AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 12, 2000
REGISTRATION NO. 333-92849
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
AMENDMENT #1 TO FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------------
GO 2 PHARMACY.COM, INC.
(FORMERLY INNOVATIVE HEALTH PRODUCTS, INC.)
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C> <C>
FLORIDA 5961 592 600 232
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
</TABLE>
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6950 BRYAN DAIRY ROAD
LARGO, FL 33777
(727) 544-8866
(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
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
------------------------------------------
COPIES TO:
GREGORY SICHENZIA, ESQ.
SICHENZIA, ROSS & FRIEDMAN, LLP
135 WEST 50TH STREET, 20TH FLOOR
NEW YORK, NEW YORK 10020
(212) 664-1200
------------------------------------------
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. [ ]
--------------------------
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CALCULATION OF REGISTRATION FEE
==================================== ================ ======================= ======================== ================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
TITLE OF EACH CLASS OF SECURITIES REGISTERED PER SECURITY(1) PRICE(1) FEE
TO BE REGISTERED
- ------------------------------------ ---------------- ----------------------- ------------------------ ----------------
<S> <C> <C> <C>
Common Stock, $.01 par value(2) 1,150,000 $ 10.00 $ 11,500,000 $3,036
- ------------------------------------ ---------------- ----------------------- ------------------------ ----------------
Underwriter's Warrants(3) 150,000 $ 0.01 $ 100 (4)
- ------------------------------------ ---------------- ----------------------- ------------------------ ----------------
Common Stock, $.01 par value(5) 150,000 $ 12.00 $ 1,800,000 $475
- ------------------------------------ ---------------- ----------------------- ------------------------ ----------------
TOTAL $ 13,300,100 $3,511
==================================== ================ ======================= ======================== ================
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(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>
SUBJECT TO COMPLETION DATED MAY 12, 2000
GO 2 PHARMACY.COM, INC.
1,000,000 SHARES OF COMMON STOCK
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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.
</TABLE>
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.
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- ------------------------------------------------------ -------------------------- -------------------------
THE OFFERING PER SHARE TOTAL
- ------------------------------------------------------ -------------------------- -------------------------
<S> <C> <C>
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
- ------------------------------------------------------ -------------------------- -------------------------
</TABLE>
KASHNER DAVIDSON SECURITIES CORPORATION
<PAGE>
PROSPECTUS SUMMARY
GO 2 PHARMACY.COM, INC.
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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 25 nursing homes representing approximately 6000 beds.
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 brand
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.
</TABLE>
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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 We conduct manufacturing operations from our 33,222 square foot production,
Operations......................... 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.
</TABLE>
2
<PAGE>
THE OFFERING
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Shares Outstanding.................. We have 6,050,000 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 7,050,000 shares of common stock and 150,000 shares of
Class 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.
</TABLE>
3
<PAGE>
SUMMARY SELECTED FINANCIAL DATA AND PRO FORMA 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.
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Year Ended Nine Months Ended
March 31, December 31,
---------------------------- ----------------------------
1998 1999 1998 1999
------------- ------------- ------------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues ................................... $ 1,906,935 $ 4,845,876 $ 3,429,753 $ 4,506,961
Cost of goods sold ......................... 1,388,816 3,419,046 2,599,535 2,972,424
------------- ------------- ------------- -------------
Gross profit ............................... 518,119 1,426,830 830,218 1,534,537
Selling, general and administrative
expenses............................... 468,578 1,504,514 1,144,640 1,468,410
------------- ------------- ------------- -------------
Income (loss) from operations .............. 49,541 (77,684) (314,422) 66,127
Other income (expenses), net ............... 434 (158,721) (88,467) (140,936)
------------- ------------- ------------- -------------
Income (loss) before income taxes .......... 49,975 (236,405) (402,889) (74,809)
Income taxes ............................... -- -- -- --
------------- ------------- ------------- -------------
Net income (loss) .......................... $ 49,975 $ (236,405) $ (402,889) $ (74,809)
============= ============= ============= =============
Basic and diluted income (loss)
per share.............................. $ .02 $ (.08) $ (.13) $ (.02)
============= ============= ============= =============
Basic and diluted weighted average
number of common shares
outstanding ........................... 3,000,000 3,000,000 3,000,000 3,000,000
============= ============= ============= =============
</TABLE>
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<CAPTION>
As of
December 31, 1999
------------------------------
As of
March 31, 1999 Actual As Adjusted
-------------- ------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
BALANCE SHEETS DATA:
Cash and cash equivalents .............................. $ 16,206 $ 84,761 $ 8,589,761
============ ============ =============
Working capital (deficit) .............................. $ (2,347,718) $ (316,093) $ 8,078,787
============ ============ =============
Total assets ........................................... $ 5,585,046 $ 5,025,662 $ 43,280,662
============ ============ =============
Long-term obligations, less current portion............. $ 1,292,849 $ 605,229 $ 605,229
============ ============ =============
Shareholders' equity (deficit).......................... $ (302,256) $ 1,122,935 $ 39,377,935
============ ============ =============
</TABLE>
The numbers in the column captioned "As Adjusted" under the heading "As
of December 31, 1999" 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 45 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 6,050,000 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 98.4% of the outstanding shares of our common stock. Following
this offering, they will beneficially own approximately 72.7% of our outstanding
shares, or approximately 71.2% 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 $8.75
per share, or approximately 87.5%.
8
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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 $1,350,000 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:
<TABLE>
Amount Percentage
----------- ----------
<S> <C> <C>
Business expansion..................................... $ 2,300,000 27.9%
Web site development, maintenance and upgrades......... 1,000,000 12.1%
Debt retirement........................................ 2,030,000 24.6%
Marketing.............................................. 500,000 6.0%
Computer hardware and software......................... 190,000 2.3%
Working capital and general corporate purposes......... 2,235,000 27.1%
------------ ----------
Total.............................................. $ 8,255,000 100.0%
============ ==========
</TABLE>
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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 $900,000,
including fees and accrued and unpaid interest;
o the obligation under our existing credit facility with First
Community Bank of America of approximately $486,000,
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 $365,000,
including fees and accrued and unpaid interest;
o our obligation to First Community Bank of America of
approximately $85,000, including fees and accrued and unpaid
interest;
o our capital lease obligations to JDR Capital Corporation of
approximately $168,000, including fees and accrued and unpaid
interest; and
o our capital lease obligation to Commerce Security Bank of
approximately $26,000, 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 December 31, 1999, our net tangible book value was $263,755 or
$.09 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 December 31, 1999 would have been
approximately $8,768,755 or $1.25 per share, without taking into account any
change in our net tangible book value after December 31, 1999 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 $1.16 per
share to existing shareholders and an immediate dilution of $8.75 per share to
new investors. The following table illustrates this per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Assumed public offering price per share.......................... $10.00
Net tangible book value per share as of December 31,1999....... $ .09
Increase per share attributable to this offering............... 1.16
-----
Pro forma net tangible book value per share after this offering.. 1.25
------
Dilution to new investors........................................ $ 8.75 (87.5%)
====== =====
</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 December 31, 1999.
