SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002 OR
|_| 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
PHARMACY BUYING ASSOCIATION, INC.
---------------------------------
(Exact name of registrant as specified in its charter)
MISSOURI 43-1482785
--------- -----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1575 N. UNIVERSAL AVE., SUITE 100, KANSAS CITY, MISSOURI 64120
- -------------------------------------------------------- -------
(Address of principal executive offices) (Zip Code)
(816) 245-5700
- --------------
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. Yes |X| No|_|
At July 19, 2002, 11,380 shares of common stock, $1.00 par value, of the
registrant were outstanding.
Total number of pages 17.
PHARMACY BUYING ASSOCIATION, INC.
INDEX FORM 10-Q
Page No.
PART I - FINANCIAL INFORMATION 2
ITEM 1 - FINANCIAL STATEMENTS 2
Consolidated Balance Sheets as of June 30, 2002 (unaudited
and December 31, 2001 2
Consolidated Statements of Operations for the three and six
months ended June 30, 2002 and 2001(unaudited) 3
Consolidated Statements of Cash Flows for the six
months ended June 30, 2002 and 2001(unaudited) 4
Notes to Consolidated Financial Statements (unaudited) 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION 9
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 13
PART II - OTHER INFORMATION 14
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 16
CERTIFICATION 17
1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
PHARMACY BUYING ASSOCIATION, INC. AND SUBSIDIARY
D/B/A TRUECARE PHARMACY
CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
June 30, December 31,
2002 2001
---- ----
Current assets:
Cash $ 150,010 $ 614,519
Accounts receivable 6,886,542 6,380,342
Inventories 6,699,156 4,672,273
Prepaid expenses 100,199 133,284
Deferred income tax asset 13,000 --
---------------- --------------
Total current assets 13,848,907 11,800,418
Property and equipment 515,797 597,722
Goodwill 229,144 229,144
Other assets 38,744 16,430
---------------- --------------
$ 14,632,592 $ 12,643,714
================ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ -- $ 7,417
Accounts payable 7,960,876 6,196,385
Accrued payroll 172,284 186,822
Deferred revenue 113,233 201,600
Income taxes payable 31,918 532,005
Deferred income taxes -- 18,000
---------------- --------------
Total current liabilities 8,278,311 7,142,229
---------------- --------------
Long-term debt, less current portion -- 18,336
---------------- --------------
Deferred income taxes 94,000 182,000
---------------- --------------
Commitments and contingencies
Stockholders' equity:
Common stock, $1.00 par; authorized 30,000
shares; issued 5,690 shares 5,690 5,690
Capital in excess of par value 1,468,255 1,468,255
Retained earnings 4,796,568 3,827,204
---------------- --------------
6,270,513 5,301,149
Treasury stock 10,232 --
---------------- --------------
6,260,281 5,301,149
---------------- --------------
$ 14,632,592 $ 12,643,714
================ ==============
The accompanying notes are an integral part of the consolidated financial
statements.
