<PAGE>

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

          [X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED MARCH 31, 2001

                                      or

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

                         Commission File No.  1-15445

                              DRUGMAX.COM, INC.,
               formerly known as Nutriceuticals.com Corporation
               ------------------------------------------------
                (Name of small business issuer in its charter)

<TABLE>
  <S>                                                                    <C>
        STATE OF NEVADA                                                            34-1755390
        ---------------                                                            ----------
  (State or other jurisdiction of incorporation or organization)         (IRS Employer Identification No.)
</TABLE>


        12505 Starkey Road, Suite A, Largo, Florida                 33773
        -------------------------------------------                ------
        (Address of Principal Executive Officers)                (Zip Code)


                   Issuer's telephone number: (727) 533-0431

  Securities registered pursuant to Section 12(b) of the Exchange Act:  None.
                                                                        ----

     Securities registered pursuant to Section 12(g) of the Exchange Act:

                    Common stock, Par value $.001 per share
                    ---------------------------------------
                               (Title of Class)

     Indicate by check mark whether the issuer (1) filed all reports required to
be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 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. Yes [X]  No [_]

     Indicate by check mark if 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. [X]

     Issuer's revenues for its most recent fiscal year were $177,713,064.

     Number of shares outstanding of the Issuer's common stock at $.001 par
value as of June 18, 2001, was 6,971,415.  The aggregate market value of the
common stock held by non-affiliates of the registrant (approximately 3,266,802
shares) was approximately $19,600,812, as computed by the closing price of such
common stock,  $6.00, as of June 18, 2001.


                      DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's definitive Proxy Statement to be used in connection
with the Registrant's 2001 Annual Meeting of Stockholders, which will be filed
on or before July 31, 2001, are incorporated by reference in Part III, Items 10-
13 of this Form 10-KSB. Except with respect to information specifically
incorporated by reference in this Form 10-KSB, the Proxy Statement is not deemed
to be filed as a part hereof.
<PAGE>

                             CAUTIONARY STATEMENTS

     Certain oral statements made by management from time to time and certain
statements contained in press releases and periodic reports issued by
DrugMax.com, Inc. (the "Company"), as well as those contained herein, that are
not historical facts are "forward-looking statements" within the meaning of
Section 21E of the Securities Exchange Act of 1934 and, because such statements
involve risks and uncertainties, actual results may differ materially from those
expressed or implied by such forward-looking statements. Forward-looking
statements, including those in Management's Discussion and Analysis, are
statements regarding the intent, belief or current expectations, estimates or
projections of the Company, its Directors or its Officers about the Company and
the industry in which it operates, and are based on assumptions made by
management. Forward-looking statements include without limitation statements
regarding: (a) the Company's strategies regarding growth and business expansion,
including future acquisitions; (b) the Company's financing plans; (c) trends
affecting the Company's financial condition or results of operations; (d) the
Company's ability to continue to control costs and to meet its liquidity and
other financing needs; (e) the declaration and payment of dividends; (f) the
Company's use of proceeds from the currently contemplated equity offering, and
(g) the Company's ability to respond to changes in customer demand and
regulations. Although the Company believes that its expectations are based on
reasonable assumptions, it can give no assurance that the anticipated results
will occur. When used in this report, the words "expects," "anticipates,"
"intends," "plans," "believes," "seeks," "estimates," and similar expressions
are generally intended to identify forward-looking statements.

     Important factors that could cause actual results to differ materially from
those in the forward-looking statements include, among other items, (i) changes
in the regulatory and general economic environment related to the health care
and pharmaceuticals industries; (ii) conditions in the capital markets,
including the interest rate environment and the availability of capital; (iii)
changes in the competitive marketplace that could affect the Company's revenue
and/or cost and expenses, such as increased competition, lack of qualified
marketing, management or other personnel, and increased labor and inventory
costs; (iv) changes in technology or customer requirements, which could render
the Company's technologies noncompetitive or obsolete; (v) new product
introductions, product sales mix and the geographic mix of sales and (vi) the
Company's customers' willingness to accept its Internet platform. Further
information relating to factors that could cause actual results to differ from
those anticipated is included but not limited to information under the headings
"Business," particularly under the subheading, "Risk Factors," and "Management's
Discussion and Analysis of Financial Conditions and Results of Operations" in
this Form 10-KSB for the year ended March 31, 2001. The Company disclaims any
intention or obligation to update or revise forward-looking statements, whether
as a result of new information, future events or otherwise.


                                    PART I

Item 1. BUSINESS.

General

     DrugMax.com, Inc. is primarily a full-line, wholesale distributor of
pharmaceuticals, over-the-counter products, health and beauty care products, and
nutritional supplements. The Company expects that it will continue to derive a
significant portion of its revenue from its traditional "brick and mortar" full-
line wholesale distribution business. However, the Company is also one of the
early entrants into the Internet business-to-business pharmaceutical market and
one of the first business-to-business online trade exchanges for the same
products. The Company utilizes its online capabilities to leverage its existing
infrastructure, technology, relationships, marketing and management resources
and, accordingly, believes that the combination of its traditional wholesale
distribution business with both its online wholesale distribution business and
its e-commerce trade exchange provides the "click and mortar" combination that
will allow it to aggressively market and distribute its products and services.

     In general, the Company distributes its products primarily to independent
pharmacies in the continental United States, and secondarily to small and
medium-sized pharmacy chains, alternative care facilities and other wholesalers
and retailers and maintains an inventory of over 2,000 stock-keeping units, to
serve this growing customer base. In addition, since the early December 1999
launch of its web site, www.drugmax.com, over 9,000 independent pharmacies,
small regional pharmacy chains, wholesalers and distributors have registered to
purchase products through the Company's web site. The Company believes it has
been successful in attracting potential customers to its web site because it has
designed its web site as an online source for a select group of products,
typically higher cost and margin products, which make up a large percentage of
the Company's targeted customers sales.

     The Company's online trade exchange, DrugMaxTrading.com, established in
August 2000, offers one of the first business-to-business online trade exchanges
for pharmaceuticals, over-the-counter products, health and beauty care products,
and nutritional supplements dedicated exclusively to manufacturers,
distributors, wholesalers and retailers in the pharmaceutical and over-the-
counter

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product markets. DrugMaxTrading.com allows the Company's trade exchange
members to lower their overall costs of doing business while providing them with
wider market access and competitively priced products. The Company believes that
the DrugMaxTrading.com concept capitalizes on the efficiencies of the Internet
and its strategic alliances, offering a variety of product and market
participant information.  DrugMaxTrading.com facilitates the execution of
mutually beneficial online transactions among trade exchange members in an open-
market format.  Although the Company expects its wholesale distribution business
to continue to provide the primary source of revenues for the foreseeable
future, the Company also believes that in the near future its new e-commerce
trade exchange will be able to provide significant profits.  No significant
revenues have been generated from the DrugMaxTrading.com site at March 31, 2001.

History

     The Company was founded in 1993 under the name NuMED Surgical, Inc. as a
subsidiary of NuMED Home Health Care, Inc., a publicly traded company.  The
Company was created to complete the distribution of certain assets and
liabilities associated with NuMED Home Health Care's surgical/medical products
division to its stockholders.  NuMED Home Health Care contributed all of those
assets and liabilities to the Company, and then distributed all of the shares of
the Company's common stock to its stockholders. In connection with the spin off,
the Company's common stock was registered under the Securities Exchange Act of
1934, and the Company began trading as a separate public company.

     In April 1997, the Company sold its major product line and subsequently
disposed of its operating assets because of continued losses caused by increased
competition and the loss of exclusivity of its products. The sale of the
Company's major product line and assets was completed by March 31, 1998, and,
accordingly, from April 1, 1998, to September 8, 1998, the Company used a
liquidation basis of accounting.

     On March 17, 1999, the Company acquired all of the outstanding common stock
of Nutriceuticals.com Corporation ("Nutriceuticals"), a Florida corporation
formed in September 1998 to engage in the online retailing of natural products
over the Internet. For accounting purposes, this acquisition was treated as an
acquisition of the Company by Nutriceuticals and a recapitalization of
Nutriceuticals.  Although the Company was incorporated in Nevada on October 18,
1993, the Company's date of inception is September 8, 1998 for accounting
purposes. After the Company acquired Nutriceuticals, the Company changed its
corporate name to Nutriceuticals.com Corporation.

     In November 1999, the Company acquired all of the outstanding shares of
common stock of Becan Distributors, Inc. ("Becan"), and its wholly owned
subsidiary Discount Rx, Inc. ("Discount"), a wholesale distributor primarily of
pharmaceuticals and, to a lesser extent, over-the-counter products and health
and beauty care products. Following the acquisition of Becan, the Company
changed its name to DrugMax.com, Inc. With the acquisition of Becan, the Company
changed its primary focus from that of an online business-to-consumer retailer
of vitamins and other health products to that of an e-commerce business-to-
business wholesale distributor of pharmaceuticals, over-the-counter products,
health and beauty care products and nutritional supplements. Becan commenced
operations in January 1997, and its net revenues for the year ended March 31,
1999, and the period ended November 25, 1999, were $31.1 million and $33.7
million, respectively.  Net income for the respective periods was $94,031 and
$22,829.  See "Acquisitions."

     In March 2000, the Company diversified its operations by acquiring all of
the issued and outstanding shares of common stock of Desktop Corporation, a
Texas corporation located in Dallas, Texas. In addition, in May 2000, the
Company formed Desktop Media Group, Inc. ("Desktop Media") a Florida
corporation, to develop web based and Internet software for the Company.  On
September 15, 2000, Desktop Corporation and Desktop Media executed Articles of
Merger whereby Desktop Corporation was merged into Desktop Media, with Desktop
Media Group, Inc. ("Desktop") being the surviving entity. For accounting
purposes, the business conducted by Desktop is considered to be a separate
accounting segment of the Company's business.  For a more complete discussion of
the Company's business segments, see Note 11 of the Company's Financial
Statements.  Desktop, in addition to being a designer and developer of
customized Internet solutions, owned, at the time of acquisition, 50% of the
outstanding shares of common stock of VetMall, LLC (later converted to a newly
formed Florida corporation VetMall, Inc.) ("VetMall"), with the remaining shares
being owned by W.A. Butler & Company ("Butler"), one of the nation's largest
veterinary products distributors.  Concurrent with the acquisition of Desktop,
the Company acquired an additional 20% interest in VetMall from Butler.
VetMall.com is the web site owned by VetMall and is a business-to-business
portal linking animal health product manufacturers, distributors, and
veterinarians.  See "Acquisitions".

     On April 19, 2000, the Company acquired Valley Drug Company ("Valley"), a
full-line, primary wholesale distributor of pharmaceuticals, over-the-counter
products, health and beauty care products and general merchandise. This
acquisition helped the Company expand its customer base, product line and market
share, and provided the Company with the additional ability to serve its
customers as a primary, full-line wholesale distributor, and offer them the
convenience of one-stop shopping. Valley has been in

                                       3
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operation since 1950, and its offices are located in Youngstown, Ohio. For the
year ended December 31, 1999, and the three months ended March 31, 2000, Valley
had revenues of approximately $50.5 million and $12.3 million, respectively, and
net income of approximately $500,000 and $75,000 for such periods. See
"Acquisitions."

     In August 2000, the Company launched DrugMaxTrading.com, thus initiating
the new phase of its growth strategy. Through DrugMaxTrading.com, the Company
offers one of the first business-to-business online trade exchanges for
pharmaceuticals, over-the-counter products, health and beauty care products and
nutritional supplements, dedicated exclusively to manufacturers, distributors,
wholesalers and retailers in the pharmaceutical and over-the-counter product
industries. Capitalizing on the efficiencies of the Internet and the Company's
strategic alliances, this business-to-business site centralizes manufacturers,
distributors, wholesalers and retailers to facilitate the execution of mutually
beneficial online transactions in an open-market format.  No significant
revenues have been generated from the DrugMaxTrading.com site at March 31, 2001.

