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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-KSB

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
    1934

                     For the fiscal year ended June 30, 2002

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
    OF 1934

          For the transition period from              to
                                         ------------    -------------

                        Commission file number 000-15379

                            PARK PHARMACY CORPORATION
                      (formerly known as Power-Cell, Inc.)
                 (Name of small business issuer in its charter)

              COLORADO                                    84-1029701
    (State or other jurisdiction                (I.R.S. Employer incorporation
            organization)                           or Identification No.)

                               10711 PRESTON ROAD
                                    SUITE 250
                                DALLAS, TX 75230
                    (Address of principal executive offices)
                                   (Zip Code)

                    Issuer's telephone number (972) 860-0200

         Securities registered under Section 12(b) of the Exchange Act:
                                      None

         Securities registered under Section 12(g) of the Exchange Act:
                         Common Stock, $0.0001 par value
                                (Title of Class)

         Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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

         Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

         Issuer's revenues for its most recent fiscal year were $43,117,977.

         The aggregate market value of the voting and non-voting common equity
held by non-affiliates of the registrant as of September 26, 2002 was
approximately $454,742 based on the average of the registrant's bid and ask
price on the OTC Bulletin Board. Shares held by non-affiliates were determined
using beneficial ownership rules adopted pursuant to Section 13 of the Exchange
Act, and exclude stock owned by directors, officers and ten percent
stockholders, some of which may not be held to be affiliates upon judicial
determination.

         The number of shares outstanding of each of the issuer's classes of
common equity as of September 26, 2002 was 10,105,381.

         Transitional Small Business Disclosure Format (check one): Yes    No X
                                                                       ---   ---


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                       DOCUMENTS INCORPORATED BY REFERENCE

         The information required by Part III of this Annual Report on Form
10-KSB, to the extent not set forth herein, is incorporated by reference from
specified portions of Park Pharmacy Corporation's definitive proxy statement for
the 2002 Annual Meeting of Stockholders to be filed with the Securities and
Exchange Commission within 120 days following the fiscal year covered by this
report.

                           FORWARD-LOOKING STATEMENTS

         With the exception of historical information, the matters discussed in
this Annual Report on Form 10-KSB include "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Forward-looking statements are statements other
than historical information or statements of current condition. Some
forward-looking statements may be identified by the use of the terms "expects,"
"will," "anticipates," "estimates," "believes," "plans" and words of similar
meaning. These forward-looking statements relate to our business plans,
programs, trends, results of future operations, funding of future growth,
acquisition plans and other matters. In light of the risks and uncertainties
inherent in all projected matters, the inclusion of forward-looking statements
in this Form 10-KSB should not be regarded as a representation by us or any
other person that our objectives or plans would be achieved or that operating
expectations will be realized. Revenues and results of operations are difficult
to forecast and could differ materially from those projected in forward-looking
statements, such as statements regarding our belief with respect to the
sufficiency of capital resources, our ability to complete and assimilate
acquisitions, and our ability to compete in our pharmacy and physician services
businesses. Actual results could differ from those projected in any
forward-looking statements for, among others, the following reasons: (a) our
high level of indebtedness; (b) our ability to make interest and principal
payments on our debt and satisfy the other covenants contained in our credit
facilities and to make payments on our trade debt; (c) our ability to improve
the operating performance of our business segments; (d) the outcome of the
pending civil governmental investigation involving our alleged violation of the
Controlled Substances Act; (e) increased competition from existing or new
competitors; (f) changes in government regulation of the pharmacy industry; (g)
changes in the reimbursement costs or policies of health insurance companies or
federally-funded insurance programs; (h) the failure of third-party payors,
including health insurance companies and federally funded insurance programs, to
make payments in accordance with the time periods specified in their agreements
with us; (i) our failure to collect receivables from health insurance companies
who may experience financial hardships or failure as a result of increases in
the costs of providing health care services in excess of the amount of revenue
received by such insurance companies under existing contractual commitments; (j)
our failure to manage our growth and integrate businesses acquired or to be
acquired; and (k) our failure to attract or retain key employees. We do not
undertake to update any forward-looking statements contained herein. For a more
complete discussion of these factors and others, please see "Certain Business
Factors" in Item 1 of this report. Readers are cautioned not to place undue
reliance on any forward-looking statements made herein, or incorporated by
reference into this Annual Report on Form 10-KSB or in any document or statement
referring to this Annual Report on Form 10-KSB.


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                                     PART I

ITEM 1. BUSINESS

COMPANY OVERVIEW

INTRODUCTION

         General. Our company, Park Pharmacy Corporation, is a provider of
high-end and technical pharmacy services in Texas and the southwestern United
States. We are a holding company based in Dallas, Texas, and our subsidiaries
are engaged in retail pharmacy, infusion pharmacy, institutional pharmacy and
wholesale pharmacy distribution. Through Dougherty's Pharmacy ("Dougherty's") in
North Dallas and three Medicine Man ("Medicine Man") pharmacies located south of
Houston, we offer traditional independent pharmacy services, including
prescriptions, over-the-counter drugs, durable medical equipment, cosmetics,
gifts and sundries. Through Dougherty's Homecare Infusion ("DHI") in North
Dallas, Park Infusion Care ("Park Infusion") in Dallas and San Antonio, and
Total Health Care ("Total Health") in Arlington, Texas, we supply enteral
nutrition, total parenteral nutrition, antibiotic therapy, chemotherapy and
other infusion products and services to home healthcare and hospice patients.
Dougherty's Homecare Pharmacy ("Homecare") and Total Health are institutional
pharmacies fulfilling prescriptions for nursing homes and assisted living
facilities in North Texas. Our subsidiary, Total Pharmacy Supply ("TPS"), based
in Arlington, Texas, is a national wholesale supplier of non-drug products for
independent drug stores and grocery chains.

         We believe that a significant market exists for high-end, technical
pharmacy services such as compounded prescriptions, intravenous infusion,
injectables and pain management products that are not typically offered by chain
drug stores, grocery pharmacies or mass merchandise pharmacies. Specifically, we
believe that opportunities exist to acquire independent pharmacies that provide
these high-end services, but whose owners face limited viable exit strategies.
As a result, subject to the availability of sufficient capital, we intend to
expand our infusion business and acquire highly profitable, independent
pharmacies that either 1) specialize in technical pharmacy operations such as
infusion or compounding, among others, 2) dominate their markets in niche
services such as hospice care, oncology or AIDS, among others, or 3) are
geographically attractive and offer the opportunity to implement additional
lines of business such as infusion, compounding, durable medical equipment,
institutional pharmacy and the like.

         Our business address is 10711 Preston Road, Suite 250, Dallas, Texas
75230 and our telephone number is (972) 860-0200. Our Web sites are
www.parkrxcorp.com, www.doughertys.com, www.tps-online.com,
www.parkinfusion.com, www.thcrx.com and www.medmanrx.com.

         Background. On March 9, 1999, the shareholders of Park Pharmacy
Corporation, a privately-held Texas corporation ("Park-Texas"), entered into a
stock purchase agreement with Power-Cell, Inc., a publicly-held Colorado
corporation that was incorporated in 1986 but had been inactive since 1997, for
the acquisition by Power-Cell of all the issued and outstanding shares of
capital stock of Park-Texas in exchange for shares of a newly authorized and
designated series of preferred stock of Power-Cell. Upon the closing of the
acquisition, which was approved by Power-Cell's shareholders on October 12,
1999: 1) Park-Texas became a wholly- owned subsidiary of Power-Cell, 2)
Park-Texas' shareholders gained voting control over 80% of the issued and
outstanding capital stock of Power-Cell, and 3) Park-Texas' designees comprised
five of the six members of the board of directors. Immediately following the
reverse acquisition, Power-Cell was renamed to Park Pharmacy Corporation.

         Park-Texas undertook the reverse acquisition in order to improve access
to the capital markets and to use publicly traded stock as currency in acquiring
independent pharmacies. Additionally, the public vehicle affords our current and
future shareholders greater liquidity than would otherwise be available as a
private company.

         Prior to October 19, 1999, we were a non-operating public company. From
October 19, 1999 to December 31, 1999, we were essentially a development-stage
company with a plan of operation to acquire independent pharmacies in Texas and
the southern United States.


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         Since December of 1999, we have completed seven acquisitions in the
pharmacy business. In fiscal 2002, these businesses generated annual revenue
from continuing operations of approximately $53.8 million and earnings (loss)
before interest, taxes, depreciation, amortization and impairment ("EBITDA") of
approximately ($3.4) million.

UNPROFITABLE OPERATIONS, HIGH DEBT AND PROSPECTS FOR RECOVERY

         The acquisitions consummated by prior management have had a significant
negative impact upon our operating results and financial condition and severely
strained our liquidity. Other than the acquisition of our infusion business, new
management believes that our acquisitions have performed substantially below our
expectations and their own historical results. We believe that these businesses
had significant management and operational issues that prevented them from
operating on a profitable basis. Our poor cash flow from these acquisitions has
made it extremely difficult to service our high level of debt and operate our
business.

         Due in large part to our poorly performing acquisitions and high level
of debt, our new management team face a number of challenges, including the
following:

         o  Securing and reducing our high level of indebtedness.

         o  Collecting our large accounts receivable balance.

         o  Operating under a cash-on-delivery basis with Amerisource Bergen
            ("Amerisource"), our principal supplier.

         o  Reducing corporate overhead.

         o  Improving operations and management of our business segments.

         o  Refinancing or restructuring our senior secured credit facility.

         o  Negotiating the settlement of a governmental investigation into our
            alleged violation of the Controlled Substances Act.

         In response to these challenges, new management has begun to implement
the following initiatives:

         o  Close unprofitable business segments and locations in order to
            improve our cash-flow to enable us to service our significant debt
            obligations.

         o  Restructure credit underwriting practices and collection procedures
            to increase our percentage of accounts receivables collected and
            write-off bad and uncollectible accounts receivable.

         o  Negotiate and settle the governmental investigation.

         o  Refinance or restructure our senior secured credit facility.

         o  Reduce the size of our excessively large and highly compensated
            management.

         o  Reduce the large past-due balance owed to our principal supplier.

         There can be no assurances that any or all of these objectives will be
achieved by us. Our success implementing most of these initiatives, in whole or
in part, will affect whether we are able to continue operating our business.

REGULATORY ENVIRONMENT

         Retail Pharmacy. Our pharmacies and pharmacists must be licensed by the
appropriate state boards of pharmacy. Our pharmacies are also registered with
the federal Drug Enforcement Administration. Additionally, our pharmacies must
be approved by the Centers for Medicare and Medicaid Services (formerly the
Health Care Financing Administration) as providers under Medicare and by state
governmental agencies responsible for Medicaid. Because of these licensing and
registration requirements, we must comply with various statutes, rules and
regulations, which, if violated, could result in a suspension or revocation of
those licenses or registrations.

         Participants in the healthcare industry are subject to frequently
changing, and often confusing, regulation at federal, state and local levels.
Providers, payors, and plans are also subject to a variety of laws and
regulations that could affect their business relationships with us. Federal and
state laws regulating health insurance, health maintenance organizations and
similar organizations, as well as employee benefit plans, are not uniform and
cover a broad array of subjects, including confidentiality, financial
relationships with vendors, mandated benefits, grievance


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and appeal procedures and others. Some federal and state so-called "fraud and
abuse" laws may also limit or prohibit some financial relationships with our
healthcare participants, including physician practices, hospitals and
laboratories.

         In recent years, an increasing number of legislative proposals have
been introduced or proposed in Congress and in some state legislatures that
would effect major changes in the healthcare system, either nationally or at the
state level. We cannot predict whether any federal or state healthcare reform
legislation will eventually be passed, or the impact of any reform legislation
on our financial position or results of operations. If implemented, healthcare
reform could adversely affect the pricing of prescription drugs or the amount of
reimbursement from governmental agencies and managed care payors, and
consequently have adverse effects on us. However, to the extent healthcare
reform expands the number of persons receiving healthcare benefits covering the
purchase of prescription drugs, it may also result in increased purchases of
such drugs and could thereby have a favorable impact on both our company and the
retail drug industry in general. Nevertheless, there can be no assurance that
any future federal or state healthcare reform legislation will not adversely
affect our company or the retail drugstore industry generally.

CURRENT OPERATIONS

         Retail Pharmacy. In December of 1999, we acquired Dougherty's Pharmacy,
Inc., which has been in operation for over 70 years and currently operates
Dougherty's Pharmacy in North Dallas. After our acquisition of this company, the
Dougherty's pharmacy was separated into a distinct legal entity. The Park family
has operated Dougherty's since 1945. In May 2001, we acquired the assets and
operations of four retail stores located south of Houston that were previously
owned by Medicine Man, Inc. and one of the pharmacies was sold in December 2001.

         Dougherty's and Medicine Man are full-service pharmacies, offering a
broad range of over-the-counter medications, supplies and equipment, health and
beauty aids, cosmetics, gifts, greeting cards and other general merchandise. We
are unique relative to chain drug stores, grocery pharmacies and mass
merchandise pharmacies in providing technical products, particularly compounded
drugs and infusion products. The specialized nature of these products yields
above average pricing, and competition for these products is relatively limited.

         Infusion Pharmacy. Through Park Infusion, we have quickly developed a
significant infusion presence in both the North Texas region and the South Texas
region. Park Infusion Services was formed in July 2000 to facilitate our August
2000 acquisition of infusion pharmacies located in San Antonio, Texas and
Dallas, Texas. A third infusion pharmacy acquired in the August 2000 transaction
and located in St. Petersburg, Florida was subsequently divested by our company
in April 2001. Park Infusion operates alternative-site suites in order to manage
more complex infusion procedures. Our infusion pharmacy services address a
variety of medical conditions, such as chronic blood disorders, chronic pain,
massive infections and cancer. Park Infusion conducts a significant amount of
managed care business and has well-established relationships with the managed
care community.

         Institutional Pharmacy. Total Health and Dougherty's Homecare Pharmacy,
a division of Dougherty's, provide pharmacy services to nursing homes and
assisted living facilities. These pharmacies purchase and dispense, in custom
dose packs, prescription and non-prescription medication in accordance with
physician orders and deliver such prescriptions to the nursing facility for
administration to individual residents by the facility's nursing staff. Total
Health and Homecare typically service nursing homes within a 75-mile radius of
their respective pharmacy locations. Total Health maintains 24-hour, on-call
pharmacists, 365 days per year, for emergency dispensing and delivery or for
consultation with the facility's staff or the resident's attending physician.

         Wholesale Pharmacy Supply. In March of 2000, we acquired Total Pharmacy
Supply, Inc. ("TPS") based in Arlington, Texas. TPS is a wholesale distributor
of a variety of non-drug products utilized by pharmacies. These products include
prescription packaging and containers, dispensing supplies and equipment, labels
and forms, medication carts and canes, among many other products. TPS was formed
in 1989 and maintains a customer base of approximately 2,000 pharmacies, grocery
stores, healthcare distributors, healthcare institutions and other pharmacy
providers.


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PRODUCTS AND SERVICES

RETAIL PHARMACY

         Prescriptions. Prescription medications are our primary focus.
Dougherty's and Medicine Man inventory both concurrently prescribed drugs as
well as a substantial variety of pharmaceuticals that are not typically carried
by chain drug stores, grocery pharmacies and mass merchandise pharmacies. Our
ability to provide a full array of prescription medications has positioned us as
a reliable provider of a wide range of prescription drugs that physicians and
customers have come to trust.

         In addition to prescription drugs, we carry a full line of
over-the-counter medications, along with nutriceutical (vitamin) supplements. As
with our prescription drugs, our customers rely on Dougherty's and Medicine Man
for our deep product offerings.

         Compounding. We provide custom formulating of prescription medications.
This process, which is technical and highly customized, creates higher
prescription margins and fills a special need in the marketplace. Some of these
products include antibiotic creams, suppositories, topical ointments and various
other compounds used in pain management, wound care, veterinary (pet) care and
other conditions.

         Durable Medical Equipment ("DME"). We offer for sale and lease, certain
products that consist of patient room equipment (such as hospital beds, patient
lifts and commodes), ambulatory aids (such as walkers and canes), bathroom
safety items, wound care, ostomy and therapeutic compression products. Our broad
range of products provides patients who require either infusion or home
healthcare services access to needed DME through a single source.

         Non-pharmaceutical Merchandise. We also offer a wide variety of other
nationally advertised and private label non-prescription merchandise including
health and beauty care, cosmetics, gifts, greeting cards, and other general
merchandise. In addition, we offer a broad assortment of popular national brand
over-the-counter drugs and other products related to dental care, foot care,
vitamins and nutritional supplements, feminine hygiene, family planning and baby
care. We provide a helpful environment that enables consumers to obtain product
information from professional pharmacists and knowledgeable staff, and to
benefit from other special features such as free home delivery, charge accounts
and fax and copy machines for customer convenience.

INFUSION PHARMACY

         Infusion therapy involves the intravenous, intramuscular or
subcutaneous administration of nutrients, antibiotics or other medications to
patients in their homes usually as a continuation of treatment initiated in the
hospital. Through Park Infusion, we offer both traditional forms of medication
delivery such as the "hanging bag", along with newer methods such as portable
pumps that administer medication in periodic, measured doses, and injectables
that utilize "bulbs" to allow patients to administer drugs themselves through
previously installed intravenous nodes.

         Historically, infusion therapy was confined to the hospital
environment. However, with the development of portable technology and the
expanded training and certification standards for registered infusion nurses,
infusion procedures can be safely and effectively performed in the home setting,
physician office and ambulatory infusion suite. As an example, chemotherapy was
once administered primarily in the hospital setting but can now be administered
by the patient at home via a bulb. As a result of such changes, infusion
patients now enjoy greater freedom to maintain daily activities.

         At the same time that technology and nurse credentialling have
improved, payors have encouraged the trend toward alternative-site and home
infusion in order to reduce costs. The growing healthcare management practices
of discouraging hospital treatment and discharging patients from hospitals
earlier prior to complete recovery have shifted more treatment responsibility to
the infusion pharmacist. Because patients are often more acute, infusion
formulating and dosing is more complex, and infusion pharmacists must be skilled
in addressing such complexities. Infusion therapy now plays a greater role in
patient recovery outside the hospital.


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         Our infusion products and services, provided through Park Infusion, are
generally categorized as follows:

         Antibiotic Therapy. The infusion of antibiotic medications to treat
various infections and diseases, such as bacterial arthritis, endocarditis,
cellulitis, cystic fibrosis, fungal infections, Lyme disease, osteomyolitis,
urinary tract infections and wound infections.

         Total Parenteral Nutrition ("TPN"). The infusion of balanced dietary
nutrients, vitamins and electrolytes to patients unable to absorb nutrients
through the digestive tract due to various gastrointestinal conditions.
Conditions often treated with TPN include cancer, Chron's disease, HIV, cystic
fibrosis and various nutritional disorders.

         Pain Management. The continuous or intermittent infusion of parenteral
analgesics to patients experiencing severe, chronic pain, with conditions
related to cancer, intractable pain, arthritis, chronic back or bone pain and
AIDS.