2
PHARMACY BUYING ASSOCIATION, INC. AND SUBSIDIARY
D/B/A TRUECARE PHARMACY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Six months ended
June 30, June 30,
-------- --------
2002 2001 2002 2001
---- ---- ---- ----
Revenues:
Distribution center(1) $ 31,538,631 $ 18,184,681 $ 56,032,781 $ 31,244,166
Participation programs and fees 210,439 684,977 378,130 1,423,604
Activity rebates and charges 1,938,752 1,141,021 3,676,916 2,258,129
Third party 11,469 (2,395) 11,958 (811)
------------ ------------ ------------- -------------
33,699,291 20,008,284 60,099,785 34,925,088
------------ ------------ ------------- -------------
Cost of revenues:
Distribution center 30,085,912 17,571,832 53,544,221 30,251,014
Participation programs and fees 136,502 215,702 311,409 336,188
Activity rebates 1,164,687 444,790 2,138,540 831,681
------------ ------------ ------------- -------------
31,387,101 18,232,324 55,994,170 31,418,883
------------ ------------ ------------- -------------
Gross profit 2,312,190 1,775,960 4,105,615 3,506,205
General and administrative expenses 1,246,894 1,090,019 2,609,180 2,155,592
------------ ------------ ------------- -------------
Income from operations 1,065,296 685,941 1,496,435 1,350,613
------------ ------------ ------------- -------------
Other income (expense):
Investment income 6,678 15,076 10,642 38,027
Interest expense (4,159) (6,202) (6,510) (9,273)
Gain on disposal of assets 4,786 -- 4,786 --
------------ ------------- -------------- --------------
7,305 8,874 8,918 28,754
------------ ------------- -------------- --------------
Income before income taxes 1,072,601 694,815 1,505,353 1,379,367
Income taxes 363,422 232,780 535,989 451,280
------------ ------------ ------------- -------------
Net income $ 709,179 $ 462,035 $ 969,364 $ 928,087
============ ============ ============= =============
Earnings per common share:
Income available to common
stockholders $ 709,179 $ 462,035 $ 969,364 $ 928,087
Weighted average shares outstanding,
basic and diluted 5,683 5,690 5,683 5,690
------------ ------------ ------------- -------------
Basic and diluted earnings per share $ 124.79 $ 81.20 $ 170.57 $ 163.11
============ ============ ============= =============
(1) Includes revenues generated from businesses owned by members of the Board of
Directors of $4,449,504 and $2,835,948 for the three months ended June 30, 2002
and 2001, respectively, and $8,345,856, and $4,724,746, respectively for the six
months ended June 30, 2002 and 2001, respectively.
The accompanying notes are an integral part of the consolidated financial
statements.
3
PHARMACY BUYING ASSOCIATION, INC. AND SUBSIDIARY
D/B/A TRUECARE PHARMACY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended June 30,
2002 2001
---- ----
Cash flows from operating activities:
Net income $ 969,364 $ 928,087
Adjustments to reconcile net income to net
cash used by operating activities:
Depreciation 117,349 112,590
Deferred income taxes (119,000) --
Gain on sale of property and equipment (4,786) --
Changes in operating assets and liabilities:
Accounts receivable (506,200) (1,841,643)
Inventories (2,026,883) (670,141)
Prepaid expenses 33,085 14,556
Other assets (22,314) (380)
Accounts payable 1,764,491 952,115
Accrued payroll (14,538) 12,223
Income taxes payable (500,087) (728,786)
Deferred revenue (88,367) (2,250)
----------- -----------
Net cash used by operating activities (397,886) (1,223,629)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (40,938) (97,786)
Proceeds from sale of property and equipment 10,300 --
Investments in and advances to affiliate -- (90,000)
----------- -----------
Net cash used by investing activities (30,638) (187,786)
----------- -----------
Cash flows from financing activities:
Acquisition of common stock (10,232) --
Offering costs -- (11,600)
Principal payments on long-term debt (25,753) (16,651)
----------- -----------
Net cash used by financing activities (35,985) (28,251)
----------- -----------
(continued)
4
PHARMACY BUYING ASSOCIATION, INC. AND SUBSIDIARY
D/B/A TRUECARE PHARMACY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
Six months ended June 30,
2002 2001
---- ----
Net decrease in cash (464,509) (1,439,666)
Cash, beginning of period 614,519 1,738,818
----------- -----------
Cash, end of period $ 150,010 $ 299,152
=========== ===========
Supplemental disclosures of cash flow information:
Cash transactions during the period for:
Interest paid $ 6,510 $ 9,273
=========== ===========
Income taxes paid $ 1,155,076 $ 1,146,066
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
5
PHARMACY BUYING ASSOCIATION, INC. AND SUBSIDIARY
D/B/A TRUECARE PHARMACY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION:
The accompanying interim financial statements have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission for interim reporting and do not include certain disclosures
required by accounting principles generally accepted in the United States
of America. Accordingly, the statements should be read in conjunction with
the Pharmacy Buying Association, Inc., d/b/a TrueCare Pharmacy (the
Company) financial statements and notes thereto included in the Company's
Annual Report and Form 10 filed with the Securities and Exchange Commission
under File No. 000-49785. Accounting policies utilized in the preparation
of financial information herein presented are the same as set forth in our
annual financial statements. Certain disclosures and information normally
included in financial statements have been condensed or omitted. In the
opinion of the management of the Company, these financial statements
contain all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the interim financial statements.
