company has entered into various leasing arrangements to acquire fixed
assets. Its been determined that these leases are capital leases, thus the
underlying assets have been reflected on these financial statements.
NOTE 7 - CAPITAL TRANSACTIONS
A.) In 1996, the Company officially retired all Company treasury stock acquired
since inception. Effectively, $265,000 of treasury stock has been used to reduce
additional paid-in capital and any excess to reduction of retained earnings.
B.) On October 30, 1996, the Board of Directors approved a resolution whereby,
in consideration for the personal guarantees by certain shareholders of
approximately $1,250,000 of debt obligations of the Company, the three
stockholders would receive 1,500,000 of common stock each.
NOTE 8 - RELATED PARTIES
The Company has employment contracts with its (2) operational officers who are
also shareholders. Compensation to these shareholders was approximately
$300,000.
As of December 31, 1997, the Company has an outstanding balance of $61,500 on a
demand promissory note.
NOTE 9 - SUBSEQUENT EVENT
On June 12, 1998, the Company's wholly-owned subsidiary Energy Factors, Inc. was
acquired by Nu-Wave Health Products, Inc.
NOTE 10 - SUPPLEMENTAL CASH FLOW INFORMATION
Interest Paid $230,593
Deferred tax benefit 200,000
F-43
<PAGE>
U.S. DIVERSIFIED TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 11 - CONTINGENCIES
The Company is a defendant in various lawsuits in various stages of settlement.
The outcome of the matters have been accrued. The nature of these lawsuits are
as follows:
(A) Dispute with landlord over condition of leased premises. The litigation was
settled and paid in the amount of $30,000. There was $40,000 accrued in
anticipation of the settlement.
(B) Dispute over non-payment for faulty product supplied by a vendor. The
litigation was settled and paid in the amounts of $15,000. There was $12,500
accrued in anticipation of the settlement.
(C) Dispute over non-payment for product billed by a vendor. The litigation was
settled and paid in the amount of $35,000. There was $32,000 accrued in
anticipation of the settlement.
(D) Pending litigation involving alleged sexual harassment by two of the
companies employees. The case is in the discovery stage and there are no amounts
accrued in anticipation of the settlement. The company believes there will be a
favorable ruling.
(E) Dispute over defective product supplied by the company to one of the
company's customers. The case is in the discovery stage and there are no amounts
accrued in anticipation of the settlement. The company believes there will be a
favorable ruling.
(F) Dispute over non-payment on a promissory note to one of the company's
vendors. The litigation was settled and paid in the amount of $10,000. There was
$10,000 accrued in anticipation of the settlement.
F-44
<PAGE>
1,000,000 SHARES
COMMON STOCK
GO 2 PHARMACY.COM, INC.
PROSPECTUS
KASHNER DAVIDSON SECURITIES CORPORATION
THE DATE OF THIS PROSPECTUS IS
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Florida Business Corporation Act (the "Florida Act") permits a Florida
corporation to indemnify a present or former director or officer of the
corporation (and certain other persons serving at the request of the corporation
in related capacities) for liabilities, including legal expenses, arising by
reason of service in such capacity if such person shall have acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and in any criminal proceeding if such person had
no reasonable cause to believe his conduct was unlawful. However, in the case of
actions brought by or in the right of the corporation, no indemnification may be
made with respect to any matter as to which such director or officer shall have
been adjudged liable, except in certain limited circumstances. The Company's
articles of incorporation provide that the Company shall indemnify directors and
executive officers to the fullest extent now or hereafter permitted by the
Florida Act. In addition, the Company has entered into Indemnification
Agreements with its directors and executive officers in which the Company has
agreed to indemnify such persons to the fullest extent now or hereafter
permitted by the Florida Act, including in circumstances in which
indemnification and advancement of expenses are discretionary under the Florida
Act. The indemnification provided by the Florida Act and the Company's Articles
of Incorporation is not exclusive of any other rights to which a director or
officer may be entitled. The general effect of the foregoing provisions may be
to reduce the circumstances which an officer or director may be required to bear
the economic burden of the foregoing liabilities and expense. The Company
intends to obtain a liability insurance policy for its directors and officers as
permitted by the Florida Act, which may extend to, among other things, liability
arising under the Securities Act of 1933, as amended.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration Statement
provides for the underwriters' indemnification of the company and its directors
and officers for certain liabilities arising under the Securities Act or
otherwise.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses in connection with the
issuance and distribution of the securities offered hereby.
SEC registration fee....................................... $3,511.00
NASD registration.......................................... 1390.00
Nasdaq SmallCap Market listing fee......................... 15,000.00
Boston Stock Exchange listing fee.......................... 7,500.00
Printing and engraving..................................... 55,000.00
Accountants' fees and expenses............................. 60,000.00
Legal fees................................................. 100,000.00
Transfer agent's and warrant agent's fees and expenses 5,000.00
Blue Sky fees and expenses................................. 50,000.00
Underwriter's non-accountable expense allowance............ 300,000.00
Underwriter's consulting agreement......................... 108,000.00
Miscellaneous.............................................. 39,599.00
------------
Total................................................ $745,000.00
===========
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The Company has not issued or sold any of its securities other than the
3,000,000 shares issued to its parent company, Dynamic Health Products, Inc. and
15,000 shares issued to Sichenzia, Ross & Friedman LLP in April 2000. No
underwriters were involved in the transaction and there were no underwriting
discounts or commissions paid in connection therewith. Each of these
transactions were exempt from the registration requirements of the Securities
Act of 1933, as amended, pursuant to section 4(2).
