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UNITED STATES
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 September 30, 2003 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 September 30, 2003, 8,024 shares of common stock, $1.00 par value, of the
registrant were outstanding.
Total number of pages 20.
Pharmacy Buying Association, Inc.
INDEX FORM 10-Q
Page No.
--------
Part I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Consolidated Balance Sheets as of September 30, 2003
(unaudited) and December 31, 2002 2
Consolidated Statements of Operations for the three and
nine months ended September 30, 2003 and 2002 (unaudited) 3
Consolidated Statements of Cash Flows for the nine
months ended September 30, 2003 and 2002 (unaudited) 4
Notes to Consolidated Financial Statements (unaudited) 5 - 7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION 8 - 12
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 13
ITEM 4 - CONTROLS AND PROCEDURES 13
Part II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 14 - 15
SIGNATURES 16
CERTIFICATIONS 17 - 20
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
PHARMACY BUYING ASSOCIATION, INC. AND SUBSIDIARY
D/B/A TRUECARE PHARMACY
CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
September 30, December 31,
2003 2002
---- ----
Current assets:
Accounts receivable $ 8,612,782 $ 8,138,869
Inventories 6,783,163 8,185,885
Prepaid expenses 92,146 152,374
Refundable income taxes 15,537
Deferred income taxes 34,000
------------ ------------
Total current assets 15,537,628 16,477,128
Municipal bond 500,000 500,000
Property and equipment 377,035 453,109
Goodwill 229,144 229,144
Other assets 17,890 17,890
------------ ------------
$ 16,661,697 $ 17,677,271
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Checks written in excess of cash in bank $ 513,814 $ 321,386
Bank line of credit 3,000,000
Accounts payable 10,312,523 7,083,642
Accrued payroll 138,082 81,978
Deferred revenue 77,624 282,200
Income taxes payable 159,356
Deferred income taxes 101,000
------------ ------------
Total current liabilities 11,042,043 11,029,562
------------ ------------
Deferred income taxes 7,000 7,000
------------ ------------
Commitments and contingencies
Stockholders' equity:
Common stock, $1 par; authorized 30,000
shares; issued 11,380 11,380 11,380
Capital in excess of par value 1,468,255 1,468,255
Retained earnings 6,080,906 5,363,178
------------ ------------
7,560,541 6,842,813
Treasury stock at cost, 3,356 shares at September 30,
2003 and 358 shares at December 31, 2002 (1,947,887) (202,104)
------------ ------------
5,612,654 6,640,709
------------ ------------
$ 16,661,697 $ 17,677,271
============ ============
See notes to consolidated financial statements.
PHARMACY BUYING ASSOCIATION, INC. AND SUBSIDIARY
D/B/A TRUECARE PHARMACY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
------------- -------------
2003 2002 2003 2002
---- ---- ---- ----
Revenues:
Distribution center (including revenues
generated from businesses owned by
members of the Board of Directors of
$5,462,842 and $4,535,272 for the
three months ended September 30, 2003
and 2002, respectively, and $13,435,889
and $12,881,128 for the nine months
ended September 30, 2003 and 2002,
respectively $ 37,571,404 $ 36,820,388 $ 111,927,959 $ 92,853,169
Participation programs and fees 542,982 275,749 2,124,436 653,879
Third party 34,267 55,497 94,525 67,455
------------ ------------- ------------- ------------
38,148,653 37,151,634 114,146,920 93,574,503
------------ ------------- ------------- ------------
Cost of revenues:
Distribution center 36,344,299 34,859,189 107,624,312 86,865,034
Participation programs and fees 184,263 208,918 805,367 520,327
------------ ------------- ------------- ------------
36,528,562 35,068,107 108,429,679 87,385,361
------------ ------------- ------------- ------------
Gross profit 1,620,091 2,083,527 5,717,241 6,189,142
General and administrative expenses 1,501,169 1,347,481 4,503,001 3,956,661
------------ ------------- ------------- ------------
Income from operations 118,922 736,046 1,214,240 2,232,481
------------ ------------- ------------- ------------
Other income (expense):
Investment income 2,245 3,779 9,793 14,421
Interest expense (5,833) (7,686) (7,545) (14,196)
Gain on sale of property and equipment 4,786
------------ ------------- ------------- ------------
(3,588) (3,907) 2,248 5,011
------------ ------------- ------------- ------------
Income before income taxes 115,334 732,139 1,216,488 2,237,492
Income taxes 47,287 427,327 498,760 963,316
------------ ------------- ------------- ------------
Net income $ 68,047 $ 304,812 $ 717,728 $ 1,274,176
============ ============= ============= ============
Earnings per common share:
Income available to common
stockholders $ 68,047 $ 304,812 $ 717,728 $ 1,274,176
Weighted average shares outstanding,
basic and diluted 8,412 11,268 9,891 11,337
------------ ------------- ------------- ------------
Basic and diluted earnings per share $ 8.09 $ 27.05 $ 72.56 $ 112.39
============ ============= ============= ============
The accompanying notes are an integral part of the consolidated financial
statements.