<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 December 31, 1999 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>
DECEMBER 31, 1999
---------------------------------
ACTUAL AS ADJUSTED
------------- --------------
<S> <C> <C>
Long-term obligations, less current portion ........................... $ 605,229 $ 52,864
Shareholders' equity:
Preferred stock, no par value, 6,000,000 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 ................................................ (407,065) (407,065)
------------- -------------
Net shareholders' equity ........................................... 1,122,935 39,377,935
------------- -------------
Total capitalization................................................... $ 1,728,164 $ 39,430,799
============= =============
</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 150,000 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.
12
<PAGE>
SELECTED FINANCIAL DATA
The selected statement of operations data for the year ended March 31,
1999, and the following selected balance sheet data as of March 31, 1999 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 nine month periods ended December 31, 1998 and 1999, and
the following selected balance sheet data as of December 31, 1999, are derived
from our unaudited financial statements that, 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. The selected interim
financial data presented below do not necessarily indicate our operating results
or our performance for the full year.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
MARCH 31, DECEMBER 31,
--------- ------------
1998 1999 1998 1999
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues .............................................. $ 1,906,935 $ 4,845,876 $ 3,429,753 $ 4,506,921
Cost of goods sold .................................... 1,388,816 3,419,046 2,599,535 2,972,424
------------ ------------ ------------ -----------
Gross profit .......................................... 518,119 1,426,830 830,218 1,534,537
Selling, general and administrative expenses .......... 468,578 1,504,514 1,144,640 1,468,410
------------ ------------ ------------ ------------
Income (loss) from operations ......................... 49,541 (77,684) (314,422) 66,127
Other income (expenses), net .......................... 434 (158,721) (88,467) (140,936)
------------ ------------ ------------ ------------
Income (loss) before income taxes ..................... 49,975 (236,405) (402,889) (74,809)
Income taxes .......................................... -- -- -- --
------------ ------------ ------------ ------------
Net income (loss) ..................................... $ 49,975 $ (236,405) $ (402,889) $ (74,809)
=========== =========== =========== ===========
Basic and diluted income (loss) per share ............. $ 0.02 $ (0.08) $ (0.13) $ (0.02)
=========== =========== =========== ===========
Basic and diluted weighted average number of
common shares outstanding ........................... 3,000,000 3,000,000 3,000,000 3,000,000
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, AS OF DECEMBER 31,
--------------- ------------------
1998 1999 1999
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEETS DATA:
Cash and cash equivalents .......................... $ 239,604 $ 16,206 $ 84,761
=========== =========== ===========
Working capital (deficit) .......................... $ (17,048) $(2,347,718) $ (426,213)
=========== =========== ===========
Total assets ....................................... $ 873,998 $ 5,585,046 $ 5,025,662
=========== =========== ===========
Long-term obligations, less current portion ........ $ 258,974 $ 1,292,849 $ 605,229
=========== =========== ===========
Shareholder's equity (deficit) ..................... $ (65,851) $ (302,256) $ 1,122,935
=========== =========== ===========
</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. Revenues have increased from $1.9 million for the fiscal year ended
March 31, 1998 to $4.8 million for the fiscal year ended March 31, 1999,
primarily due to the acquisition of Energy Factors in June 1998, increased
marketing efforts and the introduction of new products in the private label
markets.
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. As such, we do not anticipate any liability for income taxes for the
fiscal year ended March 31, 2000.
RESULTS OF OPERATIONS
The following table sets forth selected statements of operations data
as a percentage of revenues for the periods indicated.
<TABLE>
<CAPTION>
Pro Forma
Year Ended Year Ended Nine Months Ended
March 31, March 31, December 31,
-------------- ---------- ----------------------
1998 1999 1999 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(Unaudited) (Unaudited)
Revenues ........................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold .............................. 72.8 70.6 72.3 75.8 66.0
----- ----- ----- ----- -----
Gross profit .................................... 27.2 29.4 27.7 24.2 34.0
Selling, general and administrative expenses..... 24.6 31.0 69.3 33.4 32.6
Other expense, net .............................. -- 3.3 3.2 2.6 3.1
----- ----- ----- ----- -----
Income (loss) before income taxes ............... 2.6 (4.9) (44.8) (11.8) (1.7)
Income taxes .................................... -- -- -- -- --
----- ----- ----- ----- -----
Net income (loss) ............................... 2.6% (4.9)% (44.8)% (11.8)% (1.7)%
====== ====== ====== ====== ======
</TABLE>
14
<PAGE>
FISCAL YEAR ENDED MARCH 31, 1999 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1998
REVENUES. Revenues increased $2.9 million, or 154.1%, to $4.8 million
in 1999 as compared to $1.9 million in 1998. 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, and
increased sales associated with the June 1998 acquisition of Energy Factors.
GROSS PROFIT. Gross profit increased $909,000, or 175.4%, to $1.4
million in 1999 as compared to $518,000 in 1998. Gross margin increased from
27.2% in 1998 to 29.4% in 1999. The increase was primarily attributable to a
change in the mix of sales, which yields a higher gross margin.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses consist primarily of advertising and promotional
expenses; personnel costs related to general management functions, finance,
accounting and information systems, payroll expenses and sales commissions;
professional fees related to legal, audit and tax matters; and depreciation and
amortization expense. Selling, general and administrative expenses increased
$1.0 million, or 221.1%, to $1.5 million in 1999 as compared to $469,000 in
1998. The increase was primarily due to additional advertising, promotional and
payroll expenses to support increased net sales and our growth, as well as
additional amortization of goodwill and depreciation of fixed assets associated
with the June 1998 acquisition of Energy Factors. As a percentage of sales,
selling, general and administrative expenses increased to 31.0% in 1999 from
24.6% in 1998.
INTEREST INCOME (EXPENSE), NET. Interest expense, net of interest
income, increased $247,000 to $252,000 in 1999, from $5,000 in 1998. The
increase in interest expense in 1999 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 1998 due to the
utilization of net operating losses not previously recognized and we have no
income tax provision for 1999 due to net operating losses. These net operating
losses may be carried forward for up to 20 years. As such, we do not anticipate
any liability for income taxes for the fiscal year ended March 31, 2000.
We believe that there was no material effect on our operations or on
our financial condition as a result of inflation in 1999 and 1998. 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.
NINE MONTHS ENDED DECEMBER 31, 1999 COMPARED TO NINE MONTHS ENDED
DECEMBER 31, 1998
REVENUES. Revenues increased $1.1 million, or 31.4%, to $4.5 million
for the nine months ended December 31, 1999, as compared to $3.4 million for the
nine months ended December 31, 1998. 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 and increased sales
associated with the June 1998 acquisition of Energy Factors.
GROSS PROFIT. Gross profit increased $704,000, or 84.8%, to $1.5
million for the nine months ended December 31, 1999, as compared to $830,000 in
the corresponding period. Gross margin increased from 24.2% for the nine months
ended December 31, 1998 to 34.0% for the nine months ended December 31, 1999.
