187265_1.doc 2
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 2000.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
---------------- -----------
Commission File Number 000-15379
--------------------------
Park Pharmacy Corporation
----------------------------------------------------------
(Exact Name of Small Business as Specified in its Charter)
Colorado 841029701
------------------------------ -----------------
(State or Other Jurisdiction of (I.R.S.Employer
Incorporation or Organization) Identification Number)
10711 Preston Road, Suite 250, Dallas, Texas 75230
--------------------------------------------------
Address of Principal Executive Offices
(214) 692-9921
----------------------------------------------
Issuer's Telephone Number, Including Area Code
----------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date(October 31, 2000):
4,419,551
----------
Transitional Small Business Disclosure Format (check one): Yes No
--- ---
<PAGE>
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Page
Item 1. Financial Statements
Consolidated balance sheet - September 30, 2000
(unaudited) 1
Consolidated statements of operations
(unaudited) - three months ended
September 30, 2000 and 1999 2
Consolidated statements of cash flows
(unaudited) - three months ended
September 30, 2000 and 1999 3
Notes to consolidated financial statements 4
Item 2. Management's Plan of Operation 7
PART II - OTHER INFORMATION
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signature Page 11
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CONSOLIDATED BALANCE SHEET
(Unaudited)
September 30, 2000
ASSETS
------
CURRENT ASSETS:
Cash $ 123,655
Accounts receivable, net of $183,300 allowance for
doubtful accounts 4,682,707
Inventories 2,271,656
Prepaid expense and other 38,441
-----------
Total current assets 7,116,459
PROPERTY AND EQUIPMENT, net of $801,300 accumulated
depreciation 1,044,487
SOFTWARE COSTS 2,222,365
GOODWILL, net of $62,300 accumulated amortization 2,743,198
OTHER ASSETS 227,574
-----------
Total assets $13,354,083
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 2,745,234
Note payable and current portion of long-term debt 1,972,263
-----------
Total current liabilities 4,717,497
LONG-TERM DEBT, net of current portion 2,540,550
STOCKHOLDERS' EQUITY:
Preferred stock 3,025
Common stock 451
Additional paid-in capital 6,060,295
Retained earnings 158,242
Unearned compensation-restricted stock award (125,977)
-----------
Total stockholders' equity 6,096,036
-----------
Total liabilities and stockholders'
equity $13,354,083
===========
- 1-
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------
2000 1999
----------- ----------
REVENUES:
Product sales, net $ 7,695,810 $ -
Online sales, net 18,260 -
----------- ----------
Total revenues 7,714,070 -
OPERATING EXPENSES:
Cost of goods sold 4,903,796 -
Selling, general and administrative
expenses 2,629,852 184
Depreciation and amortization 65,127 2,706
----------- ----------
Total operating expenses 7,598,775 2,890
Operating income (loss) 115,295 (2,890)
OTHER INCOME (EXPENSE):
Interest expense, net (82,948) -
Financing expenses (15,067) -
Other income 45,960 -
----------
Total other expense (52,055) -
----------
Income (loss) before taxes 63,240 (2,890)
INCOME TAX EXPENSE 38,000 -
----------- ----------
NET INCOME (LOSS) $ 25,240 $ (2,890)
=========== ==========
NET INCOME (LOSS) PER COMMON SHARE, basic
and diluted $ - $ -
=========== ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING, basic and diluted (Note 7) 34,754,000 7,600,000
=========== ==========
-2-
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
September 30,
-----------------------
2000 1999
----------- --------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ 25,240 $ (2,890)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 65,127 2,706
Amortization of debt issuance costs 15,067 -
Amortization of unearned compensation 31,826 -
Changes in operating assets and
liabilities, net of acquisitions:
Increase in accounts receivable,
inventories, prepaid expenses (1,862,524) -
and other
Increase in accounts payable and
accrued expenses 512,176 -
Increase in other assets (13,985) -
----------- --------
Net cash used in operating
activities (1,227,073) (184)
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of property and equipment (62,346) -
Payments in connection with businesses
acquired (1,846,236) -
Acquisition related costs (15,179) -
----------- --------
Net cash used in investing
activities (1,923,761) -
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 2,742,252 -
Repayment of note payable and long-term
debt (392,280) -
Deferred financing costs (11,429)
----------- --------
Net cash provided by financing
activities 2,338,543 -
NET DECREASE IN CASH (812,291) (184)
CASH, beginning of period 935,946 1,000
----------- --------
CASH, end of period $ 123,655 $816
=========== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 85,000 $ -
=========== ========
Income taxes paid $ - $ -
=========== ========
-3-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
1. Unaudited Information
---------------------
The balance sheet as of September 30, 2000 and the statements of
operations for the three month periods ended September 30, 2000
and 1999 were taken from the Company's books and records without
audit. However, in the opinion of management, such information
includes all adjustments (consisting only of normal recurring
accruals) which are necessary to properly reflect the financial
position of the Company as of September 30, 2000 and the results
of its operations for the three months ended September 30, 2000
and 1999.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed and omitted,
although management believes the disclosures are adequate to make
the information presented not misleading. These interim
financial statements should be read in conjunction with the
Company's most recent financial statements included in its report
on Form 10-KSB for the year ended June 30, 2000 filed with the
Securities and Exchange Commission.
