-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BVrTa6ROXr1L2UL8H7n5T9vLUpGYvO/erIUEzaPF2l+qidb4t1xwLrD2e4EOmWCD JVZ7LsyKI3Yfl+ZjwYFCGg== 0001021408-02-000113.txt : 20020413 0001021408-02-000113.hdr.sgml : 20020413 ACCESSION NUMBER: 0001021408-02-000113 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020107 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20020107 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DRUGMAX INC CENTRAL INDEX KEY: 0000921878 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HEALTH SERVICES [8000] IRS NUMBER: 341755390 STATE OF INCORPORATION: NV FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-15445 FILM NUMBER: 2503386 BUSINESS ADDRESS: STREET 1: 12505 STARKEY RD STREET 2: SUITE A CITY: LARGO STATE: FL ZIP: 33773 BUSINESS PHONE: 7275330431 MAIL ADDRESS: STREET 1: 6950 BRYAN DAIRY ROAD CITY: LARGO STATE: FL ZIP: 33777 FORMER COMPANY: FORMER CONFORMED NAME: DRUGMAX COM INC DATE OF NAME CHANGE: 20000208 FORMER COMPANY: FORMER CONFORMED NAME: NUMED SURGICAL INC DATE OF NAME CHANGE: 19940419 FORMER COMPANY: FORMER CONFORMED NAME: NUTRICEUTICALS COM CORP DATE OF NAME CHANGE: 19990629 8-K/A 1 d8ka.txt FORM 8-K AMENDMENT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): January 7, 2002 (October 25, 2001) DRUGMAX, INC. (formerly DrugMax.com, Inc.) (Exact name of registrant as specified in its charter) STATE OF NEVADA 1-15445 34-1755390 --------------- ------- ---------- (State or other jurisdiction (Commission File Number) (I.R.S. Employer of incorporation) Identification No.) 12505 Starkey Road, Suite A Largo, Florida 33773 (Address of principal executive offices) Registrant's telephone number, including area code: (727) 533-0431 ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. Here are the financial statements and pro forma financial information, along with exhibits, to be included on Form 8-K dated October 25, 2001 for the acquisition of Penner & Welsch, Inc. (a) Financial statements of the businesses acquired, prepared pursuant to Rule 3.05 of Regulation S-X: ITEM Audited financial statements of Penner & Welsch, Inc. Report of Brimmer, Burek, & Keelan, LLP Independent Auditors Balance Sheet as of August 31, 2001 (audited) and 2000 (unaudited) Statement of operations for the Nine Months Ended August 31, 2001 (audited) and 2000 (unaudited) Statement of changes in Shareholder's Equity for the Nine Months Ended August 31, 2001 (audited) and 2000 (unaudited) Statement of Cash Flows for the Nine Months Ended August 31, 2001 (audited) and 2000 (unaudited) Notes to Financial Statements (b) Pro forma financial information required pursuant to Article 11 of Regulation S-X: ITEM DrugMax, Inc. And Subsidiaries Unaudited Pro Forma Condensed Consolidated Financial Statements Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 30, 2001 Unaudited Pro Forma Condensed Consolidated Statements of Operations for the Six Months Ended September 30, 2001 Unaudited Pro Forma Condensed Consolidated Statements of Operations for the Year Ended March 31, 2001 Notes to Pro Forma Condensed Consolidate Financial Statements (c) Exhibits in accordance with the provisions of Item 601 of Regulation S-K: Exhibit No. Description 2.1 Agreement for Purchase and Sale of Assets between Discount Rx, Inc. and Penner & Welsch, Inc., dated October 12, 2001 (1) (1) Incorporated by reference to the Company's Current Report on Form 8-K, file number 1-5445, filed in Washington, D.C. on May 3, 2000. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. DRUGMAX, INC. By: /s/ William L. LaGamba --------------------------------- William L. LaGamba, President and Chief Operating Officer Dated: January 7, 2002 PENNER & WELSCH. INC. INDEX TO FINANCIAL STATEMENTS Independent Auditors' Reports 1 Balance Sheet as of August 31, 2001 2-3 Income Statements for the nine months ended August 31, 2001 4 Statement of Changes in Shareholders' Equity for the six months ended August 31, 2001 5 Analysis of General and Administrative Expenses 6 Statements of Cash Flows for the six months ended August 31, 2001 7-8 Notes to Financial Statements 9-14 Unaudited Pro forma Condensed Consolidated Balance Sheet as of September 30, 2001 15 Unaudited Pro forma Condensed Consolidated Income Statements for the six months ended September 30, 2001 16-18 Unaudited Pro forma Condensed Consolidated Income Statements for the year ended March 31, 2001 19 Notes to Unaudited Pro forma Condensed Consolidated Financial Statements 20-21