         Chemotherapy. The infusion of oncolytic agents used in the treatment of
various forms of cancer. Adjunct therapies often accompany chemotherapy, such as
treatment for nausea, compromised blood factors, malnutrition and pain.

         Enteral Nutrition. The administration of dietary nutrients through a
feeding tube directly into the digestive tract to patients unable to eat or
drink normally. Conditions treated with enteral nutrition include esophageal
reconstruction or cancer and traumatic injury to the gastrointestinal system.

         Hydration Therapy. The infusion of fluids to patients who have disease
states that deplete the normal balance of fluids and/or electrolytes. Hydration
therapy is usually a short-term treatment ranging from one to three days.

         While Park Infusion provide all of these products, a significant
proportion of the business is concentrated in antibiotic therapy, TPN, pain
management and chemotherapy.

INSTITUTIONAL PHARMACY

         Through Total Health and Dougherty's Homecare, a division of
Dougherty's, we provide prescriptions and other home healthcare products and
services to patients residing in facilities such as extended care facilities,
nursing homes, home hospices and assisted living centers. Our patients typically
cover a variety of health conditions, and some of the products and services
offered by Total Health and Homecare include treatment in disease state
management and pharmacy consulting. Prescription medications that are sold to
these facilities are purchased by us at contracted prices that are usually lower
than normal retail pharmacy.

         Upon receipt of a prescription, the relevant resident information is
entered into the pharmacy's computerized dispensing and billing systems. At that
time, the dispensing system checks the prescription for any potentially adverse
drug interactions or resident sensitivity. When required and/or specifically
requested by the physician or patient, branded drugs are dispensed. Generic
drugs are substituted in accordance with applicable state and federal laws and
as requested by the physician or resident. We also provide therapeutic
interchange, with physician approval, in accordance with the company's
pharmaceutical care guidelines.

         Through Total Health and Homecare, we provide a "unit dose"
distribution system. Most of our prescriptions are filled utilizing specialized
unit-of-use packaging and delivery systems. Maintenance medications are
typically provided in 30-day supplies utilizing either a box unit dose system or
unit dose punch card system. The unit dose system, preferred over the bulk
delivery systems employed by retail pharmacies, improves control over drugs in
the nursing facility and improves resident compliance with drug therapy by
increasing the accuracy and timeliness of drug administration.

         Our institutional drug distribution system is integral to our
computerized medical records and documentation system. Our pharmacies provide
the facility with computerized medication administration records


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and physician's order sheets, along with treatment records for each resident.
Data extracted from these computerized records are also formulated into monthly
management reports on resident care and quality assurance. The computerized
documentation system, in combination with the unit dose drug delivery system,
results in greater efficiency in nursing time, improved control, reduced drug
waste in the facility and lower error rates in both dispensing and
administration. These benefits improve drug efficacy and result in fewer
drug-related hospitalizations.

         Consultant Pharmacist Services. Federal and state regulations mandate
that nursing facilities, in addition to providing a source of pharmaceuticals,
retain consultant pharmacist services to monitor and report on prescription drug
therapy in order to maintain and improve the quality of resident care. The
Omnibus Budget Reconciliation Act ("OBRA") implemented in 1990 seeks to further
upgrade and standardize care by setting forth more stringent standards relating
to planning, monitoring and reporting on the progress of prescription drug
therapy as well as facility-wide drug usage. Total Health and Homecare provide
consultant pharmacist services that help clients comply with such federal and
state regulations applicable to nursing homes. The services offered by our
consultant pharmacists include: (i) conducting comprehensive, monthly drug
regimen reviews for each resident in the facility to assess the appropriateness
and efficacy of drug therapies, which includes reviewing the resident's medical
records, monitoring drug reactions to other drugs or food, monitoring lab
results and recommending alternate therapies or discontinuing unnecessary drugs;
(ii) participating on the Pharmacy and Therapeutics, Quality Assurance and other
committees of client nursing facilities as well as staff meetings; (iii)
monitoring and monthly reporting on facility-wide drug usage; (iv) developing
and maintaining pharmaceutical policy and procedures manuals; and (v) assisting
the nursing facility in complying with state and federal regulations as they
pertain to patient care.

WHOLESALE PHARMACY SUPPLY

         Our subsidiary, Total Pharmacy Supply, Inc., is a national distributor
of non-drug supplies that are essential to the operation of a pharmacy, such as
prescription bottles, caps, labels, paper bags, medication cards, forms and
prescription pads, dosing aids and pill containers, lab coats, shock-absorbing
floor mats, walking canes and merchandising displays. TPS inventories a
substantial array of products and is a one-stop source of non-drug supplies to
the pharmacy industry.

CUSTOMERS

         We serve a variety of customers through our operations, ranging from
individuals to physician practices to hospices to other independent pharmacies
and healthcare institutions. With all of our subsidiaries, we attempt to manage
customer concentration to protect ourselves from the potential loss of any one
customer.

         The customer base of Dougherty's and Medicine Man is diversified among
a significant number of individuals who are covered by a wide variety of payors,
including insurance companies, health maintenance organizations, Medicare,
Medicaid and others. The loss of any one customer, or the refusal of any payor
to conduct business with our stores, would not have a material adverse impact to
the operations or financial results of our stores.

         The customer base of Park Infusion is also generally comprised of
individuals who are covered by a variety of payors. Although infusion pharmacies
generally deal with a smaller number of individuals than our retail stores, we
maintain sufficient diversification as to avoid a customer concentration. The
loss of any one customer, or the refusal of any payor to conduct business with
Park Infusion, would not have a material adverse impact to the operations or
financial results of our infusion pharmacies.

         Total Health and Homecare conduct business with a limited number of
nursing homes, and although we believe that the divisions' current customer
relationships are good, the loss of any one customer could have a potentially
significant impact on the results of Total Health and would clearly have a
significant impact on the results of Homecare. With respect to our consolidated
results of operations and financial position, however, such a loss would not be
material.

         TPS maintains an active customer base of over 2,000 accounts. Within
those accounts are certain national grocery store chains with a significant
number of individual stores doing business with TPS. Corporate headquarters


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for these customers does not dictate which non-drug supplier is to be used;
rather, each store is permitted to order product from its approved vendor of
choice. While the potential loss of one grocery store location would not be
material to TPS' operations, we do face the risk that a chain may elect to
direct its business elsewhere, which would materially impact TPS' operations and
financial results, as well as the operations and financial results of our
company as a whole. We have enjoyed well-established, long-term relationships
with our grocery customers and do not believe any of those relationships to be
currently at risk.

SALES AND MARKETING

         The ultimate customer of our pharmacy products and services is
generally an individual requiring prescription and related services and
products. To attract these customers, we must market our products and services
both to the individual and to a broader group that influences the pharmacy
decision, such as physicians, outpatient clinics, discharge planners, hospices
and other disease state management organizations.

         In general, success in the pharmacy industry is primarily based on
price, service quality, convenience, product quality and product availability.
Dougherty's and Medicine Man have historically gained a loyal following through
quality of service, with well-trained and attentive staffs; convenience, through
drive-through windows and home delivery; and product availability, carrying a
wide range of merchandise. With respect to more complex pharmacy products like
compounding and infusion, sales are primarily based on relationships,
reputation, technical competence, product availability and product quality. Our
infusion pharmacies have gained excellent reputations over time with high
quality service, broad product offerings and technical capability.

         As part of our strategic plan, we will provide outside sales personnel
and sales training on an ongoing basis in such areas as generics, private label
merchandise, over-the-counter medications and homeopathic medicine. We will also
provide literature in the stores, invoice stuffers, coupons in account
statements and direct mail letters from its pharmacists for customer awareness.
Finally, we have developed, and will continue to develop, customer awareness
programs for the management of disease states such as diabetes, asthma,
hypertension, ostomy and kidney health.

OPERATIONS AND MERCHANDISING

         In general, our retail store hours are tailored to match the
preferences and purchasing habits of the local community. Dougherty's, for
example, is located in the heart of a substantial residential community and
maintains store hours from 9:00 AM until 8:00 PM Monday through Saturday and
10:00 AM to 7:00 PM on Sunday.

         Each of Dougherty's and Medicine Man employ full staffs of pharmacists
and pharmacy technicians in order to provide a high level of customer
consultation and service. Each store department also maintains staff that
specializes in their respective product offerings, in order to provide a helpful
environment for the customer.

         We work diligently to merchandise our products in a manner that is
convenient for the customer and facilitates the free flow of traffic. At both
Dougherty's and Medicine Man, for example, product aisles are aligned in a
front-to-back fashion to provide ease of access to the prescription counter.

         To ensure adequate product availability, we have consolidated our
vendor relationships to ensure continuous flow of product along with optimal
pricing. We utilize one primary vendor for a majority of our drug and related
purchases, and that vendor delivers products to the retail stores twice per day.

INTELLECTUAL PROPERTY

         In general, we do not believe that our intellectual property is
material to the success of Dougherty's, TPS, Park Infusion, Total Health,
Medicine Man or Homecare.


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ACQUISITIONS

         To take advantage of existing market opportunities and execute our
strategy, from time to time we will, to the extent sufficient capital is
available, enter discussions with independent pharmacies and related companies
regarding potential acquisitions. As a fundamental principle, we are committed
to acquiring well-performing pharmacies that are geographically desirable, offer
technical pharmacy and related services or are otherwise market leaders. Strong
management is a key consideration for us in reviewing acquisition candidates,
because the independent pharmacy business is a local business frequently
dependent on personal relationships. In addition, we target owner/pharmacists
who are interested in remaining involved with us for the foreseeable future.

         In evaluating a pharmacy for potential acquisition, we consider 1)
historical financial statements and tax returns, 2) operational data, 3)
management and employee information, 4) material contracts, including customer
and vendor contracts, 5) financing arrangements, 6) corporate organizational
information, 7) regulatory information and 8) litigation history. To assess the
reasonableness of the purchase price offered by a seller in connection with a
particular acquisition, we also consider the availability and terms of owner
financing, including the rate of return and payback period.

         In structuring our acquisitions, we emphasize continuity of management
in order to preserve the underlying business franchise following the
acquisition. This strategy typically involves the continued involvement of the
seller, who is usually a pharmacist, along with the other pharmacists employed
by the operation. We typically enter into employment agreements with acquired
pharmacists, including owner pharmacists, for periods ranging from five to seven
years. Compensation for non-owner pharmacists may consist of a combination of
cash and stock options to promote employment longevity and continuing focus on
business process improvement and increasing profitability.

         Once we acquire a business, we seek to implement our business model by
focusing on complex products, improving fundamental business processes and
increasing individual store profitability. Where opportunities exist to
implement new services, such as infusion therapy or durable medical equipment,
we may introduce such services, leveraging the expertise of particular stores
across other owned operations. We intend to institute cost-control programs,
continue and improve employee training, negotiate increases in vendor rebates,
maintain a high level of customer service and convenience, increase sales in
each department and maintain competitive pricing. In addition to prescription
drugs and services, we expect our pharmacies to offer a broad range of
over-the-counter medications, home healthcare services, health and beauty care,
cosmetics, gifts, greeting cards, convenience foods, cameras, photo supplies and
processing services, and other general merchandise. Some of our pharmacies may
incorporate special features such as drive-through windows and free home
delivery for customer convenience, faxing, copying, and package delivery
services.

         Since the completion of the reverse acquisition in October 1999, we
have completed seven acquisitions, including Rx-Pro.Com, Inc. in December 1999;
Dougherty's Pharmacy, Inc. in December 1999; Total Pharmacy Supply, Inc. in
March 2000; three infusion pharmacies in San Antonio, Texas; Dallas, Texas and
St. Petersburg, Florida in August 2000; Total Health in November 2000; the
Dallas office assets and business of Compass Healthcare, Inc. in March 2001; and
Medicine Man in May 2001. In April 2001, we sold the St. Petersburg pharmacy
that we had acquired in August 2000. In July 2001, Compass Healthcare, Inc. was
combined with Dougherty's. In December 2001, Raven's and Medicine Man-Dickinson
location were closed and their prescription files were sold. Operations at
Rx-Pro.com have been terminated.

         We have not been successful in executing our acquisition strategy in
the past. Our continued viability will depend, in part, on our ability to
improve operations from these prior acquisitions and improve our ability to
evaluate, value, structure and integrate future acquisitions.

RX-PRO.COM, INC.

         On December 21, 1999, we acquired all of the issued and outstanding
stock of Rx-Pro.Com, Inc., a Texas corporation. The acquisition was structured
as a merger pursuant to which Rx-Pro was merged with and into one of our wholly
owned subsidiaries, Park Pharmacy Corporation, a Texas corporation. Park-Texas
was the surviving company in the merger and continued to be one of our wholly
owned subsidiaries. Park-Texas changed its name to


                                       10
<PAGE>


Rx-Pro.Com, Inc. in the merger. Rx-Pro's shareholders, which included Mr. Joe B.
Park, received an aggregate of 97,500 shares of Series A Preferred Stock in the
merger. Mr. Park serves on our Board of Directors and as our Chairman. Mr. Park
also is our controlling shareholder. The unprofitable operations of this entity
have been terminated.

DOUGHERTY'S PHARMACY, INC.

         On December 30, 1999, we acquired all of the issued and outstanding
stock of Dougherty's Pharmacy, Inc., a privately held Texas corporation owned by
the Park family. The acquisition was closed pursuant to the terms of a Share
Exchange Agreement between our company and The Park Family Limited Partnership,
a Texas limited partnership and the sole shareholder of Dougherty's. In the
acquisition, the partnership received an aggregate of 45,000 shares of our
Series A Preferred Stock in exchange for all of the issued and outstanding
shares of Dougherty's. As a result of the transaction, Dougherty's became one of
our wholly owned subsidiaries.

         Mr. Joe B. Park and Mr. Jay H. Park own approximately 55% and 45%,
respectively, of the equity interests of The Park Family Limited Partnership.
Mr. Joe B. Park serves as one of our directors and as our Chairman of the Board.
Mr. Joe B. Park is also our controlling shareholder. Messrs. Joe B. Park and Jay
H. Park are brothers.

TOTAL PHARMACY SUPPLY, INC.

         Effective April 1, 2000, we acquired all of the shares of Total
Pharmacy Supply, Inc. In the acquisition, TPS was merged with one of our newly
formed subsidiaries and became a wholly owned subsidiary of our company. All of
the issued and outstanding shares of common stock of Total owned by Mr. Carl S.
Moses and Ms. Cynthia A. Moses were exchanged for an aggregate of 41,515 shares
of our Series A Preferred Stock. Of the total shares received, we initially held
back 4,151 shares for satisfaction of any indemnification claims by us against
Total and the Moses pursuant to the terms of the merger agreement. The holdback
period related to those shares has since expired without any claims being sought
by us; accordingly, we have released those shares to the Moses. Mr. Moses and
Ms. Moses are husband and wife.

AMEDISYS ALTERNATE-SITE INFUSION THERAPY SERVICES, INC. AND PRN, INC.

         On August 10, 2000, we acquired certain infusion pharmacy businesses
from subsidiaries of Amedisys, Inc., a publicly held Delaware corporation. The
acquisition was effected by one of our subsidiaries, Park Infusion Services, LP,
which purchased operating businesses from Amedisys Alternate-Site Infusion
Therapy Services Inc., and PRN, Inc., subsidiaries of Amedisys, Inc., effective
August 1, 2000.

         In the transaction, Park Infusion acquired the ongoing operations of
three infusion pharmacies located in San Antonio, Texas; Dallas, Texas; and St.
Petersburg, Florida for cash consideration of $1,750,000. The sellers retained
all cash and accounts receivable, and Park Infusion acquired all inventory,
furniture, fixtures, equipment and other tangible and intangible assets. All
employees previously employed by the sellers were hired by Park Infusion, and
the newly acquired pharmacies now operate under the name Park Infusion Services.

         Effective April 1, 2001, we divested the assets and operations of our
St. Petersburg location for cash consideration of $900,000 and a contingent
payment of $380,000 that was received post closing. In the sale transaction, we
retained the accounts receivable and cash of the pharmacy and sold all other
assets.

TOTAL HEALTH

         On November 10, 2000, we acquired the assets of MJN Enterprises, Inc.
d/b/a Total Health Care Pharmacy, an institutional pharmacy located in
Arlington, Texas owned by Michael J. Nault. We formed a new subsidiary, MJN
Acquisition Corporation, to effect the purchase, and immediately following the
transaction MJN Acquisition Corporation was renamed MJN Enterprises, Inc. We
acquired the company for cash consideration of $1,150,000 and 1,450,000 shares
of our common stock; we also assumed current and long-term liabilities. The DEA
has alleged that Total Health has violated the Controlled Substances Act and has
proposed a fine of $400,000.00 in connection


                                       11
<PAGE>


therewith. Total Health has lost a significant amount of its workforce and
business as a result of this investigation and other management and operational
issues.

MEDICINE MAN

         On May 31, 2001, we acquired out of bankruptcy the business operations
of Medicine Man, Inc., a company operating four retail pharmacies located south
of Houston, Texas in the communities of Alvin, Angleton, Dickinson and Santa Fe.
The pharmacies, each in operation since the 1960s, provide traditional retail
and over-the-counter services and represent our initial presence in the Houston
area. Consideration for the acquisition was approximately $1,779,000, of which
$1,129,000 was provided by us, and $650,000 was provided by funds contained in
deposit accounts acquired from the bankruptcy estate. The acquisition
consideration was used to discharge pre-petition liabilities of the estate, and
we received a "fresh start" with respect to the acquired operations.

         The assets of Medicine Man, Inc. were acquired in a newly formed
limited partnership, Park-Medicine Man, LP, that is directly and indirectly
controlled by us. All employees previously employed by Medicine Man, Inc. were
hired by Park-Medicine Man, LP. Except for the retail location that was closed
in December 2001, the partnership will continue to conduct the business of the
former Medicine Man, Inc., and the three remaining stores will continue to
operate under the trade name Medicine Man.

COMPETITION

         The retail pharmacy business is highly competitive. Our competitors can
be divided into several groups: (i) independent pharmacies, (ii) chain
pharmacies, such as Walgreen's and Eckerd, (iii) mass merchandise retailers,
such as Wal Mart, Kmart and Target, (iv) supermarkets, such as Albertson's and
Kroger, (v) warehouse clubs, such as Sam's, (vi) online retailers of
pharmaceutical and other health related products, such as Drugstore.Com and
Express Scripts, (vii) mail order pharmacies, (viii) prescription benefit
managers, and (ix) hospice pharmacy service providers, such as Hospice
Pharmacia. Many of our competitors have, or have announced their intention to
have, the capability to accept orders for products online.

         We believe that we will compete primarily on the basis of: (i) customer
service and satisfaction, (ii) product selection and variety, (iii) store
location and convenience, (iv) reliability and speed of order shipment, and (v)
price. We believe that our strengths in terms of competing with other retail
pharmacy companies will result from the business connections and experience of
our management team, along with our ability to offer a wider variety of
prescription medicine and health related products than most other retail
pharmacies.

