SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-23031
DYNAMIC HEALTH PRODUCTS, INC.
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(Exact name of small business issuer as specified in its charter)
STATE OF FLORIDA 34-1711778
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
6950 BRYAN DAIRY ROAD, LARGO, FLORIDA 33777
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (727) 544-8866
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
The number of shares outstanding of the Issuer's common stock at $.01 par value
as of August 10, 2000 was 2,917,141 (exclusive of Treasury Shares).
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS.
DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
2000 2000
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(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 323,772 $ 693,595
Marketable equity securities, net 591,803 754,996
Certificate of deposit, restricted 516,350 510,861
Accounts receivable, net 697,655 770,161
Inventories 2,158,044 1,677,344
Prepaid registration expenses 283,616 252,356
Prepaid expenses and other current assets 388,073 88,293
Due from affiliates 31,576 10,155
Due from related parties 2,250 2,250
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Total current assets 4,993,139 4,760,011
Property, plant and equipment, net 2,686,477 2,689,780
Intangible assets, net 1,022,045 1,043,669
Investments in unconsolidated affiliates 8,770,849 9,212,562
Other assets, net 446,130 185,071
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TOTAL ASSETS $ 17,918,640 $ 17,891,093
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,340,733 $ 1,120,045
Other payables 664,295 273,980
Current portion of long-term obligations 889,816 915,806
Credit lines payable 1,124,770 1,349,284
Accrued expenses 228,480 111,438
Accrued income taxes 400,000 400,000
Obligations to affiliates 24,157 20,927
Obligations to related parties 65,000 25,000
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Total current liabilities 4,737,251 4,216,480
Deferred income taxes 3,308,315 3,363,000
Long-term obligations, less current portion 1,985,626 2,199,509
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TOTAL LIABILITIES 10,031,192 9,778,989
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Commitments and contingencies
Shareholders' equity:
Series A Convertible Preferred stock, $.01 par value;
400,000 shares authorized; 310,000 shares issued
and outstanding, at face value 775,000 775,000
Series B 6% Cumulative Convertible Preferred stock,
$.01 par value; 800,000 shares authorized;
30,000 shares issued and outstanding, at face value 75,000 75,000
Common stock, $.01 par value; 20,000,000 shares authorized;
2,917,224 shares issued and outstanding 29,172 29,172
Additional paid-in capital 1,860,663 1,861,788
Retained earnings 5,244,828 5,371,144
Accumulated other comprehensive income:
Unrealized losses on marketable equity securities (97,215) --
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TOTAL SHAREHOLDERS' EQUITY 7,887,448 8,112,104
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 17,918,640 $ 17,891,093
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
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2000 1999
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<S> <C> <C>
Revenues:
Distribution $ 1,512,180 $ 12,612,329
Manufacturing 1,535,838 1,306,068
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TOTAL REVENUES 3,048,018 13,918,397
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Cost of goods sold:
Distribution 489,676 12,108,369
Manufacturing 894,258 1,019,286
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TOTAL COST OF GOODS SOLD 1,383,934 13,127,655
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GROSS PROFIT:
Distribution 1,022,504 503,960
Manufacturing 641,580 286,782
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TOTAL GROSS PROFIT 1,664,084 790,742
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SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,269,898 971,725
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OPERATING INCOME (LOSS) BEFORE
OTHER INCOME AND EXPENSE 394,186 (180,983)
Other income (expense):
Interest income 11,493 9,421
Other income and expenses, net 27,853 124,592
Equity in loss of affiliated companies (441,781) --
Interest expense (118,067) (134,681)
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TOTAL OTHER INCOME (EXPENSE) (520,502) (668)
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LOSS BEFORE INCOME TAXES (126,316) (181,651)
Income taxes -- --
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NET LOSS (126,316) (181,651)
Preferred stock dividends 1,125 1,125
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NET LOSS AVAILABLE
TO COMMON SHAREHOLDERS $ (127,441) $ (182,776)
============ ============
Basic loss per share $ (0.04) $ (0.05)
============ ============
Basic weighted average number of
common shares outstanding 2,917,224 3,535,224