Interim results of operations are not necessarily indicative of the results
of operations for the full year.
Certain reclassifications have been made to the June 30, 2001 unaudited
interim financial statements to be consistent with the presentation at June
30, 2002. These reclassifications had no impact on net income or retained
earnings.
2. NEW ACCOUNTING STANDARDS:
Property and equipment:
In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS No. 144 requires that
long-lived assets be measured at the lower of carrying amount or fair
value for long-lived assets to be held and used or fair value less cost
to sell for long-lived assets to be disposed of, whether reported in
continuing operations or in discontinued operations. The standard became
effective for the Company's fiscal year beginning January 1, 2002. The
adoption of this standard did not have a material effect on the Company's
financial position or results of operations.
6
PHARMACY BUYING ASSOCIATION, INC. AND SUBSIDIARY
D/B/A TRUECARE PHARMACY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
2. NEW ACCOUNTING STANDARDS (CONTINUED):
Goodwill:
In June 2001, the Financial Accounting Standards Board issued SFAS No.
141, Business Combinations, and SFAS No. 142, Goodwill and Other
Intangibles. SFAS No. 141 requires the purchase method of accounting for
business combinations initiated after June 30, 2001, for which the date
of acquisition is July 1, 2001 or later, eliminates the
pooling-of-interests method, and identifies criteria for the
establishment of identifiable intangible assets separate from goodwill
resulting from a business combination. SFAS No. 142 requires companies to
cease amortizing goodwill. SFAS No. 142 also establishes a new method of
testing goodwill and other intangibles for impairment on an annual basis
or on an interim basis if an event occurs or circumstances change that
would reduce the fair value of a reporting unit below its carrying value.
The standard became effective for the Company's fiscal year beginning
January 1, 2002. The adoption of these standards did not have a material
effect on the Company's financial position or results of operations.
3. ACCOUNTS RECEIVABLE:
June 30, June 30,
2002 2001
---- ----
Membership $ 802,156 $ 619,724
Distribution center 6,355,670 4,185,241
Program and third-party administration 4,131 4,925
----------- -----------
7,161,957 4,809,890
Allowance for doubtful accounts (275,415) (59,742)
----------- -----------
$ 6,886,542 $ 4,750,148
=========== ===========
Allowance for doubtful accounts:
Balance at beginning of period $ 194,000 $ 43,632
Charges to costs and expenses 81,415 (591)
Bad debts written off -- 16,701
----------- -----------
Balance at end of period $ 275,415 $ 59,742
=========== ===========
7
PHARMACY BUYING ASSOCIATION, INC. AND SUBSIDIARY
D/B/A TRUECARE PHARMACY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
4. PROPERTY AND EQUIPMENT:
June 30, June 30,
2002 2001
---- ----
Furniture and fixtures $ 287,555 $ 223,871
Equipment 677,851 559,086
Software 386,001 293,149
--------------- ------------
1,351,407 1,076,106
Accumulated depreciation (835,610) (649,704)
--------------- ------------
$ 515,797 $ 426,402
============== ============
Depreciation expense, included in general and administrative expenses, was
$117,349 and $112,590 for the six month periods ended June 30, 2002 and
2001, respectively.
5. SUBSEQUENT EVENT:
On July 16, 2002, the Company declared a 100% stock dividend to
shareholders of record at the close of business on July 19, 2002. The stock
dividend was paid on August 1, 2002.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of our financial condition and results of operations
should be read in conjunction with the financial statements and notes thereto
included in elsewhere in this filing.
This discussion and analysis should be read in conjunction with management's
discussion and analysis included in the Company's Form 10 for the year ended
December 31, 2001 and for the first quarter ended March 31, 2002 also contained
therein.
OVERVIEW
We derive revenues from the following four sources:
DISTRIBUTION CENTER. We sell pharmaceutical-related products to our members
through our own distribution facility located in Riverside, Missouri.