2. Organization and Basis of Presentation
--------------------------------------
The accompanying financial statements are those of Park Pharmacy
Corporation ("the Company"), the stockholders of which acquired
Power-Cell, Inc. in October 1999. This transaction was accounted
for as an acquisition by the Company of Power-Cell's net assets
and a reorganization under Power-Cell's capital structure
("reverse acquisition"). In connection with the reverse
acquisition, 2,567,816 shares of newly designated Series A
Preferred Stock were issued to the Park stockholders; two Power-
Cell stockholders were issued 200,000 shares of Series A
Preferred Stock in exchange for their common stock; and 72,750
shares of Series A Preferred Stock were issued in satisfaction of
outstanding Power-Cell liabilities. Each share of the Series A
Preferred Stock is convertible into ten shares of the Company's
common stock and may not be converted prior to June 30, 2001.
3. Acquisitions
------------
In December 1999, the Company acquired RX-Pro.Com, Inc. and
Dougherty's Pharmacy, Inc. For accounting purposes, each
acquisition is considered to be effective as of December 31,
1999, and the results of operations of the acquired entities are
consolidated with the Company beginning on January 1, 2000. On
March 31, 2000, the Company acquired Total Pharmacy Supply, Inc.
("Total Pharmacy"). The Company's consolidated financial
statements include Total Pharmacy's operating results beginning
April 1, 2000.
On August 10, 2000, the Company acquired certain infusion
pharmacy assets from subsidiaries of Amedisys, Inc. The Company
acquired the ongoing operations of three infusion pharmacies for
cash consideration of $1,750,000 and incurred approximately
$95,000 in related acquisition costs. In the transaction, the
Company acquired all tangible and intangible assets, except for
cash and accounts receivable, which were retained by the seller.
For accounting purposes, the Company's consolidated financial
statements include these operations effective August 1, 2000.
The following pro forma information has been prepared as if the
acquisitions described above had occurred at the beginning of the
three month periods ended September 30, 2000 and 1999. Such
information is not necessarily reflective of the actual results
that would have occurred had the acquisitions occurred on those
dates.
-4-
<PAGE>
2000 1999
------------ -----------
Revenues, net $8,192,000 $6,778,000
Net (loss) income $ (27,000) $ 65,000
Net (loss) income per
common share,
basic and diluted $ - $ .01
4. Segment Information
-------------------
The Company applies Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related
Information", which establishes standards for reporting
information about operating segments in financial statements.
The Company's business segments for the periods covered are
comprised of retail pharmacy operations ("Pharmacy"); Internet
pharmacy websites ("Online Services"); wholesale distribution of
pharmacy supplies ("Non-Drug"); and home health care infusion
products and services ("Infusion").
Summarized segment information as of and for the three month
period ended September 30, 2000 is as follows:
Segment Assets:
Pharmacy $ 5,476,000
Online Services 2,586,000
Non-Drug 786,000
Infusion 1,428,000
-----------
Total segment assets 10,276,000
-----------
Corporate 335,000
Goodwill resulting
from business
acquisitions, net 2,743,000
-----------
Total assets $13,354,000
===========
Segment Revenues:
Pharmacy $ 5,756,000
Online Services 18,000
Non-Drug 822,000
Infusion 1,118,000
------------
Total segment
revenues $ 7,714,000
============
Segment Earnings:
Pharmacy $ 367,000
Online Services (186,000)
Non-Drug 55,000
Infusion 130,000
------------
Total segment
earnings 366,000
------------
-5-
<PAGE>
Corporate (186,000)
Interest and
financing expense,
net (98,000)
Depreciation and
amortization (65,000)
Other income 46,000
---------
Income before
income taxes $ 63,000
=========
Information as of and for the three month period ended September
30, 1999 has not been provided because the Company engaged
principally only in corporate operations in that period.