         We believe that many of our competitors have longer operating
histories, larger customer or user bases, greater name recognition, and
significantly greater financial, marketing and other resources. Some of our
competitors may be able to secure products from vendors on more favorable terms,
fulfill customer orders more efficiently and adopt more aggressive pricing than
we can. Furthermore, many of our competitors can devote substantially more
resources to their Web sites and systems development. We also believe that the
continued consolidation of the drugstore industry will further increase
competitive pressure in the industry.

EMPLOYEES

         As of June 30, 2002, we employed a total of 238 employees, of whom 66
were employed by Dougherty's (including Pharmacy and Homecare), 50 by Medicine
Man, 58 by Park Infusion, 30 by Total Health, 15 by TPS, and 19 by our corporate
office. None of our employees is represented by a labor union, and we have never
experienced a work stoppage. We believe our relationship with our employees to
be generally good.

CERTAIN BUSINESS FACTORS

LOSSES, CASH-FLOW, BANK DEFAULT, DEA INVESTIGATION AND PRINCIPAL VENDOR
RELATIONSHIP

         We have experienced substantial losses for the year ending June 30,
2002. These losses resulted in poor cash-flow and our default under our senior
secured credit facility. We also have a large past due balance with our
principal supplier of pharmaceutical products and currently operate under a
cash-on-delivery basis with this vendor. Additionally, the Drug Enforcement
Administration has proposed that we pay a large fine in connection with our
alleged violation of the Controlled Substances Act. These events, singularly or
collectively, if not resolved in a satisfactory manner, could have a material
adverse effect on our business and ability to continue to operate our business
and require that we seek bankruptcy protection.

WE DEPEND ON ACQUISITIONS FOR GROWTH

         We anticipate that any future revenue and profit growth will depend
greatly on our ability to complete and assimilate acquired businesses. However,
our ability to consummate acquisitions is presently severely limited by our


                                       12
<PAGE>


unprofitable operations, poor cash-flow and high level of debt. Our ability to
acquire independent pharmacies will also depend on a number of factors, such as
the availability of attractive target companies, the availability of financing,
and market factors that may limit our ability to use our stock for acquisitions.
In addition, we compete for acquisition candidates with buyers who have greater
resources and may be able to offer more consideration to acquisition candidates.
If we are unable to acquire suitable businesses, our ability to expand our
operations and execute our business strategy will be adversely affected. We must
integrate our acquired businesses

         We have grown this past year as a result of our prior acquisitions and,
subject to the aforementioned limitations and factors, desire to acquire
businesses in the future. Our success is dependent, in part, upon our ability to
assimilate acquired businesses, transition customer and vendor contracts,
standardize financial and accounting systems, and integrate and retain
management and employees of acquired businesses. We must also successfully
assimilate these acquired businesses, or our business operations and results of
operations will be materially and adversely affected.

WE ARE DEPENDENT ON OUR ABILITY TO ATTRACT AND RETAIN KEY MANAGEMENT AND
TECHNICAL PERSONNEL

         Our success depends to a significant extent on our ability to attract
and retain key personnel. In particular, we are dependent on our senior
management team and personnel with experience in the pharmacy industry and in
consolidating businesses. To date, industry growth, along with a lengthening of
pharmacy schooling, have created a tight labor market for pharmacists and
pharmacy technicians. We expect competition for pharmacists and technicians to
continue to intensify. Although we believe that we will compete for personnel by
offering competitive cash and equity compensation and flexible work schedules,
we cannot be certain that we will be able to attract or retain key employees. If
we are unable to continue to hire pharmacists and pharmacy technicians as we
grow our business, our business operations will be materially and adversely
affected.

WE ARE SUBJECT TO CHANGES IN GOVERNMENT REGULATIONS

         Pharmacists and pharmacies are subject to a variety of state and
federal regulations, such as regulations relating to the approval process for
prescription drugs and reimbursement policies of government and private plans.
Because prescription drug sales represent a significant portion of our revenues
and profits, changes in the governmental regulations affecting approval
processes or reimbursement policies for prescription drugs could adversely
affect our business.

WE ARE SUBJECT TO CHANGES IN REIMBURSEMENT COST POLICIES

         We sell a growing percentage of our prescription drugs to customers who
are controlled by third-party payment programs, such as Medicare, Medicaid,
private insurance, managed-care plans and pharmacy benefit managers. Although
contracts with third-party payors may increase the volume of prescription drug
sales and gross revenues, third-party payors typically negotiate lower
prescription prices than other payors. Accordingly, gross profit margins on
sales of prescription drugs have been decreasing and are expected to continue to
decline in future periods. The amounts we receive from government programs and
private third-party payors are dependent upon the specific benefits included
under the program or the patient's insurance program. Any substantial delays in
reimbursement or significant reductions in the coverage or payment rates of
third-party payors would have a material adverse effect on our liquidity,
revenues and profitability.

WE ARE SUBJECT TO CASH FLOW DISRUPTIONS AS A RESULT OF INSURANCE COMPANIES
FAILING TO PAY AMOUNTS OWED TO US IN A TIMELY MANNER

         Our growth potential and financial condition will be materially and
adversely affected if the current trend in the insurance industry to fail in
making timely payments of amounts owed to third-party providers like us
continues or increases. Although several states, including Texas, have enacted
or proposed legislation to require "prompt" payment by insurance companies, we
continue to experience delays in receiving payments from health insurance
companies and federally funded insurance programs in accordance with written
agreements. If this trend continues or increases, our business and financial
operations will be adversely affected.


                                       13
<PAGE>


BECAUSE THE ACCOUNTS RECEIVABLE FROM SOME OF OUR PAYORS IS INCREASING, WE FACE
CREDIT RISKS ASSOCIATED WITH OPERATING IN THE HEALTH INSURANCE INDUSTRY

         In recent years, the cost for delivery of health care services has
continued to increase. This rate of increase may exceed the ability or
willingness of participants in health insurance programs to absorb the full
amount of these cost increases. In addition, the delivery costs for health care
services have recently increased throughout the year, while most health
insurance plans provide for fixed payment amounts throughout the year. To the
extent insurance companies fail to properly estimate continuing increases in
health care costs, the ability of these companies to continue making payments to
third-party providers such as our company may be adversely affected and could
result in our inability to collect our accounts receivable.

WE FACE INCREASING COMPETITION IN OUR INDUSTRY

         The retail and infusion pharmacy businesses are highly competitive. We
compete with national, regional and local retail pharmacy chains, other
independent retail pharmacies, discount retail pharmacies, supermarkets, mass
merchandise and other retail stores, and mail order and Internet operations. Our
infusion operations also compete with other large providers of infusion
services, such as national infusion therapy companies, infusion divisions of
national health care companies, and regional and local providers, many of which
may be more established in a particular market. The same is true of our
institutional pharmacy operations, where we compete directly with regional and
national institutional pharmacy companies. Some of our competitors have
financial resources that are substantially greater than ours, and we cannot be
certain that we will able to continue to successfully compete in the future.

WE HAVE A CONTROLLING SHAREHOLDER

         Joe B. Park, our chairman, owns approximately 65% percent of our voting
power as of June 30, 2002 through a family limited partnership. As a result, he
has the ability to elect all of our directors and to control the vote on matters
such as mergers, consolidations, sales of substantially all of our assets, or
transactions that could result in our company ceasing to be publicly held.

OUR COMMON STOCK TRADES INFREQUENTLY AND OUR STOCK PRICE MAY BE VOLATILE

         We cannot ensure that an active trading market for our common stock
exists or will exist in the future. Even if the trading market for our common
stock exists, the price at which the shares of common stock trade is likely to
be subject to significant volatility. The market for our common stock may be
influenced by many factors, including the depth and liquidity of the market for
our common stock, investor perceptions of us, and general economic and similar
conditions.

OUR COMMON STOCK IS SUBJECT TO THE "PENNY STOCK" RULES

         Our common stock currently trades on the OTC Bulletin Board. Therefore,
we cannot provide any assurances that a liquid trading market will exist at the
time any investor desires to dispose of any shares of our common stock. In
addition, our common stock is subject to the so-called "penny stock" rules that
impose additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors
(generally defined as an investor with a net worth in excess of $1 million or
annual income exceeding $200,000 or $300,000 together with a spouse). For
transactions covered by the penny stock rules, a broker-dealer must make a
suitability determination for the purchaser and must have received the
purchaser's written consent to the transaction prior to sale. Consequently, both
the ability of a broker-seller to sell our common stock and the ability of
holders of our common stock to sell their securities in the secondary market may
be adversely affected. The Securities and Exchange Commission has adopted
regulations that define a "penny stock" to be an equity security that has a
market price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules require the
delivery, prior to the transaction, of a disclosure schedule relating to the
penny stock market. The broker-dealer must disclose the commissions payable to
both the broker-dealer and the registered representative, current quotations for
the securities and, if the broker-dealer is to sell the securities as a market
maker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control


                                       14
<PAGE>


over the market. Finally, monthly statements must be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks. As a result of the additional suitability
requirements and disclosure requirements imposed by the "penny stock" rules, an
investor may find it more difficult to dispose of our common stock.

WE DO NOT ANTICIPATE PAYING ANY DIVIDENDS

         We do not plan to declare or pay any dividends in the near future, and
plan to invest available cash in acquiring new businesses and growing existing
businesses. In addition, our senior credit facility prohibits the payment of any
dividends without permission of the Senior Lender.

ITEM 2. PROPERTY

         We operate multiple locations under lease agreements with multiple
landlords that are subject to different terms and conditions and expire at
various times. In general, we prefer to lease retail and office space, as
opposed to owning property, to preserve available capital for investment in our
pharmacy operations. However, we may from time to time evaluate the opportunity
to either build or acquire an existing facility in situations that we believe
would be beneficial. Although we believe that our inability to renew any one of
our leases, particularly Dougherty's, would result in a loss of goodwill
associated with the location and could materially impact our operating results
for a limited period of time, we expect to be able to negotiate leases on
acceptable terms in the future.

         We maintain our corporate offices in a North Dallas office building on
Preston Road, near our Dougherty's pharmacy. We lease 4,474 square feet of space
under a lease that expires in May 2006.

         Dougherty's operates the retail pharmacy and Homecare in a single-story
retail shopping center located on Preston Road in North Dallas. Dougherty's has
operated at that location since March of 1967. The pharmacy currently leases
11,685 square feet under an agreement that expires in January 2004. Given the
longevity of Dougherty's operations at the Preston location, the pharmacy has
gained a certain degree of customer familiarity and loyalty over time, as
customers have come to associate Dougherty's with its current location. While
there can be no assurance that lease rates in the future will remain
economically attractive at its current location, we believe that we will
continue to be able to negotiate lease terms reasonably acceptable to us, due in
part to a continuing competitive local real estate market and Dougherty's
operating history, reputation and creditworthiness.

         Total Pharmacy Supply operates 12,000 square feet of office and
warehouse space in a single-story commercial office park in Arlington, Texas
near U.S. Interstate 30 and State Highway 360. From this location, under a lease
that expires in March of 2005, TPS maintains its executive offices and inventory
of saleable goods.

         Park Infusion Services operates three locations in Dallas, San Antonio,
and Houston, Texas. The Dallas location operates in 7,450 square feet of office
space located on Inwood Road near Highway 635 and the Dallas North Tollway under
a lease that expires September of 2007. The San Antonio location operates in
4,226 square feet of office space located within the primary medical district of
San Antonio under a lease that expires in October of 2004. The Houston location
operates in 5,036 square feet of office space near the primary medical district
of Houston under a lease that expires November of 2004. We do not believe that
the failure to successfully renegotiate any of its leases would materially
impact our operations or operating results.

         Total Health conducts its business in a closed-door facility within a
single-story, multi-tenant commercial office building in Arlington, Texas near
U.S. Interstate 30 and State Highway 360. The company leases 5,163 square feet
of space under a lease that expires on September 30, 2004.

         Medicine Man currently operates three stores located south of Houston,
Texas in the communities of Alvin, Angleton, and Santa Fe. Each store is a
stand-alone location and is subject to its own lease. Angleton operates in a
1,400 square foot building under a three-year lease that expires in January of
2003. The stores in Alvin, Dickinson and Santa Fe are 4,500, 1,900 and 4,500
square feet, respectively, and each is subject to a lease that commenced on June
1, 2001 and expires on May 31, 2006. These three locations are owned by a
partnership whose partners were the former principals of the business we
acquired. The Dickinson lease is still in effect through May 2006, even


                                       15
<PAGE>


though the location is not currently operating. All of the locations have long
operating histories in their communities and have maintained their current
locations for some time.

ITEM 3. LEGAL PROCEEDINGS

         We are subject to several legal proceedings described below.

DRUG ENFORCEMENT ADMINISTRATION INVESTIGATION

         There is currently a pending investigation by the Drug Enforcement
Administration ("DEA") into the diversion of over-the-counter pseudophedrine
from our Total Health facility in Arlington, Texas. Pseudophedrine is used in
the manufacture of metaamphetamines and is considered a "regulated transaction"
by the DEA after a certain quantity of the drug has been purchased or sold
during a particular month. We are cooperating fully with the DEA in this
investigation. We have also adopted extensive security measures at this location
to help ensure that no diversion occurs in the future. The DEA has orally
proposed that we pay a fine of $400,000.00 to settle this matter. We have
proposed in a writing to the DEA that we pay $10,000.00 to settle this alleged
violation. No criminal actions have been threatened against us by the DEA. We
have scheduled a meeting with the DEA in October 2002 to discuss settlement of
this matter. There can be no assurance that a settlement will be reached with
the DEA or that the amount of such fine will not have a material adverse effect
on our results of operations, financial condition or cash flows.

OTHER

         We are subject from time to time to other lawsuits arising in the
ordinary course of business. In our opinion, these matters are adequately
covered by insurance or, if not covered, are without merit or of such nature or
involve amounts that would not have a material adverse effect on our results of
operations, financial condition or cash flows if decided adversely.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         During the fourth quarter of fiscal 2002, we did not submit any matters
to a vote of our security holders.


                                       16
<PAGE>


                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET FOR COMMON STOCK

         We have only one class of outstanding shares, common stock, $.0001 par
value, that is traded on the OTC Bulletin Board. Each share ranks equally as to
dividends, voting rights, participation in assets on winding-up and in all other
respects. No shares have been or will be issued subject to call or assessment.
There are no preemptive rights, provisions for redemption or purpose for either
cancellation or surrender or provisions for sinking or purchase funds. We also
have authorized 250,000,000 shares of preferred stock, $.001 par value,
5,000,000 of which have been designated as Series A Preferred Stock, of which
2,613,498 shares were issued and outstanding as of September 26, 2002. Each
share of Series A Preferred Stock is entitled to ten votes per share and to vote
with the common shareholders, may be converted into ten shares of common stock
at any time after June 30, 2001, and is entitled to receive a liquidation
preference of $10 per share. The Company's Common Stock is currently traded on
the OTC Bulletin Board under the symbol "PPRX.OB".

MARKET PRICES OF OUR COMMON STOCK

         The following table sets forth for the fiscal periods indicated the
high and low closing sales price per share of our Common Stock as reported on
the OTC Bulletin Board. The market quotations presented reflect inter- dealer
prices, without retail mark-up, mark-down or commissions and may not necessarily
reflect actual transactions.

                                  COMMON STOCK
                                 CLOSING PRICES

<Table>
<Caption>
                                                      HIGH             LOW
                                                     ------           ------
<S>                                                  <C>              <C>
FISCAL 2000
     First Quarter........................           $3.188           $1.000
     Second Quarter.......................           $3.000           $1.625
     Third Quarter........................           $4.063           $2.063
     Fourth Quarter.......................           $2.938           $1.625
FISCAL 2001
     First Quarter........................           $2.000           $1.000
     Second Quarter.......................           $1.375           $0.813
     Third Quarter........................           $1.125           $0.750
     Fourth Quarter.......................           $1.000           $0.550
FISCAL 2002
     First Quarter........................           $0.750           $0.600
     Second Quarter.......................           $0.750           $0.300
     Third Quarter........................           $0.400           $0.110
     Fourth Quarter.......................           $0.300           $0.100
</Table>

         The closing price for the Company Common Stock on September 20, 2002 as
reported on the OTC Bulletin Board was $0.07.

STOCKHOLDERS

         As of September 26, 2002, there were 818 holders of record of the
common stock according to the records maintained by our transfer agent. As of
September 26, 2002, we had approximately 818 stockholders, including beneficial
owners holding shares in street or nominee names.


                                       17
<PAGE>


DIVIDENDS

         Park did not declare or pay any dividends on the common stock during
our two most recent fiscal years, and we do not intend to pay any dividends in
the foreseeable future. Furthermore, we cannot declare or pay any dividends
without the prior written consent of Bank of Texas, N.A. ("Senior Lender"),
until we fulfill all of our obligations and payments under our agreement with
the Senior Lender. We are currently in default under our credit agreements with
our Senior Lender.

         We have not sold any unregistered securities during the period covered
by this report.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

FORWARD-LOOKING STATEMENTS

         With the exception of historical information, the matters discussed in
this Annual Report on Form 10-KSB include "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Forward-looking statements are statements other
than historical information or statements of current condition. Some
forward-looking statements may be identified by the use of the terms "expects,"
"will," "anticipates," "estimates," "believes," "plans" and words of similar
meaning. These forward-looking statements relate to our business plans,
programs, trends, results of future operations, funding of future growth,
acquisition plans and other matters. In light of the risks and uncertainties
inherent in all projected matters, the inclusion of forward-looking statements
in this Form 10-QSB should not be regarded as a representation by us or any
other person that our objectives or plans would be achieved or that operating
expectations will be realized. Revenues and results of operations are difficult
to forecast and could differ materially from those projected in forward-looking
statements, such as statements regarding our belief with respect to the
sufficiency of capital resources, our ability to complete and assimilate
acquisitions, and our ability to compete in our pharmacy and physician services
businesses. Actual results could differ from those projected in any
forward-looking statements for, among others, the following reasons: (a) our
high level of indebtedness; (b) our ability to make interest and principal
payments on our debt and satisfy the other covenants contained in our credit
facilities and to make payments on our trade debt; (c) our ability to improve
the operating performance of our business segments; (d) the outcome of the
pending civil governmental investigation involving Total Health's alleged
violation of the Controlled Substances Act; (e) increased competition from
existing or new competitors, (f) changes in government regulation of the
pharmacy or healthcare industries, (g) changes in the reimbursement costs or
policies of health insurance companies or federally-funded insurance programs,
(h) the failure of health insurance companies and federally funded insurance
programs to make payments in accordance with the time periods specified in their
agreements with third-party providers like us, (i) our failure to collect
receivables from health insurance companies that may experience financial
hardships or failure as a result of increases in the costs of providing health
care services in excess of the amount of revenue received by insurance companies
under existing contractual commitments, (j) our failure to manage our growth and
integrate businesses acquired or to be acquired, and (k) our failure to attract
or retain key employees. We do not undertake to update any forward-looking
statements contained herein. For a more complete discussion of these factors and
others, please see "Certain Business Factors" in Item 1 of the Annual Report on
Form 10-KSB for the year ended June 30, 2001 filed with the Securities &
Exchange Commission. Readers are cautioned not to place undue reliance on any
forward-looking statements made herein.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

         Management's discussion and analysis of our financial condition and
results of operations are based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of these statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses and their related disclosures. On an
ongoing basis, the Company evaluates its estimates and judgments based on
historical experience and various other factors that are believed to be
reasonable. Actual results may vary from these estimates under different
assumptions or conditions. We annually review our financial reporting and
disclosure practices and accounting


                                       18
<PAGE>


policies to ensure that our financial reporting and disclosures provide accurate
and transparent information relative to our financial condition and results of
operations, as well as our current business environment. The Company's
management believes that of its significant accounting policies, the following
policies involve a higher degree of judgment and/or complexity.