     On September 13, 2000, the Company entered into a letter of intent to
purchase substantially all of the assets of Penner & Welsch, Inc. ("P&W"), a
wholesale distributor of pharmaceuticals, over-the-counter products and health
and beauty care products, headquartered near New Orleans, Louisiana. Also on
that date, P&W filed a voluntary petition for Chapter 11 relief under the United
States Bankruptcy Code. The case is pending in the United States Bankruptcy
Court for the Eastern District of Louisiana. Pursuant to the letter of intent,
the Company agreed to work with P&W, on an exclusive basis, to formulate a
bankruptcy reorganization plan (the "Plan").  On May 30, 2001, the Plan was
filed with the bankruptcy court, pursuant to which the Company will purchase
certain of P&W's assets for $750,000 worth of restricted common stock of the
Company, plus certain additional consideration, which will be based on the
adjusted value of P&W's inventory and accounts receivable, plus the assumption
of certain limited liabilities on the closing date.  The Company can not
guarantee that the Bankruptcy Court will confirm the Plan or any other
bankruptcy reorganization plan that is acceptable to the Company or that the
Bankruptcy Court will approve the transactions contemplated by the letter of
intent. In addition, even if the contemplated transactions are completed, the
Company cannot guarantee that it will successfully assimilate the additional
personnel, operations, acquired technology and products of P&W into the
Company's business, or retain key personnel and customers.  See "Legal
Proceedings."

     In addition, on September 13, 2000, the Company entered into a management
agreement with P&W, pursuant to which it manages the day-to-day operations of
P&W, in exchange for a management fee equal to a percentage of the gross
revenues of P&W each month. Also on September 13, 2000, the Company entered into
a financing and security agreement with P&W, pursuant to which the Company
agreed to provide P&W with a secured revolving line of credit for the sole
purpose of purchasing inventory from the Company, up to an aggregate amount of
$2.5 million as may be requested by P&W and as may be allowed by the Company in
its sole discretion. The line of credit is collateralized by a second lien on
substantially all of the assets of P&W, second only to P&W's primary banking
facility, as well as real estate owned by an affiliate of P&W. On November 20,
2000, the Bankruptcy Court entered a final order approving the financing and
security agreement, and on January 30, 2001, the Court entered a final order
approving the management agreement.  On February 15, 2001, the Bankruptcy Court
granted an order approving an increase in the line of credit extended to P&W to
an aggregate amount of $3 million.  The Company anticipates but cannot guarantee
that the management and financing arrangements will continue until such time as
a bankruptcy plan is approved by the Court.

     Most recently, the Board of Directors and a majority of the shareholders
agreed to change the name of the Company to DrugMax, Inc. to more appropriately
reflect the Company's business model.  The name change is expected to become
effective in the second quarter of fiscal year 2002.

     On June 1, 2001, the Company launched its online pharmacy directory
PharmacyMax.com.  PharmacyMax.com is a web site that allows the Company's
members to create their own web sites.  The user-friendly site allows the
Company's members to choose the theme of their site, upload pictures, write
content, and post health news.  PharmacyMax.com offers the Company's members the
opportunity to personalize their own web sites with options such as community
bulletin boards, directions to the member's location, information about the
member pharmacy, and also provides each site with unique e-mail accounts.

Industry Trends

     Pharmaceutical and Healthcare Markets.  According to IMS Health, a company
     -------------------------------------
specializing in information services for the pharmaceutical and health care
industries, the United States is the world's largest pharmaceutical market, with
2000 sales of $150 billion, including diagnostics and over-the-counter drugs.
That figure is expected to rise to $263 billion in 2005, a projected compound
annual growth rate of 11.8%.  This continued growth rate of the sales of
pharmaceutical products was attributed to a number of factors including:

       .   the value added by the introduction of new drugs into the
           marketplace, which more than offsets the value lost by medications
           losing patent protection;

                                       4
<PAGE>

       .   new patterns of drug lifestyle management, resulting in higher sales
           occurring earlier in the life cycle of a medication;

       .   increased money spent on direct-to-consumer marketing initiatives;
           and

       .   an unprecedented period of investment by pharmaceutical companies
           worldwide.

     Management believes that, currently, the pharmaceutical and health care
product markets are serviced primarily by traditional full-line wholesalers.

     Internet.  The Internet has emerged as the fastest growing communications
     --------
medium in history and is dramatically changing how businesses and individuals
communicate and share information. International Data Corporation estimates that
the number of Internet users will grow from 97 million at the end of 1998 to 320
million by 2002. The Internet has created new opportunities for conducting
commerce, such as business-to-consumer and person-to-person e-commerce.
Recently, the widespread adoption of intranets and the acceptance of the
Internet as a business communications platform has created a foundation for
business-to-business e-commerce that offers the potential for organizations to
streamline complex processes, lower costs and Internet productivity. Internet-
based business-to-business e-commerce is poised for rapid growth and is expected
to represent a significantly larger opportunity than business-to-consumer or
person-to-person e-commerce. According to Gartner Group, worldwide business-to-
business Internet revenue was $433.3 billion in 2000, and in 2001 that total
is projected to reach $919 billion.  North America accounted for 59% of the
worldwide total in 2000, with business-to-business Internet commerce totaling
$255 billion, and in 2001 it will represent 52% as it hits $480 billion.  By
2005, worldwide business-to-business Internet commerce will be more than $8.5
trillion, and the North American region will total $3.6 trillion, which will be
42% of the overall market. The Company cannot guarantee that the Company will
benefit from this growth.

     The dynamics of business-to-business e-commerce relationships differ
significantly from those of other e-commerce relationships. Business-to-business
e-commerce solutions frequently automate processes that are fundamental to a
business's operations by replacing various paper-based transactions with
electronic communications. In addition, business-to-business e-commerce
solutions must often be integrated with a customer's existing systems, a process
that can be complex, time-consuming and expensive. Consequently, selection and
implementation of a business-to-business e-commerce solution represents a
significant commitment by the customer, and the costs of switching solutions are
high. In addition, because business transactions are typically recurring and
non-discretionary, the average order size and lifetime value of a business-to-
business e-commerce customer is generally greater than that of a business-to-
consumer e-commerce customer. These solutions are likely to be most readily
accepted by industries characterized by a large number of buyers and sellers, a
high degree of fragmentation among buyers, sellers or both, significant
dependence on information exchange, large transaction volume and user acceptance
of the Internet.

Objectives and Strategy

     The Company's key business objectives are:

          .    to become a leading full-line wholesale distributor of
               pharmaceuticals, over-the-counter products, health and beauty
               care products and nutritional supplements, with an emphasis on
               online sales; and

          .    to own and operate a leading online trade exchange for
               pharmaceuticals, over-the-counter products, health and beauty
               care products and nutritional supplements.

     To accomplish these objectives, the Company plans to:

          .    market its name, products and services to create brand
               recognition and generate and capture traffic on its web sites;

          .    provide quality products at competitive prices and efficient
               service;

          .    develop strategic relationships that increase the Company's
               online content and product offerings;

          .    maintain technology focus and expertise to improve efficiency and
               ease of use of its web sites; and

          .    attract and retain exceptional employees.

                                       5
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Sales and Marketing, Customer Service and Support

     The Company's products are sold both through traditional wholesale
distribution lines and e-commerce venues, including the Company's web sites,
www.drugmax.com and www.DrugMaxTrading.com.  The Company believes its e-
commerce, business-to-business model will allow the Company to leverage its
existing wholesale distribution business, thus increasing its ability to
effectively market and distribute its products.  The Company uses a variety of
programs to stimulate demand for its products and increase traffic to its web
sites, including a direct sales force, telemarketing and advertising.

     Direct Sales.  The Company maintains employees to act as its direct sales
force to target organizations that buy and sell the products it carries.

     Telemarketing.  The Company maintains an in-house telemarketing group for
use in customer prospecting, lead generation and lead follow-up.

     Advertising.  The Company advertises in trade journals, at trade shows and
engages in co-branding arrangements.  In addition to strategic agreements and
traditional advertising, the Company also uses many online sales and marketing
techniques to increase brand recognition and to direct traffic to its online
stores. These include banner ads on search engine web sites and Internet
directories, direct links from healthcare home pages, and mass e-mailings.

     Customer Service and Support.  The Company believes that it can establish
and maintain long-term relationships with its customers and encourage repeat
visits if, among other things, the Company has excellent customer support and
service.  The Company currently offers information regarding its products and
services and answers customer questions about the ordering process, and
investigates the status of orders, shipments and payments. A customer can access
the Company by fax or e-mail by following prompts located on its web sites or by
calling the Company's toll-free telephone line. In the future, the Company may
out-source its customer support services to a provider of customer support
services.

     Promotion of Web Sites.  The Company is promoting, advertising and
increasing recognition of its web sites through a variety of marketing and
promotional techniques, including:

          .    developing co-marketing agreements with major online sites and
               services;

          .    enhancing online content and ease of use of Company web sites;

          .    enhancing customer service and technical support;

          .    advertising in trade journals and at industry trade shows;

          .    conducting an ongoing public relations campaign; and

          .    developing other business alliances and partnerships.


Distribution

     The Company's e-commerce venues and traditional marketing efforts are
supported by three distribution centers, located in Pittsburgh, Pennsylvania;
Mandeville, Louisiana; and Youngstown, Ohio. These locations enable the Company
to deliver approximately 95% of its products to its customers via next day
delivery. The remaining product is distributed by its delivery vans in regions
of eastern Ohio and western Pennsylvania, or by common carrier to more distant
customers. The Company's shipping department verifies all orders prior to
shipment, in order to reduce inventory discrepancies and shrinkage, as well as
maintain good customer relations.

Purchasing

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     The Company purchases over 20,000 stock keeping units primarily from
manufacturers and secondarily from other wholesalers and distributors. The
Company's purchasing department constantly monitors the market to take advantage
of periodic volume discounts, market discounts and pricing changes.

DrugMaxTrading.com Business-to-Business Trade Exchange

     In August 2000, the Company initiated the most recent phase of its growth
strategy through the launch of its online trade exchange, DrugMaxTrading.com.
Through DrugMaxTrading.com, the Company offers one of the first business-to-
business online trade exchanges for pharmaceuticals, over-the-counter products,
health and beauty care products and nutritional supplements, dedicated
exclusively to manufacturers, distributors, wholesalers and retailers in the
pharmaceutical and over-the-counter product industries. Capitalizing on the
efficiencies of the Internet and the Company's strategic alliances, this
business-to-business site brings together manufacturers, distributors,
wholesalers, and retailers to facilitate the execution of mutually beneficial
online transactions in an open-market format, while enabling them to manage
their entire buying/selling cycle over the Internet. The Company's e-commerce
services allow its trade exchange members to lower their overall costs of doing
business while providing them with wider market access and the best prices
available.

     Through its trade exchange, the Company expects to derive profits from:

          .    transaction fees from the operation of the online trade exchange;

          .    banner advertisements;

          .    sponsored newsletters;

          .    online auctions;

          .    slotting fees; and

          .    other special e-commerce services related to its online trade
               exchange.

     In addition, the Company believes that the combination of its e-commerce
trade exchange, its "clicks and mortar" business model and traditional
distribution methods, will allow the Company to aggressively market and
distribute its products to new customers.

     DrugMaxTrading.com's primary objective is to match buyers and sellers who
wish to trade or exchange goods and services related to the pharmaceutical and
over-the-counter products, health and beauty care products and nutritional
supplements industries. Users can conduct transactions using alternative market-
making mechanisms designed to achieve an optimal price versus volume goal. The
Company's innovative "Best Buy" technology provides its members with the best
prices on the market, while its "Closeout" and "Auction" technology provides its
members with "Open Market Trading" that allows them unique buying and selling
opportunities.

     Best Buy System.  The Best Buy System is an online catalog powered by a
multi-vendor database and a database containing each of its members' personal
buying preferences. The format is designed primarily for recurring product
sales. Product information is uploaded into the DrugMaxTrading.com database by
multiple vendors, and a corresponding system for purchasers automatically
searches for the desired product and provides access to the lowest prices
available. Once the Company's members are registered, they can select or
"upload" their list of items they wish to buy. The Best Buy System cross
references their selected items with all the vendors selling these items and
displays the lowest price. Each order is filled by the lowest price available.
If the order for the lowest selling price exceeds the quantity available by that
seller, the seller with the next lowest price will be contacted to complete the
order. The Best Buy System also allows members to select items for their
"Product Watch" portfolio. These items are items that the members wish to
monitor on an ongoing basis.

