Healthwarehouse.com, Inc. And Subsidiaries
Unaudited Pro Forma Condensed Combined Financial Statements
Introduction to the Unaudited Pro Forma Condensed Combined Financial Statements
The following unaudited pro forma condensed combined balance sheet as of December 31, 2010 combines the consolidated balance sheet of Healthwarehouse.com, Inc. and Subsidiaries (the “Company”), and the statement of net assets to be sold of Hocks.com (a division of Hocks Pharmacy, Inc.) (“Hocks”) as of December 31, 2010 and gives effect as of December 31, 2010, to the Company’s acquisition of Hocks which was completed on February 14, 2011 and became effective as of February 1, 2011. The transaction is more fully described in Note 1 to these pro forma condensed combined financial statements.
The following unaudited pro forma condensed combined statements of operations combine the results of operations of the Company for the year ended December 31, 2010, with the statement of revenues and expenses of Hocks for the same periods as if the acquisition had occurred at the beginning of the period.
The unaudited pro forma condensed combined financial statements should be read in conjunction with the separate historical audited consolidated financial statements of the Company as filed on April 15, 2011 on Form 10-K as of and for the year ended December 31, 2010, the separate historical audited financial statements of Hocks as of and for the years ended June 30, 2010 and 2009, and the separate historical unaudited condensed financial statements as of December 31, 2010 and for the six months ended December 31, 2010 and 2009, appearing elsewhere in this filing. These unaudited pro forma condensed combined statements are not necessarily indicative of the consolidated financial position of the Company, had the acquisition of Hocks, occurred on the dates indicated above, or the consolidated results of operations which might have existed for the periods indicated or consolidated results of operations as they may be in the future.
For purposes of preparing the Company’s consolidated financial statements, a new basis will be established for the assets of Hocks based upon the fair value thereof. The unaudited pro forma condensed combined balance sheet and statements of operations reflect management’s best estimate of the asset acquisition accounting; however, the final accounting may differ from the pro forma amounts.
| Healthwarehouse.com, Inc. and Subsidiaries | |||||||||||||
| Unaudited Pro Forma Condensed Combined Balance Sheet | |||||||||||||
| As of December 31, 2010 |
| Pro Forma | Pro Forma | Pro Forma | ||||||||||||||||||||||||
| Healthwarehouse.com | Hocks | Adjustments | Notes | Adjustments | Notes | Balance | ||||||||||||||||||||
| Assets | Note 1 | Note 2 | Dr. | Cr | ||||||||||||||||||||||
| Current assets | ||||||||||||||||||||||||||
| Cash | $ | 1,397,583 | $ | 16,667 | $ | 216,667 | 3, 4 | $ | 1,197,583 | |||||||||||||||||
| Accounts Receivable, net | 604,524 | 604,524 | ||||||||||||||||||||||||
| Inventories | 374,519 | 220,661 | 20,661 | 4 | 574,519 | |||||||||||||||||||||
| Employee advances | 51,429 | 51,429 | ||||||||||||||||||||||||
| Prepaid expenses and other current assets | 126,708 | 126,708 | ||||||||||||||||||||||||
| Total current assets | 2,554,763 | 237,328 | - | 237,328 | 2,554,763 | |||||||||||||||||||||
| Property and equipment, net | 320,328 | 829 | 829 | 4 | 320,328 | |||||||||||||||||||||
| Website development costs, net of accumulated amortization of $139,475 | 60,921 | 60,921 | ||||||||||||||||||||||||
| Intangible assets | - | 693,335 | 4 | 693,335 | ||||||||||||||||||||||
| Total assets | $ | 2,936,012 | $ | 238,157 | $ | 693,335 | $ | 337,205 | $ | 3,629,347 | ||||||||||||||||
| Liabilities and Stockholders' Equity | ||||||||||||||||||||||||||
| Current Liabilities | ||||||||||||||||||||||||||
| Accounts payable - related parties | $ | 232,858 | $ | - | $ | - | $ | 232,858 | ||||||||||||||||||
| Accounts payable - trade | 807,481 | 807,481 | ||||||||||||||||||||||||
| Accrued expenses and other current liabilities | 240,098 | 2,789 | 2,789 | 4 | 240,098 | |||||||||||||||||||||
| Convertible notes, net of debt discount of $9,658 | 215,342 | 215,342 | ||||||||||||||||||||||||
| Total current liabilities | 1,495,779 | 2,789 | 2,789 | - | 1,495,779 | |||||||||||||||||||||