REVENUE RECOGNITION

         Our revenue is reported at the estimated net realizable amounts
expected to be received from individuals, third-party payors, institutional
healthcare providers and others. The Company recognizes revenue from the sale of
pharmaceutical products and retail merchandise as transactions occur and product
is delivered to the customer. Revenue from healthcare services is recognized at
the time services are provided. Revenue from wholesale product sales is
recognized at the time of shipment. A portion of the Company's revenue is
derived from governmental assistance programs, such as Medicare and Medicaid.
Revenue from these sources is recorded net of contractual adjustments based on
our interpretation of the terms of the government contract/pricing schedule and
past experiences.

         The Company has acted as an agent for the sale of certain
pharmaceutical products. A member pharmacy, and not the Company, was responsible
for the fulfillment of customer purchases, and the Company did not have risks
and rewards as principal in these sales transactions. Revenue consisted
primarily of processing fees representing the amount billed to a customer, less
the amount paid to a supplier. The net revenue from these sales was recognized
as transactions occurred. The Company, however, recorded the gross amounts of
receivables and payables related to these transactions because the Company
assumed credit risk for the amount billed to the customer and was responsible
for paying the member pharmacy.

ACCOUNTS RECEIVABLE

         The Company records our accounts receivables net of an allowance for
doubtful accounts. This allowance is based on several factors, including our
past accounts receivable collection history, consideration of the age of the
accounts receivable at the end of each period, and detailed analysis of the
expected collectibility of significant accounts receivable from each significant
obligor therefor based on a number of factors. The allowance also considers the
fact that in certain circumstances, our accounts receivable may also be subject
to retroactive adjustments by payors. Although we believe that our estimation of
the net value of our accounts receivable is reasonable, actual collections may
differ from our estimates of collectibility, affecting our future financial
condition and results of operations.

GOODWILL AND OTHER INTANGIBLE ASSETS

         The Company records goodwill from acquisitions equal to the excess of
the total cost of the acquisitions over the fair value of all identifiable
tangible and intangible assets acquired. We have amortized the goodwill on a
straight-line basis over estimated lives of 5 to 20 years. The Company has
performed annual reviews of our goodwill for impairment based on a number of
factors, including future undiscounted cash flows and changes in economic and
market conditions. The Company will cease the amortization of goodwill on July
1, 2002 upon adoption of SFAS No. 142 as described in the Recent Accounting
Pronouncements section below.

RESULTS OF OPERATIONS

TWELVE MONTHS ENDED JUNE 30, 2002 AND 2001

         Revenues. For the twelve months ended June 30, 2002, revenue increased
25% to $53,823,109, compared to $37,943,149 from the same period in 2001. Our
increase in revenue was primarily attributable to the inclusion of a full year
of the operating results of entities acquired in fiscal 2001.

         Gross Profit. Gross profit (revenues minus cost of goods sold) for
fiscal 2002 was $19,314.633, representing an increase of 23% over $15,758,617 in
the prior period. The increase was due largely to increases in revenue
associated with the inclusion of a full year of operations of entities acquired
in fiscal 2001. Overall revenue growth accounted almost exclusively for the
increase in gross profit. Our gross margin decreased from 41.5% in the


                                       19
<PAGE>


earlier period to 35.9% in the current period. The decrease in gross margin was
due partly to lower gross profit in the Medicine Man operations, which were
acquired in May 2001, and a shift in the infusion business to primarily managed
care contracts which are easier to collect, but produce a lower gross margin. In
the future, our gross margin may fluctuate depending on changes in the
composition of our business. Accordingly, there can be no assurance that gross
margin will remain at the level experienced during the twelve months ended June
30, 2002.

         Selling, General and Administrative Expenses and Compensation Expenses.
SG&A and compensation expenses were $22,848,368 for the twelve-month period
ended June 30, 2002, representing an increase of 56.2% from $14,624,469 for the
prior year. In general, expenses rose in 2002 because companies were acquired in
fiscal 2001. In fiscal 2002, SG&A and compensation expenses were 42.5% of total
revenue, compared to 38.5% in the earlier period. The increase in these expenses
relative to revenue was the result of several factors, including (i) the
acquisition of companies with higher operating expense ratios than our
same-store operations, (ii) the hiring of executive and accounting staff at the
home office, and (iii) the addition of pharmacy staff at same-store operations
in order to accommodate the significant year-over-year increase in business, and
(iv) the increase in bad debt expense, primarily related to our infusion
business acquired in August 2001 as more historical data became available to use
to develop estimates of future collections. We believe that the proportion of
corporate overhead expense to total revenue will decline in upcoming periods. In
the future, to the extent that we are successful in completing acquisitions, we
expect SG&A and compensation expense margins will fluctuate, as acquired
businesses are assimilated into our company. As such, there can be no assurance
comparisons of these expenses from period to period will be entirely meaningful
or that we will be able to maintain SG&A and compensation expenses in the same
proportion to revenue as was experienced in the twelve-month period ended June
30, 2002.

         EBITDA. Our EBITDA, or earnings (loss) before interest expense, income
taxes, depreciation, amortization and impairment, decreased 338.6% to
($3,407,441) for the twelve months ended June 30, 2002, compared to $1,428,031 a
year earlier. EBITDA margin for fiscal 2002 was (6.3)% compared to 3.8% in the
previous period.

         Depreciation, Amortization, Impairment and Interest Expense.
Depreciation and amortization expenses were $446,647 for the twelve months ended
June 30, 2002, compared to $353,869 for the prior year's period, representing an
increase of 26.2%. Impairment expense of $2,465,858 in fiscal 2002 resulted
primarily from a write-down of the value of goodwill associated with our Total
Health acquisition. The write down of such goodwill is due to Total Health
performing sufficiently short of our expectations, and even short of their own
historical results in fiscal 2002. Interest expense for the current year was
$426,354, compared to $492,425 in the previous year. This decrease is a result
of our lower average outstanding loan balances in the current year relative to
the preceding year. At June 30, 2002, we had outstanding bank loans totaling
$5.5 million, compared to $8.3 million at June 30, 2001.

         In June 2001, the Financial Accounting Standards Board issued SFAS No.
142, Goodwill and Other Intangible Assets, which establishes new accounting and
reporting standards for acquired goodwill and intangible assets after a business
combination is completed. Under the provisions of SFAS 142, we will no longer
amortize goodwill beginning July 1, 2002. Instead, goodwill will be reviewed
periodically for impairment and written down when found to be impaired. Our
goodwill amortization in fiscal year 2002 was approximately $207,499. Under the
new accounting standard, we will be required to perform an initial assessment of
our goodwill for impairment no later than December 31, 2002. The balance of our
remaining unamortized goodwill at June 30, 2002 was $2,035,784.

         Income (Loss) From Continuing Operations. Loss from continuing
operations for the twelve months ended June 30, 2002 was ($6,793,333) compared
to income of $$336,504 a year ago.

RESTRUCTURING-DISCONTINUED OPERATIONS

         On November 15, 2001, our Board of Directors accepted the resignation
of Thomas R. Baker as President and Chief Executive Officer and announced the
appointment of Craig Mackey as President and Chief Executive Officer. In concert
with Mr. Mackey's arrival, we undertook a comprehensive review of operations,
certain of the results of which are discussed in the remainder of this section.


                                       20
<PAGE>


         SALE OF MEDICINE MAN-DICKINSON AND RAVEN'S. On December 28, 2001, we
sold the retail prescription files of our Raven's pharmacy to Eckerd Drug
Company for $240,000 in cash. We retained all accounts receivable, returned
certain inventory to our wholesale supplier, and transferred the residual
inventory to our Total Health and Dougherty's locations. Additionally, we
transferred the institutional pharmacy business of Raven's to Total Health, our
closed-door, institutional pharmacy located in Arlington, Texas. Coincident with
this sale, we closed the Raven's location and did not renew the Raven's lease,
which expired on January 9, 2002, and accrued estimated closing costs of
approximately $132,000.

         On December 29, 2001, we sold the retail prescription files of our
Medicine Man -store located in Dickinson, Texas to Walgreen's for $225,000 in
cash. In the transaction, we retained all accounts receivable, returned certain
inventory to our wholesale supplier, and transferred the residual inventory to
our three remaining Medicine Man locations. Coincident with this sale, we closed
the Dickinson location and accrued an estimated loss of approximately $108,000
on the remaining term of the lease.

         The operating results of these two locations are reflected net of a
gain on disposal of $214,574 in our Consolidated Statement of Operations for the
year ended June 30, 2002 and have been included in discounted operations. With
respect to Raven's, operating loss net of tax for the years ended June 30, 2002
and 2001, respectively, were ($265,328) and ($30,982). For the Medicine
Man-store located in Dickinson, Texas, operating losses net of tax for the years
ended June 30, 2002 and June 30, 2001, respectively, were ($134,166) and
($9,687).

         From a strategic perspective, the sale of these locations will allow us
to redeploy our capital toward more productive purposes. Specifically, we expect
to utilize the proceeds from these two transactions to, among other things, (i)
support the ongoing working capital requirements of our other, higher-growth
operations, (ii) provide cash to reduce our outstanding bank loans, and (iii)
provide funding for our higher-end business development efforts.

         RX-PRO SOFTWARE. Over the course of the past eighteen months to two
years, as the level of business activity related to the Internet has decreased,
and as the economy has weakened, the outlook for our Rx-Pro software business
unit ("Rx-Pro software") has changed as well.

         Because we are not able to predict with any confidence when this market
will emerge, if ever, we elected to discontinue the Internet component of this
subsidiary in December 2001, and we took a charge of $2,495,740 to earnings to
reflect the write down to estimated fair value of computer software rights
associated with our Rx-Pro system. We have attempted to sell the software
rights, but have been unable to do so to date. As of June 30, 2002, management
determined that it was necessary to revise its estimate of fair value and
recorded an additional loss of $100,000. We have also written off the goodwill
of $134,600 associated with Rx-Pro. In September 2002, we elected to discontinue
the prescription management services currently offered through Rx-Pro.

         We have included the losses of Rx-Pro software in discontinued
operations because Rx-Pro software was determined by management to be "held for
sale" in accordance with SFAS No. 144.

LIQUIDITY AND CAPITAL RESOURCES

GOING CONCERN

         We are highly leveraged. Our high level of indebtedness: (a) limits our
ability to obtain additional financing; (b) limits our flexibility in planning
for, or reacting to, changes in our business and the industry; (c) places us at
a competitive disadvantage relative to our competitors with less debt; (d)
renders us more vulnerable to general adverse economic and industry conditions;
and (e) requires us to dedicate a substantial portion of our cash flow to
service our debt. Based upon current levels of operations and our current
operating performance, management is not confident that cash flow from
operations together with available borrowing under the senior secured credit
facility and other sources of liquidity will be adequate to meet our anticipated
annual requirements for working capital and debt service for the next twelve
months. We will continue to assess our liquidity position and potential sources
of supplemental liquidity in light of our operating performance and other
relevant circumstances. Should we determine, at any time, that it is necessary
to obtain additional short-term liquidity, we will evaluate our alternatives and
attempt


                                       21
<PAGE>
to take appropriate steps to obtain sufficient additional funds. Obtaining any
such supplemental liquidity through the increase of indebtedness or asset sales
may require the consent of our Senior Lender under one or more of our credit
agreements. There can be no assurance that any such supplemental funding, if
sought, could be obtained or that our Senior Lender would provide the necessary
consents, if required.

         At June 30, 2002, we have working capital and stockholders' deficits of
$5.2 million and $1.7 million, respectively and we incurred a net loss of $9.9
million for the year ended June 30, 2002. Also, subsequent to June 30, 2002, the
Company was in default under its senior secured credit facility with Senior
Lender. Should the Company be unable to refinance or restructure this debt and
Senior Lender pursues its available remedies, the Company may be forced to seek
protection under the U.S. Bankruptcy Code. These factors raise substantial doubt
about our ability to continue as a going concern.

OPERATIONS

         Over the next year and beyond, we will continue our focus on
operations, refining the changes that have been implemented to date and
implementing additional changes to set the stage for consistency in
profitability. Specifically, we will continue to emphasize, among other things,
(i) "profitable" sales, (ii) collection of accounts receivable, and (iii)
improved inventory management. The objective of these initiatives is to maximize
the Company's use of cash and to manage growth.

         Historically, independent pharmacies, such as our retail subsidiaries,
sold what the customer needed, regardless of the profit. But reduced
reimbursement under managed care have rendered a significant amount of pharmacy
business marginally profitable or simply not profitable at all. Although we
strive to meet every customer's needs, the reality is that we must generate
sales that are profitable for the Company. In order to ensure that we will
continue in a position to service our customers, we are actively reviewing
certain business lines, product offerings and even drug sales to concentrate on
those items that meet certain profitability thresholds. We are also reviewing
insurance contracts to opt out of those that do not meet minimum gross profit
margins. The Company must continue to adapt to new changes in the pharmacy
industry in order for the Company's pharmacy segment to remain profitable.

         Our working capital management efforts have yielded some positive
results, however, management believes that our use of capital must be further
improved, especially with regard to continued delayed payments by certain large
insurance companies on infusion accounts receivable that are payable to our
Infusion segment. With respect to inventory, progress has been made by the
Company, with June 30, 2002 inventory at $2.6 million, compared to $4.0 million
at June 30, 2001. While we continue to actively manage our inventory, continued
inventory reduction will require ongoing diligence and time to naturally reduce
slow-moving stock and improve overall turns.

         The initiatives pursued in the quarter ended March 31, 2002 enabled the
Company to generate operating cash to meet ongoing obligations and provide a
modest margin of liquidity, with the sum of cash on hand and bank loan
availability ranging between $300,000 and $500,000. Progress was made with
respect to accounts payable; however, more progress is necessary in the
collection of dated accounts receivable and improving monthly cash flow from
operations.

BANK FINANCING

         We failed to make a payment in the aggregate amount of $130,396.72 that
was due to Senior Lender on August 31, 2002 under our revolving line of credit
and term loan. As of August 31, 2002, our revolving line of credit had an
outstanding balance of $2.2 million, and our term loan had an outstanding
balance of $3.3 million. This indebtedness is secured by a lien on substantially
all of our assets. We also are in default under numerous financial and other
covenants under the credit agreements with our Senior Lender.

         We have been attempting to refinance or restructure our debt with our
Senior Lender or another lender since approximately February 2002. In the event
we are not able to refinance or restructure our existing debt, we will consider
other strategies to generate cash, including raising equity, selling assets and
reducing operating expenses. Should these alternative strategies fail, our
ability to continue implementing our business plan will be materially and
adversely impacted and the Company may be forced to seek protection by filing
bankruptcy. There can be no



                                       22
<PAGE>
assurance that the Company will be able to refinance or restructure its
indebtedness with its Senior Lender, or otherwise generate sufficient cash to
satisfy these obligations.

TRADE CREDIT

         Since mid-February 2002, we have been on credit hold with Amerisource,
our principal inventory supplier and one of the largest pharmaceutical
distributors in the United States, meaning that no additional credit has been
extended to the Company. We have continued to receive product on a regular
basis, without interruption, from our supplier on a cash-on-delivery basis.
Given this arrangement, our management has instituted purchasing controls to
ensure that inventory levels remain sufficient but not excessive. Amerisource
has also stopped providing the Company with various trade and other discounts
that were previously made available.

         Since being placed on credit hold, from time to time as cash has been
available, we have made progress payments against outstanding balances owed to
this vendor and currently are paying $50,000 a month plus any credits applied to
the outstanding balance. We continue to hold a significant outstanding balance
with Amerisource and we may not have sufficient cash flow in the future to
continue to make these progress payments. Our debt obligation to Amerisource is
not secured by any of the Company's assets. At this time, we are not able to
accurately predict the timing and amount of excess cash flows that would be
available for progress payments. Our ability to generate excess cash flow will
depend on the collection of past due accounts receivable and cash generated
through profitable operations.

         Although progress has been made with respect to our outstanding balance
with this principal vendor, no assurances can be given that this supplier will
not take actions to collect past due accounts and will continue to supply
inventory to the Company, particularly if we are unable to continue making
progress payments. There are also no assurances that we will be able to replace
our current principal vendor if we are required or desire to do so. If we are
unable to continue to obtain inventory, we will not be able to continue
operating our business.

RISK RELATED TO OUR FINANCIAL CONDITION

         We are highly leveraged. Our substantial indebtedness will severely
limit cash flow available for our operations and could adversely affect our
ability to service debt or obtain additional financing if necessary.

         Our debt obligations adversely affect our operations in a number of
ways and our cash flow from operations may be insufficient to service our debt,
which may require us to borrow additional funds for that purpose, restructure or
otherwise refinance that debt. There are no assurances that we will be able to
take any of these actions.

         Our high level of indebtedness will continue to restrict our
operations. Among other things, our indebtedness will:

         o  limit our ability to obtain additional financing;

         o  limit our flexibility in planning for, or reacting to, changes in
            the markets in which we compete;

         o  place us at a competitive disadvantage relative to our competitors
            with less indebtedness;

         o  render us more vulnerable to general adverse economic and industry
            conditions; and

         o  require us to dedicate substantially all our cash flow to service
            our debt.

         In fiscal 2002, we experienced operational and financial difficulties.
Any future material deterioration in our operational or our financial situation
could again impact vendors' and suppliers' willingness to do business with us.
Our ability to make payments on our debt depends upon our ability to
substantially improve our future operating performance, which is subject to
general economic and competitive conditions and to financial, business and other
factors, many of which we cannot control. If our cash flow from our operating
activities is insufficient, we may take certain actions, including attempting to
restructure or refinance our debt, selling assets or operations or seeking
additional equity capital. We may be unable to take any of these actions on
satisfactory terms or in a timely manner.


                                       23
<PAGE>


         Further, any of these actions may not be sufficient to allow us to
service our debt obligations or may have an adverse impact on our business. Our
existing debt agreements limit our ability to take certain of these actions. Our
failure to earn enough to pay our debts or to successfully undertake any of
these actions could have a material adverse effect on us.