     Closeout System.  This format is designed for users who want to sell their
products as quickly as possible. Short-dated inventory items account for a
majority of closeouts. Through the Closeout System, members can offer and
purchase products approaching expiration. Based on the expiration date, the
price of the products will decrease daily based on intervals set by the sellers
as the expiration date approaches, giving buyers the best deal and sellers a
channel for end-of-life product management. The sale will continue until the
expiration date passes or the items are completely sold.

     Auctions.  This format is designed for sellers that want a market for their
non-traditional products or who are carrying excess inventory that they need to
sell. It provides buying members with the opportunity to participate in auctions
as inventory is posed for

                                       7
<PAGE>

sale. The Company provides for both English auctions and Dutch auctions. In an
English auction, as the bidding begins, bids are ranked in order of price, then
quantity and then time. The bidder with the highest bid, highest quantity and
first time will be the winner, as long as the minimum requirements are met. In a
Dutch auction, as the bidding begins, bids are ranked in order of price, then
quantity and then time. The bidders with the highest bid will be the winner, as
long as the minimum requirements are met.

Technology and Security

     The Company hosts and maintains its web sites and contracts with a third
party that provides backup web hosting services. The backup provider delivers a
secure platform for server hosting with uninterruptible power supply and back up
generators, fire suppression, raised floors, heating ventilation and air-
conditioning, separate cooling zones, operations twenty-four-hours-a-day, seven-
days-a-week. To protect the customer information the Company receives, the
Company uses SSL (Secure Socket Layer) encrypted protocol, user names and
passwords, and other tools. The Company also has its own certificate server from
Microsoft that encrypts the registration session to protect the customer
information. In addition, the Company has taken steps to protect the
registration information residing in its servers by using firewalls, backups and
other preventive measures designed to protect the privacy of its customers. The
Company restricts access to customer personal and financial data to those
authorized employees who have a need for these records. The Company does not
release information about its customers to third parties without the prior
written consent of its customers unless otherwise required by law.

     Notwithstanding these precautions, the Company cannot assure that the
security mechanisms will prevent security breaches or service breakdowns.
Despite the network security measures the Company has implemented, its servers
may be vulnerable to computer viruses, physical or electronic break-ins or other
similar disruptions. Such a disruption could lead to interruptions or delays in
its service, loss of data, or its inability to accept and fulfill customer
orders. Any of these events could materially affect the Company's business.

Competition

     In every area of operations, the Company faces strong competition both in
price and service from national, regional and local full-line, short-line and
specialty wholesalers, service merchandisers, self-warehousing chains and from
manufacturers engaged in direct distribution. Many of its current and potential
competitors have longer operating histories and larger customer bases than the
Company does. In addition, many of the Company's competitors have greater brand
recognition and significantly greater financial, marketing and other resources,
and may be able to:

          .    secure merchandise from vendors on more favorable terms;

          .    devote greater resources to marketing and promotional campaigns;
               and

          .    adopt more aggressive pricing or inventory availability policies.

     In addition, certain of its competitors, such as McKesson HBOC, Inc.,
Cardinal Health, Inc., FreeMarkets, Inc., and Ventro Corporation have developed
or may be able to develop e-commerce operations that compete with the Company's
e-commerce operations, and may be able to devote substantially more resources to
web site development and systems development than the Company. The online
commerce market is new, rapidly evolving and intensely competitive. The Company
expects competition to intensify in the future because barriers to entry are
minimal, and current and new competitors can launch new web sites at relatively
low cost. The Company believes that the critical success factors for companies
seeking to create Internet business-to-business e-commerce solutions include the
following:

          .    breadth and depth of product offerings;

          .    brand recognition;

          .    depth of existing customer base; and

          .    ease of use and convenience.

     Unlike other well-publicized product categories such as online book or
compact disc retailing, there is no current market leader in its online
business-to-business market segment. The Company's immediate goal is to position
itself as a leading business-to-business e-commerce and online trade exchange
provider for, pharmaceuticals, over-the-counter products, health and beauty care
products and nutritional supplements. To that end, the Company believes that its
early entry into the online market may enable the

                                       8
<PAGE>

Company to establish critical competitive advantages over future competitors.
Management believes that such competitive advantages include:

          .    the establishment of a recognizable brand;

          .    the development of online marketing and media relationships;

          .    the development of important relationships with manufacturers,
               distributors, wholesalers and content providers; and

          .    exposure to an existing customer base.

     However, competitive pressures created by any one of its current or future
competitors, or by its competitors collectively, could materially affect the
Company's business. The Company believes that the principal competitive factors
in its market are and will be:


          .    brand recognition         .  selection
          .    speed and accessibility   .  customer service
          .    quality of site content   .  reliability and speed of fulfillment
          .    convenience               .  price

Government Regulations and Legal Uncertainties

     Healthcare Regulation.  The manufacturing, packaging, labeling,
advertising, promotion, distribution and sale of most of the Company's products
are subject to regulation by numerous governmental agencies, particularly the
United States Food and Drug Administration, which regulates most of its products
under the Federal Food, Drug and Cosmetic Act, and the United States Federal
Trade Commission, which regulates the advertising of many of its products under
the Federal Trade Commission Act. The Company's products are also subject to
regulation by, among other regulatory agencies, the Consumer Product Safety
Commission, the United States Department of Agriculture, the United States
Department of Environmental Regulation and the Occupational Safety and Health
Administration. The manufacturing, labeling and advertising of its products is
also regulated by the Occupational Safety and Health Administration through
various state and local agencies.

     Furthermore, the Company and/or its customers are subject to extensive
licensing requirements and comprehensive regulation governing various aspects of
the healthcare delivery system, including the so called "fraud and abuse" laws.
The fraud and abuse laws preclude:

          .    persons from soliciting, offering, receiving or paying any
               remuneration in order to induce the referral of a patient for
               treatment or for inducing the ordering or purchasing of items or
               services that are in any way paid for by Medicare or Medicaid,
               and

          .    physicians from making referrals to certain entities with which
               they have a financial relationship.

The fraud and abuse laws and regulations are broad in scope and are subject to
frequent modification and varied interpretations. Significant criminal, civil
and administrative sanctions may be imposed for violation of these laws and
regulations.

     The Company's advertising of dietary supplement products is also subject to
regulation by the Federal Trade Commission under the Federal Trade Commission
Act, in addition to state and local regulation. The Federal Trade Commission Act
prohibits unfair methods of competition and unfair or deceptive acts or
practices in or affecting commerce. The Federal Trade Commission Act also
provides that the dissemination or the causing to be disseminated of any false
advertisement pertaining to drugs or foods, which would include dietary
supplements, is an unfair or deceptive act or practice. Under the Federal Trade
Commission's Substantiation Doctrine, an advertiser is required to have a
"reasonable basis" for all objective product claims before the claims are made.

     Failure to adequately substantiate claims may be considered either
deceptive or unfair practices. Pursuant to this Federal Trade Commission
requirement, the Company is required to have adequate substantiation for all
material advertising claims made for its products.

     The Company may be subject to additional laws or regulations by the Food
and Drug Administration or other federal, state or foreign regulatory
authorities, the repeal of laws or regulations which the Company consider
favorable, such as the Dietary Supplement Health and Education Act of 1994, or
more stringent interpretations of current laws or regulations, from time to time
in the future. The

                                       9
<PAGE>

Company is unable to predict the nature of such future laws, regulations,
interpretations or applications, nor can the Company predict what effect
additional governmental regulations or administrative orders, when and if
promulgated, would have on its business in the future. The Food and Drug
Administration or other governmental regulatory bodies could, however, require
the reformulation of certain products to meet new standards, the recall or
discontinuance of certain products not able to be reformulated, imposition of
additional record keeping requirements, expanded documentation of the properties
of certain products, expanded or different labeling and scientific
substantiation. Any or all of such requirements could have a material and
adverse effect on the Company's business.

     The Company's products function within the structure of the healthcare
financing and reimbursement system of the United States. As a result of a wide
variety of political, economic and regulatory influences, this system is
currently under intense scrutiny and subject to fundamental changes. In recent
years, the system has changed significantly in an effort to reduce costs. These
changes include increased use of managed care, cuts in Medicare, consolidation
of pharmaceutical and medical-surgical supply distributors, and the development
of large, sophisticated purchasing groups. In addition, a variety of new
approaches have been proposed to continue to reduce cost, including mandated
basic healthcare benefits and controls on healthcare spending through
limitations on the growth of private health insurance premiums and Medicare and
Medicaid spending. The Company anticipates that Congress and state legislatures
will continue to review and assess alternative healthcare delivery systems and
payment methods and that public debate with respect to these issues will likely
continue in the future. Because of uncertainty regarding the ultimate features
of reform initiatives and their enactment and implementation, the Company cannot
predict which, if any, of such reform proposals will be adopted, when they may
be adopted, or what impact they may have on the Company. The Company expects the
healthcare industry to continue to change significantly in the future. Some of
these changes, such as a reduction in governmental support of healthcare
services or adverse changes in legislation or regulations governing the privacy
of patient information, or the delivery of pricing of pharmaceuticals and
healthcare services or mandated benefits, may cause healthcare industry
participants to greatly reduce the amount of the Company's products and services
they purchase or the price they are willing to pay for the Company's products.
Changes in pharmaceutical manufacturers' pricing or distribution policies could
also significantly reduce its income.

     While the Company uses its best efforts to adhere to the regulatory and
licensing requirements, as well as any other requirements affecting the
Company's products, compliance with these often requires subjective legislative
interpretation. Consequently, the Company cannot assure that its compliance
efforts will be deemed sufficient by regulatory agencies and commissions
enforcing these requirements. Violation of these regulations may result in civil
and criminal penalties, which could materially and adversely affect its
operations.

     Internet Regulation.  Few laws currently  regulate the Internet. However,
because of the Internet's popularity and increasing use, new laws and
regulations may be adopted. Such laws and regulations may cover issues such as:

          .    user privacy           .  distribution
          .    pricing                .  taxation
          .    content                .  characteristics and quality of products
          .    copyrights             .  services

     Laws and regulations directly applicable to electronic commerce or Internet
communications are becoming more prevalent. The Company believes that its use of
third party material on its portal is permitted under current provisions of
copyright law. However, because legal rights to certain aspects of Internet
content and commerce are not clearly settled, its ability to rely upon
exemptions or defenses under copyright law is uncertain. Also, although not yet
enacted, Congress is considering laws regarding Internet taxation. In addition,
various jurisdictions already have enacted laws that are not specifically
directed to electronic commerce but that could affect its business. The
applicability of many of these laws to the Internet is uncertain and could
expose the Company to substantial liability. Any new legislation or regulation
regarding the Internet, or the application of existing laws and regulations to
the Internet, could materially and adversely affect the Company. If the Company
were alleged to violate federal, state or foreign, civil or criminal law, even
if the Company could successfully defend such claims, it could materially and
adversely affect the Company.

     Additionally, several telecommunications carriers are seeking to have
telecommunications over the Internet regulated by the Federal Communications
Commission in the same manner as other telecommunications services. Furthermore,
local telephone carriers have petitioned the Federal Communications Commission
to regulate Internet service providers and online service providers in a manner
similar to long distance telephone carriers and to impose access fees on such
providers. If either of these petitions are granted, the costs of communicating
on the Internet could increase substantially. This, in turn, could slow the
growth of use of the Internet. Any such legislation or regulation could
materially and adversely affect its business, financial condition and operating
results.

Proprietary Rights

                                       10
<PAGE>

     The Company believes that protecting its trademarks and registered domain
names is important to its business strategy of building strong brand name
recognition and that such trademarks have significant value in the marketing of
the Company's products. To protect its proprietary rights, the Company relies on
copyright, trademark and trade secret laws, confidentiality agreements with
employees and third parties, and license agreements with consultants, vendors
and customers. Despite such protections, however, the Company may be unable to
fully protect its intellectual property.  See "Risk Factors."