5. Subsequent Acquisition
----------------------
On November 10, 2000, the Company acquired MJN Enterprises, Inc.
d/b/a Total Health Care ("Total Health Care") for cash
consideration of $1,150,000 and 1,450,000 shares of the Company's
common stock.
6. Earnings (Loss) Per Share
-------------------------
Included in the weighted average shares computation are
30,245,810 equivalent shares representing 3,024,581 shares of
Series A Preferred Stock that include conversion restrictions.
These shares may not be converted into the Company's common stock
prior to June 30, 2001, and 2,263,700 of such shares
(representing 22,637,000 equivalent shares) can only be converted
ratably over a twenty-year period beginning in 2002.
************
-6-
<PAGE>
Item 2. MANAGEMENT'S PLAN OF OPERATION
FORWARD-LOOKING STATEMENTS
With the exception of historical information, the matters
discussed in this Quarterly Report on Form 10-QSB include
"forward- looking statements" within the meaning of Section 27A
of the Securities Act of 1933, as amended (the "Securities Act")
and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Forward-looking statements are
statements other than historical information or statements of
current condition. Some forward-looking statements may be
identified by the use of the terms "expects," "will,"
"anticipates," "estimates," "believes," "plans" and words of
similar meaning. These forward-looking statements relate to our
business plans, programs, trends, results of future operations,
funding of future growth, acquisition plans and other matters.
In light of the risks and uncertainties inherent in all projected
matters, the inclusion of forward-looking statements in this Form
10-QSB should not be regarded as a representation by us or any
other person that our objectives or plans would be achieved or
that operating expectations will be realized. Revenues and
results of operations are difficult to forecast and could differ
materially from those projected in forward-looking statements,
such as statements regarding our belief with respect to the
sufficiency of capital resources, our ability to complete and
assimilate acquisitions, and our ability to compete in our
pharmacy and physician services businesses. Actual results could
differ from those projected in any forward-looking statements
for, among others, the following reasons: (a) increased
competition from existing or new competitors, (b) changes in
government regulation of the pharmacy industry, (c) changes in
the reimbursement costs or policies of private insurance
companies or federally-funded insurance programs, (d) our failure
to manage its growth and integrate businesses acquired or to be
acquired, and (e) our failure to attract or retain key employees.
We do not undertake to update any forward-looking statements
contained herein. For a more complete discussion of these
factors and others, please see "Certain Business Factors" in Item
1 of our Annual Report on Form 10-KSB for the fiscal year ended
June 30, 2000. Readers are cautioned not to place undue reliance
on any forward-looking statements made herein.
Strategic Objectives
Over the course of the next twelve months, we intend to
pursue the following strategic objectives in order to grow our
business, improve productivity and efficiency, enter new
geographic and product markets, enhance profitability and build
shareholder value.
Focus on High-End, Technical Pharmacy Services. We believe
that a substantial market exists for high-end pharmacy services
that are not typically provided by national chain drug stores,
grocery pharmacies or mass merchandise pharmacies. Among these
high-end services are drug compounding, infusion therapy, durable
medical equipment and institutional pharmacy. We intend to
promote these services in the coming year.
The market for these high-end products and services has
emerged over recent history due to several factors. First, the
healthcare industry has experienced a trend toward reduced
hospitalization. With the widespread implementation of managed
care in the United States and its attendant focus on cost
containment, payors have increasingly sought treatment
alternatives to hospitalization. Second, improved technology and
other advancements have fostered an environment in which
alternative healthcare solutions such as outpatient care, day
surgery, home healthcare and hospice care have grown
significantly over the past decade. Third, improvements in drug
development and efficacy have facilitated the treatment of
certain conditions, such as those relating to the heart or
thyroid, through a drug regimen in lieu of hospitalization. As a
result of these broad trends, drug utilization has increased
dramatically over the last several years, and pharmacy services
that were historically provided largely in the hospital setting,
including compounded drugs, infusion therapy
-7-
<PAGE>
and durable medical equipment, are now increasingly delivered
through independent pharmacies and related businesses.