         Moreover, we are currently in breach of our financial payment
obligations as well as certain of the non-financial covenants under our senior
secured credit facility with Senior Lender. These defaults, if not waived by our
Senior Lender, could result in the acceleration of our outstanding indebtedness
and cause our debt to become immediately due and payable. If acceleration
occurs, we would not be able to repay our debt and it is unlikely that we would
be able to borrow sufficient additional funds to refinance such debt and may be
required to seek bankruptcy protection.

         If we obtain modifications of our credit agreements, or are required to
obtain waivers of defaults, we may incur significant fees and transaction costs.
In fiscal 2002, we modified certain covenants in, and obtained waivers of
compliance under, our senior credit and loan agreements. In connection with
obtaining these modifications and waivers, we paid significant fees and
transaction costs.

RISKS RELATED TO OUR OPERATIONS

         There is currently pending a civil investigation by the Drug
Enforcement Administration of the diversion of pseudophedrine from our Total
Health location in Arlington, Texas. Any significant fines or damages that we
might have to pay as a result of this investigation could have a negative effect
on our results of operations, financial condition and cash flows.

         We are substantially dependent on a single supplier of pharmaceutical
products to sell products to us on satisfactory terms. We obtain approximately
85% of our pharmaceutical products from Amerisource. Pharmacy sales represented
almost all of our total sales during fiscal 2002, and, therefore, our
relationship with Amerisource is important to us. Any significant disruptions in
our relationship with Amerisource would make it difficult for us to continue to
operate our business, and would have a material adverse effect on our results of
operations, financial condition or cash flows.

         We need to continue to improve our operations in order to improve our
financial condition, but our operations will not improve if we cannot continue
to effectively implement our business strategy or if they are negatively
affected by general economic conditions.

         Our operations during fiscal 2001 were adversely affected by a number
of factors, including our inability to purchase inventory on credit, the closing
of business locations, allegations by the DEA of our violation of the Controlled
Substances Act and a poor working relationship with our Senior Lender and
uncertainties regarding our ability to refinance or restructure our senior
credit facility with Senior Lender. To improve operations, new management
developed, and in fiscal 2002 began implementing and continues to implement, a
business strategy to improve our financial situation by discontinuing
unprofitable business locations or segments, improving the collectibility of our
accounts receivables, reducing corporate overhead, restructuring or refinancing
our senior secured credit facility, negotiation of acceptable settlement with
the DEA and reducing our outstanding trade debt with Amerisource. If we are not
successful in implementing our business strategy, or if our business strategy is
not effective, we may not be able to continue to improve our operations. In
addition, any adverse change in general economic conditions can decrease our
profitability. Failure to continue to improve operations or a decline in general
economic conditions would adversely affect our results of operations, financial
condition or cash flows and our ability to make principal or interest payments
on our debt.

         We cannot assure you that management will be able to successfully
manage our business or successfully implement our strategic plan. This could
have a material adverse effect on our business and the results of our
operations, financial condition and cash flows.

         The success of our business is materially dependent upon the continued
services of our executive management team. The loss of key personnel could have
a material adverse effect on the results of our operations, financial condition
or


                                       24
<PAGE>


cash flows. Additionally, we cannot assure you that we will be able to attract
or retain other skilled personnel in the future.

         Terrorist attacks, such as the attacks that occurred in New York and
Washington, DC on September 11, 2001, and other attacks or acts of war may
adversely affect the markets in which we operate, our operations and our
profitability.

         On September 11, 2001, the United States was the target of terrorist
attacks of unprecedented scope. The attacks caused major instability in the U.S.
and other financial markets and reduced consumer confidence. The threat of
terrorist attacks, any military response and other related developments may
adversely affect prevailing economic conditions, resulting in reduced consumer
spending and reduce sales in our stores. These developments will subject us to
increased risks and, depending on their magnitude, could have a material adverse
effect on our business.

RECENT ACCOUNTING PRONOUNCEMENTS

         In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards No. 141 ("SFAS 141"), Business
Combinations, and SFAS No. 142 ("SFAS 142"), Goodwill and Other Intangible
Assets.

*        SFAS 141 requires that the purchase method of accounting be used for
         all business combinations initiated after June 30, 2001 and establishes
         specific criteria for the recognition of acquired intangible assets
         other than goodwill.

*        SFAS No. 142 requires that goodwill and other intangible assets with
         indefinite lives no longer be amortized, but, instead, they will be
         tested for impairment at least annually based on their fair value. SFAS
         No. 142 requires that intangible assets with definite lives restricted
         by contractual, legal or other means continue to be amortized over
         their useful lives.

         In accordance with SFAS 141, we are accounting for all business
combinations initiated or completed after June 30, 2001 using the purchase
method of accounting. Goodwill and intangible assets acquired in business
combinations completed before July 1, 2001 will continue to be amortized prior
to our adoption of SFAS 142, which will be effective July 1, 2002.

         Upon adoption of SFAS 142, we are required to reassess the useful lives
and residual values of all intangible assets, including goodwill, acquired in
purchase business combinations, and to make any necessary amortization period
adjustments by the end of the first interim period after adoption. SFAS 142 also
requires that we perform a transitional impairment evaluation of our goodwill in
accordance with the provisions of SFAS 142 within the first six months of
adoption. Any transitional impairment loss related to goodwill will be measured
no later than June 30, 2003 and recognized as a cumulative effect of a change in
accounting principle in our consolidated financial statements.

         In connection with the transitional impairment evaluation of goodwill,
SFAS 142 requires that we first perform an assessment of whether there is an
indication that goodwill is impaired as of the July 1, 2002 adoption date. To
accomplish this, we must establish reporting units, based on our reporting
structure, and determine the carrying value of each reporting unit by assigning
the assets and liabilities, including the existing goodwill and intangible
assets, to those reporting units as of the adoption date. We then have up to six
months from adoption to determine the fair value of each reporting unit and
compare it to the reporting unit's carrying value. To the extent a reporting
unit's carrying amount exceeds its fair value, an indication exists that the
reporting unit's goodwill may be impaired and we must perform the second step of
the transitional impairment test. In the second step, we must compare the
implied fair value of the reporting unit's goodwill to its carrying amount, both
of which would be measured as of the adoption date. The implied fair value of
reporting unit goodwill is determined in the same manner as the amount of
goodwill recognized in a business combination is determined. That is, by
allocating the reporting unit's fair value to all of its assets and liabilities
(including any unrecognized intangible assets) as if the reporting unit had been
acquired in a business combination.


                                       25
<PAGE>


         As of June 30, 2002, the Company had unamortized goodwill of
$2,035,784, all of which are subject to the transition provisions of SFAS 142.
Amortization expense related to goodwill was $232,500 and $251,100 for the years
ended June 30, 2002 and 2001. Because of the extensive effort required to comply
with the remaining provisions of SFAS No. 142, the Company cannot reasonably
estimate the impact of this provision on the consolidated financial statements
beyond discontinuing amortization.

         In October 2001, the FASB also approved SFAS 144 ("SFAS 144"),
Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS 144
replaces SFAS 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. The new accounting model for long-lived
assets to be disposed of by sale applies to all long-lived assets, including
discontinued operations, and replaces the provisions of Accounting Principles
Board Opinion No. 30, Reporting Results of Operations-Reporting the Effects of
Disposal of a Segment of a Business, for the disposal of segments of a business.
SFAS 144 requires that those long-lived assets be measured at the lower of
carrying amount or fair value less cost to sell, whether reported in continuing
operations or in discontinued operations.

         Therefore, discontinued operations will no longer be measured at net
realizable value or include amounts for operating losses that have not yet
occurred. SFAS 144 also broadens the reporting of discontinued operations to
include all components of an entity with operations that can be distinguished
from the rest of the entity and that will be eliminated from the ongoing
operations of the entity in a disposal transaction. The provisions of SFAS 144
are effective for financial statements issued for fiscal years beginning after
March 15, 2002 and, generally, are to be applied prospectively. The Company
elected to adopt this new accounting pronouncement early, as permitted, on
December 31, 2001. The primary effect of adopting SFAS No. 144 was that the
operations of Raven's and the Medicine Man -store located in Dickinson, Texas
and the Rx-Pro software were accounted for as discontinued operations.

         In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities, which addresses accounting and
reporting for exit and disposal activities. SFAS 146 requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
The Company is currently evaluating the impact of adopting this standard, which
is effective for periods beginning after December 31, 2002 applied
prospectively, and does not expect it to have a significant impact on its
consolidated financial statements.

ITEM 7.  FINANCIAL STATEMENTS

         The financial statements required by this Item are set forth beginning
         on page F-1 hereof.

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         Not applicable.


                                       26
<PAGE>


                                    PART III

         Certain information required by Park III is incorporated by reference
in this report from the definitive proxy statement (the "Proxy Statement") for
the Company's 2002 Annual Meeting of Stockholders to be filed with the
Commission within one hundred twenty (120) days following the end of the fiscal
year covered by this report.

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

         The information required by this Item is incorporated by reference from
the Proxy Statement.

ITEM 10. EXECUTIVE COMPENSATION

         The information required by this Item is incorporated by reference from
the Proxy Statement.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information required by this Item is incorporated by reference from
the Proxy Statement.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information required by this Item is incorporated by reference from
the Proxy Statement.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

         (a) Exhibits.

         The following exhibits are filed as a part of, or incorporated by
reference into, this Annual Report on Form 10-KSB:

2.1      Stock Purchase Agreement dated as of March 9, 1999 (filed as Annex "A"
         to the Registrant's Definitive Proxy Statement filed on September 7,
         1999, and incorporated herein by reference)

2.2      Agreement and Plan of Merger dated as of December 9, 1999 (filed as
         Exhibit 10.1 to the Registrant's Form 8-K on January 5, 2000, and
         incorporated herein by reference)

2.3      Share Exchange Agreement dated as of December 30, 1999 (filed as
         Exhibit 10.1 to the Registrant's Form 8-K on January 14, 2000, and
         incorporated herein by reference)

2.4      Agreement and Plan of Merger dated as of March 31, 2000 (filed as
         Exhibit 2.1 to the Registrant's Form 8-K on April 14, 2000, and
         incorporated herein by reference)

2.5      Bill of Sale and Asset Purchase Agreement dated as of August 10, 2000
         but effective August 1, 2000 by and among Park Infusion Services, LP
         and Amedisys, Inc. and certain of its subsidiaries (filed as Exhibit
         2.1 to the Registrant's Current Report on Form 8-K dated August 10,
         2000 and filed August 25, 2000, and incorporated herein by reference)

2.6      Agreement and Plan of Merger dated November 10, 2000 by and among the
         Registrant, MJN Acquisition Corp., MJN Enterprises, Inc. and Michael J.
         Nault (filed as Exhibit 2.1 to Registrant's Form 8-K dated November 10,
         2000 and filed on November 13, 2000, and incorporated herein by
         reference)

2.7      Asset Purchase Agreement dated as of April 10, 2000 among Park Infusion
         Services, L.P., Option Care Enterprises, Inc. and Option Care, Inc.
         (filed as Exhibit 2.1 to Registrant's Form 8-K dated as of April 10,
         2001, and incorporated herein by reference)


                                       27
<PAGE>


2.8      Order Approving Debtor's Sale of Asset pursuant to 11 U.S.C. 363 free
         and clear of all liens, claims and encumbrances and other interests
         with regard to Registrant's acquisition of assets from Medicine Man,
         Inc. (filed as Exhibit 2.1 to Registrant's Form 8-K dated June 1, 2001
         and filed on June 14, 2001, and incorporated herein by reference)

3.1      Articles of Incorporation (filed as Exhibit 3.1 to the Registration
         Form 10-KSB for the fiscal year ended June 30, 2000, and incorporated
         herein by reference)

3.2      Articles of Amendment to the Articles of Incorporation (filed as
         Exhibit 3.1.2 to the Registrant's Amendment No. 1 to Form 10-KSB for
         fiscal year ended June 30, 1998, and incorporated by reference herein)

3.3      Articles of Amendment and Statement of Designation of Series A
         Preferred Stock (filed as Annex "B" to the Registrant's Definitive
         Proxy Statement filed on September 7, 1999, and incorporated herein by
         reference)

3.4      Amended and Restated Bylaws of Park Pharmacy Corporation (filed as
         Exhibit 3.1 to Registrant's Form 10-KSB for the fiscal year ended June
         30, 2000, and incorporated herein by reference)

4.1      Park Pharmacy Corporation 2000 Stock Incentive Plan (filed as Exhibit F
         to Registrant's Definitive Proxy Statement filed on December 13, 2000,
         and incorporated herein by reference)

10.1     Loan Agreement dated as of June 8, 2001, by and among Park Pharmacy
         Corporation, Dougherty's Pharmacy, Inc., Raven's Pharmacy, Inc., Total
         Pharmacy Supply, Inc., Rx-Pro.Com, Inc., Park Infusion Services, LP,
         MJN Enterprises, Inc., and Park-Medicine Man, LP, as borrowers, and
         Bank of Texas, N.A., as lender (filed as Exhibit 10.1 to Registrant's
         Form 10-KSB for the fiscal year ended June 30, 2001, and incorporated
         herein by reference)

10.2     Form of Executive Employment Agreement (filed as Exhibit 3.1 to
         Registrant's Form 10-KSB for the fiscal year ended June 30, 2000, and
         incorporated herein by reference)

21.1     Subsidiaries of the Registrant (Filed as Exhibit 21.1 to Registrant's
         Form 10-KSB for the fiscal year ended June 30, 2001, and incorporated
         herein by reference)

99.1     CEO Certification of Periodic Financial Reports Pursuant to 18 U.S.C.
         Section 1350*

99.2     CFO Certification of Periodic Financial Reports Pursuant to 18 U.S.C.
         Section 1350*

*        Filed herewith


     (b) Reports on Form 8-K.

     Current Report on Form 8-K dated September 19, 2002 and filed on September
19, 2002 in connection with the Company's default under its loan agreements with
its Senior Lender.



                                       28
<PAGE>


                                   SIGNATURES

         In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on October 15, 2001.


                                           PARK PHARMACY CORPORATION,
                                           a Colorado corporation


                                           By:  /s/ Craig Mackey
                                           --------------------------------
                                           Name: Craig Mackey
                                           Title:  President and
                                           Chief Executive Officer


         In accordance with the Exchange Act, this report has been signed on the
30th day of September, 2002, by the following persons on behalf of the
Registrant and in the capacities indicated.

<Table>
<Caption>
Signature                                       Title                                 Date
---------                                       -----                                 ----
<S>                                   <C>                                       <C>
/s/ Joe B. Park
---------------------------           Chairman of the Board of                  September 30, 2002
Joe B. Park                           Directors

/s/ Craig Mackey                      President and Chief Executive             September 30, 2002
---------------------------           and Director
Craig Mackey                          (Principal Executive Officer and Director)


/s/ Philip  Waltrip
---------------------------           Vice President, Chief Financial           September 30, 2002
Philip  Waltrip                       Officer and Assistant Secretary
                                      (Principal Financial Officer
                                      and Principal Accounting Officer)

/s/ Gwendolyn L. Park
---------------------------           Secretary and                             September 30, 2002
Gwendolyn L. Park                     Director
</Table>


                                       29
<PAGE>


                                 CERTIFICATIONS

     I, Craig Mackey, certify that:

         1. I have reviewed this Annual Report on Form 10-KSB of Park Pharmacy
Corporation;

         2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report; and

         3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this annual report.

                                   /s/ Craig Mackey
                                 -----------------------------------------
                                   Craig Mackey
                                   President and Chief Executive Officer

Date:  9/30/02

                                       ***

     I, Philip Waltrip, certify that:

         1. I have received this Annual Report on Form 10-KSB of Park Pharmacy
Corporation;

         2. Based on my knowledge, this annual report does not contain any
untrue statements of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report; and

         3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this annual report.

                                   /s/ Philip Waltrip
                                 -----------------------------------------
                                   Philip Waltrip
                                   Vice President, Chief Financial Officer
                                   and Assistant Secretary

Date:  9/30/02


                                       30
<PAGE>


                          INDEX TO FINANCIAL STATEMENTS


<Table>
<S>                                                                       <C>
Independent Auditor's Report                                              F-1

Consolidated Balance Sheet at June 30, 2002                               F-2

Consolidated Statements and Operations for the
     years ended June 30, 2002 and 2001                                   F-3

Consolidated Statements of Stockholders' Equity (Deficit) for the
     years ended June 30, 2002 and 2001                                   F-4

Consolidated Statements of Cash Flows for the
     years ended June 30, 2002 and 2001                                   F-5

Notes to Consolidated Financial Statements                                F-7
</Table>



                                       32
<PAGE>

                          INDEPENDENT AUDITOR'S REPORT



Board of Directors and Stockholders
Park Pharmacy Corporation
Dallas, Texas

We have audited the accompanying consolidated balance sheet of Park Pharmacy
Corporation as of June 30, 2002 and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for the years ended
June 30, 2002 and 2001. 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 audits.

We conducted our audits 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 audits provide 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 Park Pharmacy Corporation as of
June 30, 2002, and the results of its operations and its cash flows for the
years ended June 30, 2002 and 2001 in conformity with accounting principles
generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. At June 30, 2002, the Company
had working capital and stockholders' deficits of $5,209,915 and $1,680,122,
respectively, and the Company incurred a net loss of $9,945,028 for the year
ended June 30, 2002. Also, subsequent to June 30, 2002, the Company was in
default of its primary borrowing arrangement. Should the Company not be able to
refinance or restructure this indebtedness and the lender pursues available
remedies, the Company may be forced to seek protection under the United States
Bankruptcy Act. These factors raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are described in Note 3. The accompanying consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.




HEIN + ASSOCIATES LLP

Dallas, Texas
September 6, 2002



                                      F-1
<PAGE>



                            PARK PHARMACY CORPORATION

                           CONSOLIDATED BALANCE SHEET

                                  JUNE 30, 2002

<Table>
<S>                                                                                    <C>
         ASSETS
CURRENT ASSETS:
   Cash and cash equivalents                                                           $    454,485
   Trade accounts receivable, net of allowance for doubtful accounts of $3,075,000        6,389,805
   Refundable income taxes                                                                  296,547
   Inventories                                                                            2,572,214
   Prepaid expenses and other                                                               378,748
                                                                                       ------------
                  Total current assets                                                   10,091,799

                  PROPERTY AND EQUIPMENT, net                                             1,495,628

GOODWILL, net of accumulated amortization of $237,000                                     2,035,784

OTHER ASSETS                                                                                 36,787
                                                                                       ------------
                  Total assets                                                         $ 13,659,998
                                                                                       ============

         LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
   Accounts payable                                                                    $  7,658,706
   Accrued liabilities                                                                    1,611,730
   Income taxes payable                                                                      98,800
   Capital lease obligation                                                                 269,707
   Current portion of long-term debt                                                         20,345
   Revolving line of credit and notes payable                                             5,642,426
                                                                                       ------------
                  Total current liabilities                                              15,301,714

LONG-TERM DEBT, net of current portion                                                       38,406

COMMITMENTS AND CONTINGENCIES (Notes 3, 9 and 12)

STOCKHOLDERS' DEFICIT:
   Preferred stock; $.001 par value; 250,000,000 shares authorized;
     2,613,498 shares issued and outstanding (liquidation preference
     of $10 per share, aggregating to $26,134,980)                                            2,614
   Common stock; $.0001 par value; 750,000,000 shares authorized;
     10,105,381 shares issued and outstanding                                                 1,011
   Additional paid-in capital                                                             7,889,126
   Accumulated deficit                                                                   (9,555,945)
   Deferred compensation                                                                    (16,928)
                                                                                       ------------
                  Total stockholders' deficit                                            (1,680,122)
                                                                                       ------------

                  Total liabilities and stockholders' deficit                          $ 13,659,998
                                                                                       ============
</Table>


       SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS.