The increase was primarily attributable to a change in the mix of sales, which
yields a higher gross margin.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $324,000, or 28.3%, to $1.5 million for the
nine months ended December 31, 1999, as compared to $1.1 million in the
corresponding period. The increase was primarily due to additional advertising,
promotional and payroll expenses to support increased net sales and our growth.
As a percentage of sales, selling, general and administrative expenses decreased
to 32.6% for the nine months ended December 31, 1999, from 33.4% in the
15
<PAGE>
corresponding period.
INTEREST INCOME (EXPENSE), NET. Interest expense, net of interest
income, increased $72,000 to $252,000 for the nine months ended December 31,
1999, from $180,000 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 1998 due to the
utilization of net operating losses not previously recognized and we have no
income tax provision for 1999 due to net operating losses. These net operating
losses may be carried forward for up to 20 years. As such, we do not anticipate
any liability for income taxes for the fiscal year ended March 31, 2000.
We believe that there was no material effect on our operations or on
our financial condition as a result of inflation in 1999 and 1998. 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 $2.3 million at March 31, 1999, 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 $17,000 at March 31, 1998.
Net cash used in operating activities was $1.3 million for fiscal 1999,
as compared to net cash provided by operating activities of $26,000 for fiscal
1998. The usage of cash is primarily attributable to an increase in accounts
receivable $553,000, as a result of increased sales by us during such period,
and an increase in inventory $485,000, an increase in other assets $149,000, a
decrease in prepaid expenses and other current assets $60,000, a decrease in
accounts payable $31,000, and a decrease in accrued expenses $56,000.
Net cash used in investing activities was $76,000, representing the
purchase of property and equipment, and plant modifications $175,000, partially
offset by proceeds from an involuntary conversion of land $99,000.
Net cash provided by financing activities was $1.2 million representing
net borrowings on lines of credit $949,000, proceeds of long-term obligations
$620,000, net borrowings from our parent company and affiliates $420,000,
partially offset by repayments of long-term obligations $832,000.
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. U.S. Diversified Technologies, Inc. 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 December 31, 1999, the outstanding principal balance on
the line of credit was approximately $1,121,000.
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 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 December 31, 1999, the
outstanding principal balance on this note was approximately $484,000.
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 conducts 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 brand products include "Arth-Aid" roll-on and cream for
arthritis, "Nutrisure" meal replacement powder, and "Physician's
Pharmaceuticals" dietary supplement product line. 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 25 nursing homes,
representing approximately 6000 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 $29.9
billion by The Nutrition Business Journal. We believe that United States
population dynamics dictate that this trend will continue.
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<TABLE>
TOTAL 1998 U.S. SALES OF PRESCRIPTION DRUGS,
OVER-THE-COUNTER DRUGS AND HEALTH AND BEAUTY AIDS(1)
($ IN BILLIONS)
% OF
SEGMENT 1998 TOTAL
---- -----
<S> <C> <C>
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
===== =====
</TABLE>
- ------------
(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 25
nursing homes, representing approximately 6000 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 anufacturing 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. We have already entered into a letter of intent with
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. We have entered into a letter of intent to
provide pharmacy benefit management services to Care Plus
Health Plan, a Medicaid health maintenance organization
located in New York. 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-
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maintenance prescription needs.
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 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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<PAGE>
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 nine month period ended December 31, 1999. 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 nine months ended
December 31, 1999, we had sales of more than 5% of total revenues to four of our
private label customers, one of which accounted for approximately 16% of total
revenues and three accounting for approximately 5% to 7% 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
24
<PAGE>
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.
We can currently 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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<PAGE>
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 December 31, 1999, we had approximately $872,000 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
26
<PAGE>
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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<PAGE>
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 December 31, 1999, 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.
30
<PAGE>
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.
31
<PAGE>
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
32
<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 from1971 to1989. 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. From1990 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.
33
<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 annually salaries of $150,000, $90,000 and $110,000 respectively.
In each case, the employees will be permitted to participate in our
benefits and employee benefit plans that may be in effect from time to time, to
the extent eligible, and each employee is entitled to receive an annual bonus as
determined in the sole discretion of our Board of Directors based on the Board's
evaluation of the employee's performance and our financial performance.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding
compensation earned by Mihir K. Taneja and Kotha S. Sekharam (the "Named
Executive Officers"), during the fiscal years ended March 31, 1999, 1998 and
1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
FISCAL YEAR ---------------------------------
NAME AND PRINCIPAL POSITION(1) ENDED MARCH 31, SALARY ($)(2) BONUS ($)(3)
------------------------------ --------------- ------------- ------------
<S> <C> <C> <C>
Mihir K. Taneja, Chief Executive Officer 1999 40,000 --
1998 32,615 1,624
- --------------------------------------------------- --------------- ------------- ------------
Kotha S. Sekharam, Ph.D., President 1999 75,000 --
1998 75,000 5,414
1997 52,500 --
- --------------------------------------------------- --------------- ------------- ------------
</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.
34
<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
35
<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.
36
<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 DrugMaxNutriceuticals.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 Trust (Mr. Zappala is not a beneficiary of the Trust 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.
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. 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 preferred stock.
37
<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 April 18, 2000 there were
3,050,000 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) 12.7 386,840 (3) 5.5
Kotha S. Sekharam 120,877 (3) 4.0 120,877 (3) 1.7
Jugal K. Taneja 1,226,313 (3) 40.2 1,226,313 (3) 17.4
Joseph Zappala -- -- 2,060,000 29.2
The Zappala Family Trust -- -- 500,000 7.1
Bart Lawson -- -- 250,000 3.6
Dr. David Dalton -- -- -- --
George L. Stuart, Jr. -- -- -- --
Dynamic Health Products, 3,000,000 (3) 98.4 3,000,000 42.6
Inc.
William L. LaGamba 454,797 (3) 14.9 454,797 (3) 6.5
Michele LaGamba 454,797 (3) 14.9 454,797 (3) 6.5
David Spencer Gange -- -- 390,000 5.5
Manju Taneja 452,552 (3) 14.8 452,552 (3) 6.4
Mandeep K. Taneja 386,840 (3) 12.7 386,840 (3) 5.5
Carnegie Capital, Ltd. 700,572 (3) 23.0 700,572 (3) 9.9
All executive officers and
directors as a group
(7 persons) 1,734,030 (3) 56.9 4,044,030 (3) 57.4
</TABLE>
- --------------------
(1) Except as otherwise indicated, the address of each beneficial owner is c/oGo
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 Trust and 185,000 shares
beneficially owned by his wife, Isabel Zappala. Mr. Zappala is trustee and
holds sole voting and investment power over the shares beneficially owned
by The Zappala Family Trust. 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.