PHARMACY BUYING ASSOCIATION, INC. AND SUBSIDIARY
D/B/A TRUECARE PHARMACY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended September 30,
-------------------------------
2003 2002
---- ----
Cash flows from operating activities:
Net income $ 717,728 $ 1,274,176
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation 156,669 175,677
Deferred income taxes (135,000) (88,000)
Gain on sale of property and equipment (4,786)
Changes in operating assets and liabilities:
Accounts receivable (473,913) (2,231,503)
Inventories 1,402,722 (1,188,675)
Prepaid expenses 60,228 68,677
Refundable income taxes (15,537)
Other assets (22,314)
Checks written in excess of cash 192,428
Accounts payable 3,228,881 2,262,736
Accrued payroll 56,104 (87,136)
Deferred revenue (204,576) (137,823)
Income taxes payable (159,356) (143,299)
----------- -----------
Net cash provided (used) by operating activities 4,826,378 (122,270)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (80,595) (65,292)
Proceeds from sale of property and equipment 10,300
----------- -----------
Net cash used by investing activities (80,595) (54,992)
----------- -----------
Cash flows from financing activities:
Repayment of bank line of credit (3,000,000)
Acquisition of common stock (1,745,783) (117,723)
Principal payments on long-term debt (25,753)
----------- -----------
Net cash used by financing activities (4,745,783) (143,476)
----------- -----------
Net decrease in cash -- (320,738)
Cash, beginning of period -- 614,519
----------- -----------
Cash, end of period $ -- $ 293,781
=========== ===========
Supplemental disclosures of cash flow information:
Cash transactions during the period for:
Interest paid $ 7,545 $ 14,196
=========== ===========
Income taxes paid $ 808,653 $ 1,194,615
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
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-K 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.
2. New accounting standards:
In May 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 150, "Accounting
for Certain Financial Instruments with Characteristics of both Liabilities
and Equity." SFAS No. 150 clarifies the definition of a liability as
currently defined in FASB Concepts Statement No. 6, "Elements of Financial
Statements," as well as other planned revisions. This statement requires a
financial instrument that embodies an obligation of an issuer to be
classified as a liability. In addition, the statement establishes
standards for the initial and subsequent measurement of these financial
instruments and disclosure requirements. SFAS No. 150 is effective for
financial instruments entered into or modified after May 31, 2003 and for
all other matters, at the beginning of our second quarter 2004. We do not
believe the adoption of this standard will have a material impact on our
consolidated financial statements.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities." SFAS No. 149 amends
SFAS No. 133 for decisions made as part of the FASB's Derivatives
Implementation Group process, other FASB projects dealing with financial
instruments, and in connection with implementation issues raised in
relation to the application of the definition of a derivative. This
statement is generally effective for contracts entered into or modified
after September 30, 2003 and for hedging relationships designated after
September 30, 2003. We do not believe the adoption of this standard will
have a material impact on our consolidated financial statements.