                                      F-2
<PAGE>

                            PARK PHARMACY CORPORATION

                      CONSOLIDATED STATEMENTS OF OPERATIONS


<Table>
<Caption>
                                                                     YEAR ENDED JUNE 30,
                                                               ------------------------------
                                                                   2002              2001
                                                               ------------      ------------
<S>                                                            <C>               <C>
REVENUES -
   Product sales and other, net                                $ 53,823,109      $ 37,943,149

OPERATING EXPENSES:
   Cost of goods sold                                            34,508,476        22,184,532
   Salaries, wages and related taxes                             11,383,560         7,702,284
   Selling, general and administrative expenses                  11,464,808         6,922,185
   Depreciation and amortization                                    446,647           353,869
   Impairment of goodwill                                         2,465,858                --
                                                               ------------      ------------
            Total operating expenses                             60,269,349        37,162,870
                                                               ------------      ------------

            Income (loss) from operations                        (6,446,240)          780,279

OTHER INCOME (EXPENSE):
   Gain on sale of business                                              --           210,348
   Settlement proceeds                                                   --            73,521
   Other income, net                                                126,294            10,014
   Interest expense, net                                           (426,354)         (492,425)
   Financing expenses                                              (141,677)          (66,610)
                                                               ------------      ------------
            Total other income (expense)                           (441,737)         (265,152)
                                                               ------------      ------------

INCOME (LOSS) FROM CONTINUING OPERATIONS
 BEFORE INCOME TAXES                                             (6,887,977)          515,127

                  INCOME TAX BENEFIT (EXPENSE)                       94,644          (178,623)
                                                               ------------      ------------

                  INCOME (LOSS) FROM CONTINUING OPERATIONS       (6,793,333)          336,504

DISCONTINUED OPERATIONS (NET OF TAXES):
    Pharmacy components (including gains on disposal
      of $214,574 in 2002)                                         (399,494)          (40,669)
    Rx-Pro software                                              (2,752,201)          (39,755)
                                                               ------------      ------------
            Loss from discontinued operations, net               (3,151,695)          (80,424)
                                                               ------------      ------------

NET INCOME (LOSS)                                              $ (9,945,028)     $    256,080
                                                               ============      ============

NET INCOME (LOSS) PER COMMON SHARE - basic and diluted:
    Continuing operations                                      $      (0.19)     $       0.01
    Discontinued operations                                    $      (0.09)     $         --
                                                               ------------      ------------
    Net income (loss)                                          $      (0.28)     $       0.01
                                                               ============      ============
</Table>

       SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS.


                                      F-3
<PAGE>

                            PARK PHARMACY CORPORATION

            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

                   FOR THE YEARS ENDED JUNE 30, 2002 AND 2001

<Table>
<Caption>
                                                                                         Retained                        Total
                              Preferred Stock         Common Stock        Additional     Earnings                     Stockholders'
                           ---------------------  ---------------------    Paid-in     (Accumulated      Deferred        Equity
                             Shares      Amount     Shares      Amount     Capital        Deficit)     Compensation     (Deficit)
                           ----------   --------  ----------   --------   ----------   ------------    ------------   -------------
<S>                        <C>          <C>       <C>          <C>        <C>          <C>             <C>            <C>
BALANCES, June 30, 2000     3,024,581   $  3,025   4,508,551   $    451   $6,063,792   $    133,003    $   (161,300)  $   6,038,971

Issuance of common stock
 in connection with
 business acquired (net
 of 260,000 shares held
 back)                             --         --   1,190,000        119    1,744,391             --              --       1,744,510

Deferred compensation in
 connection with
 restricted stock awards,
 net of forfeitures                --         --      21,000          2        7,871             --          (7,873)             --

Deferred compensation
 in connection with
 stock options                     --         --          --         --      126,000             --        (126,000)             --

Amortization of
 deferred compensation             --         --          --         --           --             --         153,887         153,887

Net income                         --         --          --         --           --        256,080              --         256,080
                           ----------   --------  ----------   --------   ----------   ------------    ------------   -------------
BALANCES, June 30, 2001     3,024,581      3,025   5,719,551        572    7,942,054        389,083        (141,286)      8,193,448

Conversions of
 preferred stock             (411,083)      (411)  4,110,830        411           --             --              --              --


Issuance of common stock
 in connection with
 business acquired                 --         --     260,000         26          (26)            --              --              --

Deferred compensation
 in connection with
 restricted stock awards,
 net of forfeitures                --         --      15,000          2        7,198             --          (7,200)             --

Amortization of deferred
 compensation, net of
 forfeitures                       --         --          --         --      (60,100)            --         131,558          71,458

Net loss                           --         --          --         --           --     (9,945,028)             --      (9,945,028)
                           ----------   --------  ----------   --------   ----------   ------------    ------------   -------------
BALANCES, June 30, 2002     2,613,498   $  2,614  10,105,381   $  1,011   $7,889,126   $ (9,555,945)   $    (16,928)  $  (1,680,122)
                           ==========   ========  ==========   ========   ==========   ============    ============   =============
</Table>


       SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS.


                                      F-4
<PAGE>

                            PARK PHARMACY CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<Table>
<Caption>
                                                                                                YEAR ENDED JUNE 30,
                                                                                          ------------------------------
                                                                                              2002              2001
                                                                                          ------------      ------------
<S>                                                                                       <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income (loss)                                                                      $ (9,945,028)     $    256,080
   Adjustments to reconcile net income (loss) to net cash provided by (used in)
     operating activities:
      Depreciation and amortization                                                            473,555           401,265
      Amortization and write off of debt issuance costs                                        141,677            66,620
      Amortization of deferred compensation                                                     71,458           153,887
      Impairment of property and equipment                                                      84,160                --
      Write-down of capitalized software costs                                               2,595,740                --
      Impairment and write-off of goodwill                                                   2,600,488                --
      Gain on sale of business                                                                      --          (210,348)
      Gain on disposal of discontinued pharmacy components                                    (214,574)               --
      Deferred income taxes                                                                    331,756          (327,046)
   Changes in operating assets and liabilities, net of effect of businesses
acquired:
      Trade accounts receivable                                                              2,741,529        (4,975,241)
      Refundable income taxes                                                                 (296,547)               --
      Inventories                                                                            1,385,793          (652,750)
      Prepaid expenses and other                                                              (187,995)          (96,434)
      Other assets                                                                             (10,874)           17,414
      Trade accounts payable                                                                 1,699,230         3,177,093
      Accrued liabilities                                                                       85,759           606,983
      Income taxes payable                                                                    (400,408)          400,808
                                                                                          ------------      ------------
                   Net cash provided by (used in) operating activities                       1,155,719        (1,181,669)

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of property and equipment                                                        (324,635)         (302,491)
   Increase in software costs                                                                 (136,216)         (237,159)
   Consideration paid for businesses acquired                                                       --        (4,187,000)
   Payments in connection with business acquisitions and disposition                                --          (399,657)
   Proceeds from sale of businesses                                                            845,000           900,000
   Cash in acquired businesses                                                                      --           283,292
                                                                                          ------------      ------------
                   Net cash provided by (used in) investing activities                         384,149        (3,943,015)

                  CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from notes payable and long-term debt                                           19,248,613         9,508,677
   Repayments of notes payable and long-term debt                                          (21,921,466)       (3,679,945)
   Repayment of capital lease obligation                                                       (24,453)               --
   Deferred financing costs                                                                         --           (28,071)
                                                                                          ------------      ------------
                                             Net cash provided by (used in) financing       (2,697,306)        5,800,661
                                                                                          ------------      ------------
                           activities

                  NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                      (1,157,438)          675,977
</Table>


       SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS.

                                      F-5
<PAGE>

                            PARK PHARMACY CORPORATION

                CONSOLIDATED STATEMENTS OF CASH FLOWS, continued

<Table>
<Caption>
                                                                                      YEAR ENDED JUNE 30,
                                                                                 ------------------------------
                                                                                     2002              2001
                                                                                 ------------      ------------
<S>                                                                              <C>               <C>
CASH AND CASH EQUIVALENTS, beginning of year                                        1,611,923           935,946
                                                                                 ------------      ------------

CASH AND CASH EQUIVALENTS, end of year                                           $    454,485      $  1,611,923
                                                                                 ============      ============

SUPPLEMENTAL CASH FLOW INFORMATION:
   Cash paid for:
     Interest                                                                    $    410,200      $    433,100
                                                                                 ============      ============
     Income taxes                                                                $    289,200      $     78,800
                                                                                 ============      ============

NON-CASH INVESTING AND FINANCING TRANSACTIONS:
   Business acquired through issuance of common stock                            $         --      $  1,744,510
   Capital lease obligations incurred in connection with equipment purchases     $    330,868      $         --
   Long-term debt issued in connection with vehicle purchase                     $         --      $     35,357
   Write-off of fully depreciated property and equipment                         $    226,026      $         --
   Deferred compensation in connection with restricted stock awards              $      7,200      $      7,873
   Deferred compensation in connection with stock options                        $    (60,100)     $    126,000
</Table>

       SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS.

                                      F-6
<PAGE>


                            PARK PHARMACY CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   NATURE OF OPERATIONS

     Park Pharmacy Corporation (the "Company"), a Colorado corporation, is
     primarily engaged in the sale of prescription and over-the-counter
     medications, healthcare products and related services. The Company sells
     its products and services to a variety of customers including individuals,
     hospices, assisted-living facilities and other institutional healthcare
     providers. The Company is also involved in the wholesale distribution of
     pharmacy-related products and supplies, which are sold primarily to
     independent pharmacies and national retail chains.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     (a) - Principles of Consolidation and Basis of Presentation
     The accompanying consolidated financial statements include the accounts of
     the Company and its wholly-owned subsidiaries. Significant intercompany
     balances and transactions have been eliminated in consolidation. Certain
     amounts in the prior year financial statements have been reclassified to
     conform to the current year presentation.

     As more fully described in Note 5, during fiscal year 2002, the Company
     closed some of its pharmacy locations and suspended the development of its
     Internet-based pharmaceutical care information system (the "Rx-Pro
     software"). The operating results related to these activities have been
     reported as discontinued operations in the accompanying consolidated
     financial statements.

     (b) - Use of Estimates
     The preparation of financial statements in conformity with accounting
     principles generally accepted in the United States of America requires
     management to make estimates and assumptions that affect the amounts
     reported in the financial statements and accompanying notes. Actual results
     could differ from those estimates and those differences could be material.
     Significant estimates made by the Company include the net realizable value
     of third-party receivables, the carrying amounts and economic lives of
     goodwill and other intangible assets and software costs, and the amounts
     recorded to reflect the potential liabilities associated with certain
     contingencies.

     (c) - Financial Instruments
     The carrying amounts of cash and cash equivalents, accounts receivable,
     accounts payable and accrued liabilities approximate fair value due to the
     short-term maturities of these items. The carrying amounts of the Company's
     bank borrowings approximate fair value because the interest rate changes
     with market interest rates and the borrowings are similar to other credit
     arrangements currently available to the Company.

     (d) - Cash and Cash Equivalents
     The Company considers short-term highly liquid investments with maturities
     of three months or less to be cash equivalents.

     (e) - Revenue Recognition
     (i) Product sales and other revenue are reported at the estimated net
     realizable amounts expected to be received from individuals, third-party
     payors, institutional healthcare providers and others. The Company
     recognizes revenue from the sale of pharmaceutical products and retail
     merchandise as transactions occur and product is delivered to the customer.
     Revenue from healthcare services is recognized at the time


                                      F-7
<PAGE>


                            PARK PHARMACY CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     services are provided. Revenue from wholesale product sales is recognized
     at the time of shipment.
     (ii) The Company acts as an agent for the sale of certain pharmaceutical
     products. A member pharmacy, and not the Company, is responsible for the
     fulfillment of customer purchases, and the Company does not have risks and
     rewards as principal in these sales transactions. Revenue consists
     primarily of processing fees representing the amount billed to a customer,
     less the amount paid to a supplier. The net revenue from these sales is
     recognized as transactions occur. The Company, however, records the gross
     amounts of receivables and payables related to these transactions because
     the Company assumes credit risk for the amount billed to the customer and
     is responsible for paying the member pharmacy.

     A portion of the Company's revenue is derived from governmental assistance
     programs, such as Medicare and Medicaid. Governmental programs pay for
     healthcare costs based on fee schedules and rates that are determined by
     the related governmental agency. Medicare and Medicaid combined accounted
     for approximately 12% and 13% of consolidated revenue for the years ended
     June 30, 2002 and 2001, respectively.

     (f) - Inventory
     Inventory consists principally of finished goods held for resale, valued at
     the lower of cost, using the first-in, first-out method, or market.

     (g) - Property and Equipment
     Property and equipment is stated at cost less accumulated depreciation.
     Depreciation is computed using the straight-line method over the estimated
     useful lives, generally five to seven years, of the underlying assets.
     Leasehold improvements are depreciated over the expected terms of the
     underlying leases. Depreciation expense for the years ended June 30, 2002
     and 2001 was approximately $241,000 and $150,200, respectively. The costs
     of repairs and maintenance are expensed as incurred.

     The Company periodically reviews the carrying amount of property and
     equipment for impairment. During fiscal year 2002, the Company determined
     that expected future cash flows of certain pharmacy equipment did not
     exceed its carrying amount and recorded a loss of approximately $84,200
     (included in other income, net).

     (h) - Software Costs
     The Company accounts for costs incurred in connection with internally
     developed software or software purchased for internal use in accordance
     with the provisions of Statement of Position 98-1, Accounting for the Costs
     of Computer Software Developed or Obtained for Internal Use. The Company
     capitalized eligible costs, primarily the direct cost of obtaining software
     and payroll-related costs, incurred in connection with its development of
     an Internet-based pharmaceutical care information system (the "Rx-Pro
     software").

     In December 2001, the Company determined that a significant market for
     Internet-based healthcare systems may not emerge and it was necessary to
     suspend the development of the Rx-Pro software. At that time, management
     committed to a plan for sale of the RX-Pro software and the Company wrote
     down the software to its estimated fair value of $100,000 (based primarily
     on discussions with potential buyers). As a result, the Company recorded a
     loss of $2,495,740, included in discontinued operations. Based on the
     subsequent inability to complete a sale, management determined it was
     necessary to revise its estimate of fair value. Accordingly, the Company
     wrote down the carrying amount of this asset to an estimated fair


                                      F-8
<PAGE>


                            PARK PHARMACY CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     value of $0 as of June 30, 2002 and recorded an additional loss of
     $100,000, included in discontinued operations.

     (i) - Goodwill
     Goodwill represents excess of cost over the fair value of net assets of
     acquired businesses and is amortized on a straight-line basis over
     estimated lives of five to 20 years. Amortization expense in connection
     with goodwill was approximately $232,500 and $251,100 for the years ended
     June 30, 2002 and 2001, respectively.

     The Company reviews its long-lived assets, including goodwill, for
     impairment whenever events and changes in circumstances indicate that the
     carrying amount of an asset may not be recoverable. The Company's
     assessment of possible impairment is based on an evaluation of undiscounted
     expected future cash flows. If total future cash flows are less than the
     asset carrying amount, the Company reduces the asset to its estimated fair
     value and recognizes an impairment loss. During fiscal year 2002, the
     Company wrote down the carrying amount of goodwill and recorded a loss of
     approximately $2,600,500 ($134,600 included in discontinued operations).

     In June 2001 the Financial Accounting Standards Board ("FASB") issued
     Statement of Financial Accounting Standards No. 141 ("SFAS"), Business
     Combinations. This statement supersedes Accounting Principles Board Opinion
     ("APB") No. 16, Business Combinations, and requires use of the purchase
     method of accounting for all business combinations initiated after June 30,
     2001 and establishes specific criteria for the recognition of acquired
     intangible assets apart from goodwill. The adoption of SFAS 141 had no
     impact on the Company's consolidated financial statements.

     Also in June 2001, the FASB issued SFAS No. 142, Goodwill and Other
     Intangible Assets, which supersedes APB No. 17, Intangible Assets. This
     statement establishes new accounting and reporting standards for acquired
     goodwill and other intangible assets subsequent to their initial
     recognition. Under SFAS 142, goodwill and other intangible assets with
     indefinite lives are no longer amortized, rather they will be subject to a
     periodic impairment test based on their fair value. Intangible assets with
     lives restricted by contractual, legal, or other means will continue to be
     amortized over their useful lives. The Company is required to adopt SFAS
     142 on July 1, 2002 and will cease amortization of goodwill at that time.
     This accounting standard includes provisions upon adoption for the
     reclassification of certain intangibles out of previously reported goodwill
     and reassessment of the useful lives of existing recognized intangibles. In
     addition, SFAS 142 requires that the Company perform a transitional
     impairment evaluation of all goodwill and other intangible assets, in
     accordance with the provisions of this accounting standard, with in the
     first six months of adoption. The Company is currently evaluating the
     impact of adopting this standard and currently cannot estimate the effect
     on the Company's consolidated financial statements beyond discontinuing
     amortization.

     (j) - Advertising Costs
     Advertising costs are expensed as incurred. Total advertising expenses were
     approximately $190,200 and $156,700 in fiscal years 2002 and 2001,
     respectively.

     (k) - Income Taxes
     The Company accounts for income taxes using the liability method whereby
     deferred tax assets and liabilities are determined based on the difference
     between the financial statement and tax basis of assets and liabilities
     using enacted tax rates and laws which will be in effect for the year in
     which the differences


                                      F-9
<PAGE>

                            PARK PHARMACY CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     are expected to reverse. Valuation allowances are established when
     necessary to reduce deferred tax assets to amounts expected to be realized.

     (l) - Per Share Data
     Basic earnings per common share is computed using the weighted average
     number of common shares outstanding during the period. Diluted earnings per
     common share is computed using the weighted average number of common and
     common stock equivalent shares outstanding during the period. Common stock
     equivalent shares are excluded from the computation if their effect is
     antidilutive.

     (m) - Stock-Based Compensation
     The Company applies SFAS No. 123, Accounting for Stock-Based Compensation,
     which establishes financial accounting and reporting standards for
     stock-based employee compensation plans. The provisions of SFAS 123 allow
     companies to continue to follow the intrinsic-value method prescribed by
     APB No. 25, Accounting for Stock Issued to Employees, and requires
     disclosure of the pro forma effects on net income and earnings per share
     had the fair value of the employee stock options granted been expensed as
     prescribed by SFAS 123. The Company has elected to continue to use APB 25
     and related interpretations in accounting for its employee stock options.
     For awards that generate compensation expense as defined under APB 25, the
     Company recognizes the expense over the vesting period of the award (see
     Note 10).