ACTIVITY REBATES AND CHARGES. We receive rebates from pharmaceutical
manufacturers based on member purchases of the manufacturer's product from our
distribution center. In addition, each of our wholesaler-partner contracts
provides that the wholesaler-partner will pay us a rebate based on a percentage,
which varies by wholesaler-partner, of the dollar value of products purchased by
our members from the wholesaler-partner. We also receive rebates and fees from
other vendors and manufacturers through various company programs, such as our
cash card and drug formularies. These rebates and fees are typically paid to us
on either a quarterly or monthly basis.
PARTICIPATION PROGRAMS AND FEES. Our members pay us a monthly membership fee in
accordance with our membership agreement. In addition, we receive administration
fees from manufacturers and wholesaler-partners for maintenance and facilitation
of contracts with us and with our members. Our vendors and members also pay a
fee to attend our annual conference each summer.
THIRD PARTY REVENUES. Revenues from our third party segment, shown net of
expenses for all reporting periods, are generated from claims costs of goods,
claims processing fees per paid claim charged to plan sponsors, and rebate
administration fees. A major portion of the revenue includes the claims costs of
goods that is collected from the plan sponsor in order to pay the participating
network provider. After payout of claims and expenses, there is usually little
or no net income generated from this revenue.
Our expenses are categorized as follows:
DISTRIBUTION CENTER. Operating expenses associated with distribution are
primarily composed of direct cost of goods sold.
ACTIVITY REBATES. Rebates are composed of monies paid to members on a quarterly
basis for purchases through the distribution center, purchases made under
contract with wholesaler-partners, cash card claims, and rebates attributable to
fluctuations in the market share of certain pharmaceuticals.
PARTICIPATION PROGRAM AND FEES. Program costs and expenses are primarily
composed of expenses associated with the programs and services that we offer to
our members, including the costs of developing and marketing those services. In
addition, costs associated with our annual shareholders conference are included.
9
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses are
typical, non-operating expenses primarily composed of such items as salaries and
wages, insurance, freight and postage, office rent, travel, and other
miscellaneous expenses.
RESULTS OF OPERATION
The following discussion is based on our historical results of operations for
the six months ending June 30, 2002 and 2001.
COMPARISON OF SIX MONTHS ENDING JUNE 30, 2002 AND 2001
REVENUES
Total Revenues. Total revenues for the six months ending June 30, 2002 increased
to $60.1 million from $34.9 million over the same period revenues in 2001. The
increase of $25.2 million is attributable to a corresponding increase in the
amount of sales through the distribution center.
Distribution. Revenue from distribution grew from $31.4 million to $56.0
million, representing a 79% increase over the same period in 2001. An increase
in product offering combined with a rising usage of the distribution center by
member pharmacies led to the increase in distribution sales.
Activity Rebates and Charges. Revenues due to rebates and charges grew from $2.3
million for the six months ending June 30, 2001 to $3.7 million for the same
period in 2002. The 63% growth in rebate revenue is directly correspondent to
increases in purchases through the distribution center, reflected in
distribution sales, and to contract purchases from our wholesaler-partners.
Participation Programs and Fees. For the six months ending June 30, 2002,
revenues from participation programs and fees decreased by $1.05 million from
the corresponding period in 2001. A continued changing and restructuring of our
programs following the Legend acquisition precipitated this decrease. Also
contributing to the decrease was the gradual termination of some programs
offered by Legend, such as a self-funded health, dental, and vision insurance
program.
Third Party. Revenues from third party operations, which are shown net of
expenses, increased by approximately $12,000 for the six months ending June 30,
2002 from the same period in 2001. The increase arose primarily from a decrease
in expenses in third party programs.
COST OF REVENUES
Distribution Center. Costs of goods sold through the distribution center
increased from $30.3 million for the six months ending June 30, 2001 to $53.5
million in 2002. The 77% increase is directly attributable to the increase in
sales through the distribution center.