PHARMACY BUYING ASSOCIATION, INC. AND SUBSIDIARY
D/B/A TRUECARE PHARMACY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
2. New accounting standards (continued):
In January 2003, the Emerging Issues Task Force finalized Issue No. 02-16,
"Accounting by a Customer (Including a Reseller) for Certain Consideration
Received from a Vendor". This issue requires that cash consideration
received by a customer from a vendor be recorded as a reduction of cost of
sales within a company's results of operations, excluding payments
received when a customer sells products and services to the vendor as well
as reimbursement of costs incurred by the customer in selling the vendor's
product. This issue also requires rebates or refunds provided to a
customer as the result of achieving certain purchase levels or other
defined measures to be recorded as a reduction of cost of sales. If the
rebate or refund is probable and reasonably estimable, it can be allocated
over the time period in which it is earned. The adoption of this statement
did not have a material effect on the Company's financial position or
results of operations.
In January 2003, the FASB issued Interpretation ("FIN") No. 46,
"Consolidation of Variable Interest Entities." This interpretation
clarifies the application of Accounting Research Bulletin No. 51,
"Consolidated Financial Statements," in determining whether a reporting
entity should consolidate certain legal entities, including partnerships,
limited liability companies, or trusts, among others, collectively defined
as variable interest entities ("VIEs"). This interpretation applies to
VIEs created or obtained after January 31, 2003, and as of July 1, 2003,
to VIEs in which an enterprise holds a variable interest that it acquired
before February 1, 2003. We do not believe that this standard will have a
material impact on our consolidated financial statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure." This statement amends
SFAS No. 123, "Accounting for Stock-Based Compensation," to provide
alternative methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee compensation. In
addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123
to require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. We do
not believe the adoption of this standard will have a material impact on
our consolidated financial statements. This statement is effective for
fiscal years ending after December 31, 2002.
3. Accounts receivable:
September 30, December 31,
2003 2002
---- ----
Membership $ 1,347,624 $ 1,531,471
Distribution center 7,456,775 6,801,398
----------- -----------
8,804,399 8,332,869
Allowance for doubtful accounts (191,617) (194,000)
----------- -----------
$ 8,612,782 $ 8,138,869
=========== ===========
PHARMACY BUYING ASSOCIATION, INC. AND SUBSIDIARY
D/B/A TRUECARE PHARMACY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
4. Property and equipment:
September 30, December 31,
2003 2002
---- ----
Furniture and fixtures $ 359,903 $ 298,809
Equipment 730,570 713,516
Software 402,809 400,362
----------- -----------
1,493,282 1,412,687
Accumulated depreciation (1,116,247) (959,578)
----------- -----------
$ 377,035 $ 453,109
=========== ===========
Depreciation expense, included in general and administrative expenses, was
$156,669 and $175,677 for the nine-month periods ended September 30, 2003
and 2002, respectively.
5. Reclassification:
Certain amounts previously reported have been reclassified to conform to
the current period's presentation.
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 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, 2002 and for the second quarter ended June 30, 2003 also contained
therein.
Overview
We derive revenues from the following three sources:
Distribution Center. We sell pharmaceutical-related products to our members
through our own distribution facility located in Riverside, Missouri.
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 are collected from the plan sponsors 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. We receive rebates from
pharmaceutical manufacturers based on member purchases of the manufacturer's
product from our distribution center. We also receive rebates and fees from
other vendors and manufacturers through various company programs. These rebates
and fees are typically paid to us on either a quarterly or monthly basis and are
shown net of corresponding rebates paid to members based on patronage.
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.
General and Administrative Expenses. General and administrative expenses are
typical 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 nine months ending September 30, 2003 and 2002.
Comparison of Nine Months ending September 30, 2003 and 2002
Revenues
Total Revenues. Total revenues for the nine months ending September 30, 2003
increased to $114.1 million from $93.6 million over the same period revenues in
2002. The increase of $20.5 million is directly attributable to a corresponding
increase in the amount of sales through the distribution center.
Distribution. Revenue from distribution grew from $92.9 million to $111.9
million, representing a 20% increase over the same period in 2002. An increase
in product offering combined with a rising usage of the distribution center by
member pharmacies led to the increase in distribution sales.
Participation Programs and Fees. For the nine months ending September 30, 2003,
revenues from participation programs and fees increased by $1.47 million from
the corresponding period in 2002. The change is mainly a change in presentation
and reclassification of certain that do not affect overall financial results.