============ ============
Diluted loss per share $ (0.04) $ (0.05)
============ ============
Diluted weighted average number of
common shares outstanding 2,917,224 3,535,224
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
THREE MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
SERIES A SERIES B
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
---------------------------- ---------------------------- ----------------------------
SHARES DOLLARS SHARES DOLLARS SHARES DOLLARS
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT MARCH 31, 2000 310,000 $ 775,000 30,000 $ 75,000 2,917,224 $ 29,172
Accrual of preferred dividends -- -- -- -- -- --
Net loss -- -- -- -- -- --
Other comprehensive income -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
BALANCES AT JUNE 30, 2000 $ 310,000 $ 775,000 $ 30,000 $ 75,000 2,917,224 $ 29,172
=========== =========== =========== =========== =========== ===========
<CAPTION>
ACCUMULATED OTHER
COMPREHENSIVE INCOME
--------------------
ADDITIONAL UNREALIZED TOTAL
PAID-IN RETAINED LOSSES ON SHAREHOLDERS'
CAPITAL EARNINGS SECURITIES EQUITY
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCES AT MARCH 31, 2000 $ 1,861,788 $ 5,371,144 $ -- $ 8,112,104
Accrual of preferred dividends (1,125) -- -- (1,125)
Net loss -- (126,316) -- (126,316)
Other comprehensive income -- -- (97,215) (97,215)
----------- ----------- ----------- -----------
BALANCES AT JUNE 30, 2000 $ 1,860,663 $ 5,244,828 $ (97,215) $ 7,887,448
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(127,441) $(182,776)
Adjustments to reconcile net loss to net
cash from operating activities:
Depreciation and amortization 103,342 98,212
Equity in loss of affiliated company 441,713 --
Changes in operating assets and liabilities:
Accounts receivable 72,506 (410,120)
Inventory (480,700) (308,727)
Due from affiliates (21,421) --
Prepaid registration expenses (31,260) --
Prepaid expenses and other current assets (299,780) (132,453)
Increase in other assets (261,059) (8,038)
Accounts payable 220,688 835,798
Other payables 448,768 (27,052)
Accrued expenses 111,534 16,030
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 176,890 (119,126)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (78,396) (244,801)
Purchases of marketable securities (47,160) --
Increase in intangible assets -- (500)
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NET CASH USED IN INVESTING ACTIVITIES (125,556) (245,301)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in revolving line of credit agreements (224,514) (175,086)
Proceeds from issuance of long-term obligations -- 124,941
Payments of long-term obligations (239,873) (251,972)
Proceeds from issuance of related party obligations 43,230 --
Payments of related party obligations -- (13,434)
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NET CASH USED IN FINANCING ACTIVITIES (421,157) (315,551)
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NET INCREASE (DECREASE) IN CASH (369,823) (679,978)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 693,595 899,951
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 323,772 $ 219,973
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS -
CONTINUED (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999
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<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 93,652 $134,115
======== ========
Cash paid during the period for income taxes $ -- $ --
======== ========
Supplemental schedule of non-cash financing activities:
Capital lease obligations incurred for purchase of
property and equipment $ -- $124,941
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
DYNAMIC HEALTH PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 1999
NOTE A-BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instruction to Form 10-QSB and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete consolidated financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the three
month periods ended June 30, 2000 and 1999 are not necessarily indicative of the
results that may be expected for the year ending March 31, 2001. For further
information, refer to the consolidated financial statements and footnotes
included in the Company's Form 10-KSB for the year ended March 31, 2000.
NOTE B-PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements as of and for the three
months ended June 30, 2000 include the accounts of Dynamic Health Products, Inc.
and its wholly-owned subsidiaries (collectively the "Company"), Go2Pharmacy.com,
Inc. ("Go2") and its subsidiary Breakthrough Engineered Nutrition, Inc.
("Breakthrough"), J. Labs, Inc. ("JLabs"), Herbal Health Products, Inc.
("Herbal"), Dynamic Life, Inc. and its subsidiaries Dynamic Life Asia, LLC and
Dynamic Life Korea Ltd. (collectively "Dynamic Life"), Dynamic Financials
Corporation and its subsidiary Bryan Capital Limited Partnership, and Today's
Drug, Inc. Significant intercompany balances and transactions have been
eliminated in consolidation.