Activity Rebates. Rebates increased from $0.83 million in the first six months
of 2001 to $2.1 million in the corresponding period of 2002. The 156% increase
in rebates stems from an increase in purchases through our distribution center
and the corresponding rebates. In addition, slightly more aggressive rebate
incentives offered to our pharmacies resulted in higher rebate expense.
Participation Programs and Fees. Expenses associated with our programs decreased
by $25,000 for the six months ending June 30, 2002 compared to the same period
in 2001. The marginal decrease in expenses was a result of a decrease in the
costs of providing these programs to our membership.
10
GENERAL AND ADMINISTRATIVE. General and administrative expenses rose by $0.45
million for the six months ending June 30, 2002 compared to the same period in
2001. The increase of 21% from $2.2 million to $2.6 million is attributable to a
normal increase in expenses associated with an increase in revenues, including
an increase in warehouse costs, information technology costs, and salaries and
wages.
INCOME FROM OPERATIONS. Net income from operations increased by $0.15 million
from $1.35 million for the six months ending June 30, 2001 to $1.5 million for
the same period in 2002. This 11% increase is attributable to an increase in the
revenue streams of the company.
INCOME TAXES. Income tax expense for the six months ending June 30, 2002
increased to $0.53 million from $0.45 million for the same period in 2001. The
$80,000 increase follows directly from an increase in our taxable income and
higher profitability.
COMPARISON OF THREE MONTHS ENDING JUNE 30, 2002 AND 2001
REVENUES
Total Revenues. 2nd Quarter 2002 saw total revenues increase to $33.7 million
from $20.0 million over the same period revenues in 2001. The increase of $13.7
million is attributable to a corresponding increase in the amount of sales
through the distribution center.
Distribution. For 2nd Quarter 2002, revenues grew from $31.4 million to $18.2
million, representing a 73% increase over the same period in 2001. An increase
in product offering combined with a rising usage of the distribution center by
member pharmacies led to the increase in distribution sales.
Activity Rebates and Charges. Revenues due to rebates and charges grew from $1.1
million in the 2nd Quarter of 2001 to $1.9 million in the 2nd Quarter 2002. The
73% growth in rebate revenue is directly correspondent to increases in purchases
through the distribution center, reflected in distribution sales, and to
contract purchases from our wholesaler-partners.
Participation Programs and Fees. For 2nd Quarter 2002, revenues from
participation programs and fees decreased by $0.47 million from the
corresponding period in 2001. An ongoing changing and restructuring of our
programs following the Legend acquisition has precipitated this decrease. Also
contributing to the decrease is the phase-out of some programs offered by
Legend, such as a self-funded health, dental, and vision insurance program.
Third Party. Revenues from third party operations, which are shown net of
expenses, increased by approximately $14,000 from the 2nd Quarter 2001 to the
2nd Quarter 2002. The increase arises primarily from a decrease in expenses in
third party programs.
COST OF REVENUES
Distribution Center. Costs of goods sold through the distribution center
increased from $17.6 million in the 2nd Quarter of 2001 to $30.1 million in the
2nd Quarter of 2002. The 71% increase is directly attributable to the increase
in sales through the distribution center.
11
Activity Rebates. Rebates increased from $0.44 million in the 2nd Quarter of
2001 to $1.2 million in the corresponding period of 2002. The 162% increase in
rebates stems from an increase in purchases through our distribution center.
Participation Programs and Fees. Expenses associated with our programs decreased
by $79,000 in the 2nd Quarter of 2002 compared to the 2nd Quarter of 2001. The
18% decrease in expenses is a result of efficiencies gained in the providing of
these programs.
GENERAL AND ADMINISTRATIVE. General and administrative expenses rose from $1.1
million in the 2nd Quarter of 2001 to $1.2 million in the 2nd Quarter of 2002.
The increase of 14% is attributable to a normal increase in expenses associated
with an increase in revenues and operations, including an increase in warehouse
costs, information technology costs, and salaries and wages.
INCOME FROM OPERATIONS. Net income from operations increase by $0.38 million
from 2nd Quarter 2001 to 2nd Quarter 2002. This 55% increase is attributable to
an increase in distribution sales and other profit centers.