Third Party. Revenues from third party operations, which are shown net of
expenses, increased by approximately $27,000 for the nine months ending
September 30, 2003 from the same period in 2002. The increase arose from a
renewed effort in the Managed Care market.
Cost of Revenues
Distribution Center. Costs of goods sold through the distribution center
increased from $86.9 million for the nine months ending September 30, 2002 to
$107.6 million in 2003. The 24% increase is directly attributable to the
increase in sales through the distribution center.
Participation Programs and Fees. Expenses associated with our programs increased
for the nine months ending September 30, 2003 compared to the same period in
2002. The change in expenses was mainly attributable to expenses associated with
the development of our Today's Care disease-state management program and
abnormally high expenses associated with legislative affairs initiatives.
General and Administrative. General and administrative expenses rose by $0.54
million for the nine months ending September 30, 2003 compared to the same
period in 2002. The increase of 14% from $3.95 million to $4.50 million is
attributable to a normal increase in expenses associated with an increase in
revenues, including an increase in warehouse costs, salaries and wages, and
other employee-related expenses. Various legal expenses also contributed to the
increase.
Income from Operations. Net income from operations decreased by $1.02 million
from $2.23 million for the nine months ending September 30, 2002 to $1.2 million
for the same period in 2003. This 84% decrease is attributable to a decrease in
the administration fees and rebates normally received pursuant to the loss of an
endorsed wholesaler-partner. Also contributing to the decrease was an increase
in general and administrative expenses and additional revenues coming from lower
margin sources, such as distribution sales.
Income Taxes. Income tax expense for the nine months ending September 30, 2003
decreased from $0.963 million to $0.499 million for the same period in 2002. The
$460,000 decrease follows directly from a decrease in our taxable income and
lower profitability.
Comparison of Three Months ending September 30, 2003 and 2002
Revenues
Total Revenues. 3rd Quarter 2003 saw total revenues increase to $38.1 million
from $37.2 million over the same period revenues in 2002. The increase is
attributable to a corresponding increase in the amount of sales through the
distribution center.
Distribution. For 3rd Quarter 2003, revenues grew to $37.6 million from $36.8
million in the 3rd Quarter 2002, representing a 2% increase. An increase in
product offering combined with a rising usage of the distribution center by
member pharmacies led to the minor increase in distribution sales.
Participation Programs and Fees. For 3rd Quarter 2003, revenues from
participation programs and fees increased by a modest $0.267 million from the
corresponding period in 2002. The increase was mainly due to enhancements that
have been brought about by a basic restructuring of programs and fee structures.
Third Party. Revenues from third party operations, which are shown net of
expenses, decreased by approximately $21,000 from the 3rd Quarter 2002 to the
3rd Quarter 2003. The decrease arises from normal minor fluctuations in the
costs of providing 3rd party services.
Cost of Revenues
Distribution Center. Costs of goods sold through the distribution center
increased from $34.859 million in the 3rd Quarter of 2002 to $36.3 million in
the 3rd Quarter of 2003. The increase is directly attributable to the increase
in sales through the distribution center.
Participation Programs and Fees. Expenses associated with our programs decreased
by $25,000 in the 3rd Quarter of 2003 compared to the 3rd Quarter of 2002. The
decrease was mainly due to efficiencies brought about by enhancements and a
basic restructuring of programs and fee structures.
General and Administrative. General and administrative expenses increased
slightly from $1.3 million in the 3rd Quarter of 2002 to $1.5 million in the 3rd
Quarter of 2003. The expenses held relatively steady compared to the nine months
ending September 30, 2003, due to a general cost cutting strategy that was
enacted in the 2nd Quarter of 2003 and started to be realized in the 3rd
Quarter.
Income from Operations. Income from operations decreased by $0.617 million from
3rd Quarter 2002 to 3rd Quarter 2003. This 84% decrease is attributable to a
decrease in the administration fees and rebates normally received pursuant to
the loss of an endorsed wholesaler-partner. Also contributing to the decrease
was an increase in general and administrative expenses and additional revenues
coming from lower margin sources, such as distribution sales.
