SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR
15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2002
or
[ ] TRANSITION REPORT UNDER SECTION 13
OR 15 (d) OF THE EXCHANGE ACT
For the transition period from to
Commission File Number 1-15445
DRUGMAX, INC.,
(Formerly DrugMax.com, Inc.)
(Exact name of registrant as specified in its charter)
| NEVADA |
34-1755390 | |
| (State or other jurisdiction of |
(I.R.S. Employer | |
| incorporation or organization) |
Identification No.) |
25400 US Highway 19 North, Suite 137, Clearwater, Florida 33763
(Address of principal executive offices)
(727) 533-0431
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (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
As of February 6, 2003, there were 7,119,172 shares of common stock, par value $0.001 per share, outstanding.
DRUGMAX, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 2002
TABLE OF CONTENTS
| Page # | ||
| PART I FINANCIAL INFORMATION |
||
| Item 1. Financial Statements |
||
|
Condensed Consolidated Balance Sheets |
3 | |
| 4 | ||
|
Condensed Consolidated Statements of Cash Flows |
5 | |
| 6 | ||
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
13 | |
| 19 | ||
| Item 3. Quantitative and Qualitative Disclosures About Market Risk |
19 | |
| 20 | ||
| PART II OTHER INFORMATION |
||
| 20 | ||
| 21 | ||
| 21 | ||
| 24 | ||
| 25 | ||
| 26 |
2
PART I—FINANCIAL INFORMATION
Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DRUGMAX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| ASSETS |
December 31, 2002 (UNAUDITED) |
March 31, 2002 (As Restated-See Note I) |
||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ |
208,185 |
|
$ |
167,373 |
| ||
| Restricted cash |
|
2,000,000 |
|
|
2,000,000 |
| ||
| Accounts receivable, net of allowance for doubtful accounts of $1,237,575 and $340,575 |
|
16,740,129 |
|
|
14,001,696 |
| ||
| Inventory |
|
17,894,618 |
|
|
20,682,439 |
| ||
| Due from affiliates |
|
22,905 |
|
|
23,498 |
| ||
| Net deferred income tax asset—current |
|
723,347 |
|
|
465,630 |
| ||
| Prepaid expenses and other current assets |
|
1,742,655 |
|
|
624,207 |
| ||
| Total current assets |
|
39,331,839 |
|
|
37,964,843 |
| ||
| Property and equipment, net |
|
833,756 |
|
|
989,921 |
| ||
| Goodwill |
|
13,105,000 |
|
|
25,314,298 |
| ||
| Intangible assets, net |
|
— |
|
|
276,914 |
| ||
| Shareholder notes receivable |
|
100,000 |
|
|
100,000 |
| ||
| Notes receivable |
|
614,640 |
|
|
607,417 |
| ||
| Net deferred income tax asset—long term |
|
749,336 |
|
|
637,918 |
| ||
| Deferred financing costs, net |
|
169,523 |
|
|
215,477 |
| ||
| Other assets |
|
148,446 |
|
|
151,226 |
| ||
| Deposits |
|
49,351 |
|
|
44,743 |
| ||
| Total assets |
$ |
55,101,891 |
|
$ |
66,302,757 |
| ||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ |
14,325,149 |
|
$ |
13,844,766 |
| ||
| Accrued expenses and other current liabilities |
|
655,338 |
|
|
421,318 |
| ||
| Credit lines payable |
|
20,351,712 |
|
|
18,929,575 |
| ||
| Current portion of long-term debt and capital leases |
|
636,498 |
|
|
676,365 |
| ||
| Due to affiliates |
|
4,377 |
|
|
4,377 |
| ||
| Total current liabilities |
|
35,973,074 |
|
|
33,876,401 |
| ||
| Long-term debt and capital leases |
|
40,548 |
|
|
478,200 |
| ||
| Other long-term liabilities |
|
501,561 |
|
|
501,561 |
| ||
| Total liabilities |
|
36,515,183 |
|
|
34,856,162 |
| ||
| Commitments and contingencies (Note F) |
||||||||
| Stockholders’ equity: |
||||||||
| Preferred stock, $.001 par value; 2,000,000 shares authorized; no preferred shares issued or outstanding |
|
— |
|
|
— |
| ||
| Common stock, $.001 par value; 24,000,000 shares authorized; 7,119,172 shares issued and outstanding |
|
7,120 |
|
|
7,120 |
| ||
| Additional paid-in capital |
|
40,967,355 |
|
|
40,967,355 |
| ||
| Accumulated deficit |
|
(22,387,767 |
) |
|
(9,527,880 |
) | ||
| Total stockholders’ equity |
|
18,586,708 |
|
|
31,446,595 |
| ||
| Total liabilities and stockholders’ equity |
$ |
55,101,891 |
|
$ |
66,302,757 |
| ||
See accompanying notes to condensed consolidated financial statements.
3
DRUGMAX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| For the Three Months Ended December 31, 2002 |
For the Three Months Ended December 31, 2001 |
For the Nine Months Ended December 31, 2002 |
For the Nine Months Ended December 31, 2001 |
|||||||||||||
| Revenues |
$ |
85,233,822 |
|
$ |
63,735,331 |
|
$ |
222,073,763 |
|
$ |
200,799,344 |
| ||||
| Cost of goods sold |
|
83,350,640 |
|
|
61,613,598 |
|
|
215,929,273 |
|
|
195,199,495 |
| ||||
| Gross profit |
|
1,883,182 |
|
|
2,121,733 |
|
|
6,144,490 |
|
|
5,599,849 |
| ||||
| Selling, general and administrative expenses |
|
1,596,674 |
|
|
1,443,509 |
|
|
5,972,536 |
|
|
3,756,295 |
| ||||
| Amortization expense |
|
— |
|
|
6,026 |
|
|
18,000 |
|
|
6,053 |
| ||||
| Depreciation expense |
|
72,517 |
|
|
75,822 |
|
|
220,048 |
|
|
175,875 |
| ||||
| Goodwill impairment |
|
— |
|
|
— |
|
|
12,209,298 |
|
|
— |
| ||||
| Intangible asset impairment |
|
— |
|
|
— |
|
|
258,914 |
|
|
— |
| ||||
| Total operating expenses |
|
1,669,191 |
|
|
1,525,357 |
|
|
18,678,796 |
|
|
3,938,223 |
| ||||
| Operating (loss) income |
|
213,991 |
|
|
596,376 |
|
|
(12,534,306 |
) |
|
1,661,626 |
| ||||
| Other income (expense): |
||||||||||||||||
| Interest income |
|
33,045 |
|
|
24,228 |
|
|
72,659 |
|
|
54,278 |
| ||||
| Other income (expense) |
|
14,413 |
|
|
5,207 |
|
|
39,408 |
|
|
12,060 |
| ||||
| Interest expense |
|
(226,263 |
) |
|
(248,801 |
) |
|
(806,583 |
) |
|
(842,118 |
) | ||||
| Total other expense |
|
(178,805 |
) |
|
(219,366 |
) |
|
(694,516 |
) |
|
(775,780 |
) | ||||
| Income (loss) before income tax benefit |
|
35,186 |
|
|
377,010 |
|
|
(13,228,822 |
) |
|
885,846 |
| ||||
| Income tax (expense) benefit |
|
(24,853 |
) |
|
— |
|
|
368,935 |
|
|
1,110,280 |
| ||||
| Net income (loss) |
$ |
10,333 |
|
$ |
377,010 |
|
$ |
(12,859,887 |
) |
$ |
1,996,126 |
| ||||
| Net income (loss) per common share—basic | ||||||||||||||||