The condensed consolidated financial statements as of and for the three
months ended June 30, 1999 include the accounts of Dynamic Health Products, Inc.
and its wholly-owned subsidiaries, Go2, JLabs, Herbal, Dynamic Life, and Becan
Distributors, Inc. and its subsidiary Discount Rx, Inc. (collectively "Becan").
Significant intercompany balances and transactions have been eliminated in
consolidation.
NOTE C-RECENTLY ISSUED AUTHORITATIVE GUIDANCE
In December 1999, Staff Accounting Bulletin 101 ("SAB 101"), "Revenue
Recognition in Financial Statements," was issued by the Securities and Exchange
Commission ("SEC"). SAB 101 provides guidance related to revenue recognition
issues based on interpretations and practices followed by the SEC. Management
has determined that the adoption of SAB 101 did not have a material impact on
its June 30, 2000 condensed consolidated financial statements.
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<PAGE>
NOTE D-INVESTMENT IN UNCONSOLIDATED AFFILIATE
Investment in net assets of an affiliated company accounted for under
the equity method amounted to $8,761,282 as of June 30, 2000 with $441,781 being
recorded as our share of their loss for the three months ended June 30, 2000. As
the investment did not exist during the comparable June 30, 1999 period
presented, no financial information for the Company's equity-basis affiliate is
provided as of and for the three months ended June 30, 1999.
The combined results of operations and financial position of the
Company's equity-basis affiliate is summarized below as of and for the three
months ended June 30, 2000:
JUNE 30, 2000
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Condensed Income Statement Information:
Net sales $ 28,816,653
Gross profit 1,002,962
Net loss (1,519,829)
Condensed Balance Sheet Information:
Current assets 20,160,581
Non-current assets 29,973,325
Current liabilities 15,989,713
Non-current liabilities 1,471,575
Total shareholders' equity 32,672,618
NOTE E-COMPREHENSIVE INCOME
The Company utilizes the guidance provided by Statement of Financial
Accounting Standards No. 130 ("SFAS 130"), Reporting Comprehensive Income, which
became effective for the Company for the fiscal year ended March 31, 1999. SFAS
130 establishes standards for reporting and display of comprehensive income
within the general purpose financial statements and requires reclassification of
applicable financial statement components for any prior period comparative
financial statement components. The Company has implemented SFAS 130 as of and
for the three months ended June 30, 2000 based on comprehensive income
transactions being present. The Company has elected to present the comprehensive
income items within the shareholders' equity section of the balance sheet in
addition to presenting a consolidated statement of changes in equity statement.
The following presents comprehensive income as of June 30, 2000:
<TABLE>
<CAPTION>
BEFORE-TAX TAX (EXPENSE) NET-OF-TAX
AMOUNT BENEFIT AMOUNT
---------- ------------ ----------
<S> <C> <C> <C>
Unrealized losses on marketable equity
securities held for sale $(151,900) $ 54,685 $ (97,215)
--------- --------- ---------
Other comprehensive income $(151,900) $ 54,685 $ (97,215)
========= ========= =========
</TABLE>
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<PAGE>
NOTE F-SEGMENT INFORMATION
The Company has two industry segments: Distribution and Manufacturing.
The channels of distribution for its proprietary products and the channels of
distribution of the products it manufactures for others include health food,
drug, convenience and mass market stores, and direct marketing through
distributors and catalog sales throughout the United States. The Company has two
manufacturing facilities located in the greater Tampa Bay, Florida area. In
addition to being presented separately, intersegment financial data is included
in the gross segment amounts disclosed below in order to present accurate
segment information, where as on the condensed consolidated balance sheets and
statements of operations, all intercompany transactions have been eliminated in
consolidation.
The Company sold Becan, one of its distribution subsidiaries, in
November 1999. Becan had distribution centers located in Pittsburgh,
Pennsylvania and Mandeville, Louisiana. Based on the sale of this subsidiary,
Becan's financial segment data related to its revenues, gross profits, operating
income (loss) and its assets are only included as of and for the three months
ended June 30, 1999.