39
<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 3,050,000 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 December 31, 1999, our Board of Directors has authorized for issuance
150,000 shares of preferred stock. Holders of 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 preferred stock entitled to one vote. In
the event of liquidation, dissolution or winding-up of our operations, holders
of preferred stock will be paid an amount equal to $10.00 per share of preferred
stock before any payment is made with respect to our common stock. We may not
redeem the shares of our preferred stock in whole or in part.
40
<PAGE>
OUTSTANDING WARRANTS AND OPTIONS
As of December 31, 1999, 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.
41
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
SHARES OUTSTANDING AND FREELY TRADABLE AFTER OFFERING. Upon completion
of this offering, we will have approximately 7,050,000 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 6,050,000 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
70,500 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.
42
<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.
<TABLE>
UNDERWRITERS NUMBER OF SHARES
- ------------------------------------------------------ --------------------
<S> <C>
Kashner Davidson Securities Corporation............... 1,000,000
- ------------------------------------------------------ --------------------
Total................................................. 1,000,000
====================
</TABLE>
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 150,000 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
43
<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 $25,000.
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.
44
<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 50,000 shares of common stock in
connection with their representation of Go 2 pharmacy.com, Inc.
EXPERTS
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 were not
qualified or modified as to uncertainty, audit scope or accounting principles.
The reports of Kirkland, Russ, Murphy & Tapp, CPAs for each of the two
fiscal years ended March 31, 1997 and March 31, 1998 did not contain any adverse
opinion or disclaimer of opinion and were 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
45
<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 and for the year ended
March 31, 1999 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.
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.
46
<PAGE>
INDEX TO FINANCIAL STATEMENTS
UNAUDITED COMBINED PRO FORMA
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
<S> <C>
Basis of Presentation...........................................................................................F-2
Unaudited Pro Forma Condensed Combined Balance Sheet
as of December 31, 1999.................................................................................F-3 - F-4
Unaudited ProForma Condensed Combined Statement of Operations
for the year ended March 31, 1999.......................................................................F-5 - F-6
Unaudited Pro Forma Condensed Combined Statement of Operations
for the nine months ended December 31, 1999...................................................................F-7
<CAPTION>
AUDITED FINANCIAL STATEMENTS OF
GO2PHARMACY.COM, INC.
Report of Brimmer, Burek & Keelan LLP, Independent Auditors....................................................F-8
Report of Kirkland, Russ, Murphy & Tapp, Independent Auditors..................................................F-9
Balance Sheets as of March 31, 1998 and 1999
and as of December 31, 1999 (Unaudited)......................................................................F-10
Statements of Operations for each of the years ended March 31, 1998 and 1999 and
for each of the nine month periods ended
December 31, 1998 and 1999 (Unaudited).......................................................................F-11
Statement of Shareholder's Equity (Deficit) for each of the years ended March
31, 1998, and 1999 and for the nine month period ended
December 31, 1999 (Unaudited)................................................................................F-12
Statements of Cash Flows for each of the years ended March 31, 1998 and 1999 and
for each of the nine month periods ended
December 31, 1998 and 1999 (unaudited)................................................................F-13 - F-14
Notes to the Financial Statements.......................................................................F-15 - F-29
<CAPTION>
AUDITED FINANCIAL STATEMENTS OF
U.S. DIVERSIFIED TECHNOLOGIES, INC. AND
SUBSIDIARY (ENERGY FACTORS, INC.)
Reports of Baum & Company, P.A., Independent Auditors..........................................................F-30
Consolidated Balance Sheet as of December 31, 1997 ............................................................F-31
Consolidated Statement of Income And Retained Earnings for the
year ended December 31, 1997.................................................................................F-32
Consolidated Statement of Cash Flows for the
year ended December 31, 1997.................................................................................F-33
Notes to the Consolidated Financial Statements..........................................................F-34 - F-37
</TABLE>
F-1
<PAGE>
GO2PHARMACY.COM, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma condensed combined financial statement gives
effect to the June 12, 1998 acquisition of the capital stock of Go2Pharmacy.com,
Inc., a Florida corporation (formerly known as Energy Factors, Inc. and formerly
known as Innovative Health Products, Inc.), by Dynamic Health products, Inc. and
to the acquisition of Go2Pharmacy.com, Inc., a Delaware corporation ("Go2
Acquisition") by Go2Pharmacy.com, Inc., 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 combined balance sheet gives effect to the acquisition
of Go2 Acquisition as if it had occurred on December 31, 1999. The unaudited pro
forma combined statements of operations give effect to the acquisition as if it
had occurred as of April 1, 1998. The pro forma combined statements of
operations reflect the operating results of Go2Pharmacy.com, Inc. for the fiscal
year ended March 31, 1999 and for the nine months ended December 31, 1999.
The pro forma adjustments are based on estimates, available information, and
certain assumptions that management deems appropriate. The pro forma financial
data do 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 COMBINED BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Go2
Pharmacy.com
Go2 Go2 Pro Forma Pro Forma
Pharmacy.com Acquisition Total Adjustments Combined
------------ ----------- ----- ----------- --------
ASSETS
Current Assets:
<S> <C> <C> <C> <C> <C>
Cash $ 84,761 $ - $ 84,761 (a) $8,505,000 $8,589,761
Accounts receivable, net 849,153 - 849,153 849,153
Inventories 1,475,165 - 1,475,165 - 1,475,165
Prepaid expense and other
current assets 162,816 - 162,816 - 162,816
Due from affiliates, net 299,390 299,390 299,390
---------- ------ ---------- ----------- ----------
Total current assets 2,871,285 - 2,871,285 8,505,000 11,376,285
Property and equipment,
net 1,132,995 - 1,132,995 - 1,132,995
Intangible assets (primarily
goodwill), net 859,180 - 859,180 (b) 29,750,000 30,609,180
Other assets 162,202 162,202 162,202
---------- ----- ---------- ----------- ------------
Total assets $5,025,662 $ - $5,025,662 $38,255,000 $43,280,662
========== ====== ========== =========== ===========
</TABLE>
F-3
<PAGE>
GO2PHARMACY.COM, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Go2
Pharmacy.com
Go2 Go2 Pro Forma Pro Forma
Pharmacy.com Acquisition Total Adjustments Combined
------------ ----------- ----- ----------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
<S> <C> <C> <C> <C> <C>
Accounts payable $ 949,841 $ - $ 949,841 $ - $ 949,841
Accrued expenses 40,287 - 40,287 - 40,287
Credit lines payable 1,604,557 - 1,604,557 - 1,604,557
Obligations to related parties 81,780 - 81,780 - 81,780
Due to parent 384,622 - 384,622 - 384,622
Current portion of long-term
obligations 236,411 - 236,411 - 236,411
---------- ------ ---------- ----------- ----------
Total current liabilities 3,297,498 - 3,297,498 - 3,297,498
Long-term obligations, less
current portion 605,229 - 605,229 - 605,229
---------- ------ ---------- ----------- ----------
Total liabilities 3,902,727 - 3,902,727 - 3,902,727
Shareholders' equity
Preferred stock 1,500,000 - 1,500,000 - 1,500,000
Common stock 30,000 - 30,000 (a) 10,000 70,000
(b) 30,000
Additional paid-in capital - - - (a) 8,245,000 38,215,000
(b) 29,970,000
Accumulated deficit (407,065) - (407,065) - (407,065)
---------- ------ ---------- ----------- ----------
Total shareholders'
equity 1,122,935 - 1,122,935 38,255,000 39,377,935
---------- ------ ---------- ----------- ----------
Total liabilities and
shareholders' equity $5,025,662 $ - $5,025,662 $38,255,000 $43,280,662
========== ====== ========== =========== ===========
Adjustments reflect the following:
(a) Records the cash proceeds from the issuance of 1,000,000 shares of
Go2Pharmacy.com common stock, net of estimated offering costs (based on
an assumed initial offering price of $10 per share). Offering costs $8,255,000
$8,255,000 primarily consist of underwriting discounts and commissions, ============
legal fees, accounting fees, and printing expenses.