INCOME TAXES. 2nd Quarter 2002 Income tax expense increased by $0.13 million
compared to 2nd Quarter 2001. The increase is directly attributable to an
increase in taxable income of approximately $0.38 million for the comparative
periods.
LIQUIDITY AND CAPITAL RESOURCES
Our capital requirements relate primarily to working capital for day-to-day
operations, including general and administrative expenses, maintenance of
product inventory levels to fulfill our operating commitment to our members and
membership rebates. Historically, we have financed our cash requirements from
three primary sources: on-going operations, sales of our common stock, and
borrowings under our line of credit.
For the six months ending June 30, 2002:
* Net cash provided by (used by) operations was ($0.40 million),
compared to ($1.22 million) for the same period in 2001,
primarily due to a substantial increase in inventories, partially
offset by an increase in accounts payable. An increase in
accounts receivable and income taxes also contributed to the net
consumption of cash by operations.
* Net cash (used by) investing activities was ($31,000), compared to
($0.19 million) in the same period in 2001, primarily
attributable to the purchase of property and equipment.
* Net cash provided by (used by) financing activities was ($36,000),
compared to ($28,000) for the same period in 2001, primarily as a
result of payments on long-term debt and the termination of our
common stock offering at the end of 2000.
We have a $3 million line of credit (the "Credit Agreement") with Bank of
America, N.A. that expires on June 30, 2003. Borrowings under the Credit
Agreement bear interest at the lender's prime rate, which was 4.75% as of June
30, 2002. The Credit Agreement imposes certain requirements on us, including the
maintenance of a minimum tangible net worth. We accessed our line of credit from
time to time during the first six months of 2002, but no amounts were
outstanding under the Credit Agreement as of June 30, 2002. We anticipate
renegotiating a new line of credit with the same institution sometime in the
third quarter.
12
Cash and cash equivalents as of June 30, 2002 were down by $0.46 million from
the beginning of the year to $0.15 million. This is also lower than the cash and
cash equivalents balance for the six months ending June 30, 2001, which was
$0.30 million. We believe that our cash equivalents as of June 30, 2002, amounts
available under the Credit Agreement, amounts raised through the sale of our
common stock and operating cash flows will be sufficient to meet our anticipated
capital expenditure requirements at least through the next 12 months. Currently,
our anticipated capital expenditures are composed of ongoing day-to-day
operations, including normal general and administrative expenses, maintenance of
adequate inventory levels to satisfy our product orders and income taxes. If
sales through our distribution center continue to grow, we will be using
significant portions of our capital going forward to support our product
inventory levels. Except as set forth above, we do not currently anticipate
incurring any expenses or capital expenditures outside the ordinary course of
business.
Because we are registering our common stock under the Securities Exchange Act of
1934, our ability to issue additional shares is more limited because certain
securities exemptions previously relied on by us are not available to issuers
registered under the Exchange Act. Accordingly, any further issuances of common
stock may require registration under the Securities Act of 1933, making it more
costly and time consuming to issue shares. To the extent we are unable to renew
our existing Credit Agreement or obtain a new bank line of credit or raise funds
through the sale of common stock, our ability to increase or maintain our
current level of operations, including product inventory levels, may be
diminished. In addition, we may not be able to obtain additional capital in
adequate amounts or acceptable terms to meet demands of our business in the
future. This would have an adverse effect on our operations and financial
condition.
FORWARD LOOKING STATEMENTS
This report contains forward looking statements based on our current
expectations and assumptions regarding our business and our industry. Actual
results may differ materially from those described in the forward looking
statements and will be affected by a variety of known and unknown risks,
uncertainties and other factors.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are exposed to market risks primarily from changes in U.S. interest rates. We
do not engage in financial transactions for trading or speculative purposes.
The interest payable on our Credit Agreement is based on variable interest rates
and is therefore affected by changes in market interest rates. While as of
December 31, 2001, no amounts were outstanding under the Credit Agreement, to
the extent interest rates rise when we do borrow money under the Credit
Agreement, our interest expense will increase.