Employees

     The Company currently employs 64 employees and two consultants.  Labor
unions do not represent any of these employees.  The Company considers its
employee relations to be good. Competition for qualified personnel in its
industry is intense, particularly for technical staff responsible for marketing,
advertising, web development, and general and administrative activities.

     Employees are permitted to participate in employee benefit plans of the
Company that may be in effect from time to time, to the extent eligible.  Each
of the employees is eligible for stock option grants in accordance with the
provisions of the Company's 1999 Stock Option Plan, as determined by the
Administrator of the Plan.

     In August 1999, the Company's Board of Directors adopted the Company's 1999
Stock Option Plan ("1999 Plan").  The purpose of the 1999 Plan is to enable the
Company to attract and retain top-quality executive employees, officers,
directors and consultants and to provide such executive employees, officers,
directors and consultants with an incentive to enhance stockholder return.  The
1999 Plan provides for the grant to officers, directors, or other key employees
and consultants of the Company, of options to purchase an aggregate of 400,000
shares of common stock.  At a Board Meeting held on March 30, 2001, it was
agreed to increase the options to purchase shares of common stock by an
aggregate of 1,000,000, thereby creating total stock options available for
issuance of 1,400,000.

                                 ACQUISITIONS

     The Company has made the following material acquisitions:

Becan

     On November 26, 1999, the Company acquired all of the common stock of Becan
Distributors, Inc. ("Becan"), a wholesale distributor of pharmaceuticals, over-
the-counter drugs, and health and beauty care products. Becan was a wholly owned
subsidiary of Dynamic Health Products, Inc. ("Dynamic"), an affiliate of Jugal
K. Taneja, a principal shareholder and CEO and Chairman of the Board and
director of the Company. In connection with the acquisition, the Company paid
Becan's then parent company Dynamic the sum of $2,000,000 in cash, and 2,000,000
(post one-for-two reverse stock split) shares of Company common stock in
exchange for all of the outstanding shares of Becan common stock. In addition,
the Company also deposited 1,000,000 shares of its common stock into escrow for
future issuance to Dynamic upon the attainment of certain financial targets by
the Company for the fiscal years ending March 31, 2000 and 2001. The Company did
not attain its financial target for the fiscal year ending March 31, 2000 and as
a result 500,000 shares were returned to the Company. The Company did attain the
financial target for the fiscal year ended March 31, 2001; therefore the
remaining 500,000 shares of common stock held in escrow will be issued to
Dynamic subsequent to March 31, 2001. In March 2000, Becan was merged into the
Company and no longer operates as a wholly owned subsidiary of the Company.

Business:  Becan was incorporated in November 1996, in Ohio and commenced
operations in January 1997. Becan was acquired by Dynamic in June 1998. Becan is
a wholesale distributor of pharmaceuticals, over-the-counter drugs, and health
and beauty care products. In August 1998, Becan formed Discount(Rx), Inc.
("Discount"), a Louisiana corporation which also acts as a wholesale distributor
of pharmaceuticals, and to a lesser extent, over-the-counter, and health and
beauty care products. Becan operates two distribution centers, one of which is a
4,024 square foot leased facility located in Pittsburgh, Pennsylvania, used by
Becan, and the other is a 1,200 square foot leased facility located in
Mandeville, Louisiana, used by Discount. Both of these facilities are used for
the wholesale distribution of pharmaceuticals and health and beauty care
products. The products which Becan and Discount distribute are acquired from
various manufacturers, including Bergen Brunswig Drug Company, Pharmserv, Inc.,
Merck & Co, Inc., and Abbott Laboratories.

Product Line:  Becan and  Discount offer over sixty branded pharmaceuticals to
their customers, along with diabetic test strips, a limited number of generic
pharmaceuticals, a line of nutriceuticals, and a line of exclusive over-the-
counter products. The branded pharmaceuticals account for 90% of the sales for
both companies, while diabetic test strips account for 5%, generics for 1%,
nutriceuticals for 2%, and the exclusive over-the-counter products account for
2%. In addition to strengthening their core business, the branded
pharmaceuticals, both Becan and Discount are engaged in growing the
nutriceuticals business, which is one of the fastest

                                       11
<PAGE>

growing categories within their customer base. Both companies have agreements
with licensed alternate source facilities from which they purchase and sell
merchandise to.

Market for Product Line:  Substantially all of both companies' total sales are
to independent pharmacies.    The overall market for Becan is defined as the
Continental U.S., however initial concentration has been on accounts in central
and eastern United States.

Sales and Marketing:  Becan and Discount utilize a combination of inside sales
and marketing, field sales calls, and independent contractors for its sales and
marketing efforts. The majority of Becan's day to day sales is accomplished
through its inside sales efforts. All of Becan's sales efforts focus on
retaining its existing customer base and identifying new customers.

Distribution:  Becan and Discount have two distribution locations, one in
Pittsburgh, Pennsylvania, and the other in Mandeville, Louisiana, respectively.
These locations are strategically located to enable the companies to deliver
approximately ninety-five percent of the product to their customers via next day
delivery.  The remaining product (large over-the-counter orders) is distributed
via bulk shipments that are delivered via common carriers. In all instances a
minimum order quantity is required to offset delivery costs and ensure
profitability.

Management Information Systems:  Becan and Discount use two different management
tools to regulate their inventories, one provided by their accounting software,
and the other an in-house system. The in-house system tracks purchases and
sales, and calculates average purchases against sales, including a growth
factor, and then suggests the appropriate inventory to purchase. Using these
systems, both Becan and Discount provide their customers with an inventory fill
rate that surpasses the industry average. Both companies also track price
increases. This allows both companies to forecast when a price increase will
take place, and allows them to purchase the appropriate amount of inventory to
take advantage of those price increases.

Competition:  There are a number of suppliers within each of Becan's and
Discount's market areas that provide branded pharmaceuticals and other products
to independent pharmacies, Internet pharmacies, clinics and other licensed
outlets. Both Becan and Discount have developed a niche within the market of the
other suppliers by offering their customers the needed product at below market
prices.

Desktop

     On March 20, 2000, the Company acquired all of the issued and outstanding
capital stock of Desktop Corporation, a Texas corporation, in exchange for a
total of 50,000 shares of Company common stock and $100,000.  An additional
49,985 shares of Company common stock was issued to satisfy outstanding debt of
Desktop Corporation.

     Desktop Corporation, organized in 1995, is engaged in the business of
designing and developing customized Internet solutions.  Its revenues and net
loss for the year ended March 31, 2000 were $2.4 million and $1.9 million,
respectively.  In July, 1999 Desktop Corporation and W.A. Butler Company
("Butler"), one of the nation's largest veterinary product distributors, formed
VetMall LLC, each owning a 50% interest.  During the period from inception to
acquisition of Desktop Corporation by the Company, VetMall LLC (later converted
to a newly formed Florida corporation VetMall, Inc.) ("VetMall") was developing
a web site, VetMall.com, a business-to-business portal linking animal health
product manufacturers, distributors, and veterinarians.  VetMall provides a site
to place and receive product orders, and to display and exchange information
about animal care, services and products.

     In connection with the acquisition, the Company agreed that upon (i) the
closing of any initial public offering (the "IPO") of VetMall or its successors,
(ii) the sale by the Company of all of the shares acquired, regardless of the
form of such transaction, or (iii) the sale by VetMall of all or substantially
all of its assets, the Company will either (A) issue to the Sellers that number
of shares of VetMall's common stock which, when multiplied by the closing price
of VetMall's common stock on the date the IPO or the sale closes, exceeds
$4,800,000, or (B) transfer to the Sellers 16% of 50% of the proceeds of the
closing of a direct sale to a third party of substantially all of the assets of
VetMall or its successors, whichever of (A) or (B) has a lower value based on
the IPO or sales price of VetMall common stock and the closing price of
VetMall's common stock on the date that the IPO is declared effective by the
Securities and Exchange Commission or the closing of the sale has occurred.

     Simultaneously with the acquisition of Desktop Corporation, the Company
entered into a stock purchase agreement with Butler, whereby Butler sold to the
Company 20% of the issued and outstanding membership shares of VetMall, in
exchange for the payment of $1,000,000 cash plus the issuance to Butler of
25,000 shares of the Company's common stock.  As a result, the company owns
through its ownership of Desktop Corporation, a 70% interest in VetMall.

  In May 2000, the Company formed Desktop Media Group, Inc. ("Desktop Media") a
Florida corporation, to develop web based and Internet software for the Company.
On September 15, 2000, Desktop Corporation and Desktop Media executed Articles
of Merger

                                       12
<PAGE>

whereby Desktop Corporation was merged into Desktop Media, with Desktop Media
Group, Inc. ("Desktop") being the surviving entity.

     Since the acquisitions of Desktop and VetMall, management has reconsidered
its original business plans regarding those companies, and has determined that
the amount of transition expense, loss of customer base, and problems with the
VetMall web site, as well as the delay of its startup, are all factors which
contributed to the Company's negative cash flow for the twelve months ending
March 31, 2001.  As a result, during the fourth quarter of fiscal year ended
March 31, 2001, the Company reassessed the value of the intangible assets and
property, equipment and software recorded by the Company as a result of the
acquisitions of Desktop and VetMall. After assessment of the acquired software
asset, management concluded that the carrying value did not realize the net
value for that software.   The economic factors indicated above have caused
management to revise downward its estimates of future cash flows from current
and future revenues associated with the Desktop and VetMall businesses.  As a
result of management's analysis, and using the best information available,
management recorded an impairment of intangible assets charge of $3,983,004, net
of amortization and depreciation, for the fourth quarter of 2001. Currently, the
primary function of Desktop continues to be the design, development and
maintenance the VetMall web site, but although management has made improvements
to the VetMall web site, there are no current plans for the operation of that
business which would generate positive cash flow. The Company continues to
consider its options regarding Desktop and VetMall, including the possible
liquidation of those assets in the future. See "Management's Discussion and
Analysis."

Valley Drug Company

     On April 19, 2000, DrugMax Acquisition Corporation ("Buyer"), a wholly
owned subsidiary of the Company, Valley Drug Company ("Valley"), Ronald J.
Patrick ("Patrick") and Ralph A. Blundo ("Blundo" and together with Patrick, the
"Sellers") signed a Merger Purchase Agreement (the "Agreement"), pursuant to
which the Company acquired Valley.  In connection with the merger, the Sellers
received an aggregate of 226,666 shares of the Company's common stock and cash
in the amount of $1.7 million. Valley loaned the Sellers $170,000, of which
$100,000 is outstanding at March 31, 2001, to pay for a portion of the flow
through effects of their S Corporation taxable income resulting from the sale of
Valley.  These interest-free notes receivable are to be repaid upon the Sellers'
sale of Company common stock, which is restricted stock subject to a holding
period through April 19, 2001.  The Sellers were granted the right to include
their shares in any registration filed by the Company until such time as their
shares of the Company common stock may be sold pursuant to Rule 144 of the
General Rules and Regulations promulgated under the Securities Act of 1933, as
amended. In addition, the Sellers deposited 22,666 shares of the Company's
common stock with an escrow agent (the "Holdback Shares"). Based on audited
financial statements of Valley as of April 19, 2000, the stockholders' equity
amounted to $400,667, which was $141,160 less than the threshold amount of
$541,827. Therefore, 9,411 of the Holdback Shares have been returned to the
Company. After consideration of the return of the Holdback Shares, a total of
217,255 shares at $10.125 per share were issued for the acquisition.

Business:  Valley was incorporated in the State of Ohio in 1950 and operations
commenced immediately from its warehouse / office located in Youngstown, Ohio.
The facility has approximately 30,000 square feet of warehouse, receiving, and
shipping space devoted to the distribution of pharmaceuticals, over the counter
remedies, health and beauty aids, and general merchandise.  As a primary
wholesaler, Valley purchases its inventory for resale directly from the
pharmaceutical manufacturers and delivers orders to its customers daily via its
fleet of delivery vans.

Product Line:  Valley offers over 20,000 items for resale.  Over 90% of its
annual revenues are generated from the sale of both branded and generic
pharmaceutical products.  The remainder of annual revenues are generated from
sales of health and beauty aids, over the counter merchandise and other revenue
enhancements, such as store advertising, film development and greeting card
programs.