     (n) - Recently Issued Accounting Pronouncements
     In October 2001, the FASB issued SFAS No. 144, Accounting for the
     Impairment or Disposal of Long-Lived Assets, which replaces SFAS No. 121,
     Accounting for the Impairment of Long-Lived Assets and for Long-Lived
     Assets to Be Disposed Of. This statement establishes a single accounting
     model for the impairment or disposal of long-lived assets and amends the
     provisions of APB No. 30, Reporting Results of Operations-Reporting the
     Effects of Disposal of a Segment of a Business and Extraordinary, Unusual
     and Infrequently Occurring Events and Transactions, to broaden the
     presentation of discontinued operations in the statement of operations to
     include all components of an entity (rather than a segment of a business)
     with operations that can be distinguished from the rest of the entity and
     that will be eliminated from the ongoing operations of the entity in a
     disposal transaction. SFAS 144 retains many of the same provisions of SFAS
     121 to (a) recognize an impairment loss only if the carrying amount of a
     long-lived asset is not recoverable from its undiscounted cash flows and
     (b) measure an impairment loss as the difference between the carrying
     amount and fair value of the asset. The provisions of SFAS 144 are
     effective for financial statements issued for fiscal years beginning after
     December 31, 2001 applied prospectively. The Company elected to adopt this
     new accounting pronouncement early, as permitted, on December 31, 2001. The
     primary effect of adopting SFAS 144 was that the operations of the Raven's,
     Compass and Medicine Man - Dickinson pharmacies and the Rx-Pro software
     were accounted for as discontinued operations (see Note 5).

     In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
     No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
     Corrections. SFAS 145 requires gains and losses from extinguishments of
     debt to be classified as an extraordinary item if they meet the criteria in
     APB 30. The provisions of SFAS 145 are effective for fiscal years beginning
     after May 15, 2002. The Company does not expect the adoption of this
     standard will have a material impact on the Company's consolidated
     financial statements.


                                      F-10
<PAGE>


                            PARK PHARMACY CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
     with Exit or Disposal Activities, which addresses accounting and reporting
     for exit and disposal activities. SFAS 146 requires companies to recognize
     costs associated with exit or disposal activities when they are incurred
     rather than at the date of a commitment to an exit or disposal plan. The
     Company is currently evaluating the impact of adopting this standard, which
     is effective for periods beginning after December 31, 2002 applied
     prospectively, and does not expect it to have a significant impact on its
     consolidated financial statements.

3.   LIQUIDITY

     The accompanying financial statements have been prepared in conformity with
     accounting principles generally accepted in the United States of America,
     which contemplate continuation of the Company as a going concern. However,
     at June 30, 2002 the Company's current liabilities exceeded current assets
     by approximately $5,210,000, total liabilities exceeded total assets by
     approximately $1,680,000 and a net loss of approximately $9,945,000 was
     incurred for the year ended June 30, 2002. Included in current liabilities
     was approximately $5,500,000 relating to the Company's bank credit facility
     (see Note 7) and approximately $6,000,000 in past due trade payables to the
     Company's primary inventory supplier. These factors raise substantial doubt
     concerning the ability of the Company to continue as a going concern.
     During fiscal 2002, available borrowings under the Company's revolving line
     of credit were gradually reduced to $2,400,000 from $7,000,000 and the
     maturity of the term loan component of the credit facility was accelerated.
     All borrowings under the Company's credit facility were to have matured on
     September 30, 2002. However, on August 31, 2002, the Company failed to make
     a payment required under its loan agreement with the bank and is currently
     in default. The Company is currently negotiating with the bank to
     restructure its loan and has made attempts to refinance the debt with
     another lender.

     Also, in February 2002, the Company's principal supplier suspended its
     extension of credit for inventory purchases. Currently, the Company
     purchases its inventory on a cash-on-delivery basis. The Company has made
     arrangements with the supplier and makes monthly progress payments on the
     past due amounts.

     The collection cycle of the Company's Infusion segment sales transactions
     has proved to be considerably longer than initially anticipated. Delays in
     reimbursement payments from certain large insurance companies have had an
     adverse impact on the Company's cash flows. As a result, the Company
     increased its reserve for bad debt expense and recorded a charge of
     approximately $2,500,000 for infusion sales deemed to be uncollectible
     during the year ended June 30, 2002.

     All these conditions indicate that the Company may not be able to generate
     sufficient cash flow necessary for it to sustain continued operations and
     pay obligations as they come due.

     Management's plans with regard to these factors include the following:

          o    Negotiating the refinancing or restructuring of the bank credit
               facility and extending its maturity for a reasonable period of
               time.

          o    Negotiating with the principal supplier to maintain its
               forbearance on demanding repayment of past due trade payables.


                                      F-11
<PAGE>

                            PARK PHARMACY CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


          o    Restructuring of the Company's billing and collections practices
               to improve cash flows realized from infusion sales and continuing
               efforts to collect significantly aged accounts.

          o    Eliminating non-essential general and administrative expenses in
               order to effect strategic cost reductions.

          o    Divesting of business units unable to meet established
               profitability goals.

     The Company will be unable to continue operating if it cannot adequately
     finance its inventory purchases. There can be no assurance that the
     principal supplier will not take actions to collect past due amounts or
     that it will continue to supply inventory to the Company. In addition,
     there can be no assurance that the Company will be able to refinance its
     indebtedness to the bank, or otherwise generate sufficient cash flows to
     satisfy the obligation. Should the Company be unable to refinance or
     restructure the bank debt and the bank pursues available remedies, it may
     be forced to seek protection under federal bankruptcy laws. The
     accompanying consolidated financial statements do not purport to reflect or
     provide for the consequences of a possible bankruptcy proceeding. In
     particular, the consolidated financial statements do not purport to show
     (a) as to assets, their realizable value on a liquidation basis or their
     availability to satisfy liabilities; (b) as to liabilities, the amount that
     may be allowed for claims or contingencies, or the status and priority
     thereof; (c) as to stockholder accounts, the effect of any changes that may
     be made in the capitalization of the Company; and (d) as to operations, the
     effect of any changes that may be made in its business. These factors raise
     substantial doubt concerning the ability of the Company to continue as a
     going concern.

4.   BUSINESS COMBINATIONS

     Business combinations have been accounted for using the purchase method of
     accounting. The results of operations of the acquired businesses have been
     included in the consolidated financial statements from their respective
     dates of acquisition. Net assets of the businesses acquired are recorded at
     their estimated fair value at the date of acquisition. The excess of the
     purchase price over the fair value of tangible and identifiable intangible
     net assets acquired is included in goodwill in the accompanying
     consolidated balance sheet.

     YEAR ENDED JUNE 30, 2001

     Park Infusion Services, L.P.
     Effective August 1, 2000, the Company acquired the ongoing operations of
     three infusion therapy pharmacies ("Park Infusion") from subsidiaries of
     Amedisys, Inc. In the transaction, the Company acquired all tangible and
     intangible assets, except for cash and accounts receivable, for cash
     consideration of $1,750,000. The Company also incurred approximately
     $163,000 in related acquisition costs. The Company recognized goodwill of
     approximately $1,593,300, which is being amortized over a twenty-year
     period. Park Infusion operates alternate-site treatment locations in Dallas
     and San Antonio, Texas, and until April 1, 2001, St. Petersburg, Florida
     (see Note 5).

     MJN Enterprises, Inc.
     Effective November 11, 2000, the Company acquired all the outstanding
     common stock of MJN Enterprises, Inc., d/b/a Total Health Care ("Total
     Health Care"). In connection with this acquisition, the Company paid cash
     consideration of $1,150,000 and agreed to issue 1,450,000 shares of the
     Company's


                                      F-12
<PAGE>


                            PARK PHARMACY CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     common stock with an estimated fair value, based on the quoted market price
     of the stock, of approximately $1,744,500. The shares were subject to a
     hold-back of 260,000 shares for satisfaction of potential indemnification
     claims against the former owner of Total Health Care. The Company also
     incurred related acquisition costs of approximately $44,500. The Company
     recognized goodwill of approximately $2,529,600, which was being amortized
     over a twenty-year period.

     Compass Healthcare
     Effective March 1, 2001, the Company acquired the Dallas office operations
     and assets, primarily inventory, of Compass Healthcare ("Compass") for cash
     consideration of approximately $158,000. The Company recognized goodwill of
     approximately $128,000, which was being amortized over a twenty-year
     period. Compass was a retail pharmacy operation located at Medical City
     Hospital of Dallas and dealt exclusively in the sale of therapeutic
     compression garments and supplies. In July 2001, Compass was unable to
     renew its lease and its assets were relocated to the Dougherty's Pharmacy
     location (see Note 5).

     Park - Medicine Man, L.P.
     Effective June 1, 2001, the Company acquired the operations of Medicine
     Man, Inc. ("Medicine Man"), a debtor in possession in Case No.
     00-80112-G3-11 filed in the United States Bankruptcy Court for the Southern
     District of Texas, Galveston Division, for cash consideration of
     approximately $1,129,000 and incurred approximately $89,800 in related
     acquisition costs. Upon acquiring Medicine Man, the Company had recognized
     fair value of net assets acquired in excess of cost ("negative goodwill")
     of $399,700. The Company completed its allocation of the purchase price to
     the fair value of the net assets acquired during fiscal year 2002 and there
     was no remaining amount assigned to negative goodwill as of June 30, 2002.
     The acquired business operations of Medicine Man consist of four retail
     pharmacies located near Houston, Texas. One of the pharmacies was sold in
     fiscal year 2002 (see Note 5).

     The following unaudited pro forma summary presents consolidated results of
     operations for the Company as if these acquisitions had occurred at the
     beginning of the fiscal year ended June 30, 2001. The pro forma information
     does not include the operating results of Compass because the effect of
     this acquisition was not significant to the Company's consolidated
     financial statements.

<Table>
<Caption>
                                                                           2001
                                                                       ------------
<S>                                                                    <C>
           Revenues, net                                               $ 52,904,000
                                                                       ============

           Income from continuing operations                           $    463,000
                                                                       ============

           Income from continuing operations per common share -
             basic and diluted                                         $        .01
                                                                       ============
</Table>

     The pro forma results include adjustments for the amortization of goodwill
     and acquired intangible assets, financing expenses, and related tax
     effects. The unaudited pro forma results are not necessarily indicative of
     the actual results that would have been attained had the acquisitions
     occurred on the indicated date, nor are they necessarily indicative of
     future consolidated results of the Company.


                                      F-13
<PAGE>

                            PARK PHARMACY CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


5.   DISPOSITIONS AND DISCONTINUED OPERATIONS

     YEAR ENDED JUNE 30, 2001

     Park Infusion - St. Petersburg

     Effective April 1, 2001, the Company sold the operations and certain assets
     of Park Infusion's St. Petersburg, Florida location to Option Care
     Enterprises, Inc. ("Option Care") for initial cash consideration of
     $900,000 and additional consideration, which was subsequently received from
     Option Care, of $380,000. In the year ended June 30, 2001, the Company
     recognized a gain of $210,348 from the sale of this business.

     YEAR ENDED JUNE 30, 2002

     Compass
     In July 2001, the Company closed the Compass pharmacy and its assets were
     relocated to the Dougherty's pharmacy (see Note 4). Accordingly, the
     Company recorded a loss of approximately $124,400 in connection with the
     write-off of unamortized goodwill, which is included in impairment of
     goodwill in the accompanying consolidated statements of operations.

     Pharmacy Components
     In December 2001, the Company closed its Raven's and Medicine Man -
     Dickinson pharmacy locations. In connection with these closures, the
     Company recorded a gain on disposal of approximately $214,600, representing
     proceeds of $465,000 received from the sale of customer prescription lists
     reduced by the carrying amount of the net assets disposed and closure costs
     incurred of approximately $250,400. The gain on disposal of Raven's and
     Medicine Man - Dickinson and results of operations of these locations are
     included in discontinued operations in the accompanying consolidated
     statements of operations.

     Rx-Pro Software
     In December 2001, the Company suspended the development and held for sale
     an Internet-based pharmaceutical care information system. The Company wrote
     down capitalized software costs to their estimated fair value and recorded
     a loss of approximately $2,595,700 (see Note 2(h)). The Company also
     recorded a loss of approximately $134,600 in connection with the write-off
     of unamortized goodwill. These losses and the results of operations of the
     Rx-Pro software are included in discontinued operations in the accompanying
     consolidated statements of operations.

     Summarized information of discontinued operations was as follows:


                                      F-14
<PAGE>

                            PARK PHARMACY CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


<Table>
<Caption>
                                                                        Year Ended June 30,
                                                                   ------------------------------
                                                                       2002              2001
                                                                   ------------      ------------
<S>                                                                <C>               <C>
         Revenues:
             Pharmacy components                                   $  3,346,003      $  5,174,828
             Rx-Pro software                                                 --                --
                                                                   ------------      ------------

               Total revenues                                      $  3,346,003      $  5,174,828
                                                                   ============      ============

         Income (loss) from discontinued operations:
             Pharmacy components, net of income tax expense of
               $26,000 in 2002 and benefit of $26,000 in 2001      $   (614,068)     $    (40,669)

             Rx-Pro software, no tax effect                          (2,752,201)          (39,755)
             Gain on disposal of pharmacy components, no tax
               effect                                                   214,574                --
                                                                   ------------      ------------

               Loss from discontinued operations, net              $ (3,151,695)     $    (80,424)
                                                                   ============      ============
</Table>

6.   PROPERTY AND EQUIPMENT

     Property and equipment at June 30, 2002 consisted of the following:

<Table>
<S>                                                                 <C>
     Furniture, fixtures and equipment                              $  1,217,722
     Computer equipment                                                  504,104
     Leasehold improvements                                              802,850
     Vehicles                                                            195,706
                                                                    ------------
                                                                       2,720,382
               Less accumulated depreciation and amortization         (1,224,754)
                                                                    ------------
                                                                    $  1,495,628
                                                                    ============
</Table>

     The Company leases certain pharmacy and office equipment under capital
     lease agreements. Equipment under capital leases included in property and
     equipment at June 30, 2002 was approximately $246,700 and had accumulated
     amortization of approximately $23,400.

7.   DEBT

     Short-term-borrowings at June 30, 2002 consisted of the following:

<Table>
<S>                                                                               <C>
     Revolving line of credit payable to a bank - interest payable monthly
      at prime plus 4% (9.75% at June 30, 2002); due September 30, 2002;
      collateralized by substantially all the assets of the Company. (See
      discussion below.)                                                          $ 2,181,333

     Acquisition note payable to a bank - monthly principal payments of $69,154,
      plus interest at prime plus 4% (9.75% at June 30, 2002); due September 30,
      2002; collateralized by substantially all the assets of the Company. (See
      discussion below.)                                                            3,319,369
</Table>


                                      F-15
<PAGE>

                            PARK PHARMACY CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


<Table>
<S>                                                                               <C>
     Notes payable to a finance company - monthly principal and interest
      payments of $21,390, average interest at 5.35%; due January 2003;
      collateralized by insurance coverage                                            141,724
                                                                                  -----------
                                                                                  $ 5,642,426
                                                                                  ===========

     Long-term debt at June 30, 2002 consisted of the following:

     Note payable to a bank - monthly principal and interest payments of
      $1,129; 9% interest rate; matures April 15, 2004; collateralized by
      an automobile                                                               $    22,654

     Capital lease obligations - total monthly principal and interest
      payments of $948; approximate 5.8% interest rate                                 36,097
                                                                                  -----------
                                                                                       58,751
     Less current portion                                                             (20,345)
                                                                                  -----------
                                                                                  $    38,406
                                                                                  ===========
</Table>

     Credit Facility
     On April 2, 2002, the Company renewed its credit facility with the Bank of
     Texas, N.A. (the "Bank"). The credit facility consisted of a $2,400,000
     revolving line of credit note (the "Revolver") and a $4,129,210 term loan
     (the "Acquisition Note"). The credit facility bears interest at the prime
     rate plus 4% and is collateralized by substantially all the assets of the
     Company.

     The credit facility is subject to an asset-related borrowing base and
     requires the Company to maintain certain financial covenants including
     current ratio, debt to collateral ratio and debt service and funded senior
     debt coverage limitations, as defined. The Company was not in compliance
     with certain of these debt covenant requirements at June 30, 2002.

     The credit facility also contains non-financial covenants, that among other
     things, limit the Company's ability to incur additional liens and
     indebtedness, acquire or dispose of assets, merge or consolidate with other
     entities, make distributions or pay dividends to its stockholders, purchase
     or redeem its capital stock and change senior management.

     On July 10, 2002, the Company obtained a renewal and extension of the
     credit facility which had matured on June 30, 2002. The revised credit
     facility is due September 30, 2002, bears interest at the prime rate plus
     7% and limits total borrowings to $5,778,831.

     Loan Default
     The Company failed to make a scheduled payment of principal and interest on
     August 31, 2002, as required under its loan agreement with the Bank, and is
     currently in default.

     Maturities of Long-Term Debt
     Aggregate maturities of the Company's long-term debt obligations at June
     30, 2002 were as follows:


                                      F-16
<PAGE>

                            PARK PHARMACY CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


<Table>
<Caption>
                      Year ended June 30,
                      -------------------
<S>                                                             <C>
                             2003                               $  20,345
                             2004                                  19,357
                             2005                                   9,705
                             2006                                   9,344
                                                                ---------
                                                                $  58,751
                                                                =========
</Table>


     Capital Lease Obligation
     Pharmacy equipment totaling approximately $294,000 was acquired under a
     capital lease agreement during fiscal year 2002. In August 2002, the
     Company sold the equipment and the lease agreement was terminated.

8.   INCOME TAXES

     Deferred income taxes reflect the net tax effects of temporary differences
     between the carrying amounts of assets and liabilities for financial
     reporting purposes and the amounts used for income tax purposes.

     The significant components of the Company's deferred tax assets and
     liabilities at June 30, 2002 were as follows:

<Table>
<S>                                                                                   <C>
         Deferred tax assets:
             Allowance for doubtful accounts                                          $  1,214,800
             Capitalized inventory costs                                                    18,800
             Accrued expenses, reserves and other                                          256,200
             Deferred compensation                                                          26,700
             Net operating loss carryforwards                                              655,700
                                                                                      ------------
                            Total deferred tax assets                                    2,172,200
                                                                                      ------------

         Deferred tax liabilities:
             Property and equipment depreciation                                           (69,500)
             Other                                                                         (14,400)
                                                                                      ------------
                            Total deferred tax liabilities                                 (83,900)
                                                                                      ------------
                            Net deferred tax asset                                       2,088,300
             Valuation allowance                                                        (2,088,300)
                                                                                      ------------
                            Net deferred taxes                                        $         --
                                                                                      ============
</Table>

     The net change in the valuation allowance for deferred tax assets during
     the year ended June 30, 2002 was $2,088,300.