The Company commenced operations for one of its distribution
subsidiaries, Dynamic Korea, during April 2000. Based on the date of commencing
initial operations, Dynamic Korea's financial segment data related to its
revenues, gross profits, operating income (loss) and its assets are only
included as of and for the three months ended June 30, 2000.
Presented below is condensed segment information as of and for the
three months ended June 30, 2000 and 1999, as required by SFAS 131, Disclosures
about Segments of an Enterprise and Related Information:
2000 1999
-----------------------------------------------
(UNAUDITED) (UNAUDITED)
Revenues:
Distribution $ 260,143 $ 12,693,205
Distribution - Korea 1,885,981 --
Manufacturing 1,535,838 1,363,782
Intersegment 787,867 139,657
Gross profit:
Distribution 129,004 447,780
Distribution - Korea 780,804 --
Manufacturing 641,580 342,425
Operating income (loss):
Distribution (86,666) (88,108)
Distribution - Korea 283,039 --
Manufacturing 198,924 (36,591)
Assets:
Distribution 938,979 4,841,027
Distribution - Korea 1,146,777 --
Manufacturing 5,053,170 5,610,096
Intersegment 697,391 212,404
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<PAGE>
NOTE G-INCOME TAXES
The Company utilizes the guidance provided by Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), Accounting for Income Taxes. Under
SFAS 109, the Company uses the asset and liability method which recognizes the
amount of current and deferred taxes payable or refundable based on transactions
recorded as of and for the period presented in the consolidated financial
statements as determined by the enacted tax laws and tax rates. The company has
a current and a deferred tax liability recorded as of June 30, 2000 of $400,000
and $3,308,315, respectively, primarily due to the gain on the November 1999
sale of Becan.
NOTE H-RELATED PARTY TRANSACTIONS
In June 2000, Go2 established a $100,000 revolving line of credit with
Carnegie Capital, LTD, an affiliate of Jugal K. Taneja, Chief Executive Officer
and Chairman of the Board of the Company, to provide a source of funding for
cash requirements directly related to Go2's Registration Statement. The note
bears interest at 10% per annum. Principal and interest on the note is due and
payable in full upon the successful completion of a public offering of Go2's
common stock. In the event that a public offering is not completed, the
principal balance and any unpaid accrued interest is to be repaid in six equal
monthly installments. As of June 30, 2000, the outstanding principal balance on
this note was $20,000 and is included in obligations to related parties.
In June 2000, Go2 established a $100,000 revolving line of credit with
Joseph Zappala, a Director of DrugMax.com, Inc., an affiliate of the Company and
the President of Go2Pharmacy.com, Inc., a Delaware corporation, to provide a
source of funding for cash requirements directly related to Go2's registration
statement. The note bears interest at 10% per annum. Principal and interest on
the note is due and payable in full upon the successful completion of a public
offering of Go2's common stock. In the event that a public offering is not
completed, the principal balance and any unpaid accrued interest is to be repaid
in six equal monthly installments. As of June 30, 2000, the outstanding
principal balance on this note was $20,000 and is included in obligations to
related parties.
NOTE I-SUBSEQUENT EVENTS
Go2 has filed a registration statement on Form SB-2 with the Securities
and Exchange Commission. The registration statement is subject to completion and
there can be no assurance as to the successful completion of the initial public
offering. Simultaneous and conditioned upon the offering, Go2 will be acquiring
the Delaware corporation, Go2Pharmacy.com, Inc., in exchange for 3,000,000
shares of its common stock. If the offering is completed successfully, the
Company will own 3,000,000 shares, or 42.8% of the common stock of Go2.
Reference is made to Go2Pharmacy.com, Inc.'s Registration Statement No.
333-92849 on Form SB-2, as filed with the SEC on July 25, 2000.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
The Company derives its revenues from developing, manufacturing,
wholesaling and distributing a wide variety of non-prescription dietary
supplements, and health and beauty care products. Revenues are billed and
recognized as product is produced and shipped, net of discounts, allowances,
returns and credits.
Cost of goods sold is comprised of direct manufacturing and material
product costs, direct personnel compensation and other statutory benefits and
indirect costs relating to labor to support product manufacture and the
warehousing of production and other manufacturing overhead. Research and
development expenses are charged against cost of goods sold as incurred.