INDEPENDENT AUDITOR'S REPORT To the Shareholders of Penner & Welsch, Inc. We have audited the accompanying balance sheet of Penner & Welsch, Inc., a Louisiana corporation, as of August 31, 2001, and the related statements of operations, changes in stockholder's equity, and cash flows for the nine-month period 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 auditing standards generally accepted in the United States of America. 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 Penner & Welsch, Inc. as of August 31, 2001, and the results of its operations and its cash flows for the nine month period then ended in conformity with accounting principles generally accepted in the United States of America. We have reviewed the accompanying balance sheet of Penner & Welsch, Inc. as of August 31, 2000, and the related statements of operations, changes in stockholder's deficit, and cash flows for the nine-month period then ended. A review is substantially less in scope than an examination, the objective of which is the expression of an opinion on management's assumptions accordingly, we do not express such an opinion. Based on our review, we are not aware of any adjustments for the financial statements to conform to generally accepted accounting principles accepted in the United States of America. BRIMMER, BUREK & KEELAN LLP Certified Public Accountants Tampa, Florida January 4, 2002 PENNER & WELSCH, INC. BALANCE SHEETS AUGUST 31, 2001 AND 2000 ASSETS
AUDITED UNAUDITED 2001 2000 ------------------ ------------------ Current assets Cash $ 183,544 $ 175,562 Investment in equity securities - available for sale 265,000 300,000 Accounts receivable - trade (net of allowance for bad debt of $377,589 in 2001 and $385,402 in 2000) 1,384,413 2,822,426 Accounts receivable - trade (related party) 367,581 266,447 Rebates and chargebacks receivable 329,129 70,765 Inventories 1,811,639 3,901,451 Income tax receivable - 44,875 Prepaid Expenses 80,868 54,642 ------------------ ------------------ Total current assets 4,422,174 7,636,168 Equipment and leasehold improvements, net of accumulated depreciation 309,728 341,264 Other assets Notes receivable - affiliates 1,470,504 846,304 Due from affiliates 75,693 75,693 Other assets 6,167 11,694 ------------------ ------------------ Total other assets 1,552,364 933,691 Total assets $ 6,284,266 $ 8,911,123 ================== ==================
Please read accountants' audit report and accompanying notes.
LIABILITIES AND STOCKHOLDER'S DEFICIT LIABILITIES NOT SUBJECT TO COMPROMISE Current liabilities Accrued postpetition expenses 303,248 80,006 Postpetition trade accounts payable 2,419,813 - Line of credit - 1,170,952 Deferred income taxes - 25,842 Current portion of fully secured long-term debt 8,983 12,235 ------------ ------------ Total current liabilities 2,732,044 1,289,035 Fully secured long-term note, less current portion 32,634 34,019 ------------ ------------ Total liabilities not subject to compromise 2,764,677 1,323,054 LIABILITIES SUBJECT TO COMPROMISE Prepetition trade accounts payable 9,898,308 9,986,867 ------------ ------------ Total liabilities 12,662,985 11,309,921 Stockholder's deficit Common stock ($1 par value, 1000 shares authorized, issued, and outstanding) 1,000 1,000 Additional Paid-in capital 326 326 Retained deficit (6,395,045) (2,400,124) Accumulated other comprehensive income 15,000 - ------------ ------------ Total stockholder's deficit (6,378,719) (2,398,798) ------------ ------------ Total liabilities and stockholder's deficit $ 6,284,266 $ 8,911,123 ============ ============
Please read accountants' audit report and accompanying notes PENNER & WELSCH, INC. STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDING AUGUST 31, 2001 AND 2000
AUDITED UNAUDITED 2001 2000 -------------------- --------------------- Sales $33,186,779 $ 49,043,757 Cost of goods sold 33,270,059 47,718,191 -------------------- --------------------- Gross profit (loss) (83,280) 1,325,566 Operating Expenses General and administrative 1,542,735 2,349,275 Depreciation expense 59,196 43,266 -------------------- --------------------- 1,601,931 2,392,541 -------------------- --------------------- Loss from operations (1,685,211) (1,066,975) Other income (expense) Interest income 7,135 29,412 Interest expense (11,677) (213,635) Loss on disposal of assets - (309,524) -------------------- --------------------- Loss before reorganization items and income taxes (1,689,753) (1,560,722) Reorganization items Legal fees (206,511) - Trustee fees (30,000) - Management fees (996,465) - -------------------- --------------------- Loss before income taxes (2,922,729) (1,560,722) Income tax expense - - -------------------- --------------------- Net loss (2,922,729) (1,560,722) Other comprehensive income (loss) Unrealized gain (loss) on available for sale securities 15,000 (281,250) -------------------- --------------------- Comprehensive loss $(2,907,729) $ (1,841,972) ==================== ===================== Basic and diluted loss per common share $ (2,922) $ (1,561) Basic and diluted comprehensive loss per common share $ (2,908) $ (1,842) ==================== ===================== Weighted average common shares outstanding 1,000 1,000 ==================== ==================== Please read accountants' audit report and accompanying notes. 3