Dramatic changes in the industry landscape for drug stores
over the last several years have contributed to our market
opportunity. Large, national drug store chains such as Eckerd's
and Walgreen's have significantly expanded their number of
locations and adjusted their operating focus by increasing the
variety of products offered but decreasing the depth of those
products. These locations typically seek to maximize product
throughput, and the net result is a retail presence that operates
more like a convenience store or mass merchandise retailer,
offering certain grocery and home goods items, along with a
limited inventory of prescription drugs and over-the-counter
items. These companies are not able to meet the need for more
technical, complex pharmacy products, like antibiotic creams or
infusion products that we provide.
Acquire Pharmacies and Related Businesses. To take
advantage of the existing market opportunity, we anticipate that
we will enter discussions from time to time with independent
pharmacies and related companies regarding potential
acquisitions. We intend to acquire independent pharmacies that
provide complex, high-end pharmacy and related services, are
geographically desirable or are otherwise market leaders. Our
approach is to identify high-quality, well-performing pharmacies
with long histories of operations and solid, stable management
teams in place.
Our objective is to build a cohesive network of operations
providing a wide range of technical pharmacy services. We plan
to focus our efforts toward major metropolitan and surrounding
areas with large populations of customers who require these types
of products and services. We believe that our strategy will
provide the greatest opportunity to achieve sales and profit
growth over time.
Cost Control. Over the next year, we will emphasize cost
control, including both purchasing costs and operating costs.
While we believe that cost management is a daily requirement, our
acquisition strategy increases the need for such attention to
cost.
We anticipate negotiating our purchasing terms with
suppliers from time to time for improved pricing and increased
service levels, particularly as we complete acquisitions over the
next year. We believe that as we grow, our purchasing power and
ability to lower our purchasing costs will increase.
We are also pursuing programs to reduce operating expenses,
particularly store staffing and overhead expenses. To reduce our
reliance on overtime, improve our workforce utilization and
reduce overall payroll costs, we plan to improve staffing
management programs, increase employee training and implement
general business process improvements. We will review overhead
costs on an ongoing basis, and with each acquisition, in order to
minimize administrative redundancy.
Technology Implementation and Productivity Improvements. To
date, technology has not been deployed to any significant extent
at Park's operating companies. We are currently in the process
of developing a comprehensive technology plan that will be
implemented over the next two to three years. We are reviewing
proposed projects and intend to establish the priority and timing
of projects; however, at present, a definitive implementation
schedule has not been determined.
Although we are currently evaluating various technical
solutions, our objectives include:
* improving business processes,
* increasing product throughput,
* reducing operating expense,
* maximizing inventory utilization,
* minimizing accounts receivable investment,
* improving corporate communication and
* increasing employee satisfaction and productivity.
-8-
<PAGE>
We anticipate that while some of these technology projects
will be implemented over the next 12 months, other of these
projects will not be implemented until a later date.
Through these efforts, we intend to provide a higher level
of customer service while improving overall profitability and
shareholder value in the process.
Expand Rx-Pro.Com Operations in Texas and the Southwest. Our
Rx-Pro subsidiary has developed Internet technology to facilitate
the electronic process of issuing prescriptions and maintaining
patient records. Currently, Rx-Pro is in the later stages of
beta testing its systems, and for the upcoming year, we plan to
begin offering Rx-Pro's services commercially beginning in Texas
and then to the Southwest.
To accomplish our commercial rollout of the application
service platform, Rx-Pro will require additional funding to hire
personnel across several disciplines and implement a regional
marketing strategy to grow the business. We are currently
evaluating capital strategies with respect to Rx-Pro, which may
involve selling a portion of the subsidiary to outside investors
or issuing additional shares of our stock through either a
private equity placement or secondary equity offering. We
believe that an investment of $5 million will be required in the
next twelve months for Rx-Pro to implement its business plan.
Hire Pharmacists and Pharmacy Technicians. As we grow and
overall prescription volume increases, we will require
additional, competent staff to support our pharmacy operations.
To date, industry growth has created a tight labor market for
pharmacists and pharmacy technicians. We expect that competition
for pharmacists and technicians will continue to intensify in the
upcoming year, and we plan to compete for these people primarily
by offering flexible work schedules, market-oriented salary
compensation and stock options.