(b) Records the purchase of Go2 Acquisition as follows:
Common Stock Issued at a value of $10 per share $30,000,000
Less: assets acquired, net 250,000
------------
Intangible assets (primarily goodwill) $29,750,000
===========
</TABLE>
F-4
<PAGE>
GO2PHARMACY.COM, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the Year Ended March 31, 1999
<TABLE>
<CAPTION>
Go2
Pharmacy.com Go2 Go2
For the Energy Factors Acquisition Pharmacy.com
Year Ended April 1, 1998 to April 1, 1998 to Pro Forma Pro Forma
March 31, 1999 June 12, 1998 March 31, 1999 Total Adjustment Combined
-------------- ------------- -------------- ----- ---------- --------
(Audited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenues $4,845,876 $ 658,565 $ - $5,504,441 $ - $5,504,441
Cost of goods sold 3,419,046 562,026 - 3,981,072 - 3,981,072
---------- --------- ------- ------------ ----------- -----------
- 1,523,369
Gross profit 1,426,830 96,539 - 1,523,369
Selling, general and (c) 1,983,333
administrative expenses 1,504,514 364,451 - 1,868,965 (a) (40,267) 3,812,031
---------- --------- ------- ------------ ----------- -----------
Operating income (loss) (77,684) (267,912) - (345,596) (1,943,066) (2,288,662)
Other expense, net (158,721) (31,383) - (190,104) (b) 12,500 (177,604)
---------- --------- ------- ------------ ----------- -----------
Income (loss) before income
Taxes (236,405) (299,295) - (535,700) (1,930,566) (2,466,266)
Income taxes - - - - - -
---------- --------- ------- ------------ ----------- -----------
Net income (loss) $(236,405) $(299,295) $ - $(535,700) $(1,930,566) $(2,466,266)
========= ========= ======= ============ =========== ===========
Basic and diluted loss
per share $ (0.08) $ (0.41)
======== =========
Basic and diluted weighted
average number of common
shares outstanding 3,000,000 6,000,000
========= =========
</TABLE>
F-5
<PAGE>
GO2PHARMACY.COM, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the Year Ended March 31, 1999
Adjustment reflects the following:
<TABLE>
<CAPTION>
<S> <C>
(a) Selling, general and administrative expenses:
Decrease in executive salaries and related payroll taxes through
employment contracts and dismissals associated with Energy Factors $ (47,970)
Decrease in depreciation expense due to fair market value adjustments
on assets acquired associated with Energy Factors (9,762)
Increase in amortization of goodwill associated with Energy Factors 17,465
----------
$ (40,267)
==========
(b) Other expense:
Decrease in interest expense associated with Energy Factors
termination of factoring agreements on accounts receivable $ (12,500)
==========
(c) Amortization of goodwill associated with Go2 Acquisition amortized over
a 15 year life. $1,983,333
==========
</TABLE>
F-6
<PAGE>
GO2PHARMACY.COM, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
Go2 Go2
Pharmacy.com Acquisition
For the Nine For the Nine Go2
Months Ended Months Ended Pharmacy.com
December 31, December 31, Pro Forma Pro Forma
1999 1999 Total Adjustments Combined
------------ ------------ ----------- ----------- ------------
(Audited) (Unaudited)
Revenues $ 4,506,961 $ -- $ 4,506,961 $ -- $ 4,506,961
Cost of goods sold 2,972,424 -- 2,972,424 -- 2,972,424
----------- ------- ----------- ----------- -----------
Gross profit 1,534,537 -- 1,534,537 -- 1,534,537
Selling, general and administrative expenses 1,468,410 -- 1,468,410(a) 1,450,000 2,918,410
----------- ------- ----------- ----------- -----------
Operating income (loss) 66,127 -- 66,127 (1,450,000) (1,383,873)
Other expense, net (140,936) -- (140,936) -- (140,936)
----------- ------- ----------- ----------- -----------
Income (loss) before income taxes (74,809) -- (74,809) (1,450,000) (1,524,809)
Income taxes -- -- -- -- --
----------- ------- ----------- ----------- -----------
Net income (loss) $ (74,809) $ -- $ (74,809) $(1,450,000) $(1,524,809)
=========== ======= =========== =========== ===========
Basic and diluted loss per share $ (0.02) $ (.25)
=========== ===========
Basic and diluted weighted average numbers of
common shares outstanding 3,000,000 6,000,000
=========== ===========
</TABLE>
Adjustment reflects the following:
(a) Amortization of goodwill associated with Go2 Acquisition amortized over
a 15 year life.
F-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Go2Pharmacy.com, Inc.