Selling, general and administrative costs include management and general office
salaries, advertising and promotional expenses, sales and marketing and other
indirect operating costs. Interest and other income (expense) consists primarily
of interest expense associated with borrowings to finance capital equipment
expenditures and other working capital needs.
In November 1999, the Company sold Becan, a significant subsidiary of
the Company, a distributor and wholesaler of prescription pharmaceuticals. The
condensed consolidated financial statements for the three months ended June 30,
1999 include the results of operations for Becan.
In February 2000, the Company formed Dynamic Life Korea Ltd. ("Dynamic
Korea"), as a Korean corporation, to market the Company's products to
distributors in Korea. Dynamic Korea commenced its operations in April 2000.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
REVENUES. Total revenues decreased $10.9 million, or 78.1%, to $3.0
million for the three months ended June 30, 2000, as compared to $13.9 million
for the three months ended June 30, 1999. Distribution revenues decreased $11.1
million, or 88.0%, to $1.5 million for the three months ended June 30, 2000, as
compared to $12.6 million for the three months ended June 30, 1999. The decrease
primarily resulted from the absence of revenues associated with Becan and is
partially offset by an increase in revenues associated with Dynamic Korea.
Manufacturing revenues increased $230,000, or 17.6%, to $1.5 million for the
three months ended June 30, 2000, as compared to $1.3 million for the
corresponding period. The increase was primarily attributable to increased
volume of private label sales resulting from continued expansion of marketing
efforts and the introduction of new products.
GROSS PROFIT. Total gross profit increased $873,000, or 110.4%, to $1.6
million for the three months ended June 30, 2000, as compared to $791,000 for
the three months ended June 30, 1999. Gross margin increased from 5.7% for the
three months ended June 30, 1999 to 54.6% for the three months ended June 30,
2000. Distribution gross profit increased $519,000, or 102.9%, to $1.0 million
for the three months ended June 30, 2000, as compared to $504,000 for the three
months ended June 30, 1999. For the three months ended June 30, 2000,
distribution gross margin increased to 67.6%, from 4.0% in
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<PAGE>
the corresponding period. The increase was primarily attributable to revenues
and related cost of goods sold associated with Dynamic Korea during the three
months ended June 30, 2000, which yields a higher gross margin than that of
Becan, whose revenues and related cost of goods sold were reflected in the
corresponding period. Manufacturing gross profit increased $355,000, or 123.7%,
to $642,000 for the three months ended June 30, 2000, as compared to $287,000 in
the corresponding period. For the three months ended June 30, 2000,
manufacturing gross margin increased to 41.8%, from 22.0% in the corresponding
period. The increase was primarily attributable to an increase in sales volume
and 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
$298,000, or 30.7%, to $1.3 million for the three months ended June 30, 2000, as
compared to $972,000 in the corresponding period. The increase was primarily
attributable to additional advertising and promotional expenses, rents, as well
as payroll expenses and costs associated with fringe benefits to support our
increased sales and the Company's overall growth. As a percentage of sales,
selling, general and administrative expenses increased to 41.7% for the three
months ended June 30, 2000 from 7.0% in the corresponding period.
INTEREST INCOME (EXPENSE), NET. Interest expense, net of interest
income decreased $19,000 to $107,000 for the three months ended June 30, 2000
from $125,000 for the three months ended June 30, 1999. The decrease in interest
expense was a result of increases in principal payments on outstanding
obligations.
INCOME TAXES. At June 30, 2000, the Company had accrued income taxes of
$400,000 and a deferred income tax liability of $3.3 million, primarily
associated with the gain on the November 1999 sale of Becan. The Company had no
income tax expense for the three months ended June 30, 2000 due to the loss
incurred in that three month period, as adjusted for nondeductible loss in
equity of affiliated company and nontaxable foreign source income.
Management believes that there was no material effect on operations or
the financial condition of the Company as a result of inflation for the three
months ended June 30, 2000 and 1999. Management also believes that its business
is not seasonal; however, significant promotional activities can have a direct
impact on sales volume in any given quarter.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations through available borrowings
under its credit line facilities, loans from within the Company and from cash
provided by operations. The Company had working capital of $256,000 at June 30,
2000, inclusive of current portion of long-term obligations and credit
facilities, as compared to a working capital deficit of $37,000 at June 30,
1999.