PENNER & WELSCH, INC. STATEMENTS OF CHANGES IN STOCKHOLDER'S DEFICIT FOR THE NINE MONTHS ENDING AUGUST 31, 2001 AND 2000
Accumulated Additional Other Common Paid-in- Treasury Retained Comprehensive Stock Capital Stock (Deficit) Income Total ---------- -------------- ------------ --------------- --------------- -------------- Balance, November 30, 1999 (Unaudited) $ 1,000 $ 326 $ (400,000) $ (436,357) $ 281,250 $ (553,781) Redemption (3,045) $ (3,045) Retirement of treasury stock - - 403,045 (403,045) - Net loss - - - (1,560,722) - (1,560,722) Other comprehensive income - - - - (281,250) (281,250) ------- ------ ---------- ------------ ---------- ------------ Balance, August 31, 2000 (Unaudited) $ 1,000 $ 326 $ - $ (2,400,124) $ - $ (2,398,798) ======= ====== ========== ============ ========== ============ Balance, November 30, 2000 $ 1,000 $ 326 $ - $ (3,472,316) $ - $ (3,470,990) Net loss - - - (2,922,729) - (2,922,729) Other comprehensive income - - - - 15,000 15,000 ------- ------ ---------- ------------ ---------- ------------ Balance, August 31, 2001 (Audited) $ 1,000 $ 326 $ - $ (6,395,045) $ 15,000 $ (6,378,719) ======= ====== ========== ============ ========== ============
Please read accountants' audit report and accompanying notes. PENNER & WELSCH, INC. ANALYSIS OF GENERAL AND ADMINISTRATIVE EXPENSES FOR THE NINE MONTHS ENDING AUGUST 31, 2001 AND 2000 AUDITED UNAUDITED 2001 2000 ------------- -------------- Salaries and wages $ 829,221 $ 1,061,413 Repairs and maintenance 19,973 20,182 Bad debts - 353,849 Rents 240,652 143,222 Taxes and licenses 93,888 123,444 Advertising 1,342 43,454 Employee benefit programs 33,624 55,094 Auto and truck 19,681 - Bank charges 7,225 13,162 Continuing education - 225 Contract labor 12,212 12,211 Dues and subscriptions 9,123 2,300 Insurance 42,951 68,285 Legal and professional 39,143 106,028 Travel and entertainment 49,745 87,102 Miscellaneous 12,342 67,658 Office expense 26,703 21,584 Postage 3,062 4,898 Stationary and printing 135 3,884 Security 3,401 2,720 Telephone 67,605 109,554 Utilities 30,707 23,882 Relocation - 25,123 ------------ ----------- Total $ 1,542,735 $ 2,349,275 ============ =========== Please read accountants' audit report and accompanying notes. PENNER & WELSCH, INC. STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED AUGUST 31, 2001 AND 2000
AUDITED UNAUDITED 2001 2000 ------------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (2,922,729) $ (1,560,722) Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities Depreciation 59,196 43,266 Amortization - 3,906 Loss on disposal of assets - 309,524 (Increase) decrease in: Accounts receivable - trade 993,665 1,219,584 Accounts receivable - trade (related party) (70,586) (110,599) Rebates and chargebacks receivable (329,129) 215,356 Sales tax receivable 100,307 - Due from employees - 2,021 Due from affiliates - (63,693) Income tax receivable 51,101 - Inventories 2,864,012 (1,110,860) Prepaid expenses (34,681) (35,466) (Decrease) increase in: Accounts payable - pre-petition (22,925) 1,350,322 Accounts payable - post-petition 226,195 - Accrued expenses (164,976) (154) ------------- ------------ Net cash provided (used) by operating activities 749,450 262,485 CASH FLOWS FROM INVESTING ACTIVITIES: Loan to affiliate (624,201) (382,920) Proceeds from sale of property and equipment - 26,482 Purchase of property and equipment (32,261) (259,291) ------------- ------------ Net cash provided (used) by investing activities (656,462) (615,729) CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term debt (15,565) (20,763) Proceeds from (payments on) line of credit (750,000) (434,461) ------------- ------------ Net cash provided (used) by financing activities (765,565) (455,224) ------------- ------------ Net increase (decrease) in cash (672,577) (808,468) Cash at beginning of period 856,121 984,030 ------------- ------------ Cash at end of period $ 183,544 $ 175,562 ============= ============
PENNER & WELSCH, INC. STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED AUGUST 31, 2001 AND 2000
AUDITED UNAUDITED 2001 2000 ------------------ ------------------ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for interest $ 11,677 $ 213,635 Cash paid during the year for income taxes - - NON-CASH INVESTING AND FINANCING ACTIVITIES: For the period ended August 31, 2001, the Company incurred $38,448 of new debt in connection with the acquisition of property and equipment.