Largo, Florida
We have audited the accompanying balance sheet of Go2Pharmacy.com, Inc. as of
March 31, 1999, and the related statement of operations, shareholder's equity,
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 Go2Pharmacy.com, Inc. as of
March 31, 1999, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ BRIMMER, BUREK & KEELAN LLP
BRIMMER, BUREK & KEELAN LLP
Certified Public Accountants
Tampa, Florida
May 9, 2000
F-8
<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-9
<PAGE>
GO2PHARMACY.COM, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
MARCH 31, MARCH 31, DECEMBER 31,
1998 1999 1999
----------- ----------- -----------
ASSETS (UNAUDITED)
Current assets:
Cash $ 239,604 $ 16,206 $ 84,761
Accounts receivable, net 179,099 763,558 849,153
Inventories 224,632 1,284,570 1,475,165
Prepaid expenses and other current assets 20,492 24,466 162,816
Due from affiliates, net - 157,935 299,390
----------- ----------- -----------
Total current assets 663,827 2,246,735 2,871,285
Property, plant and equipment, net 176,462 2,317,212 1,132,995
Intangible assets (primarily goodwill), net 8,223 861,024 859,180
Other assets 25,486 160,075 162,202
----------- ----------- -----------
TOTAL ASSETS $ 873,998 $ 5,585,046 $ 5,025,662
=========== =========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Credit lines payable $ - $ 949,139 $ 1,604,557
Current portion of long-term obligations 28,927 370,569 236,411
Accounts payable 331,715 1,174,460 949,841
Accrued expenses 72,397 177,125 40,287
Obligations to related parties - 25,000 81,780
Due to parent 247,836 1,898,160 384,622
----------- ----------- -----------
Total current liabilities 680,875 4,594,453 3,297,498
Long-term obligations, less current portion 258,974 1,292,849 605,229
----------- ----------- -----------
TOTAL LIABILITIES 939,849 5,887,302 3,902,727
Commitments and contingencies
Shareholder's equity (deficit):
Preferred stock, no par value, 6,000,000 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) (407,065)
----------- ----------- -----------
TOTAL SHAREHOLDER'S EQUITY (DEFICIT) (65,851) (302,256) 1,122,935
----------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT) $ 873,998 $ 5,585,046 $ 5,025,662
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-10
<PAGE>
GO2PHARMACY.COM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
-------------------------- --------------------------
<S> <C> <C> <C> <C>
1998 1999 1998 1999
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
Revenues $ 1,906,935 $ 4,845,876 $ 3,429,753 $ 4,506,961
Cost of goods sold 1,388,816 3,419,046 2,599,535 2,972,424
----------- ----------- ----------- -----------
Gross profit 518,119 1,426,830 830,218 1,534,537
Selling, general and administrative
expenses 468,578 1,504,514 1,144,640 1,468,410
----------- ----------- ----------- -----------
Operating income (loss) before other
income (expense) 49,541 (77,684) (314,422) 66,127
Other income (expense):
Other income and expenses, net 5,026 93,313 91,132 110,913
Interest expense, net (4,592) (252,034) (179,599) (251,849)
----------- ----------- ----------- -----------
Total other income (expense) 434 (158,721) (88,467) (140,936)
income (loss) before income taxes 49,975 (236,405) (402,889) (74,809)
Income taxes
-- -- -- --
----------- ----------- ----------- -----------
Net income (loss) $ 49,975 $ (236,405) $ (402,889) $ (74,809)
=========== =========== =========== ===========
Net income (loss) available to common
shareholders
Basic and diluted income (loss) per share $ 0.02 $ (0.08) $ (0.13) $ (0.02)
=========== =========== =========== ===========
Basic and diluted weighted average number of
common shares outstanding 3,000,000 3,000,000 3,000,000 3,000,000
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-11
<PAGE>
GO2PHARMACY.COM, INC.
STATEMENT OF SHAREHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
TOTAL
PREFERRED STOCK COMMON STOCK 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
preferred stock (unaudited) 150,000 1,500,000 -- -- -- -- 1,500,000
Net loss (unaudited) -- -- -- -- -- (74,809) (74,809)
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCES AT DECEMBER 31, 1999
(UNAUDITED) 150,000 $ 1,500,000 3,000,000 $ 30,000 $ -- $ (407,065) $ 1,122,935
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-12
<PAGE>
GO2PHARMACY.COM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
-------------------------- --------------------------
<S> <C> <C> <C> <C>
1998 1999 1998 1999
----------- ----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES: (UNAUDITED) (UNAUDITED)
Net income (loss) $ 49,975 $ (236,405) $ (402,889) $ (74,809)
Adjustments to reconcile net income (loss) to net
cash from operating activities:
Depreciation and amortization 32,614 226,764 155,695 207,710
Gain on involuntary conversion of property - (81,192) (81,192) -
Changes in operating assets and liabilities
(exclusive of effect of business
acquisitions):
Accounts receivable (64,415) (553,010) (348,431) (85,595)
Inventory (116,586) (485,095) (62,342) (190,595)
Prepaid expenses and other current assets (5,064) 60,540 (20,597) (138,350)
Other assets (13,199) (149,477) 10,643 (36,352)
Accounts payable 142,897 (31,499) (74,328) (224,619)
Accrued expenses - (56,193) (114,952) (99,788)
----------- ----------- ----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 26,222 (1,305,567) (938,393) (642,398)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (37,147) (174,733) (137,895) (435,713)
Proceeds from involuntary conversion of
property - 99,100 99,100 -
----------- ----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (37,147) (75,633) (38,795) (435,713)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in credit lines payable - 949,139 200,000 655,418
Proceeds from issuance of long-term obligations 240,200 620,109 56,147 271,252
Payments of long-term obligations (21,567) (831,995) (109,691) (208,680)
Increase in due to/from parent and affiliates, net - 420,549 591,128 428,676
----------- ----------- ----------- -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 218,633 1,157,802 737,584 1,146,666
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 207,708 (223,398) (239,604) 68,555
CASH AT BEGINNING OF PERIOD 31,896 239,604 239,604 16,206
----------- ----------- ----------- -----------
CASH AT END OF PERIOD $ 239,604 $ 16,206 $ - $ 84,761
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-13
<PAGE>
GO2PHARMACY.COM, INC.
STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
-------------------------- --------------------------
<S> <C> <C> <C> <C>
1998 1999 1998 1999
----------- ----------- ----------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 4,592 $ 250,956 $145,228 $288,468
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 $484,000 of the Company's obligations to its parent was
extinguished (See Note 6).
In September 1999, the Company issued 150,000 shares of its preferred stock to
its parent in conversion of $1,500,000 of the Company's obligations to its
parent.
See accompanying notes to financial statements.
F-14
<PAGE>
GO2PHARMACY.COM, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1999
AND DECEMBER 31, 1998 AND 1999
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 include 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 the lower of cost or market. Cost is determined using
the first-in, first-out method.
F-15
<PAGE>
GO2PHARMACY.COM, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1999
AND DECEMBER 31, 1998 AND 1999
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 methods are used for tax depreciation.
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 over periods from 15 to 20 years, using
the straight-line method. Accumulated amortization was approximately $9,000,
$54,000, and $91,000 at March 31, 1998 and 1999 and December 31, 1999,
respectively. Amortization expense totaled $3,367, $44,010, $29,337, and $36,069
for the years ended March 31, 1998 and 1999 and for the nine months ended
December 31, 1998 and 1999, 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 or 1999 or for the nine month period
ended December 31, 1999.
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 8, reflect that portion of the consolidated
group attributable to the Company.
F-16
<PAGE>
GO2PHARMACY.COM, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1999
AND DECEMBER 31, 1998 AND 1999
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 and 1999 and December 31,
1999, as well as the reported amounts of revenues and expenses for the fiscal
years ended March 31, 1998 and 1999 and for the nine months ended December 31,
1998 and 1999. The actual outcome of the estimates could differ from the
estimates made in the preparation of the financial statements.
J. REVENUE RECOGNITION
Revenues are recognized for the Company when the merchandise is shipped to the
customer.
K. ADVERTISING COSTS
The Company charges advertising costs to expense as incurred. Advertising
expense was $1,500, $24,000, $5,182, and $4,901 for the years ended March 31,
1998 and 1999 and for the nine months ended December 31, 1998 and 1999,
respectively.