13
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
The following exhibits are filed as part of this report. Exhibit
numbers refer to the paragraph numbers under Item 601 of Regulation
S-K:
2.1. Agreement and Plan of Reorganization among the registrant,
Texas Pharmacy Co-op, Inc. and Pharmacy Consolidation Corp. dated
November 3, 2000 (incorporated by reference to Form 10
Registration Statement filed April 30, 2002 with the Securities
and Exchange Commission by Pharmacy Buying Association, Inc.
(Commission File No. 000-49785)).
3.1. Articles of Incorporation of the registrant (incorporated by
reference to Form 10 Registration Statement filed April 30, 2002
with the Securities and Exchange Commission by Pharmacy Buying
Association, Inc. (Commission File No. 000-49785)).
3.2. Amendment to Articles of Incorporation of the registrant
(incorporated by reference to Form 10 Registration Statement
filed April 30, 2002 with the Securities and Exchange Commission
by Pharmacy Buying Association, Inc. (Commission File No.
000-49785)).
3.3. Second Amended and Restated Bylaws of the registrant
(incorporated by reference to Form 10 Registration Statement
filed April 30, 2002 with the Securities and Exchange Commission
by Pharmacy Buying Association, Inc. (Commission File No.
000-49785)).
4.1. Specimen Common Stock Certificate of the registrant
(incorporated by reference to Form 10 Registration Statement
filed April 30, 2002 with the Securities and Exchange Commission
by Pharmacy Buying Association, Inc. (Commission File No.
000-49785)).
4.2. Article VIII of the Second Amended and Restated Bylaws of
the registrant, which defines the rights of holders of the
securities being registered (included in Exhibit 3.3 above).
10.1. Employment Agreement between the registrant and Nick Smock
dated November 29, 2000 (incorporated by reference to Form 10
Registration Statement filed April 30, 2002 with the Securities
and Exchange Commission by Pharmacy Buying Association, Inc.
(Commission File No. 000-49785)).
10.2. Net Lease dated May 18, 2001 between the registrant and Bob
Campbell d/b/a Shady Properties (incorporated by reference to
Form 10 Registration Statement filed April 30, 2002 with the
Securities and Exchange Commission by Pharmacy Buying
Association, Inc. (Commission File No. 000-49785)).
10.3. Lease Agreement dated July 7, 1999 between the registrant
and Enterprise Properties, L.L.C. (incorporated by reference to
Form 10 Registration Statement filed April 30, 2002 with the
Securities and Exchange Commission by Pharmacy Buying
Association, Inc. (Commission File No. 000-49785)).
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10.4. First Amendment to Lease dated April 4, 2000 between
registrant and Enterprise Properties, L.L.C. (incorporated by
reference to Form 10 Registration Statement filed April 30, 2002
with the Securities and Exchange Commission by Pharmacy Buying
Association, Inc. (Commission File No. 000-49785)).
10.5. Improved Property Commercial Lease dated August 1, 2000
between Texas Pharmacy Co-op, Inc. and Carl A. Parker
(incorporated by reference to Form 10 Registration Statement
filed April 30, 2002 with the Securities and Exchange Commission
by Pharmacy Buying Association, Inc. (Commission File No.
000-49785)).
15.1. Letter from House Park & Dobratz, P.C. regarding unaudited
interim financial information.
(b) Reports on Form 8-K
The Company did not file a report on Form 8-K during the quarter
for which this report is filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
PHARMACY BUYING ASSOCIATION, INC.
Date: August 14, 2002 By: /s/ Nick Smock
--------------------------------------
Nick Smock, President, Chief Executive
Officer and Chief Financial Officer
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CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Quarterly Report on Form 10-Q (the
"Report") of Pharmacy Buying Association, Inc. (the "Company") for the quarter
ended June 30, 2002, I, Nick Smock, Chief Executive Officer and Chief Financial
Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my
knowledge, that:
(1) the Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
Date: August 14, 2002 By: /s/ Nick Smock
----------------------------------------
Nick Smock, President, Chief Executive
Officer and Chief Financial Officer
Pharmacy Buying Association, Inc.
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