Market for Product Line:  Historically, over 85% of Valley's total sales have
been to independent pharmacies, 10% to hospitals, and 5% to nursing homes.
Valley's customer base covers a region of eastern Ohio and western Pennsylvania.
A 75 mile radius surrounding Youngstown, Ohio has been the Company's market
concentration, which allows for daily delivery of product at a manageable cost.
The current resurgence of the independent pharmacies have provided opportunities
to Valley to expand its customer base.

Sales and Marketing:  Valley Drug Company utilizes an inside sales team for its
sales and marketing efforts.  A team of 5 salespersons diligently work daily to
maintain current customer relations, expand sales to existing customers, and
search out new opportunities, unique to the industry, Valley salesmen visit the
stores of each account at least bi-weekly.

Distribution:  All of Valley's sales orders are shipped from its warehouse
located in Youngstown, Ohio.  The location is strategically located in order to
provide next day delivery via its delivery vans and to service the major markets
which surround it geographically.

                                       13
<PAGE>

Management Information System:  Valley's information system is maintained on an
IBM AS 400 platform.  The accounting information for sales, purchases, perpetual
inventory transactions, cash receipts and disbursements and sophisticated
management reports are provided timely for analytical and bookkeeping purposes.
Also, the order entry system was designed specifically for Valley and allows its
customers to order product 24 hours per day either via fax, telxon recorder or
phone modem.  It has the capabilities of receiving orders over the Internet.
The system provides data to management enabling it to review sales trends and
customer base, monitor inventory levels, credit and collection issues, and
purchasing frequency and cost anticipation.  Communication and availability of
data is possible through a local area network ring.

                                 RISK FACTORS

     The Company's operations are subject to the following risks:

The Company has incurred net losses since inception and may incur additional
losses in the future, which may require the Company to seek additional
financing.

     The Company had revenues of approximately $177.7 million for the year ended
March 31, 2001 and net losses of approximately $7.8 million for such period.
The Company expects to continue to invest heavily in brand development,
marketing and promotion, as well as technology and operating infrastructure
development.  In addition, the Company expects to continue to incur expenses
relating to strategic acquisitions, including expenses related to the
integration of those acquisitions into the Company's business. The Company
cannot be certain that it can achieve positive cash flows on a quarterly or
annual basis in the future. If the Company does not achieve or sustain positive
cash flows, the Company may be unable to meet its working capital requirements
without obtaining additional financing.

To meet the Company's plans, the Company will require additional capital in the
future which may not be available to the Company.

     The Company's expansion and development plans are expected to consume
substantial amounts of capital.  The Company's future capital requirements will
depend upon many factors, including, but not limited to:

          .    the extent to which the Company can develop and brand the
               Company's name;

          .    the frequency with which the Company can make future
               acquisitions;

          .    the rate at which the Company can hire additional personnel;

          .    the rate at which the Company can expand the services that it
               offers; and

          .    the extent to which the Company can develop and upgrade the
               Company's technology.

     Because of these factors, the Company's actual revenues and costs are
uncertain and may vary considerably. These variations may significantly affect
the Company's future need for capital.  The actual amount and timing of the
Company's future capital requirements may differ materially from the Company's
estimates. In particular, the Company's estimates may be inaccurate as a result
of changes and fluctuations in the Company's revenues, operating costs and
development expenses.  The Company's revenues, operating costs and development
expenses will be negatively affected by any inability to:

          .    effectively and efficiently manage the expansion of the Company's
               operations;

          .    negotiate favorable contracts and relationships with
               manufacturers, distributors and wholesalers; and

          .    obtain brand recognition, attract a sufficient number of
               customers or increase the volume of e-commerce sales of the
               Company's products and e-commerce trade exchange services.

     Adequate funds may not be available when needed or may not be available on
favorable terms.  If funding is insufficient at any time in the future, the
Company may be unable to develop or enhance its products or services, take
advantage of business opportunities or respond to competitive pressures, any of
which could harm the Company's business.

                                       14
<PAGE>

The Company has a limited operating history and may not be able to successfully
manage the Company's business or achieve profitability.

     The Company acquired its primary wholesale distribution operations in two
transactions in November 1999 and April 2000.  In addition, its launched its web
site, www.drugmax.com, in December 1999, and its DrugMaxTrading online trade
exchange, at www.DrugMaxTrading.com, in August 2000.  Accordingly, the Company
has only a limited operating history on which to base an evaluation of its
business and prospects.

The Company is dependent on certain employees.

     The Company is substantially dependent on the efforts of William L.
LaGamba, President and Chief Operating Officer, and Jugal K. Taneja, Chairman of
the Board and Chief Executive Officer.  In addition, the Company's future
success depends on its ability to identify, attract, hire, train, retain and
motivate other highly skilled technical, managerial, editorial, merchandising,
marketing and customer service personnel.  The Company currently has 64
employees and two consultants.  The e-commerce market is highly competitive;
attracting and retaining new personnel could be costly in terms of cash
compensation or equity, or such personnel may not be available to the Company on
any terms.  Competition for these individuals is intense, and its may be unable
successfully to attract, assimilate or retain sufficiently qualified personnel
in the future.  The Company does not currently carry key man life insurance for
its principal officers.

The Company may not be able to complete future strategic acquisitions, delaying
its growth plans.

     The Company's growth to date largely has resulted from acquisitions. A
significant component of its future growth strategy is to continue to make such
acquisitions.  The Company is continually evaluating possible acquisitions of
businesses or product lines that complement or expand its existing business or
product lines, and intends to pursue favorable opportunities as they arise. The
evaluation of prospective acquisitions and the negotiation of acquisition
agreements may require substantial expense and management time, and not all
potential acquisitions ultimately are consummated.  Further, the Company cannot
guarantee that suitable acquisition candidates will be found or that
acquisitions can be completed on favorable terms. In addition, even if it is
able to complete such acquisitions, it cannot guarantee that the acquired
companies or assets will be successfully integrated into the Company.
Acquisitions may be announced or completed at any time and may be dilutive to
earnings per share on a pro forma basis.

Acquisitions may disrupt or otherwise have a negative impact on the Company's
business and may result in dilution to existing stockholders.

     In the past twelve months, the Company has completed one acquisition and
currently has one potential acquisition pending. In the future, the Company
intends to continue to seek investments in complementary businesses, product
lines and technology. If the Company buys a company, or an operating division,
the Company could have difficulty in assimilating the personnel and operations.
In addition, the key personnel of an acquired company may decide not to work for
the Company and customers and vendors of the acquired company may decide not to
do business with the Company. The Company could also have difficulty in
assimilating the acquired business, products or technology into its operations.
These difficulties could disrupt its ongoing business, distract its management
and employees and increase its expenses. In addition, future acquisitions could
have a negative impact on its business, financial condition and results of
operations. Furthermore, the Company may have to incur debt or issue equity
securities to pay for any future acquisition, the issuance of which may be
dilutive to its existing stockholders.

If not managed efficiently, the Company's rapid growth may divert management's
attention from the operation of its business which could hinder its ability to
operate successfully.

     The Company's growth has placed, and its anticipated continued growth will
continue to place, significant demands on its managerial and operational
resources.  The Company's failure to manage its growth efficiently may divert
management's attention from the operation of its business and render the Company
unable to keep pace with its customers' demands.

The Company relies on manufacturers, distributors and wholesalers for its
products, the unavailability of which could hinder its ability to operate
successfully.

     The Company is dependent upon manufacturers, distributors and wholesalers
to supply the Company with products for resale. The price, term and supply of
these products is unpredictable. As is common in the industry, the Company has
no long-term or exclusive arrangements with any manufacturer, distributor or
wholesaler that guarantees the availability of any material portion of its
products for resale.

The Company's markets are highly competitive and it may be unable to compete
effectively.

                                       15
<PAGE>

     The pharmaceutical and over-the-counter product industries are intensely
competitive.  To strategically respond to changes in the competitive
environment, the Company may sometimes make pricing, service or marketing
decisions or acquisitions that could materially hurt its business.  The Company
cannot guarantee that it can compete successfully against current and future
competitors. See "Business--Competition."

The Company's online trade exchange may not be successful if it is not adopted
by a significant number of buyers and suppliers.

     The Company launched its DrugMaxTrading.com online trade exchange in August
2000. If it does not successfully attract a significant number of buyers and
suppliers to its online trade exchange, the online trade exchange will not be
widely accepted, which in turn would limit the growth of the Company's e-
commerce revenues and could adversely affect its business, financial condition
and operating results.  Whether the Company can retain and attract buyers and
suppliers will depend in large part on its ability to design, develop and
implement a secure, user-friendly application with features and functionality
that buyers and suppliers find attractive in an e-commerce solution and that
provides substantial value to its users over their traditional procurement
methods. Buyers and suppliers may continue purchasing and selling products
through traditional procurement methods, rather than adopting an e-commerce
solution. Buyers and suppliers also may not use its online trade exchange if
they do not perceive it as a neutral marketplace that does not favor one
participant over another.

The Company may not successfully protect its proprietary rights.

     To protect its proprietary rights, the Company will rely on trademark and
copyright law, trade secret protection and confidentiality and/or license
agreements with its employees, customers, partners and others.  The Company has
applied for federal registration of the mark "DrugMax" in the United States.
The Company cannot be certain that federal registration of this trademark will
be completed or issued.  In addition, effective trademark, service mark,
copyright and trade secret protection may be unavailable in every country in
which its products and services are made available online in the future.  The
Company has not applied to register any mark outside the United States or
undertaken any trademark searches to determine whether any of these marks are
available for use or registration outside the United States.

     To date, the Company's business has not been interrupted as the result of
any claim of infringement.  However, the Company cannot guarantee it will not be
adversely affected by the successful assertion of intellectual property rights
belonging to others. The effects of such assertions could include requiring the
Company to alter or withdraw existing trademarks or products, delaying or
preventing the introduction of products, or forcing the Company to pay damages
if the products have been introduced. The steps it takes to protect its
proprietary rights may be inadequate, or third parties might infringe or
misappropriate its trade secrets, copyrights, trademarks, trade dress and
similar proprietary rights.  In addition, others could independently develop
substantially equivalent intellectual property.  The Company may have to
litigate in the future to enforce its intellectual property rights, to protect
its trade secrets or to determine the validity and scope of the proprietary
rights of others.  Such litigation could result in substantial costs and the
diversion of its management and technical resources which could harm the
Company's business.  See "Business-Proprietary Rights."

     The Company also utilizes the registered domain names www.drugmax.com and
www.DrugMaxTrading.com.  Currently, the acquisition and maintenance of domain
names is regulated by governmental agencies and their designees.  The regulation
of domain names in the United States and in foreign countries is expected to
change in the near future.  These changes could include the introduction of
additional top level domains, which could cause confusion among web users trying
to locate its sites.  As a result, the Company may not be able to maintain its
domain names.  Furthermore, the relationship between regulations governing
domain names and laws protecting trademarks and similar proprietary rights is
unclear.  The Company may be unable to prevent third parties from acquiring
domain names that are similar to those belonging to the Company.  The
acquisition of similar domain names by third parties could cause confusion among
web users attempting to locate the Company's site and could decrease the value
of its brand name.

The Company is subject to risks associated with dependence on the Internet and
Internet infrastructure development.

     The Company's success will depend in large part on continued growth in, and
the use of, the Internet. There are critical issues concerning the commercial
use of the Internet which remain unresolved. The issues concerning the
commercial use of the Internet which its expect to affect the development of the
market for the Company's products and services include:


     .    security            .    ease of access
     .    reliability         .    quality of service
     .    cost                .    necessary increases in bandwidth availability

                                       16
<PAGE>

     The adoption of the Internet for information retrieval and exchange,
commerce and communications, particularly by those enterprises that have
historically relied upon traditional means of commerce and communications,
generally will require that these enterprises accept a new medium for conducting
business and exchanging information. These entities likely will accept this new
medium only if the Internet provides them with greater efficiency and an
improved arena for commerce and communication.

     Demand and market acceptance of the Internet are subject to a high level of
uncertainty and are dependent on a number of factors, including the growth in
access to and acceptance of new interactive technologies, the development of
technologies that facilitate interactive communication between organizations and
targeted audiences and increases in user bandwidth. If the Internet fails to
develop or develops more slowly than is expected as a commercial or business
medium, it may adversely affect its business.