Income Taxes. 3rd Quarter 2003 income tax expense decreased by $0.380 million
compared to 3rd Quarter 2002. The decrease is directly attributable to a
decrease in taxable income of approximately $0.617 million for the comparative
periods.
Liquidity and Capital Resources
Despite a lackluster financial performance in the 3rd Quarter of 2003, our
liquidity and capital resources remain solid. 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, which are paid
quarterly. 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 nine months ending September 30, 2003:
o Net cash provided by (used by) operations was $4.82 million,
compared to ($0.122 million) for the same period in 2002. The
increase in 2003 was primarily due to a sizeable decrease in newly
financed inventories, partially offset by an increase in accounts
receivable. A substantial increase in accounts payable provided the
bulk of positive cash flow for the year as more beneficial terms
were negotiated with several vendors. The decrease for the first
nine months of 2002 was attributable to significant increases in
accounts receivable and inventories. A net inflow of cash from
decreasing accounts receivable through incentives plans offset a
large portion of the outflow. We anticipate that these trends will
continue until distribution sales resume their historical trends in
the 1st Quarter of 2004.
o Net cash (used by) investing activities was ($80,000), compared to
($55,000) in the same period in 2002, primarily attributable to the
purchase of property and equipment and a minor office expansion.
o Net cash provided by (used by) financing activities was ($4.74
million), compared to ($143,000) for the same period in 2002. The
usage of cash was primarily for the purchase of common stock. Also
contributing to the usage of cash was the repayment of our line of
credit with the bank. We are not expecting the selling of new shares
of stock in the near future, and will continue to repurchase stock
as it becomes available.
We have a $5 million line of credit with an additional $2 million seasonal
extension that runs from November 1st to February 1st of the following year (the
"Credit Agreement") with Bank of America, N.A. that expires on June 30, 2004.
Borrowings under the Credit Agreement bear interest at the lender's prime rate,
which was 4.50% as of September 30, 2003. 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 nine months of
2003, but no amounts were outstanding under the Credit Agreement as of September
30, 2003. We anticipate that the bank will continue to renew our line of credit.
Cash and cash equivalents as of September 30, 2003 were down by $0.29 million
from the beginning of the year to $0. This is also lower than the cash and cash
equivalents balance as of September 30, 2001, which was $0.45 million. We
believe that our cash equivalents as of September 30, 2003, municipal bonds held
in reserve accounts, amounts available under the Credit Agreement, and operating
cash flows will be sufficient to meet our anticipated capital expenditure
requirements and operating expenses at least through the next 12 months.
Currently, our anticipated 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, repurchase of common
stock as it becomes available, 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 the product inventory levels required for
the higher sales volume. 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 registered 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 the 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
September 30, 2003, 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.
ITEM 4. CONTROLS AND PROCEDURES.
(a) Evaluation of Disclosure Controls and Procedures
The term "disclosure controls and procedures" is defined in Rules
13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934 (Exchange
Act). These rules refer to the controls and other procedures of a company
that are designed to ensure that information required to be disclosed by a
company in the reports that it files under the Exchange Act is recorded,
processed, summarized and reported within required time periods. Our Chief
Executive Officer and our Chief Financial Officer have evaluated the
effectiveness of our disclosure controls and procedures as of a date
within 90 days before the filing of this quarterly report (the Evaluation
Date), and they have concluded that, as of the Evaluation Date, such
controls and procedures were effective at ensuring that required
information will be disclosed on a timely basis in our reports filed under
the Exchange Act.
(b) Changes in Internal Controls
We maintain a system of internal accounting controls that are
designed to provide reasonable assurance that our books and records
accurately reflect our transactions and that our established policies and
procedures are followed. For the quarter ended September 30, 2002, there
were no significant changes to our internal controls or in other factors
that could significantly affect our internal controls.
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.
1. Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by
the Chief Executive Officer.
2. Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by
the Chief Financial Officer.
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)).
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)).
(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.
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: November 15, 2003 By: /s/ Donald E. Raby II
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Donald E. Raby II, CPA, Vice President,
Chief Financial Officer