Please read accountants' audit report and accompanying notes. PENNER & WELSCH, INC. NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2001 AND 2000 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Activity Penner & Welsch, Inc (Company), incorporated on December 15, 1963 in the State of Louisiana, is engaged in a single industry, the wholesale distribution of pharmaceuticals, including prescription drugs, medications and ointments to pharmacies. The Company's products are sold through its locations in St. Rose, Louisiana and Memphis, Tennessee. At present, all products are shipped through its distribution center in St. Rose. Reorganization under Bankruptcy Proceedings In September 2000 the Company filed a petition under Chapter 11 of the Bankruptcy laws. This generally delays payment of liabilities incurred prior to filing that petition while the Company develops a plan of reorganization that is satisfactory to its creditors and allows it to continue as a going concern. The carrying amounts of assets and liabilities are unaffected by the proceedings, but liabilities are presented according to the status of creditors. Basis of Accounting The Company uses the accrual method of accounting for financial statements and income tax purposes. Management 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 at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with maturity of three months or less to be cash equivalents. Accounts Receivable The Company provides for estimated losses on accounts receivable based on prior bad debt experience and a review of existing receivables. Based on these factors, there is an allowance for bad debts of $ 377,589 and $385,402 for the periods ended August 31, 2001 and 2000, respectively. PENNER & WELSCH, INC. NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2001 AND 2000 Inventories Inventories are stated at the lower of cost or market using the first-in and first-out (FIFO) method of valuation. Property and Equipment Property and equipment are carried at cost. Depreciation of property and equipment is provided using the straight-line method for financial reporting purposes at rates based on the following estimated lives:
Years --------------- Computer Equipment 5 Computer Software 3 Furniture and Fixtures 7 Leasehold Improvements 5-10 Machinery and Equipment 7 Office Equipment 5 Vehicles 5
Expenditures for maintenance and repairs are charged to expense as incurred. Impairment of Assets 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 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 future cash flows. There have been no impairment losses in 2001 or 2000. Income Taxes The Company uses the Statement of Financial Standards No. 109 "Accounting for Income Taxes" (SFAS No. 109) in reporting deferred income taxes. SFAS No. 109 requires a company to recognize deferred tax liabilities and assets for expected future income tax consequences of events that have been recognized in the company's financial statements. Under this method, deferred tax assets and liabilities are determined based on temporary differences between the financial carrying amounts and the tax bases of assets and liabilities using enacted tax rates in effect in the years in which the temporary differences are expected to reverse. Revenue Recognition PENNER & WELSCH, INC. NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2001 AND 2000 Revenue Recognition Revenues are recognized when the merchandise is shipped to the customer. Concentration of Credit Risk The Company purchases the majority of its products from one supplier. If the Company was to lose this supplier it could hinder the Company's continued supply of product and negatively impact it's business. The sale of the majority of the Company's assets to Discount (NOTE 11) will lessen the future impact of this concentration of supply. NOTE 2 - INVESTMENTS Cost and fair market value of marketable securities available for sale at August 31, are as follows: 2001 2000 ---------- ---------- Cost $ 300,000 $ 300,000 Gross Unrealized Gains 296,250 281,250 Gross Unrealized Losses (331,250) (281,250) ---------- ---------- Fair Value $ 265,000 $ 300,000 ========== ========== The Company classifies its marketable securities as available for sale. Securities classified as available for sale are carried in the financial statements at fair value and unrealized holding gains and losses are reported in other comprehensive income. Unrealized holding gains and losses, during 2001 and 2000, were $15,000 and ($281,250), respectively. NOTE 3 - PROPERTYAND EQUIPMENT Property and equipment at August 31, 2001 and 2000, consists of the following: 2001 2000 -------- -------- Computer Hardware $137,685 $110,433 Computer Software 26,042 21,966 Furniture and Fixtures 12,097 11,624 Leashold Improvements 37,982 35,632 Machinery and Equipment 182,415 182,415 Office Equipment 61,559 48,717 Vehicles 37,363 37,363 -------- --------- 495,143 448,150 Less Accumulated Depreciation (185,415) (106,886) --------- --------- 309,728 341,338 ========= ========= NOTE 4 - LINE OF CREDIT The Company has a line of credit with Hibernia National Bank with a maximum of $4,500,000 available dependent upon eligible receivables and inventory levels. Interest is payable at Wall Street Journal published Prime plus 3/4% and is payable once a month. The line is secured by PENNER & WELSCH, INC. NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2001 AND 2000 substantially all assets of the Company. The balance due at August 31, 2001 and 2000 was $ -0- and $ 1,170,952 respectively. NOTE 5 - LONG-TERM DEBT Long-term debt consists of the following: 8/31/01 8/31/00 -------------- --------------- Note payable to Associates Leasing, Inc., monthly payments of $513 including interest at 15.11%, maturing May 2005, secured by forklift. $ 17,254 $ 20,260 Note payable to Conseco Finance Corp., monthly payments of $306 including interest at 16.53%, maturing December 2005, secured by office copiers 11,229 - Note payable to Great American Leasing Corp., monthly payments of $361 including interest at 11.12%, maturing May 2005, secured by telephone equipment 13,133 15,678 Note payable to Hibernia National Bank, monthly payments of $498 including interest at 9.033%, maturing August 2002, secured by automobile - 10,316 -------------- --------------- Total Notes Payable 41,616 46,254 Less: Portion due within one year (8,983) (12,235) -------------- --------------- Long-Term Portion $ 32,633 $ 34,019 ============== ===============
Assuming no changes in loan terms, future principal repayment will be as follows: 2002 $ 8,983 2003 10,288 2004 11,788 2005 9,956 2006 601 --------------- $41,616 ===============
Interest paid during the period ended August 31, 2001 and 2000 amounted to $11,677 and $213,635, respectively. NOTE 6 - OPERATING LEASES PENNER & WELSCH, INC. NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2001 AND 2000 The Company has three operating leases, two of which expired during 2001. The remaining lease is with the owner of the Company for the company's main office and warehouse facility in St. Rose, Louisiana (See Note 7). Expenses incurred under these leases for the nine-month periods ended August 31, 2001 and 2000 was $240,652 and $134,639 respectively. NOTE 7 - RELATED PARTY TRANSACTION - PROPERTY RENTAL In August of 2000 the Company moved into a new 40,000 square foot distribution center in St. Rose, Louisiana. The Company is leasing the building from its sole shareholder for a period of 20 years on a triple net basis at the rate of $24,000 per month. The following are future minimum lease payments for the years ending August 31: 2002 $288,000 2003 288,000 2004 288,000 2005 288,000 2006 288,000
The Company also has notes receivable from Gregg Johns Real Estate LLC of $1,470,504 and $846,303 at August 31, 2001 and 2000 respectively. Gregg Johns Real Estate LLC is owned by the owner of the Company. Gregg Johns Real Estate LLC financed the acquisition of the property through a bank. The Company's inventory and accounts receivable are collateral for the debt. NOTE 8 - RELATED PARTY TRANSACTIONS Southern Couriers, LLC (Southern) handles all deliveries for the Company in the New Orleans area and is 99% owned by the shareholder of the Company. In 1999 the Company entered into a management agreement contract with Southern. The agreement provided that the Company would provide all accounting needs and management services for a monthly fee of $4,000. The balance due from Southern at August 31, 2001 and 2000 was $51,236. The Pharmacy, LLC (The Pharmacy) is also owned by the sole shareholder of the Company. In 2000, the Company entered into a management agreement contract with The Pharmacy. The agreement provided that the Company would provide all accounting needs and management services for a monthly fee of $4,000. The balance due from The Pharmacy at August 31, 2001 and 2000 was $24,456. In addition, the Company sold products to The Pharmacy resulting in a receivable due to the Company at August 31, 2001 and 2000 of $367,580 and $266,447 respectively. NOTE 9 - INCOME TAXES The income tax provision (benefit) consists of: PENNER & WELSCH, INC. NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2001 AND 2000
2001 2000 --------------- ---------------- Deferred taxes - Federal $837,189 $513,353
Due to uncertainty regarding the levels of future earnings, the Company has recorded a valuation allowance to reflect the estimated amount of deferred tax assets, which may not be realized, principally due to the expiration of net operation loss carryforwards. The change in the valuation allowance for the periods ending August 31, 2001 and 2000 is $1,350,542 and $424,911, respectively. The company has available at August 31, 2001, $2,993,476 of unused operating loss carryforwards that may be applied against future taxable income and that expire in various years from 2020 to 2021 subject to the outcome of the bankruptcy. NOTE 10 - CONTINGENCIES During the period ended August 31, 2001 the Company underwent a Sales & Use Tax audit by City of New Orleans. The City has assessed the Company approximately $268,000 in additional tax, interest, penalties and other costs due. The Company is contesting the calculation of the amount due and has accrued what it believes to be an accurate amount due of approximately $89,000. NOTE 11 - BANKRUPTCY REORGANIZATION On September 14, 2000, the Company filed a voluntary petition for relief under Chapter 11 of Title 11 of the United States Code with the United States Bankruptcy Court for the Eastern District of Louisiana. Under Chapter 11, certain claims against the Company in existence prior to the filing of the petitions for relief under the