Net cash provided by operating activities was $177,000 for the three
months ended June 30, 2000, as compared to net cash used in operating activities
of $119,000 for the three months ended June
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<PAGE>
30, 1999. Cash provided was primarily attributable to a decrease in accounts
receivable of $73,000, an increase in accounts payable of $221,000, an increase
in other payables of $449,000 and an increase in accrued expenses of $112,000,
partially offset by an increase in inventory of $481,000, an increase in due
from affiliates of $21,000, an increase in prepaid registration expenses of
$31,000, an increase in prepaid expenses and other current assets of $300,000
and an increase in other assets of $261,000.
Net cash used in investing activities was $126,000, representing the
purchase of property and equipment, and plant modifications of $78,000 and
purchases of marketable securities of $47,000.
Net cash used in financing activities was $421,000, representing
repayments on revolving lines of credit of $225,000, repayments of long-term
obligations of $240,000, partially offset by proceeds from issuance of related
party obligations of $43,000.
Management believes that cash expected to be generated from operations,
current cash reserves, and existing financial arrangements will be sufficient
for the Company to meet its capital expenditures and working capital needs for
its operations as presently conducted. The Company's future liquidity and cash
requirements will depend on a wide range of factors, including the level of
business in existing operations, expansion of facilities, expected results from
recent procedural changes in accounts receivable and inventory procurement, and
possible acquisitions. In particular, if cash flows from operations and
available credit facilities are not sufficient, it will be necessary for the
Company to seek additional financing. While there can be no assurance that such
financing would be available in amounts and on terms acceptable to the Company,
management believes that such financing would likely be available on acceptable
terms.
In February 1999, the Company established a $2,000,000 credit facility
to provide additional working capital in support of accounts receivable and
inventory and to support its continued growth. A portion of the proceeds from
the line of credit were funded in the form of a 60-month term loan for
approximately $491,000, for repayment of certain capital lease obligations. The
remainder of this credit facility is in the form of a revolving line of credit.
The note bears interest at the Prime Rate of The Chase Manhattan Bank in New
York, New York, plus 2.25% per annum on the unpaid outstanding principal of each
advance, payable monthly. The note is to be secured by a blanket lien on all
assets of the Company, exclusive of certain leased assets. The note is also
secured by a personal guarantee from the Company's Chairman of the Board. The
credit facility provides substantial penalties for early termination. At June
30, 2000, the outstanding principal balance on the line of credit was
approximately $625,000.
In December 1999, Go2 established a $500,000 revolving line of credit
with First Community Bank of America, to provide additional working capital for
the Company. The note bears interest at variable rates, commencing at 6.5% per
annum, on the unpaid outstanding principal of each advance, payable monthly. The
note is secured by a guarantee in the form of a Third Party Pledge Agreement in
favor of First Community Bank of America, from the Company. 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 June 30, 2000, the outstanding principal
balance on this note was $500,000.
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<PAGE>
Go2 has filed a registration statement on Form SB-2 with the Securities
and Exchange Commission. The registration statement is subject to completion and
there can be no assurance as to the completion of the initial public offering.
In accordance with a merger agreement executed in July 2000, simultaneous and
conditioned upon the offering, Go2 will be acquiring the Delaware corporation,
Go2Pharmacy.com, Inc., in exchange for 3,000,000 shares of its common stock. If
the offering is successful, the Company will own 3,000,000 shares, or 42.8% of
the common stock of Go2. Reference is made to Go2Pharmacy.com, Inc.'s
Registration Statement No. 333-92849 on Form SB-2, as filed with the SEC on July
25, 2000.
In June 2000, Go2 established a $100,000 revolving line of credit with
Carnegie Capital, LTD, an affiliate of Jugal K. Taneja, Chief Executive Officer
and Chairman of the Board of the Company, to provide a source of funding for
cash requirements directly related to Go2's Registration Statement. The note
bears interest at 10% per annum. Principal and interest on the note is due and
payable in full upon the successful completion of a public offering of Go2's
common stock. In the event that a public offering is not completed, the
principal balance and any unpaid accrued interest is to be repaid in six equal
monthly installments. As of June 30, 2000, the outstanding principal balance on
this note was $20,000.