L. 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-17
<PAGE>
GO2PHARMACY.COM, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1999
AND DECEMBER 31, 1998 AND 1999
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 and 1999 and
December 31, 1999, 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.
M. 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.
N. UNAUDITED FINANCIAL STATEMENTS
The unaudited financial statements and the related notes thereto for December
31, 1998 and 1999 include all normal and recurring adjustments which, in the
opinion of management, are necessary for a fair presentation and are prepared on
the same basis as audited annual statements. The interim results are not
necessarily indicative of the results that may be expected for the full year.
O. RECLASSIFICATIONS
Certain reclassifications have been made to the financial statements for the
nine month period ended December 31, 1998 and the fiscal year ended March 31,
1998 to conform to the presentation at March 31, 1999 and December 31, 1999.
F-18
<PAGE>
GO2PHARMACY.COM, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1999
AND DECEMBER 31, 1998 AND 1999
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
----------- -----------
Revenues $ 7,661,000 $ 5,505,000
Operating loss $ (286,000) $ (305,000)
Net loss $ (316,000) $ (482,000)
Net loss per common share $ (0.08) $ (0.12)
F-19
<PAGE>
GO2PHARMACY.COM, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1999
AND DECEMBER 31, 1998 AND 1999
NOTE 4 - ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------------- DECEMBER 31,
1998 1999 1999
---------------- ---------------- ------------
(Unaudited)
<S> <C> <C> <C>
Trade accounts receivable $207,599 $871,080 $ 963,421
Less allowance for doubtful accounts (28,500) (107,522) (114,268)
-------- -------- --------
$179,099 $763,558 $ 849,153
======= ======== ========
<CAPTION>
NOTE 5 - INVENTORIES
Inventories consist of the following:
MARCH 31,
--------------------------------- DECEMBER 31,
1998 1999 1999
---------------- ---------------- ------------
(Unaudited)
<S> <C> <C> <C>
Raw materials $156,247 $1,104,822 $1,281,346
Work in process 56,048 150,721 161,517
Finished goods 12,337 29,027 32,302
-------- -------- --------
$224,632 $1,284,570 $1,475,165
======== ========= =========
</TABLE>
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant, and equipment, net, consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------------- DECEMBER 31,
1998 1999 1999
---------------- ---------------- ------------
(Unaudited)
<S> <C> <C> <C>
Land and building $ - $1,421,460 $ -
Machinery and equipment 196,784 997,827 1,172,934
Furniture, fixtures and equipment 14,998 110,252 266,996
Leasehold improvements 13,766 19,514 24,370
-------- -------- --------
225,548 2,549,053 1,464,300
Less accumulated depreciation and
amortization (49,086) (231,841) (331,305)
-------- -------- --------
$176,462 $2,317,212 $1,132,995
======= ========= =========
</TABLE>
F-20
<PAGE>
GO2PHARMACY.COM, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1999
AND DECEMBER 31, 1998 AND 1999
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT, NET - (CONTINUED)
Depreciation and leasehold amortization expense totaled $29,271, $182,755,
$126,358, and $130,761 for the years ended March 31, 1998 and 1999 and for the
nine months ended December 31, 1998 and 1999.
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 obligation to the parent by approximately $480,000, 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 7 - RELATED PARTY TRANSACTIONS
For the fiscal year ended March 31, 1998 and 1999 and for the nine months ended
December 31, 1998 and 1999, revenues of approximately $0, $297,000, $286,994,
and $234,107, 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 bear interest at 10% per annum and interest
totaled $2,233 for the nine months ended December 31, 1999, and are payable on
demand. 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 and interest
totaled $229 for the year ended March 31, 1999 and $2,034 for the nine months
ended December 31, 1999. The note is to be repaid in 24 equal monthly payments
beginning September 1, 1999.
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 6 for discussion of land and building transfer and property leased from
the Company's parent.
See Note 13 for issuance of preferred stock in exchange for the satisfaction of
$1,500,000 of obligations due to the Company's parent.
F-21
<PAGE>
GO2PHARMACY.COM, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1999
AND DECEMBER 31, 1998 AND 1999
In May 1998, prior to the acquisition of Energy Factors, Inc. by Dynamic Health
Products, Inc., Dynamic loaned $100,000 to Energy Factors, Inc. See Note 3
regarding the acquisition.
In December 1999, the Company established a $500,000 line of credit secured and
guaranteed by the Company's parent. See Note 11.
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
$15,000 by the non-affiliated third party and $45,000 of inventory by the
Company. 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 and as of March 31, 1999 has had insignificant
activity.
F-22
<PAGE>
GO2PHARMACY.COM, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1999
AND DECEMBER 31, 1998 AND 1999
NOTE 8 - 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 and 1999 and
the nine months ended December 31, 1998 and 1999 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 NINE MONTHS ENDED
MARCH 31, DECEMBER 31,
------------------------------ ------------------------------
1998 1999 1998 1999
-------------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Computed tax expense at the (Unaudited) (Unaudited)
statutory rate $ 17,000 $(80,000) $(137,000) $(25,000)
Increase (decrease) in taxes resulting from:
State income taxes, net of federal
tax benefit 2,000 (8,000) (15,000) (3,000)
Effect of permanent differences,
principally non-deductible
goodwill - 17,000 9,000 15,000
Utilization of net operating loss
carryforward (19,000) (12,000) (12,000) -
Change in valuation allowance - 83,000 155,000 13,000
-------------- -------------- ------------ -------------
Income tax expense $ - $ - $ - $ -
============== ============== ============= =============
</TABLE>
Temporary differences that give rise to deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
MARCH 31,
------------------------ DECEMBER 31,
1998 1999 1999
-------- -------- ------------
<S> <C> <C> <C>
Deferred tax assets: (Unaudited)
Bad debts $ 11,000 $37,000 $ 40,000
Inventories 1,000 1,000 1,000
Accrued vacation - 3,000 5,000
Deposits - 31,000 19,000
Net operating loss carryforwards 13,000 315,000 335,000
-------- -------- ------------
Gross deferred tax assets 25,000 387,000 400,000
Less: valuation allowance (14,000) (85,000) (98,000)
-------- -------- ------------
$ 11,000 $302,000 $ 302,000
======== ======== ===========
Deferred tax liabilities:
Fixed asset basis differences $ 11,000 $302,000 $ 302,000
======== ======== ===========
</TABLE>
F-23
<PAGE>
GO2PHARMACY.COM, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1999
AND DECEMBER 31, 1998 AND 1999
NOTE 8 - INCOME TAXES - (CONTINUED)
At March 31, 1999, the Company has a tax net operating loss carryforward of
approximately $900,000, 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.
F-24
<PAGE>
GO2PHARMACY.COM, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1999
AND DECEMBER 31, 1998 AND 1999
NOTE 9 - 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, 1999:
Year Ending March 31,
---------------------
2000 $ 226,770
2001 290,815
2002 223,080
2003 223,080
2004 217,900
Thereafter 1,056,000
---------
Total minimum lease payments $2,237,645
=========
In conjunction with the transfer of land and building (see note 6), 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, 1999 have been
adjusted to reflect this commitment.