The Company's future e-commerce operating results are unpredictable, and
fluctuations in its revenues and operating results may cause its stock's trading
price to be highly volatile.

     The Company's revenues and operating results may fluctuate significantly
from time to time due to a number of factors, not all of which are in its
control. These factors include:

          .  The Company's ability to attract and retain new customers and
             maintain customer satisfaction;

          .  new web sites, services and products introduced by the Company or
             by its competitors;

          .  price competition;

          .  the Company's ability to upgrade and develop its systems and
             infrastructure and attract new personnel in a timely and effective
             manner;

          .  traffic levels on the Company's web sites and its ability to
             convert that traffic into customers;

          .  general technical difficulties or system downtime affecting the
             Internet or online services or the operation of its web sites;

          .  the failure of Internet bandwidth to increase significantly over
             time and/or an increase in the cost to consumers of obtaining or
             using Internet bandwidth;

          .  government regulations related to use of the Internet for commerce
             or sales and distribution of natural products; and

          .  general economic conditions and economic conditions specific to the
             Internet, online commerce and the software industry.

     The Company's failure to produce operating results that meet securities
analysts' or investor expectations in one or more quarters may materially and
adversely affect the price of its common stock.

The Company is subject to capacity constraint system development risks which may
result in its inability to service its customers and meet its growth
expectations.

     A key element of its strategy is to generate a high volume of traffic on,
and use of, the Company's web sites. Accordingly, the Company's web site
transaction processing systems and network infrastructure performance,
reliability and availability are critical to its operating results. These
factors are also critical to its reputation and its ability to attract and
retain customers and maintain adequate customer service levels. The volume of
goods it sells and the attractiveness of its product and service offerings will
decrease if there are any systems interruptions that affect the availability of
its web sites or its ability to fulfill orders. The Company expects to
continually enhance and expand its technology and transaction processing
systems, and network infrastructure and other technologies, to accommodate
increases in the volume of traffic on its web sites. The Company may be
unsuccessful in these efforts or its may be unable to accurately project the
rate or timing of increases in the use of its web sites. The Company may also
fail timely to expand and upgrade its systems and infrastructure to accommodate
these increases.

Rapid technological change may adversely affect the Company's business and
increase its business costs.

     The Internet and the e-commerce industry are characterized by rapid
technological change, changes in user and customer requirements and preferences
and frequent product and service introductions.  If competitors introduce
products and services

                                       17
<PAGE>

embodying new technologies or if new industry standards and practices emerge,
then the Company's existing web sites, proprietary technology and systems may
become obsolete. The Company's future success will depend on its ability to do
the following:

        . license and/or internally develop leading technologies useful in its
          business;

        . enhance its existing services;

        . develop new services and technology that address the increasingly
          sophisticated and varied needs of its existing and prospective
          customers; and

        . respond to technological advances and emerging industry standards and
          practices on a cost-effective and timely basis.

     The development of the Company's web sites and other proprietary technology
entails significant technical and business risks. The Company may use new
technologies ineffectively or it may fail to adapt its web sites, proprietary
technology and transaction processing systems to customer requirements or
emerging industry standards. If the Company faces material delays in introducing
new services, products and enhancements, the Company's customers may decide not
to use its products and services and use those of its competitors.

The Company is subject to risk of system failure which may hinder its ability to
operate successfully.

     The Company's success, in particular its ability to successfully receive
and fulfill orders and provide high-quality customer service, largely depends on
the efficient and uninterrupted operation of its computer and communications
systems. The Company hosts and maintains its own web sites. While its contract
with a third party to provide back up web hosting services, the Company's
systems and operations are vulnerable to damage or interruption from fire,
flood, power loss, telecommunications failure, break-ins, earthquake and similar
events. The Company carries no business interruption insurance to compensate the
Company for losses that may occur. In addition, the Company's security
mechanisms or those of its suppliers may not prevent security breaches or
service breakdowns. Despite its implementation of security measures, the
Company's servers may be vulnerable to computer viruses, physical or electronic
break-ins and similar disruptions. These events could cause interruptions or
delays in its business, loss of data or render the Company unable to accept and
fulfill orders.

The Company is subject to risks associated with online commerce security.

     A significant barrier to online commerce and communications is the secure
transmission of confidential information over public networks. The Company's
business may be adversely affected if its security measures do not prevent
security breaches, and the Company cannot assure that it can prevent all
security breaches. Security breaches could damage the Company's reputation and
expose the Company to a risk of loss or litigation and possible liability.


Item 2. PROPERTIES.

     The Company does not own or hold any legal or equitable interest in any
real estate. The Company leases its principal administrative, marketing and
customer service facility containing 3,550 square feet of air-conditioned office
space and 2,950 square feet of air-conditioned warehouse space, located at 12505
Starkey Road, Suite A, Largo, FL 33773. The term of the lease for the Largo
facility is for three years expiring November 30, 2002 with an initial monthly
lease payment of $3,800. The Company leases for its Pittsburgh facility, 1,424
square feet of office and 1,176 square feet of warehouse space located at 203
Parkway West Industrial Park, Pittsburgh, PA 15205, for administrative purposes,
and for the sales and distribution of pharmaceutical, beauty, and over-the-
counter drug products. The term of the lease for the Pittsburgh facility is for
four years expiring February 28, 2003, with an initial monthly lease payment of
$1,658. The Company leases for its subsidiary, Discount, 1,200 square feet of
office space located at 5200 Highway 22, Suite 12A, Mandeville, LA 70471, for
administrative and sales offices. The Mandeville facility costs $900 each month
on a month-to-month basis. The Youngstown facility is located at 318 West
Boardman Street, Youngstown, Ohio 44503 and consists of approximately 30,000
square feet of office (approximately 3,000 air conditioned space for offices),
warehouse and shipping and distribution space. The premises are leased pursuant
to a lease with a ten-year term expiring December 30, 2008 with a monthly lease
payment of $6,000. The Company believes the currently leased properties are
adequate for current operations and future growth.

Item 3. LEGAL PROCEEDINGS.

                                       18
<PAGE>

         From time to time, the Company may become involved in litigation
arising in the ordinary course of its business. The Company is not presently
subject to any material legal proceedings other than as set forth below.

         As set forth above, on September 13, 2000, the Company entered into a
letter of intent to purchase substantially all of the assets of Penner & Welsch,
Inc. ("P&W"), a wholesale distributor of pharmaceuticals, over-the-counter
products and health and beauty care products, headquartered near New Orleans,
Louisiana. Also on that date, P&W filed a voluntary petition for Chapter 11
relief under the United States Bankruptcy Code. The case is pending in the
United States Bankruptcy Court for the Eastern District of Louisiana (In re
Penner & Welsch, Inc., case no. 00-15681). Pursuant to the letter of intent, the
Company agreed to work with P&W, on an exclusive basis, to formulate a
bankruptcy reorganization plan (the "Plan"). The Plan was filed with the
Bankruptcy Court on May 30, 2001. Pursuant to the Plan, the Company will
purchase certain assets of P&W for $750,000 worth of restricted DrugMax common
stock, plus certain additional consideration, which will be based on the
adjusted value of P&W's inventory and accounts receivable, plus the assumption
of certain limited liabilities on the closing date. In addition, on September
13, 2000, the Company entered into a management agreement with P&W, pursuant to
which it manages the day-to-day operations of P&W, in exchange for a management
fee equal to a percentage of the gross revenues of P&W each month, and a
financing and security agreement with P&W, pursuant to which the Company agreed
to provide P&W with a secured revolving line of credit. On November 20, 2000,
the Court entered a final order authorizing the financing and security
agreement, and on January 30, 2001, the Court entered a final order approving
the management agreement. Notwithstanding these court orders in the Company's
favor, the Company cannot guarantee that the Bankruptcy Court will confirm the
Plan or any other bankruptcy reorganization plan that is acceptable to the
Company or that the Bankruptcy Court will approve the transactions contemplated
by the letter of intent. In addition, even if the contemplated transactions are
completed, the Company cannot guarantee that it will successfully assimilate the
additional personnel, operations, acquired technology and products of P&W into
the Company's business, or retain key personnel and customers. See "Business--
History."

         On February 14, 2001, McKesson HBOC, Inc. ("McKesson") , an unsecured
creditor of P&W, filed a complaint naming P&W, the Company and the Company's
subsidiary, Discount(Rx), Inc. ("Discount"), as defendants in an adversary
proceeding related to the above mentioned bankruptcy proceeding (McKesson HBOC,
Inc. v. Penner & Welsch, Inc., et. al., Adversary Case No. 01-1030).   In the
adversary proceeding, McKesson demanded unspecified damages and injunctive
relief and alleged that Discount and the Company were accomplices to a scheme by
P&W to defraud McKesson due to Discount's interest in acquiring P&W, and its
subsequent post petition financing of P&W.  Discount and the Company
subsequently filed a motion for summary judgment asking that Discount and the
Company be dismissed from the adversary proceeding.  On May 9, 2001, the Court
granted Discount's and the Company's motion, and on May 22, 2001, an order was
entered granting summary judgment in favor of Discount and the Company, thereby
dismissing Discount and the Company as defendants in the Adversary Proceeding.
However, on or about June 4, 2001, McKesson filed a motion to have the dismissal
reconsidered or, alternatively, for a new trial.  While the Company does not
believe that McKesson will be successful in setting a new trial or having the
court's order of dismissal overturned, the Company can make no assurances in
this regard.  The Company intends to vigorously oppose McKesson's latest motion.


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

         Not applicable.

                                    PART II


Item 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

         Prior to November 19, 1999, the Company's common stock was quoted on
the OTC Electronic Bulletin Board and traded under the symbol "JCOM." From March
1997 through November 1999 there was a very limited market for the common stock.
From April 1999 to November 19, 1999, there were a total of 18 trades reported
for the Company's common stock on the OTC Electronic Bulletin Board. Since
November 19, 1999, the Company's common stock has been listed for trading on the
Boston Stock Exchange and is currently traded on the Nasdaq SmallCap Market
under the symbols "DMA" and "DMAX," respectively. The following table sets forth
the closing high and low bid prices for the Common Stock on the Nasdaq Small Cap
Market for each calendar quarter commencing on and including the calendar
quarter which includes November 19, 1999, the date the Company's stock was first
listed for trading on the Nasdaq SmallCap Market, as reported by Nasdaq. Prices
represent inter-dealer quotations without adjustment for retail markups,
markdowns or commissions and may not represent actual transactions.


                                       19
<PAGE>

<TABLE>
<CAPTION>
                                                                               Common Stock
                                                                             ----------------
                                                                                High     Low
                                                                             ------- --------
<S>     <C>                                                                    <C>      <C>

1999    Fourth Quarter (commencing November 19, 1999)........................ $19.19   $ 9.00

2000
        First Quarter........................................................ $21.25   $13.00
        Second Quarter ...................................................... $15.69   $ 7.88
        Third Quarter........................................................ $10.20   $ 5.75
        Fourth Quarter....................................................... $ 7.63   $ 2.63

2001    First Quarter........................................................ $ 5.88   $ 2.88
        Second Quarter (through June 18, 2001)............................... $ 7.00   $ 3.25
</TABLE>

          As of June 15, 2001, there were approximately 566 shareholders of
record of the Company's common stock.

          Historically, the Company has not declared or paid any cash dividends
on its common stock. It currently intends to retain any future earnings to fund
the development and growth of its business. Any future determination to pay
dividends on the common stock will depend upon the Company's results of
operations, financial condition and capital requirements, applicable
restrictions under any credit facilities or other contractual arrangements and
such other factors deemed relevant by the Company's Board of Directors. The
Company's current credit facility prohibits the payment of dividends.

Recent Sales of Unregistered Securities

          During the past three years, the Company has issued unregistered
securities to a limited number of persons as described below. The following
information regarding the Company's shares of common stock has been adjusted to
give effect to (i) the one-for-fifty reverse split of the Company's common stock
effected in March 1999, (ii) the two-for-one stock split in the form of a stock
dividend effected in April 1999, and (iii) a one-for-two reverse stock split in
October 1999.