In June 2000, Go2 established a $100,000 revolving line of credit with
Joseph Zappala, a Director of DrugMax.com, Inc., an affiliate of the Company and
the President of Go2Pharmacy.com, Inc., a Delaware corporation, to provide a
source of funding for cash requirements directly related to Go2's registration
statement. The note bears interest at 10% per annum. Principal and interest on
the note is due and payable in full upon the successful completion of a public
offering of Go2's common stock. In the event that a public offering is not
completed, the principal balance and any unpaid accrued interest is to be repaid
in six equal monthly installments. As of June 30, 2000, the outstanding
principal balance on this note was $20,000.
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<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time the Company is subject to litigation incidental to
its business. Such claims, if successful, could exceed applicable insurance
coverage. The Company is not currently a party to any material legal
proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. - NOT APPLICABLE.
ITEM 4. - NOT APPLICABLE.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
The following exhibits are filed with this report:
2.1 Merger Agreement By And Among Go2Pharmacy.com, Inc. (Florida) And
Go2Pharmacy.com, Inc. (Delaware), dated June 26, 2000. (1)
3.1 Articles of Incorporation of Direct Rx Healthcare, Inc., filed January
27, 1998. (2)
3.2 Articles of Amendment to Articles of Incorporation of Nu-Wave Health
Products, Inc., dated August 11, 1998. (3)
3.3 Articles of Amendment to Articles of Incorporation of Dynamic Health
Products, Inc., filed September 1, 1998. (4)
3.4 Articles of Restatement of the Articles of Incorporation of Dynamic
Health Products, Inc., filed April 16, 1999. (4)
10.1 Employment Agreement between the Company and Paul Santostasi dated June
12, 1998. (4)
10.2 Employment Agreement between the Company and Jugal K. Taneja dated
March 15, 1999. (4)
10.3 Employment Agreement between the Company and Dr. Kotha S. Sekharam
dated March 15, 1999. (4)
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<PAGE>
10.4 Loan And Security Agreement between Dynamic Health Products, Inc. and
Innovative Health Products, Inc. and The CIT Group/Credit Finance, Inc.
dated February 2, 1999. (4)
10.5 Line of Credit Agreement in favor of First Community Bank of America
from the Company, dated October 4, 1999. (5)
27.1 Financial Data Schedule (for SEC use only).
------------
(1) Incorporated by reference to Go2Pharmacy.com, Inc.'s Registration
Statement No. 333-92849 on Form SB-2, as filed with the SEC on July
25, 2000.
(2) Incorporated by reference to the Company's Annual Report on Form
10-KSB for the fiscal year ended March 31, 1998, file number
0-23031, filed in Washington, D.C.
(3) Incorporated by reference to the Company's Quarterly Report on Form
10-QSB for the quarter ended June 30, 1998, file number 0-23031,
filed in Washington, D.C.
(4) Incorporated by reference to the Company's Annual Report on Form
10-KSB for the fiscal year ended March 31, 1999, file number
0-23031, filed in Washington, D.C.
(5) Incorporated by reference to the Company's Quarterly Report on Form
10-QSB for the quarter ended December 31, 1999, file number
0-23031, filed in Washington, D.C.
(b) REPORTS ON FORM 8-K.
During the three months ended June 30, 2000, the Company filed two
reports on Form 8-K.
Form 8-K dated May 9, 2000, with respect to a change in the Company's
certifying accountants to Brimmer, Burek & Keelan LLP, for the fiscal year ended
March 31, 2000.
Form 8-K/A dated June 5, 2000, with respect to a change in the
Company's certifying accountants to Brimmer, Burek & Keelan LLP, for the fiscal
year ended March 31, 2000.
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<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DYNAMIC HEALTH PRODUCTS, INC.
Date: August 15, 2000 By: /s/ JUGAL K. TANEJA
--------------------
Jugal K. Taneja
Chairman of the Board, Chief
Executive Officer, and Director
Date: August 15, 2000 By: /s/ CAROL DORE-FALCONE
-----------------------
Carol Dore-Falcone
Chief Financial Officer
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<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
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27.1 Financial Data Schedule