federal bankruptcy laws are stayed while the Company continues business operations as Debtor-in-possession. These claims are reflected in the August 31, 2001, balance sheet as "liabilities subject to compromise." Secured claims are secured primarily by liens on the Company's property, plant, and equipment. In addition, the Company executed a Management Agreement with Discount Rx, Inc. (Discount), a Louisiana wholesale distributor and a wholly owned subsidiary of DrugMax, Inc. (DrugMax) to manage the operations of the company. Discount also provided a letter of intent to purchase the assets of the Company. On May 30, 2001, a Plan of Reorganization (Plan) was filed with the Bankruptcy Court. Under the Plan, the Company's assets are to be liquidated through sale and other disposition as described in the Purchase Agreement. In order for the transfer of the assets to the purchaser to be free and clear of liens and claims, the debt due to Hibernia by Greg Johns Real Estate, LLC must be paid in full as the Company's inventory and accounts receivable served as collateral for the debt. To accomplish this payoff, the land owned by Greg Johns Real Estate, LLC will be refinanced or all or a portion of the property will be sold. Following the sale of assets a court-appointed disbursing agent will use the proceeds from the sale of the assets to discharge the payments due to the various Classes of creditors as described in the Plan. PENNER & WELSCH, INC. NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2001 AND 2000 On October 18, 2001, the Company sold the majority of its assets to Discount Rx, Inc., a subsidiary of DrugMax, Inc., for approximately $2,700,000 in accordance with the Plan. A court-appointed disbursing agent has been assigned to wind down the affairs of the Company and to use the proceeds to make payments directly to the creditors in each class in accordance with the Plan. As stated in the Plan, as a condition to closing the sale, Gregg Johns entered into an employment contract and non-compete agreement. As compensation for entering into the agreement, Gregg Johns received 25,000 shares of DrugMax stock. In addition, the Company sold 50,000 shares of DrugMax stock to certain officers and other individuals for $200,000. Those proceeds were used to pay various debts of the Company. DRUGMAX, INC. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET September 30, 2001 (UNAUDITED)
Drugmax Pro forma Penner Consolidated Drugmax & Welsch Total Adjustments Total ---------- ---------- ---------- ------------- -------------- ASSETS Current assets: Cash and cash equivalents 822,698 183,544 1,006,242 (200,000) A 706,242 (300,000) B [200,000] C Restricted cash 1,700,000 1,700,000 1,700,000 Investment in equity securities 265,000 265,000 (265,000) C - Accounts receivable, net of allowance for doubtful accounts 15,755,864 2,081,123 17,836,987 (1,604,398) A 16,232,589 Inventory 11,799,846 1,811,639 13,611,485 13,611,485 Due from affiliates 23,664 - 23,664 23,664 Net deferred income tax asset - current 397,780 - 397,780 397,780 Prepaid expenses and other current assets 268,050 80,868 348,918 348,918 ---------- --------- ---------- ---------- ---------- Total current assets 30,767,902 4,422,174 35,190,076 (2,169,398) 33,020,678 Property and equipment, net 405,073 309,728 714,801 714,801 Intangible assets, net 25,407,542 - 25,407,542 149,414 A 25,706,456 149,500 D Notes receivable - related parties 100,000 1,546,197 1,646,197 1,646,197 Net deferred income tax asset - long-term 712,500 712,500 712,500 Other 144,888 6,167 151,055 151,055
DRUGMAX, INC. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET September 30, 2001 (UNAUDITED)
Drugmax Pro forma Penner Consolidated Drugmax & Welsch Total Adjustments Total --------- ---------- ----------- ------------- -------------- Deposits 7,440 7,440 7,440 ---------- ---------- ---------- ---------- ---------- Total assets 57,545,345 6,284,266 63,829,611 (1,870,484) 61,959,127 ========== ========== ========== ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable 10,050,899 12,318,121 22,369,020 (1,604,398) A 20,464,622 (300,000) B Accrued expenses and other current liabilities 356,768 303,248 660,016 660,016 Credit lines payable 15,001,583 15,001,583 15,001,583 Notes payable - current portion 666,660 8,983 675,643 675,643 Due to affiliates 518,809 518,809 518,809 ---------- ---------- ---------- ---------- ---------- Total current liabilities 26,594,719 12,630,352 39,225,071 (1,904,398) 37,320,673 Notes payable - long-term portion 784,539 32,634 817,173 817,173 ---------- ---------- ---------- ---------- ---------- Total liabilities 27,379,258 12,662,986 40,042,244 (1,904,398) 38,137,846 ---------- ---------- ---------- ---------- ---------- Commitments and contingencies - - - - - Stockholders' equity: Preferred stock Common stock 6,970 1,000 7,970 875 A 7,120 (25) D
DRUGMAX, INC. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET September 30, 2001 (UNAUDITED)
Drugmax Pro forma Penner Consolidated Drugmax & Welsch Total Adjustments Total --------- ---------- ----------- ------------- -------------- Additional paid-in capital 38,450,005 326 38,450,331 749,549 A 39,349,355 149,475 D Accumulated deficit (8,290,888) (6,380,046) (14,670,934) (799,260) A (15,535,194) (65,000) C ---------- ---------- ----------- ---------- ---------- Total stockholders' equity 30,166,087 (6,378,720) 23,787,367 33,914 23,821,281 ---------- ---------- ----------- ---------- ---------- Total liabilities and stockholders' equity 57,545,345 6,284,266 63,829,611 (1,870,484) 61,959,127 ========== ========== =========== ========== ==========