II-1
<PAGE>
ITEM 27. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
1.1 Form of Underwriting Agreement *
3.1 Articles of Incorporation of the Company **
3.2 Bylaws of the Company **
3.3 Articles of Amendment to Articles of Incorporation
4.1 Specimen Stock Certificate of the Company *
4.2 Form of Underwriters' Warrant *
4.3 Form of Consulting Agreement with Underwriter*
5.1 Opinion of Sichenzia, Ross & Friedman, LLP *
10.1 Form of Indemnification Agreement with officers and directors *
10.2 Form of 1999 Stock Option Plan
10.3 Form of 1999 Non-Employee Stock Option Plan
10.4 Form of Employment Agreement with Kotha S. Sekharam, Ph.D.
10.5 Form of Employment Agreement with Mihir K. Taneja
10.6 Form of Employment Agreement with Carol Dore-Falcone
10.7 Lease of Company's Facility at 6950 Bryan Dairy Road, Largo, Florida
33777 *
10.8 Acquisition Agreement between Go 2 Pharmacy.com, Inc. (Florida) and
Go 2 Pharmacy.com, Inc. (Delaware)
10.9 Agreement between Go2pharmacy.com, Inc. (Delaware) and CarePlus, LLC,
dated as of March 23, 2000.
10.10 Agreement between Go2pharmacy.com, Inc. (Delaware) and The Greater New
York Health Care Facilities Association, dated as of June 23, 2000.
21.1 List of Subsidiaries
23.1 Consent of Brimmer, Burek & Keelan LLP
23.2 Consent of Kirkland, Russ, Murphy & Tapp
23.3 Consent of Baum & Company, P.A.
23.4 Consent of Sichenzia, Ross & Friedman, LLP (included in Exhibit 5.1) *
27.1 Financial Data Schedule
* To be filed by amendment.
** Previously filed.
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file a post-effective amendment to this Registration Statement during any
period in which offers or sales are being made:
(i) to include any Prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the Prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually, or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) ((S)230.424(b) of this Chapter) if, in the
aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective Registration
Statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement of any
material change to such information in the Registration Statement.
(2) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of this
offering.
II-2
<PAGE>
(3) To provide to the Underwriters at the closing specified in the underwriting
agreement certificates in such denominations and registered in such names as
required by the Underwriter to permit prompt delivery to each purchaser.
(4) That, for the purpose of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new Registration
Statement relating to the securities offered therein, and this offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(5) That, insofar as indemnification for liabilities arising from the Securities
Act may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(6) That, for purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or Rule
497(h) under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Act, the Company certifies that it has
reasonable grounds to believe that it meets all of the requirement for filing on
Form SB-2 and has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the State of Florida on
June 28, 2000.
GO 2 PHARMACY.COM, INC.
By: /s/ MIHIR K. TANEJA, CHIEF EXECUTIVE OFFICER
--------------------------------------------
Mihir K. Taneja, Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Jugal K.
Taneja and Mihir K. Taneja, or either of them, his true and lawful
attorney-in-fact and agent, acting alone, with full powers of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, any Amendments thereto and any Registration
Statement of the same offering which is effective upon filing pursuant to Rule
462(b) under the Securities Act, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Commission,
granting unto said attorney-in-fact and agent, each acting alone, full powers
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intends and
purposes as he might or could do in person, hereby ratifying and confirming all
said attorney-in-fact and agent, acting alone, or his substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons on behalf of the
Company in the capacities and on the dates indicated.
<TABLE>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ JUGAL K. TANEJA Chairman of the Board and Director June 28, 2000
-------------------
Jugal K. Taneja
/s/ MIHIR K. TANEJA Chief Executive Officer, Secretary June 28, 2000
------------------- and Director
Mihir K. Taneja
/s/ KOTHA S. SEKHARAM President and Director June 28, 2000
---------------------
Kotha S. Sekharam
/s/ CAROL DORE-FALCONE Vice President and Chief Financial Officer June 28, 2000
---------------------- (principal financial and accounting officer),
Carol Dore-Falcone
</TABLE>
II-4
<PAGE>
EXHIBITS INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.3 Articles of Amendment to Articles of Incorporation
10.2 Form of 1999 Stock Option Plan
10.3 Form of 1999 Non-Employee Stock Option Plan
10.4 Form of Employment Agreement with Kotha S. Sekharam, Ph.D.
10.5 Form of Employment Agreement with Mihir K. Taneja
10.6 Form of Employment Agreement with Carol Dore-Falcone
10.8 Acquisition Agreement between Go 2 Pharmacy.com, Inc. (Florida) and
Go 2 Pharmacy.com, Inc. (Delaware)
10.9 Agreement between Go2pharmacy.com, Inc. (Delaware) and CarePlus, LLC,
dated as of March 23, 2000.
10.10 Agreement between Go2pharmacy.com, Inc. (Delaware) and The Greater New
York Health Care Facilities Association, dated as of June 23, 2000.
21.1 List of Subsidiaries
23.1 Consent of Brimmer, Burek & Keelan LLP
23.2 Consent of Kirkland, Russ, Murphy & Tapp
23.3 Consent of Baum & Company, P.A.
27.1 Financial Data Schedule