     At June 30, 2002, the Company had available NOL carryforwards of
     approximately $2,838,000, which may be used to reduce future taxable income
     and begin to expire in fiscal year 2003 through 2022. NOLs related to
     businesses acquired of approximately $1,177,000 are subject to certain
     annual limitations.

     Income tax expense (benefit) related to continuing operations consisted of
     the following:


                                      F-17
<PAGE>

                            PARK PHARMACY CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


<Table>
<Caption>
                                                                     YEAR ENDED JUNE 30,
                                                               ------------------------------
                                                                   2002              2001
                                                               ------------      ------------
<S>                                                            <C>               <C>
         Current tax (benefit) expense:
             Federal                                           $   (400,400)     $    358,219
             State                                                       --           121,450
                                                               ------------      ------------
                              Total current                        (400,400)          479,669
                                                               ------------      ------------

         Deferred tax (benefit) expense:
             Federal                                                277,215          (271,480)
             State                                                   28,541           (29,566)
                                                               ------------      ------------
                              Total deferred                        305,756          (301,046)
                                                               ------------      ------------
                              Income tax (benefit) expense     $    (94,644)     $    178,623
                                                               ============      ============
</Table>

     The differences between income tax expense (benefit) at the federal
     statutory rate and the Company's effective tax rate were as follows:

<Table>
<Caption>
                                                          YEAR ENDED JUNE 30,
                                                        -----------------------
                                                          2002           2001
                                                        --------       --------
<S>                                                     <C>            <C>
Federal statutory rate                                        34%            34%
State taxes                                                   --%            20%
Non-deductible goodwill amortization and impairment           12%            15%
Net operating loss carryforwards                             (47)%          (25)%
Other                                                         --%            (9)%
                                                        --------       --------
Effective tax rate                                            (1)%           35%
                                                        ========       ========
</Table>

9.   COMMITMENTS AND CONTINGENCIES

     Operating Leases
     The Company's pharmacy, wholesale distribution and corporate office
     facilities and certain pharmacy equipment are leased under non-cancelable
     operating lease agreements. Certain leases contain renewal options and
     provide that the Company pay taxes, insurance, maintenance and other
     operating expenses. Total rent expense for operating leases was
     approximately $987,000 and $725,000 for the years ended June 30, 2002 and
     2001, respectively.

     Future minimum lease payments under non-cancelable operating leases are as
     follows:

<Table>
<Caption>
                      Year ended June 30,
                      -------------------
<S>                                                             <C>
                             2003                               $    974,000
                             2004                                    770,000
                             2005                                    481,000
                             2006                                    370,000
                             2007                                     89,000
                          Thereafter                                  22,000
                                                                ------------
                                                                $  2,706,000
                                                                ============
</Table>


                                      F-18
<PAGE>

                            PARK PHARMACY CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     Employment Agreements
     An employment agreement with the Company's president and chief operating
     officer requires the issuance of non-qualified stock options to acquire
     3,000,000 shares of the Company's common stock under the 2000 Plan. At June
     30, 2002, 1,000,000 of these options have been issued. Issuance of the
     remaining stock options will be subject to further review by the Company's
     compensation committee. These stock options are issued with an exercise
     price equal the quoted market price of the Company's common stock on the
     date of grant, and are exercisable over five years.

     The Company has encountered claims from former employees related to
     employment agreements in connection with termination of employment. The
     Company has accrued an estimate of costs to defend and settle these claims.

     Drug Enforcement Administration Investigation
     The Company is subject to an investigation by the Drug Enforcement Agency
     ("DEA") arising out of the diversion of medications from the Company's
     Total Health Care pharmacy. Results of the DEA's investigation allege
     various violations of the Controlled Substance Act and propose that the
     Company pay a fine of approximately $400,000. The Company has proposed to
     settle this matter by paying $10,000 to the DEA. A meeting is scheduled
     with the DEA in October 2002 to attempt to settle this matter. As of June
     30, 2002, the Company has accrued $100,000 in connection with the potential
     fine and legal costs associated with this matter.

     General
     The Company is subject to claims and legal actions which may arise in the
     ordinary course of business. The Company is not aware of any matters that
     may have a material impact on its consolidated financial position or
     results of operations, other than those items described above.

10.  STOCKHOLDERS' EQUITY

     Preferred Stock
     The Company has authorized 250,000,000 shares of preferred stock, which may
     be issued in series with rights and preferences as designated by the
     Company's board of directors.

     Series A Preferred Stock
     The Company has designated 5,000,000 shares of its preferred stock as
     Series A Preferred Stock. Each share of Series A Preferred Stock is
     convertible into ten shares of the Company's common stock. The Series A
     Preferred Stock does not carry a dividend, and includes a preference in the
     event of involuntary liquidation in the amount of $10 per share. During
     fiscal year 2002, 411,083 shares of the Company's Series A Preferred Stock
     were converted into 4,110,830 shares of common stock.

     Restricted Stock Awards
     The Company awarded 15,000 and 21,000 shares of restricted common stock to
     certain employees in fiscal years 2002 and 2001, respectively. These shares
     are nontransferable and subject to forfeiture in the event employment is
     terminated within an eighteen-month vesting period. The estimated fair
     value of shares awarded in fiscal years 2002 and 2001 of $7,200 and
     $14,000, respectively, was recorded as deferred compensation. Compensation
     expense is amortized over the vesting period. The Company recognized
     related compensation expense of $41,458 and $126,887 during fiscal years
     2002 and 2001, respectively.


                                      F-19
<PAGE>

                            PARK PHARMACY CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     Stock Option Plan
     Effective September 19, 2000, the Company's Board of Directors and the
     stockholders adopted the Company's 2000 Stock Option Plan (the "2000
     Plan"), whereby the Company may grant incentive or non-qualified stock
     options to purchase up to 8,659,465 shares of the Company's common stock,
     with a maximum number of incentive options limited to 4,000,000 shares.

     Under the Plan, incentive stock options may be granted to employees of the
     Company. Non-qualified stock options may be granted to employees,
     consultants or directors of the Company. Terms and conditions of the
     Company's stock options, including exercise price and the period in which
     the options are exercisable, generally are at the discretion of the Board
     of Directors, except that all options are exercisable for a period of no
     more than ten years.

     Options granted during fiscal year 2002 were issued with an exercise price
     equal to, or in excess of, the quoted market price of the Company's common
     stock on the date of grant, most options vest over a four to five year
     period and expire, if unexercised, twelve months following the final
     vesting date. 1,200,000 options granted during fiscal year 2002 vested
     immediately. All options granted during fiscal year 2001 were issued with
     an exercise price of $0.75, most options vest over a three to four year
     period and expire, if unexercised, twelve months following the final
     vesting date. 195,000 options granted during fiscal year 2001 vested
     immediately.

     A summary of the stock options transactions is as follows:

<Table>
<Caption>
                                                       Weighted
                                                        Average
                                        Number of      Exercise
                                         Options        Price
                                       -----------     --------
<S>                                    <C>             <C>
              Balance, June 30, 2000            --     $     --
                 Granted                 5,836,832     $   0.75
                 Exercised                      --     $     --
                 Canceled or expired            --     $     --
                                       -----------     --------

              Balance, June 30, 2001     5,836,832     $   0.75
                 Granted                 3,258,000     $   0.46
                 Exercised                      --     $     --
                 Canceled or expired     4,717,500     $   0.74
                                       -----------     --------

              Balance, June 30, 2002     4,377,332     $   0.54
                                       ===========     ========
</Table>

     The following table summarizes information about options outstanding as of
June 30, 2002:


                                      F-20
<PAGE>

                            PARK PHARMACY CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


<Table>
<Caption>
                              Options Outstanding                         Options Exercisable
       ----------------------------------------------------------       ------------------------
                                            Weighted
                                             Average     Weighted                       Weighted
                                            Remaining     Average                        Average
           Range of            Number         Life       Exercise          Number       Exercise
        Exercise Prices      Outstanding     (Years)      Price         Exercisable      Price
       -----------------     -----------    ---------    --------       -----------     --------
<S>                          <C>            <C>          <C>            <C>             <C>
       Less than $0.75         2,568,000          3.9    $   0.39         1,563,668          .34
       $0.75                   1,809,332          3.1    $   0.75           983,446          .75
                             -----------    ---------    --------       -----------     --------
                               4,377,332          3.5    $   0.54         2,547,114     $    .50
                             ===========    =========    ========       ===========     ========

</Table>

     The weighted average fair value at the date of grant of options granted
     under the Plan were as follows:

<Table>
<Caption>
                                                                                     Year Ended June 30,
                                                                                    --------------------
                                                                                      2002        2001
                                                                                    --------    --------
<S>                                                                                 <C>         <C>
         Options with exercise price less than market price                         $     --    $   0.48
                                                                                    ========    ========
         Options with exercise price equal to market price                          $   0.29    $   0.39
                                                                                    ========    ========
         Options with exercise price greater than market price                      $   0.08    $     --
                                                                                    ========    ========
</Table>

     Stock-Based Compensation and Pro Forma Disclosures
     The Company applies APB 25 and related interpretations in accounting for
     employee stock options, which requires compensation expense be recognized
     for grants of stock options when the quoted market price of the Company's
     common stock on the grant dates exceeds an option's exercise prices. The
     Company did not grant any stock options with an exercise price less than
     the quoted market price of the Company's common stock on the grant date
     during fiscal year 2002. However, the Company granted stock options with an
     exercise price less than the quoted market price of the Company's common
     stock on the grant date in prior years and continues to recognize the
     remaining compensation expense over the vesting period. In fiscal year
     2001, the Company recorded deferred compensation of $126,000 related to the
     granting of stock options. Compensation expense of $30,000 and $27,000 was
     recorded during fiscal years 2002 and 2001, respectively, for such grants.

     Under SFAS 123, employee stock options are valued at the date of grant
     using the Black-Scholes option pricing model, and are amortized to expense
     over the options' vesting period. Had compensation expense been determined
     based on the fair value at the grant dates of these options pursuant to the
     employee compensation provisions of SFAS 123, the Company's net income
     (loss) and income (loss) per share, on a pro forma basis, would have been
     as follows:

<Table>
<Caption>
                                                                        2002            2001
                                                                    -------------    ----------
<S>                                                                 <C>              <C>
                      Net income (loss):
                         as reported                                $  (9,945,028)   $  256,080
                                                                    =============    ==========
                         Pro forma                                  $ (10,371,873)   $   99,127
                                                                    =============    ==========

                      Net income (loss) per share:
                         as reported - basic and diluted            $       (0.28)   $     0.01
                                                                    =============    ==========
                         Pro forma - basic and diluted              $       (0.29)   $       --
                                                                    =============    ==========
</Table>


                                      F-21
<PAGE>

                            PARK PHARMACY CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     The fair values of stock options granted during fiscal years 2002 and 2001
     were estimated on the dates of grant using the Black-Scholes option pricing
     model with the following weighted average assumptions:

<Table>
<Caption>
                                               2001        2001
                                             --------    --------
<S>                                          <C>         <C>
                      Volatility                  118%         94%
                      Interest rate              2.25%       3.88%
                      Dividend yield               --%         --%
                      Expected life           2 years     2 years
</Table>

11.      EARNINGS PER SHARE

     The weighted average share computation includes common stock equivalents
     for the Company's issued and outstanding Series A Preferred Stock. The
     weighted average share computation also includes the dilutive effect of
     employee stock options granted in connection with the 2000 Plan.
     Outstanding stock options as of June 30, 2002 did not have a dilutive
     effect because the average market price of the Company's common stock did
     not exceed the exercise prices of such stock options.

     The following table sets forth the computation of basic and diluted
     earnings per share:

<Table>
<Caption>
                                                                       YEAR ENDED JUNE 30,
                                                                  ------------------------------
                                                                      2002              2001
                                                                  ------------      ------------
<S>                                                               <C>               <C>
     Numerator:
         Income (loss) from continuing operations                 $ (6,793,333)     $    336,504
                                                                  ------------      ------------

         Loss from discontinued operations                        $ (3,151,695)     $    (80,424)
                                                                  ------------      ------------

         Net income (loss)                                        $ (9,945,028)     $    256,080
                                                                  ============      ============

     Denominator:
     Weighted average common shares:
         Common shares outstanding                                   8,784,037         5,266,949
         Common share equivalents of Series A Preferred Stock       27,251,393        30,245,810
                                                                  ------------      ------------
     Basic weighted average shares                                  36,035,430        35,512,759
         Effect of dilutive securities:
          Employee stock options                                            --            80,723
                                                                  ------------      ------------

     Diluted weighted average common shares                         36,035,430        35,593,482
                                                                  ============      ============

     Income (loss) per share - basic and diluted:
         Continuing operations                                    $      (0.19)     $       0.01
         Discontinued operations                                  $      (0.09)     $         --
                                                                  ------------      ------------
         Net income (loss)                                        $      (0.28)     $       0.01
                                                                  ============      ============
</Table>

12.  EMPLOYEE BENEFIT PLANS

     Prior to June 30, 2001, the Company maintained two defined contribution
     plans through its subsidiaries that collectively benefited most full-time
     employees of the Company and provided for employer matching contributions
     ranging from 3% to 6% of an employee's annual compensation. These plans
     were terminated during fiscal year 2001 and the Company adopted a new
     retirement savings plan (the "Plan")


                                      F-22
<PAGE>

                            PARK PHARMACY CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     effective July 2, 2001. Under the Plan, the Company matches 25% of every
     dollar contributed by employees, up to a maximum of 4% of the employee's
     annual compensation. Company matching contributions to the plans were
     approximately $33,800 and $42,200 in fiscal years 2002 and 2001,
     respectively.

13.  CONCENTRATIONS OF CREDIT RISK

     Accounts receivable consists primarily of amounts receivable from
     third-party payment providers (insurance companies and governmental
     agencies) under various medical reimbursement programs. Certain third-party
     receivables are recorded at estimated net realizable amounts. Amounts that
     may be received under medical reimbursement programs are affected by
     changes in payment criteria and are subject to legislative actions.
     Accounts receivable from Medicare and Medicaid combined were approximately
     12% of total accounts receivable at June 30, 2002. Concentrations of credit
     risk associated with individual customer accounts receivable are considered
     minimal due to the Company's diverse customer base.

     The Company does not generally require collateral in connection with credit
     sales to its customers. Management periodically evaluates the
     creditworthiness of the Company's customers and believes the allowance for
     doubtful accounts is adequate.

     Sales derived from Medicaid accounted for approximately 8% and 10% of
     consolidated revenue during the years ended June 30, 2002 and 2001,
     respectively. No other single customer or third-party payor accounted for
     more than 10% of the Company's consolidated revenue during the years ended
     June 30, 2002 and 2001.

14.  BUSINESS SEGMENT INFORMATION

     The Company's business segments are comprised of retail and institutional
     pharmacy operations ("Pharmacy"); infusion pharmacy products and services
     ("Infusion"); and wholesale distribution of pharmacy supplies ("Non-Drug").

     Through its pharmacy operations, the Company offers prescription and
     over-the-counter medications, durable medical products and other general
     merchandise, primarily to communities in and around the cities of
     Dallas/Fort Worth and Houston, Texas. Through pharmacies located in Dallas
     and San Antonio, Texas, the Company provides infusion medications, products
     and services to home healthcare and hospice patients throughout North Texas
     and the San Antonio metropolitan area. Non-drug products represent the
     wholesale distribution of pharmacy supplies and related accessory items
     sold to independent pharmacies, national retail chains and hospitals.

     The accompanying segment information does not include the operating results
     and assets of the Online Services segment which in prior years was
     comprised entirely of the operations of the Company's wholly-owned
     subsidiary Rx-Pro.Com, Inc. ("RX-Pro"). The operating results and assets of
     the prescription management services currently offered through Rx-Pro are
     included in Other.

     Management evaluates the performance of its operating segments based on
     segment earnings, which is defined as income before income taxes, interest
     and financing expense, depreciation and amortization.


                                      F-23
<PAGE>
                           PARK PHARMACY CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     Summarized segment information is as follows:

<Table>
<Caption>
                                                                       YEAR ENDED JUNE 30,
                                                                 ------------------------------
                                                                     2002              2001
                                                                 ------------      ------------
<S>                                                              <C>               <C>
       Segment Revenues:
           Pharmacy                                              $ 37,844,900      $ 22,313,800
           Infusion                                                12,620,200        11,820,300
           Non-drug                                                 3,235,200         3,635,200
           Other                                                      122,800           173,800
                                                                 ------------      ------------
                 Total segment revenues                          $ 53,823,100      $ 37,943,100
                                                                 ============      ============

       Segment Earnings (Loss):
           Pharmacy                                          (a) $ (2,774,500)     $  1,086,900
           Infusion                                                  (503,300)        2,459,700
           Non-drug                                                   (67,900)          165,100
           Other                                                     (287,700)         (168,000)
                                                                 ------------      ------------
                 Total segment earnings (loss)                     (3,633,400)        3,543,700
                                                                 ------------      ------------

       Corporate expenses                                          (2,240,000)       (2,115,700)
       Interest and financing expense, net                           (568,000)         (559,000)
       Depreciation and amortization                                 (446,600)         (353,900)
                                                                 ------------      ------------

       Income (loss) before income taxes                         $ (6,888,000)     $    515,100
                                                                 ============      ============

       Segment Depreciation and Amortization:
           Pharmacy                                              $    215,900      $    157,800
           Infusion                                                    96,400            94,800
           Non-drug                                                    75,700            74,600
           Other                                                       19,600             5,900
                                                                 ------------      ------------
                 Total segment depreciation and amortization          407,600           333,100
                                                                 ------------      ------------

       Corporate                                                       39,000            20,800
                                                                 ------------      ------------
                 Total depreciation and amortization             $    446,600      $    353,900
                                                                 ============      ============
</Table>

(a)  Included in the loss of the Pharmacy segment for the year end June 30, 2002
     is approximately $2,465,800 related to impairment of goodwill associated
     with the Company's Total Health Care and Compass pharmacies.

<Table>
<S>                                                       <C>
       Segment Assets:
           Pharmacy                                       $  6,017,500
           Infusion                                          3,700,700
           Non-drug                                            573,700
           Other                                               469,300
                                                          ------------
                 Total segment assets                       10,761,200
                                                          ------------

       Corporate                                               648,500
       Goodwill and other intangible assets, net             2,035,800
                                                          ------------
                 Total assets                             $ 13,445,500
                                                          ============
</Table>


                                      F-24


<PAGE>
                                 EXHIBIT INDEX


<Table>
<Caption>
EXHIBIT
NUMBER                            DESCRIPTION
-------                           -----------
<S>      <C>
99.1     CEO Certification of Periodic Financial Reports Pursuant to 18 U.S.C.
         Section 1350*

99.2     CFO Certification of Periodic Financial Reports Pursuant to 18 U.S.C.
         Section 1350*
</Table>

* Filed herewith