DRUGMAX, INC. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS For the Six Months Ended September 30, 2001 (UNAUDITED)
Pro forma Penner Consolidated Drugmax & Welsch Total Adjustments Total ----------- ---------- ----------- ------------ ------------ Revenues 137,064,013 33,186,779 170,250,792 (14,619,113) A 154,635,214 (996,465) B Cost of goods sold 133,585,897 33,270,059 166,855,956 (14,619,113) A 152,236,843 ----------- ---------- ----------- ----------- ------------ Gross profit 3,478,116 (83,280) 3,394,836 (996,465) 2,398,371 ----------- ---------- ----------- ----------- ------------ Selling, general & administrative expenses 2,312,787 1,542,735 3,855,522 445,644 D 4,301,166 Amortization expense 56,705 56,705 24,902 C 81,607 Depreciation expense 100,054 59,196 159,250 159,250 ----------- ---------- ----------- ----------- ------------ Total operating expenses 2,469,546 1,601,931 4,071,477 470,546 4,542,023 ----------- ---------- ----------- ----------- ------------ Operating income (loss) 1,008,570 (1,685,211) (676,641) (1,467,011) (2,143,652) ----------- ---------- ----------- ----------- ------------ Other income (expense): Interest income 41,672 7,135 48,807 48,807 Other (4,769) (4,769) (65,000) E (69,769) Interest expense (536,639) (11,677) (548,316) (548,316) ----------- ---------- ----------- ----------- ------------ Total other income (expense) - net (499,736) (4,542) (504,278) - (569,278) ----------- ---------- ----------- ----------- ------------ Income (loss) before income tax benefit 508,834 (1,689,753) (1,180,919) (1,532,011) (2,712,930) ----------- ---------- ----------- ----------- ------------ Income tax benefit 1,110,280 - 1,110,280 - 1,110,280 ----------- ---------- ----------- ----------- ------------ Net income (loss) 1,619,114 (1,689,753) (70,639) (1,532,011) (1,602,650) =========== ========== =========== =========== ============ Income (loss) per common share - basic 0.23 (1,690) (0.01) (12.31) (.23) =========== ========== =========== =========== ============ Income (loss) per common share - diluted 0.23 (1,690) (0.01) (12.31) (.22) =========== ========== =========== =========== ============ Weighted average shares - basic 6,968,754 1,000 6,969,754 124,418 F 7,094,172 =========== ========== =========== =========== ============ Weighted average shares - diluted 7,150,143 1,000 7,151,143 124,418 F 7,275,561 =========== ========== =========== =========== ============
DRUGMAX, INC. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS For the Year Ended March 31, 2001 (UNAUDITED)
Pro forma Penner Consolidated Drugmax & Welsch Total Adjustments Total ----------------- -------------- ------------- --------------- -------------- Revenues 177,713,064 54,236,530 231,949,594 (23,263,512)A 208,686,082 Cost of goods sold 172,181,663 53,709,182 225,890,895 (23,263,512)A 202,627,333 ----------------- ---------------- ------------- --------------- -------------- Gross profit 5,531,401 527,348 6,058,749 -- 6,058,749 ----------------- ---------------- ------------- --------------- -------------- Selling & administrative expenses 5,163,124 2,606,018 7,769,142 445,644 C 8,214,786 Amortization expense 2,614,514 -- 2,614,514 49,805 B 2,664,319 Depreciation expense 247,868 43,162 291,030 -- 291,030 Impairment of intangible assets 4,439,749 -- 4,439,749 -- 4,439,749 ----------------- ---------------- ------------- --------------- -------------- Total operating expenses 12,465,255 2,649,180 15,114,435 495,449 15,609,884 ----------------- ---------------- ------------- --------------- -------------- Operating income (loss) (6,933,854) (2,121,832) (9,055,686) (495,449) (9,551,135) Other income (expense): ----------------- ---------------- ------------- --------------- -------------- Interest income 255,374 17,826 273,200 -- 273,200 Other (13,861) (377,124) (390,985) (65,000)D (455,985) Interest expense (1,124,242) (166,496) (1,290,738) -- (1,290,738) ----------------- ---------------- ------------- --------------- -------------- Total other income (expense) - net (882,729) (525,794) (1,408,523) (65,000) (1,473,523) ----------------- ---------------- ------------- --------------- -------------- Income (loss) before income tax benefit (7,816,583) (2,647,626) (10,464,209) (560,449) (11,024,658) ----------------- ---------------- ------------- --------------- -------------- Income tax benefit -- -- -- -- -- ----------------- ---------------- ------------- --------------- -------------- Net income (loss) (7,816,583) (2,647,626) (10,464,209) (560,449) (11,024,658) ================= ================ ============= =============== ============== Net income (loss) per common share basic and diluted (1.22) (2,647.63) (1.63) (4.50) (1.68) ================= ================ ============= =============== ============== Weighted average shares outstanding basic and diluted 6,419,950 1,000 6,420,950 124,418 E 6,545,368 ================= ================ ============= =============== ==============