Total rent expense for the years ended March 31, 1998 and 1999 and for the nine
months ended December 31, 1998 and 1999 was approximately $93,000, $80,000,
$56,000, and $121,000, respectively.
F-25
<PAGE>
GO2PHARMACY.COM, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1999
AND DECEMBER 31, 1998 AND 1999
NOTE 9 - 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, 1999 and
December 31, 1999 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 14, the Company has agreed
to pay the underwriter a consulting fee of $3000 per month which is to be paid
in advance at the consummation of the offering.
NOTE 10 - LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
------------------------------ ------------
1998 1999 1999
-------- ---------- ---------
<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 14). $ - $ 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 (7.75% at March 31, 1999) plus 2.25%. - 483,327 499,147
Capitalized lease obligations for equipment, due in monthly principal
and interest payments of approximately $7,499 through 2004. 54,314 198,080 244,433
</TABLE>
F-26
<PAGE>
GO2PHARMACY.COM, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1999
AND DECEMBER 31, 1998 AND 1999
NOTE 10 - LONG-TERM OBLIGATIONS - (CONTINUED)
<TABLE>
<CAPTION>
<S> <C>
March 31,
-------------------------- December 31,
1998 1999 1999
----------- ----------- -----------
Unsecured 10% notes payable due at April 30, 1999 225,000 - -
Other 8,587 142,732 98,060
----------- ----------- -----------
287,901 1,663,418 841,640
Less current maturities (28,927) (370,569) (236,411)
----------- ----------- -----------
$ 258,974 $ 1,292,849 $ 605,229
=========== =========== ===========
</TABLE>
At March 31, 1999, aggregate maturities of long-term obligations are as follows:
Year Ending March 31,
---------------------
2000 $ 370,569
2001 201,631
2002 194,477
2003 789,477
2004 107,264
----------
$1,663,418
==========
NOTE 11 - 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 was approximately $949,000 and $1,121,000 at March 31,
1999 and December 31, 1999. 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 (7.75% at March 31, 1999) plus 2.25% and are secured by
all assets of the company. At March 31, 1999 and December 31, 1999, the Company
had borrowed approximately $949,000 and $1,121,000, respectively, under this
facility.
F-27
<PAGE>
GO2PHARMACY.COM, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1999
AND DECEMBER 31, 1998 AND 1999
NOTE 11 - CREDIT LINES PAYABLE - (CONTINUED)
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 December 31, 1999) and are payable monthly. At December 31,
1999, the Company had borrowed approximately $484,000 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 12 - 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 and 1999 and December 31, 1999. For the year ended March 31, 1999,
three customers represented approximately 32% of revenues derived from the
Company's operations. For the year ended March 31, 1998, four customers
represented approximately 67% 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.
NOTE 13 - SHAREHOLDERS' EQUITY
COMMON STOCK
As of December 31, 1999, 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.
F-28
<PAGE>
GO2PHARMACY.COM, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1999
AND DECEMBER 31, 1998 AND 1999
NOTE 13 - SHAREHOLDERS' EQUITY - (CONTINUED)
PREFERRED STOCK
The Company is authorized to issue 6,000,000 shares of Preferred Stock and in
September 1999 issued 150,000 shares of voting preferred stock without interest,
to its parent in exchange for $1,500,000 of obligations due to its parent. The
Board of Directors has the authority, without any further vote or action by the
Company's shareholders, to issue Preferred Stock in one or more series and to
fix the number of shares, designations, relative rights (including voting
rights), preferences, and limitations of those series to the full extent now or
hereafter permitted by Florida law. The Company believes that this power to
issue Preferred Stock will provide flexibility in connection with possible
corporate transactions. The issuance of Preferred Stock, however, could
adversely affect the voting power of holders of Common Stock and restrict their
rights to receive payments upon liquidation and could have the effect of
delaying, deferring, or preventing a change in control of the Company.
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 December 31, 1999 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-29
<PAGE>
GO2PHARMACY.COM, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1999
AND DECEMBER 31, 1998 AND 1999
NOTE 14 - SUBSEQUENT EVENT
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.
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.
GO 2 PHARMACY.COM
Simultaneously with the public offering, the Company has an agreement to acquire
the Delaware corporation Go2Pharmacy.com, Inc. for 3,000,000 shares of common
stock.
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.
EQUIPMENT LOAN
In December 1999, the Company established a $90,000 bank loan for the purchase
of manufacturing equipment. The note bears interest at 9.5% and is payable over
36 months beginning in February 2000.
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-30
<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-31
<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-32
<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-33
<PAGE>
U.S. DIVERSIFIED TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
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
=========
See Auditor's Report and Accompanying Notes to Financial Statements.
F-34
<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-35
<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-36
<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-37
<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.
<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
50,000 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
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
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)*
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) *
</TABLE>
* 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 May 12, 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>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ JUGAL K. TANEJA Chairman of the Board and Director May 12, 2000
- ------------------------------------
Jugal K. Taneja
/s/ MIHIR K. TANEJA Chief Executive Officer, Secretary May 12, 2000
- ------------------------------------ and Director
Mihir K. Taneja
/s/ KOTHA S. SEKHARAM President and Director May 12, 2000
- ------------------------------------
Kotha S. Sekharam
/s/ CAROL DORE-FALCONE Vice President and Chief Financial Officer May 12, 2000
- ------------------------------------ (principal financial and accounting officer),
Carol Dore-Falcone
</TABLE>
II-4
EXHIBIT 23.1
ACCOUNTANTS' CONSENT
The Board of Directors
Go2Pharmacy.com, Inc.
Largo, Florida
We consent to the use of our report dated May 9, 2000 relating
to the balance sheet as of March 31, 1999 and the related
statement of operations, stockholders' equity and cash flows
for the year then ended of Go2Pharmacy.com, Inc. in the
Amendment No. 1 to Form SB-2 of Go2Pharmacy.com, Inc. and the
reference to our firm under the heading "experts" in the
prospectus.
/s/ BRIMMER, BUREK & KEELAN LLP
BRIMMER, BUREK & KEELAN LLP
Tampa, Florida
May 11, 2000
EXHIBIT 23.2
Board of Directors
NuWave Health Products, Inc.
We consent to the use of our reports included herein and to the reference to our
firm under the heading "experts" in the prospectus.
/s/ KIRKLAND, RUSS, MURPHY & TAPP
Kirkland, Russ, Murphy & Tapp
Clearwater, Florida
May 10, 2000
ACCOUNTANTS' CONSENT
The Board of Directors
Go2Pharmacy.com, Inc.
Largo, Florida
We consent to the use of our report dated June 10, 1998 relating to the
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 in the Amendment No. 1 to Form SB-2 of Go2Pharmacy.com, Inc. and
the reference to our firm under the heading "experts" in the prospectus.
/s/ BAUM & COMPANY, P.A.
Baum & Company, P.A.
Coral Springs, Florida
May 11, 2000