| Convertible notes payable, net of deferred debt discount of $600,354 | 399,646 | 399,646 | ||||||||||||||||||||||||
| Total liabilities and Stockholders' Equity | $ | 1,895,425 | $ | 2,789 | $ | 2,789 | - | $ | 1,895,425 | |||||||||||||||||
| Commitments and contingencies | ||||||||||||||||||||||||||
| Stockholder's equity | ||||||||||||||||||||||||||
Convertible preferred stock - Series B - par value $.001 per share authorized 1,000,000 shares; 625,000 shares designated Series B; 365,265 shares issued, and outstanding (aggregate liquidation preference $3,451,754) | 365 | 365 | ||||||||||||||||||||||||
Common stock - par value $.001 per share; authorized 50,000,000 shares; 10,278,934 shares issued and outstanding | 10,279 | 167 | 5 | 10,446 | ||||||||||||||||||||||
| Additional paid-in capital | 9,540,036 | 693,168 | 5 | 10,233,204 | ||||||||||||||||||||||
| Accumulated deficit | (8,510,093 | ) | (8,510,093 | ) | ||||||||||||||||||||||
| Net assets to be sold | 235,368 | 235,368 | 6 | - | ||||||||||||||||||||||
| Total stockholders' equity | 1,040,587 | 235,368 | 235,368 | 693,335 | 1,733,922 | |||||||||||||||||||||
| Total liabilities and stockholders' equity | $ | 2,936,012 | $ | 238,157 | $ | 238,157 | $ | 693,335 | $ | 3,629,347 | ||||||||||||||||
See notes to these unaudited pro forma condensed combined financial statements
| Healthwarehouse.com, Inc. and Subsidiaries | |||||||||||||||||||
| Unaudited Pro Forma Condensed Combined Statement of Operations | |||||||||||||||||||
| For the year ended December 31, 2010 | |||||||||||||||||||
| Healthwarehouse | Hocks | Adjustments | Notes | Combined | |||||||||||||||
| Note A | Note B | ||||||||||||||||||
| Net sales | $ | 5,691,765 | $ | 4,479,688 | $ | 10,171,453 | |||||||||||||
| Cost of sales | 3,450,021 | 3,840,058 | 7,290,079 | ||||||||||||||||
| Gross profit | 2,241,744 | 639,630 | - | 2,881,373 | |||||||||||||||
| Operating expenses | |||||||||||||||||||
| Selling, general and administrative expenses | 5,303,617 | 745,977 | 99,048 | 6,148,642 | |||||||||||||||
| Loss from operations | (3,061,873 | ) | (106,347 | ) | (99,048 | ) | c | (3,267,267 | ) | ||||||||||
| Other income (expense): | |||||||||||||||||||
| Interest expense | 642 | 642 | |||||||||||||||||
| Interest income | (679,330 | ) | (679,330 | ) | |||||||||||||||
| Gain on litigation settlement | 48,887 | 48,887 | |||||||||||||||||
| Total other income (expense) | (629,801 | ) | - | (629,801 | ) | ||||||||||||||
| Net loss | (3,691,674 | ) | (106,347 | ) | (99,048 | ) | (3,897,068 | ) | |||||||||||
| Series B Convertible Preferred Stock: | |||||||||||||||||||
| Contractual dividends | (33,992 | ) | (33,992 | ) | |||||||||||||||
| Deemed dividends - beneficial conversion feature | (1,666,967 | ) | (1,666,967 | ) | |||||||||||||||
| Loss attributable to common stockholders | $ | (5,392,633 | ) | $ | (106,347 | ) | $ | (99,048 | ) | $ | (5,598,027 | ) | |||||||
| Per share data: | |||||||||||||||||||
| Net loss per common share from operations - Basic and diluted | $ | (0.37 | ) | $ | (0.38 | ) | |||||||||||||
| Series B Convertible preferred stock contractual dividends | $ | - | $ | - | |||||||||||||||
| Series B Convertible preferred stock deemed dividends | $ | (0.17 | ) | $ | (0.17 | ) | |||||||||||||
| Net loss attributable to common shareholders per share - Basic and diluted | $ | (0.54 | ) | $ | (0.55 | ) | |||||||||||||
| Weighted average number of common shares outstanding - Basic and diluted | 10,068,575 | 166,667 | d | 10,235,242 | |||||||||||||||
See notes to these unaudited pro froma condensed combined financial statements
| 1. | Acquisition |
On February 14, 2011, Hocks Acquisition Corporation (“Hocks Acquisition”), a newly formed Ohio corporation and a wholly-owned subsidiary of the Company, entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Hocks Pharmacy Inc., an Ohio corporation (“Hocks Pharmacy”), and it shareholders. Under the Asset Purchase Agreement, on February 14, 2011 Hocks Acquisition purchased inventory (the “Purchased Assets”) owned by Hocks Pharmacy and used in the operation of its internet pharmacy business (the “Internet Business”). The Internet Business consists primarily of the internet sale of over-the-counter health and medical products and supplies. Hocks Acquisition paid $200,000 in cash to Hocks Pharmacy for the Purchased Assets.