          (1)  On March 18, 1999, the Company issued an aggregate of 2,400,000
               shares of common stock to 14 investors in connection with the
               merger of Nutriceuticals.com Corporation, a Florida corporation,
               with and into the Company.

          (2)  On March 31, 1999, the Company issued an aggregate of 100,000
               shares of common stock, to one (1) investor in connection with
               the acquisition of Healthseek.com Corporation, a Massachusetts
               corporation.

          (3)  On August 16, 1999, the Company issued an aggregate of 20,000
               shares of common stock to Lyntren Communications, Inc. with the
               acquisition of The Nutriceutical.com domain name.

          (4)  On November 26, 1999, the Company issued an aggregate of
               2,000,000 shares of common stock to Dynamic Health Products, a
               Florida corporation, with the acquisition of Becan Distributors,
               Inc.

          (5)  On March 20, 2000, the Company issued an aggregate of 50,000
               shares of common stock with the acquisition of Desktop
               Corporation.

          (6)  On March 20, 2000, the Company issued an aggregate of 49,985
               shares of common stock to retire debt associated with the
               acquisition of Desktop Corporation.

          (7)  On March 20, 2000, the Company issued 25,000 shares of common
               stock with the acquisition of VetMall.

          (8)  On April 19, 2000, the Company issued 217,255 shares of common
               stock with the acquisition of Valley Drug Company.

          (9)  On December 29, 2000, the Company issued 50,000 shares of common
               stock in association with the Termination Agreement with Utendahl
               Capital Partners, L.P.

          (10) On January 29, 2001, the Company issued 1,000 shares of common
               stock.

          (11) On March 31, 2001, the Company maintained in escrow 500,000
               shares of common stock due to Dynamic Health Products, Inc., a
               Florida corporation, earned through the contingent consideration
               clauses of the Becan acquisition.

                                       20
<PAGE>

         None of the foregoing transactions involved any underwriter,
underwriting discounts or commissions or any public offering, and the Company
believes that each transaction was exempt from the registration requirements of
the Securities Act by virtue of Section 4(2) thereof. With the exception of item
10, the recipients in such transactions represented their intention to acquire
the securities for investment only and not with a view to or for sale in
connection with any distribution thereof, and appropriate legends were affixed
to the share certificates and instruments issued in such transactions, and all
recipients had adequate access, through their relationships with the Company, to
information about the Company.

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

         The following management discussion and analysis should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
presented in this Form 10-KSB.

Overview

         DrugMax.com, Inc. (the "Company") is primarily a full-line, wholesale
distributor of pharmaceuticals, over-the-counter products, health and beauty
care products, and nutritional supplements. The Company expects that it will
continue to derive a significant portion of its revenue from its traditional
"brick and mortar" full-line wholesale distribution business. However, the
Company is also one of the early entrants into the Internet business-to-business
pharmaceutical market and one of the first business-to-business online trade
exchanges for the same products. The Company utilizes its online capabilities to
leverage its existing infrastructure, technology, relationships, marketing and
management resources and, accordingly, believes that the combination of its
traditional wholesale distribution business with both its online wholesale
distribution business and its e-commerce trade exchange provides the "click and
mortar" combination that allows it to aggressively market and distribute its
products. See "Business."


Results of Operations

         Revenues. The Company generated revenues of $177.7 million for the year
ended March 31, 2001, an increase of  $156.6 million or 744%, compared to $21.1
million for the year ended March 31, 2000.  The increase is primarily
attributable to the operations of Becan (the Pittsburgh division of the Company)
and Valley Drug Company which were acquired in November 1999 April 2000,
respectively.  Becan had revenues of $116.9 million for the year, and Valley had
revenues of $60 million from the date of its acquisition through March 31, 2001.
Both warehouse locations generated double-digit growth and achieved record sales
by expanding sales territories, cross selling to common customers, and
aggressive marketing.  In addition, approximately $800,000 of gross revenues
were generated from its remaining operations.

         Gross Profit. The Company achieved gross profits of $5.5 million for
the year ended March 31, 2001, an increase of $5.4 million or 3747.2%, compared
to approximately $143,800 for the year ended March 31, 2000. The increase is
primarily attributable to $1.6 million in gross profit generated by Becan for
the year ended March 31, 2001, and $3.3 million generated by Valley from the
date of its acquisition through March 31, 2001, with approximately $600,000 in
gross profit generated from its remaining operations.

         Operating Expense. The Company incurred operating expenses of $12.5
million for the year ending March 31, 2001, compared to $2.1 million for the
year ended March 31, 2000. These costs include various administrative, sales,
marketing and other direct operating expenses of $5,411,000, costs for
amortization of goodwill of $2,614,500 associated with the acquisitions of
Becan, Valley, Desktop and VetMall, and an impairment of intangible assets
charge of $4,439,700, net of amortization and depreciation expenses. The special
charge for impairment of intangible assets was made after managements'
assessment of the acquired goodwill and software arising from the acquisitions
of Desktop and VetMall. As a result of managements' analysis, and using the best
information available, an impairment charge was recorded for the year ended
March 31, 2001. The increase in operating expenses for the year ended March 31,
2001 over those of March 31, 2000, was due primarily to increased payroll,
advertising and promotional expenses, amortization of goodwill associated with
the acquisitions, and the aforementioned special charge for impairment of
intangible assets. The percentage of operating expenses, before intangible
assets write-off, decreased from 9.7% to 4.5%, as compared to revenues, an
improvement of over 100%. This improvement reflects increased warehouse
efficiencies, economies of scale associated with the Company's growth, and cost
control efforts, such as "preferred customer" rates for package delivery,
elimination of duplicate services resulting from recent mergers, and reduction
in web site monitoring and setup costs.

         Interest expense. Interest expense was $1,124,200 for the year ended
March 31, 2001, compared to $107,100 for the year ended March 30, 2000. The
increase was a result of additional borrowings made under the Company's credit
facilities for the financing of additional working capital needs associated with
the various acquisitions made by the Company, and the outstanding debt

                                       21
<PAGE>

assumed with the Valley acquisition. On October 24, 2000, the Company obtained a
new revolving line of credit and term loan with Mellon Bank N.A. ("Mellon"), the
proceeds of which were used to satisfy the prior Merrill Lynch and National City
credit facilities. In March 2001, the certificate of deposit with First
Community Bank matured and was used to satisfy the associated outstanding line
of credit with First Community Bank. Interest expense incurred from November
2000 forward primarily relates to the Mellon credit facilities.

     Net loss per share. The net loss per share for the year ended March 31,
2001 amounted to $1.22 per share compared to $.51 per share for the year ended
March 31, 2000. The increase in the net loss per share is primarily attributable
to the special charge for impairment of intangible assets.

     Income Taxes. The Company has no income tax provision for the periods
presented due to its net operating losses. These net operating losses may be
carried forward for up to 20 years to offset future taxable income. Management
reviews the net operating loss carry forward on a quarterly basis and has
determined that the future benefit should be fully reserved at March 31, 2001.
As the Company moves closer to generating quarterly taxable income, and it
becomes more likely than not that a tax benefit will be realized, management
will assess the need to reduce the valuation allowance and recognize a tax
benefit.

     Inflation; Seasonality.  Management believes that there was no material
effect on operations or the financial condition of the Company as a result of
inflation for the year ended March 31, 2001.  Management also believes that its
business is not seasonal; however, significant promotional activities can have a
direct impact on sales volume in any given quarter.

Financial Position, Liquidity and Capital Resources

     On November 22, 1999, the Company successfully completed an initial public
offering.  Gross proceeds of the offering from the sale of common stock of the
Company were $13.8 million and net offering proceeds received by the Company
were approximately $11.9 million, after payment of underwriting discounts and
commissions and other offering expenses totaling approximately $1.9 million.
Prior to that, the Company funded its operations through borrowings from its
officers, directors and affiliates.

     The Company's principal commitments at March 31, 2001 were leases on its
office and warehouse space.  There were no material commitments for capital
expenditures at that date.

     Net cash used in operating activities was $6.8 million for the year ended
March 31, 2001.  The usage of cash is primarily attributable to the net
operating loss as well as increases in accounts receivable of $7.5 million and
inventory of $2.6 million, respectively, as a result of increased sales and
inventory associated with the acquisitions of Becan and Valley; an increase in
prepaid and other current assets of $214,500, and a decrease in accrued expenses
of $262,600, offset by an increase in accounts payable of  $4.3 million, a
decrease in shareholder and other notes receivable of $107,600, and a decrease
in deposits.

     Net cash used in investing activities of $1.9 million for the year
ended March 31, 2001 primarily represents cash paid for the acquisition of
Valley, and $111,600 for purchases of property and equipment.

     Net cash provided by financing activities was $3.1 million for the year
ended March 31, 2001, representing the net change in the Company's revolving
line of credit agreements of $5.3 million, proceeds from the new Mellon term
loan of $2 million, and proceeds from affiliates of $41,000, which was offset by
cash deposited into a restricted account with Mellon, and repayments of notes
payable and long-term obligations of  $2.2 million.

     At March 31, 2001, the Company had $.4 million in cash and cash
equivalents, and $2 million in restricted cash and cash equivalents, as compared
to $6 million at March 31, 2000.  Working capital at March 31, 2001 was $3.4
million, inclusive of the Company's credit line facilities, compared to working
capital of  $5.2 million at March 31, 2000.

     The Company generated earnings (losses) before interest, taxes,
depreciation and amortization (including impairment write-off), "EBITDA",
amounting to $609,800 and $(1,329,300) for fiscal years ended March 31, 2001 and
2000, respectively. The improved cash flows in fiscal year 2001 are primarily
attributable to earnings from operations and investments, excluding non-cash
charges.

     On March 17, 2000, the Company signed a $1,000,000 line of credit agreement
with First Community Bank of America. Terms of the agreement provided for
interest to be charged at 1% over the rate of interest paid on the Company's
$1,000,000 certificate of deposit held by First Community Bank of America and
used to collateralize the loan facility. The balance on the line of credit
became due on October 1, 2000. On November 6, 2000, documents were executed to
extend the line of credit agreement for an additional six-month period with a
due date of April 1, 2001. The First Community Bank of America certificate of
deposit matured on March 15, 2001, and on March 19, 2001, was used to satisfy
the line of credit agreement.

                                       22
<PAGE>

     Additionally, in March 2000, the Company entered into a line of credit
agreement with Merrill Lynch. The line of credit enabled the Company to borrow a
maximum of $5,000,000 with borrowings limited to 80% of eligible accounts
receivable and 50% of inventory (capped at $1,000,000). The Merrill Lynch line
of credit was paid in full on October 24, 2000, with proceeds from the new
Mellon credit facility.

     As part of the acquisition of Valley, the Company agreed to become an
additional guarantor of the National City Bank revolving line of credit and term
loan indebtedness of Valley. In October 2000, National City Bank was paid in
full with proceeds from the new Mellon credit facility.

     On October 24, 2000, the Company obtained from Mellon a line of credit and
a $2 million term loan to refinance its prior bank indebtedness, to provide
additional working capital and for other general corporate purposes. The new
line of credit enables the Company to borrow a maximum of $15 million, with
borrowings limited to 85% of eligible accounts receivable and 65% of eligible
inventory. The term loan is payable over a 36-month period with interest at
0.75% per annum over the base rate, which is the higher of Mellon's prime rate
or the effective federal funds rate plus 0.50% per annum. The interest rate on
the term loan at March 31, 2001 was 8.75%. The revolving credit facility will
bear interest at the floating rate of 0.25% per annum above the base rate. The
interest rate on the revolving line of credit at March 31, 2001 was 8.25%. After
the Company delivers its audited financial statements for the fiscal year ending
March 31, 2001, to Mellon, the applicable margin over the base rate may change
on an annual basis depending on the ratio of funded debt to EBITDA. At the
Company's option, it may instead pay interest at a LIBOR rate plus an applicable
margin, which also varies on the ratio of funded debt to EBITDA. The Company
used the proceeds from this credit facility to repay its prior credit
facilities. The outstanding balances on the revolving line of credit and term
loan were $11,944,497 and $1,777,778, respectively as of March 31, 2001.
Availability under the line of credit at March 31, 2001, was approximately $3.1
million. The balance in the restricted cash account with Mellon at March 31,
2001 was $2,052,000.