DRUGMAX.COM, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The unaudited pro forma data presented in the unaudited pro forma condensed Consolidated statements of operations are included in order to illustrate the effect on the Company's financial statements of the transaction described below: On October 25, 2001, Discount Rx, Inc. (the "Buyer"), a wholly-owned subsidiary of DrugMax, Inc. (the "Company"), purchased (the "Purchase") substantially all of the assets of Penner & Welsch, Inc. ("Penner"), a wholesale distributor of pharmaceuticals based in Louisiana (the "Seller"), pursuant to an Agreement for the Purchase and Sale of Assets dated October 12, 2001 ("the Agreement"). As previously reported by the Company, the Seller was a Chapter 11 debtor which had voluntarily filed for Chapter 11 protection in the US Bankruptcy Court for Eastern Division of Louisiana. Pursuant to the Agreement, the Seller received an aggregate of 125,418 shares of restricted common stock of the Company, valued at $5.98 per share, and cash in the amount of $285,615, and forgiveness of $1,525,637 in trade accounts payable owed to the Buyer. The source of the funds used to acquire the Seller's assets was the working capital of the Company. The Agreement, including the nature and amount of the consideration paid to the Seller, was negotiated between the parties and, on October 15, 2001, was approved by the US Bankruptcy Court, Eastern Division of Louisiana. Simultaneous with the execution of the Agreement, both the Management Agreement and the Financing and Security Agreement between Buyer and Seller, pursuant to which the Buyer was managing and financing the operations of the Seller during the resolution of the bankruptcy proceedings, were terminated. In addition, in connection with the conclusion of the bankruptcy proceedings, McKesson HBOC filed a motion to dismiss its complaint against the Company related to the bankruptcy proceedings and the Agreement. The Company intends to continue to operate the business of the Seller under Valley Drug Company South. The description of the transactions described above is qualified in its entirety by reference to the Agreement and other documents referred to herein, copies of which are being filed as exhibits hereto. The pro forma information is based on the following historical financial statements after giving effect to the transactions using the purchase method of accounting and the assumptions and adjustments in the accompanying notes to the pro forma condensed consolidated financial statements. The unaudited consolidated financial statements of DrugMax (as filed on DrugMax's Form 10-QSB, for the six months ended September 30, 2001), The audited financial statements of Penner as of August 31, 2001, (filed with this report under Item 7 (a)) which have been provided by Penner (Because Penner has a November year end, Penner's financial statements have been adjusted to reflect the six months ended August 31, 2001). The unaudited financial statements of Penner as of March 31, 2001, (Because Penner has a November year end, Penner's financial statements have been adjusted to create a twelve month statement ending March 31, 2001) which have been provided by Penner, These pro forma condensed consolidated financial statements may not be indicative of the results that actually would have occurred if the consolidations had been in effect on the dates indicated or which may be obtained in the future. In the opinion of management, all adjustments have been made that are necessary to present fairly the pro forma data. (1) The pro forma consolidated balance sheet gives effect to the Penner acquisition as if it had occurred on September 30, 2001. Adjustments reflect the following: A To reflect the acquisition of Penner by DrugMax B To reflect the payment of cash to McKesson per the Mutual Release Agreement C To reflect Penner's sale of DrugMax stock D To reflect the issuance of 25,000 shares of DrugMax stock to Gregory Johns as compensation for entering into a non-compete agreement (2) The pro forma consolidated income statement as of September 30, 2001 gives effect to the Penner acquisition as if it had occurred on April 1, 2001. Adjustments reflect the following: A Elimination of intercompany revenues and expenses to reflect the consolidation of DrugMax and Penner B Elimination of management fees received from Penner & Welsch C Amortization of domain name acquired in the Penner acquisition (three year life) D Record the write off of costs paid for the Penner acquisition E Record the loss incurred on the sale of DrugMax stock F Record the issuance of 125,418 shares of DrugMax stock net of the 1000 share of Penner stock cancelled (3) The pro forma consolidated income statement as March 31, 2001 gives effect to the Penner acquisition as if it had occurred on April 1, 2000. Adjustments reflect A Elimination of intercompany revenues and expenses to reflect the consolidation of DrugMax and Penner B Amortization of domain name acquired in the Penner acquisition (three year life) C Record the write off of costs paid for the Penner acquisition D Record the loss incurred on the sale of DrugMax stock. E Record the issuance of 125,418 shares of DrugMax stock net of the 1,000 shares of Penner stock cancelled The Unaudited Pro Forma Condensed Consolidated Financial Statements should be read in conjunction with the financial statements and related notes of the respective companies. -----END PRIVACY-ENHANCED MESSAGE-----