Also, on February 14, 2011, the Company and Hocks Acquisition entered into a Merger Agreement (the “Merger Agreement”) with Hocks Pharmacy and its shareholders and Hocks.com Inc., a newly formed Ohio corporation and a wholly-owned subsidiary of Hocks Pharmacy. Under the Merger Agreement, on February 14, 2011 Hocks Acquisition merged into Hocks.com and Hocks.com became a wholly-owned subsidiary of the Company. At the time of the Merger, Hocks.com owned all of the intangible assets of the Internet Business, including trademarks, domain names, customer accounts and goodwill. The merger consideration consisted of 166,667 shares of the Company’s common stock issued to Hocks Pharmacy.
The following table summarizes the preliminary allocation of the purchase price for Hocks.com based on the February 14, 2010 closing price of Healthwarehouse.com, Inc. common stock of $4.16 per share:
| Current assets - Inventory | $ | 200,000 | ||
| Customer relationships | 693,335 | |||
| Net fair value of assets acquired | 893,335 | |||
| Total purchase price | $ | 893,335 | ||
| The following represents a summary of the purchase price consideration: | ||||
| Common Stock | $ | 693,335 | ||
| Cash | 200,000 | |||
| Total purchase price consideration | $ | 893,335 |
The Company initially allocated the excess value entirely to customer relationships with an estimated useful life of seven years.
| 2. | Pro forma adjustments |
The following pro forma adjustments give effect to the acquisition:
| Note 1 | Derived from the consolidated financial statements of Healthwarehouse.com, Inc. as of December 31, 2010. |
| Note 2 | Derived from the unaudited condensed financial statements of Hocks.com as of December 31, 2010. |
| Note 3 | To record Healthwarehouse.com, Inc.’s payment of $200,000 for inventories to Hocks shareholders. |
| Note 4 | To adjust the carrying value of Hocks.com’s net assets acquired to fair value and the elimination of assets not acquired and liabilities not being assumed. |
| Note 5 | To record the issuance of 166,667 shares of Healthwarehouse.com, Inc.’s common stock valued at $693,335 to Hocks.com’s shareholders, based on the February 14, 2011 closing price of Healthwarehouse.com, Inc.’s common stock of $4.16 per share. |
| Note 6 | To eliminate the historical book value of Hocks.com. |
Condensed Combined Statement of Operations – For the year ended December 31, 2010
| Note A | Derived from the audited consolidated financial statements of Healthwarehouse.com, Inc. for the year ended December 31, 2010. |
| Note B | Derived from the audited condensed financial statements of Hocks.com for the year ended June 30, 2010 with the addition of the six months ended December 31, 2010 and the deletion of the six months ended December 31, 2009, respectively. |
Pro Forma Adjustments:
| Note C | To record the estimated amortization of the customer relationships purchased from Hocks.com for the year ended December 31, 2010, calculated on the basis of their estimated useful life of seven years. |
| Note D | To record the issuance of 166,667 shares of Healthwarehouse.com, Inc. common stock to Hocks.com’s shareholders. |