Capital Adequacy and Sources of Liquidity
To accomplish our strategic objectives over the next year,
we will in all likelihood require additional capital. The amount
of capital required will depend, among other things, on the
success of our acquisition program and the structure of our
acquisitions. Specifically, to the extent that acquisition
consideration consists of our stock or subordinated seller notes,
our cash capital requirements will generally be reduced.
With the noted exception of the capital required for the
commercial rollout of Rx-Pro, we believe that our existing
sources of capital, primarily operating cash flow and our bank
facility, will be adequate to undertake our plan of operation for
the next twelve months. With respect to the proposed North Texas
acquisition, we anticipate drawing under our Acquisition Facility
(described below) to fund the $400,000 cash portion of that
transaction.
In August 2000, we entered into a Loan Agreement with Bank
of Texas, N.A. (the "Credit Facility"). The Credit Facility,
which replaced our former existing $3,336,000 revolving credit
and term loan facility, consists of a $1,500,000 revolving credit
facility (the "Revolving Facility") for working capital purposes,
a $1,300,000 term loan facility (the "Term Facility") to
refinance existing indebtedness and a $5,000,000 acquisition line
of credit (the "Acquisition Facility") for future acquisitions.
The Term Facility, was fully drawn on August 10, 2000 to repay
amounts outstanding under our former credit facility and matures
on August 10, 2004. The Term Facility and will be amortized in
equal monthly payments over four (4) years, commencing September
10, 2000. The Revolving Facility matures on August 10, 2001, with
interest payable monthly and principal due at maturity. The
Acquisition Facility, which matures on August 10, 2001, permits
Park to borrow money in conjunction with acquisitions, subject to
certain conditions. Under the Acquisition Facility, borrowings
for a given acquisition under the line may revolve for a period
of 180 days, at which point such borrowings are repayable on a
four (4) year, fully amortizing term loan. We also may borrow
additional amounts under the Credit Facility subject to certain
operating cash flow and asset conditions.
-9-
<PAGE>
The Credit Facility limits our ability to incur debt, to
sell or dispose of assets, to create or incur liens, to make
additional acquisitions, to pay dividends, to purchase or redeem
our stock and to merge or consolidate with any other person. In
addition, the Credit Facility requires us to meet certain
financial ratios and tests, and provides the lender with the
right, following an event of default, to require the payment of
all amounts outstanding under the facility and terminate all
commitments thereunder. The Credit Facility is secured by our
consolidated assets and a pledge of our stock in our operating
subsidiaries.
PART II
OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On November 10, 2000, we acquired the business
operations of MJN Enterprises, Inc. ("MJN"), a privately-held,
institutional pharmacy based in Arlington, Texas and conducting
business in North Texas under the name "Total Healthcare
Pharmacy." The acquisition was effected by merging MJN into a
wholly owned subsidiary formed by us to effect the merger. The
surviving corporation will continue to conduct the business
formerly conducted by MJN as our wholly owned subsidiary, and
will continue to operate under the assumed name Total Healthcare
Pharmacy.
In the transaction, Michael J. Nault, R.P.h., the sole
shareholder of MJN, received cash consideration of $1,150,000 and
1,450,000 shares of our common stock (260,000 shares of which
have been held back by us to satisfy indemnification obligations
of Mr. Nault). Mr. Nault will serve as the President of our new
subsidiary. To fund the cash portion of the acquisition, we
borrowed money under our existing acquisition facility, provided
by the Bank of Texas, N.A. the acquisition, which matures on
August 10, 2001, permits us to borrow money to finance our
acquisitions, subject to certain conditions. Under our
acquisition facility, borrowing for an acquisition may revolve
for a period of 180 days, at which point the borrowings are
converted into a four year, fully amortizing term loan.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
27 Financial Data Schedule
(b) Reports Submitted on Form 8-K:
(1) A report on Form 8-K was filed on August
10, 2000, reporting on the closing of the
acquisition of infusion pharmacy businesses
from Amedisys, Inc.
(2) A report on Form 8-K was filed on November
13, 2000, reporting on the closing of the
acquisition of MJN Enterprises, Inc., d/b/a
Total Health Care.
-10-
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act,
the registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
PARK PHARMACY CORPORATION
Date: November 14, 2000 /s/ Thomas R. Baker
---------------------------------
Thomas R. Baker, President and
Chief Executive
Officer
-11-
<PAGE>
INDEX TO EXHIBITS
EXHIBIT DESCRIPTION
------- -----------
27 Financial Data Schedule.
-12-