     The credit facility imposes financial covenants on net worth, net income
and working capital ratios on a quarterly and annual basis. At March 31, 2001,
the Company was not in compliance with the financial covenants since the
borrowers, namely, DrugMax.com, Inc. and Valley Drug Company did not meet the
thresholds as stated within the October 24, 2000 loan documents. On June 13,
2001, Mellon provided an amendment that modifies the financial covenants in
order to achieve loan compliance at March 31, 2001. The amendment modifies the
financial covenants as of March 31, 2001, and future quarterly and annual
reporting through March 31, 2002 and thereafter. All other loan provisions will
remain in effect.

     On November 1, 2000, the Company filed a registration statement with the
Securities and Exchange Commission for a proposed secondary offering of
2,000,000 shares of the Company's common stock. Utendahl Capital Partners, L.P.
("Utendahl") was contracted to act as lead managing underwriter of the proposed
offering. However, on December 29, 2000, the Company and Utendahl agreed to
terminate their agreement and Utendahl received 50,000 shares of the Company's
common stock, valued at $3.9375 per share, for full release of the agreement

     On or about January 15, 2001, the Company entered into a Letter of Intent
with Southwest Securities, Inc. ("Southwest"), pursuant to which Southwest
proposed to organize, lead and manage a group of underwriters to represent the
Company for the proposed secondary offering. However, the Company remains unable
to make any assurances as to the successful completion of the proposed secondary
offering.


Item 7. FINANCIAL STATEMENTS

See financial statements commencing on page F-1.

Item 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.

     On February 4, 2000, the Company engaged Deloitte & Touche, LLP as the
Company's independent auditors for the fiscal year ended March 31, 2000,
replacing the firm of Kirkland, Russ, Murphy & Tapp, CPAs, which served as the
Company's independent auditors for the fiscal year ended March 31, 1999. The
change was approved by the Company's audit committee. The reason for the change
to a global firm was to better position the Company for access to the pubic
capital markets.

     The report of Kirkland, Russ, Murphy & Tapp, CPAs for the fiscal year ended
March 31, 1999 did not contain any adverse opinion or disclaimer of opinion and
was not qualified or modified as to uncertainty, audit scope or accounting
principles.

                                       23
<PAGE>

     The Company believes there were no disagreements with Kirkland, Russ,
Murphy & Tapp, CPAs within the meaning of Instruction 4 to Item 304 of
Regulation S-K on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure in connection with the
audit of the Company's financial statements for the fiscal year ended March 31,
1999 or for any subsequent interim period, which disagreements if not resolved
to their satisfaction would have caused Kirkland, Russ, Murphy & Tapp, CPAs to
make reference to the subject matter of the disagreements in connection with its
report.

     During the two most recent fiscal years and through present, there have
been no reportable events (as defined in Item 304(a)(1)(v) of Regulation S-K) of
the type required to be disclosed by that section. The Company had not consulted
with Deloitte & Touche LLP regarding either (i) the application of accounting
principles to a specified transaction, either completed or proposed; or the type
of audit opinion that might be rendered on the Company's financial statements;
or (ii) any matter that was either the subject matter of a disagreement (as
defined in Item 304(a)(1)(v) of Regulation S-K and the related instructions) or
a reportable event (as defined in Item 304(a)(1)(v) of Regulation S-K).

     A letter of Kirkland, Russ, Murphy & Tapp, CPA's was addressed to the
Securities and Exchange Commission.  Such letter states that such firm agrees
with the statements made by the Company.



                                   PART III

Item 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

     The information required by this Item is incorporated herein by reference
to the information under the headings "Management - Directors and Executive
Officers" in the Company's definitive Proxy Statement to be used in connection
with the Company's Annual Meeting of Stockholders, which will be filed with the
Securities and Exchange Commission on or before July 31, 2001.

Item 10. EXECUTIVE COMPENSATION

     The information required by this Item is incorporated herein by reference
to the information under the headings "Management - Compensation of Executive
Officers and Directors" in the Company's definitive Proxy Statement to be used
in connection with the Company's Annual Meeting of Stockholders, which will be
filed with the Securities and Exchange Commission on or before July 31, 2001.

Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The information required by this Item is incorporated herein by reference
to the information under the headings "Management - Security Ownership of
Management and Others" in the Company's definitive Proxy Statement to be used in
connection with the Company's Annual Meeting of Stockholders, which will be
filed with the Securities and Exchange Commission on or before July 31, 2001.

Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The information required by this Item is incorporated herein by reference
to the information under the headings "Certain Relationships and Related
Transactions" in the Company's definitive Proxy Statement to be used in
connection with the Company's Annual Meeting of Stockholders, which will be
filed with the Securities and Exchange Commission on or before July 31, 2001.



                                    PART IV

Item 13.    EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.

     The following exhibits are filed with this report:

2.1  Agreement and Plan of Merger by and between NuMed Surgical, Inc. and
     Nutriceuticals.com Corporation, dated as of January 15, 1999. (1)

                                       24
<PAGE>

2.2    Agreement and Plan of Reorganization between the Registrant and Eric
       Egnet dated March 31, 1999. (1)

2.3    Agreement and Plan of Reorganization dated September 8, 1999 by and
       between Nutriceuticals.com Corporation and Dynamic Health Products, Inc.
       (2)

2.4    Agreement and Plan of Reorganization between DrugMax.com, Inc., Jimmy L.
       Fagala, K. Sterling Miller, and HCT Capital Corp. dated as of March 20,
       2000. (3)

2.5    Stock Purchase Agreement between DrugMax.com, Inc. and W.A. Butler
       Company dated as of March 20, 2000. (3)

2.6    Merger Purchase Agreement between DrugMax.com, Inc., DrugMax Acquisition
       Corporation, and Valley Drug Company, Ronald J. Patrick and Ralph A.
       Blundo dated as of April 19, 2000. (4)

2.7    Letter of Intent to acquire Penner & Welsch, Inc. by Discount Rx, Inc., a
       wholly owned subsidiary of DrugMax.com, Inc., dated September 13, 2000.
       (10)

3.1    Articles of Incorporation of NuMed Surgical, Inc., filed October 18,
       1993.

3.2    Articles of Amendment to the Articles of Incorporation of NuMed Surgical,
       Inc., filed March 18, 1999. (1)

3.3    Articles of Merger of NuMed Surgical, Inc. and Nutriceuticals.com
       Corporation, filed March 18, 1999. (1)

3.4    Certificate of Decrease in Number of Authorized Shares of Common Stock of
       Nutriceuticals.com Corporation, filed October 29, 1999. (5)

3.5    Articles of Amendment to Articles of Incorporation of Nutriceuticals.com
       Corporation, filed January 11, 2000.  (8)

3.6    Articles and Plan of Merger of Becan Distributors, Inc. and DrugMax.com,
       Inc., filed March 29, 2000. (8)

3.7    Amended and Restated Bylaws, dated November 11, 1999. (5)

4.2    Specimen of Stock Certificate. (8)

10.1   Employment Agreement by and between Nutriceuticals.com Corporation and
       William L. LaGamba dated January 1, 2000. (7)

10.3   Employment Agreement by and between Valley Drug Company and Ronald J.
       Patrick dated April 19, 2000. (8)

10.4   Employment Agreement by and between Valley Drug Company and Ralph A.
       Blundo dated April 19, 2000. (8)

10.5   Consulting Agreement by and between Nutriceuticals.com Corporation and
       Jugal K. Taneja, dated as of April 1, 1999. (1)

10.6   Loan and Security Agreement in favor of Merrill Lynch Business Financial
       Services, Inc. from the Company dated February 15, 2000. (8)

10.7   Security Agreement in favor of First Community Bank of America from the
       Company dated March 17, 2000. (8)

10.8   Consulting Agreement by and between DrugMax.com, Inc. and Stephen M.
       Watters dated August 10, 2000. (9)

10.9   Loan and Security Agreement among DrugMax.com, Inc. and Valley Drug
       Company and Mellon Bank, N.A., dated October 24, 2000. (9)

10.10  Note in favor of First Community Bank of America from the Company dated
       November 6, 2000. (10)

10.11  Management Agreement between Discount Rx, Inc. and Penner & Welsch, Inc.
       dated September 13, 2000. (10)

21.0   Subsidiaries of DrugMax.com, Inc. (9)

                                       25
<PAGE>

99.1 DrugMax.com, Inc.1999 Incentive and Non-Statutory Stock Option Plan. (8)
_________________________________


(1)       Incorporated by reference to the Company's Registration Statement on
          Form SB-2, filed June 29, 1999, File Number 0-24362, as amended.

(2)       Incorporated by reference to Amendment No. 1 to the Company's
          Registration Statement on Form SB-2, filed on September 13, 1999, File
          No. 0-24362.

(3)       Incorporated by reference to the Company's Report on Form 8-K, filed
          April 6, 2000, File Number 0-24362.


(4)       Incorporated by reference to the Company's Report on Form 8-K, filed
          May 3, 2000, File Number 0-24362.

(5)       Incorporated by reference to Amendment No. 2 to the Company's
          Registration Statement on Form SB-2, filed on November 12, 1999, File
          No. 0-24362.

(6)       Incorporated by reference to the Company's Report on Form 8-K, filed
          February 8, 2000, File No. 0-24362.

(7)       Incorporated by reference to the Company's Form 10-KSB, filed June 29,
          2000, File No. 0-24362.

(8)       Incorporated by reference to the Company's Form 10-KSB/A, filed July
          14, 2000, File No. 0-24362.

(9)       Incorporated by reference to the Company's Registration Statement on
          Form SB-2, filed on November 1, 2000.

(10)      Incorporated by reference to the Company's Form 10-QSB, filed November
          14, 2000, File No. 1-15445.



(b)  Reports on Form 8-K.

     During the three months ended March 31, 2001, the Company filed no reports
on Form 8-K.  Subsequent to March 31, 2001, the Company filed the following one
(1) report on Form 8-K.

     Form 8-K dated June 14, 2001, with respect to the Company's press release
to announce fourth quarter and year-end financial results.

                                       26
<PAGE>

                                  SIGNATURES
                                  ----------

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.


                              DRUGMAX.COM, INC.


Dated:  June 26, 2001         By /s/ Jugal K. Taneja
                                 -----------------------------------------------
                                    Jugal K. Taneja, Chief Executive Officer,
                                    Chairman of the Board


Dated:  June 26, 2001         By /s/ William L. LaGamba
                                ------------------------------------------------
                                    William L. LaGamba, President, Chief
                                    Operating Officer


Dated:  June 26, 2001         By /s/ Ronald J. Patrick
                                 -----------------------------------------------
                                    Ronald J. Patrick, Chief Financial Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.

<TABLE>
<CAPTION>

Signatures                                        Title                                Date
----------                                        -----                                ----
<S>                                              <C>                                  <C>

By: /s/ Jugal K. Taneja                           Chairman of the Board and
   ---------------------------------
Jugal K. Taneja                                   Chief Executive Officer              June 26, 2001


By: /s/ William L. LaGamba                        President and
   ---------------------------------
William L. LaGamba                                Chief Operating Officer              June 26, 2001


By: /s/ Ronald J. Patrick                         Chief Financial Officer and
   ---------------------------------
Ronald J. Patrick                                 Director                             June 26, 2001


By: /s/ Stephen M. Watters                        Director                             June 26, 2001
   ---------------------------------
Stephen M. Watters


By: /s/ Dr. Howard L. Howell, DDS                 Director                             June 26, 2001
   ---------------------------------
Dr. Howard L. Howell, DDS


By: /s/ Jeffrey K. Peterson                       Director                             June 26, 2001
   ---------------------------------
Jeffrey K. Peterson


By: /s/ Joseph Zappala                            Director                             June 26, 2001
   ---------------------------------
Joseph Zappala
</TABLE>

                                       27
<PAGE>

                      DRUGMAX.COM, INC. AND SUBSIDIARIES
           INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES



Independent Auditors' Report........................................... F-2

Consolidated Balance Sheets as of March 31, 2001 and 2000.............. F-3

Consolidated Statements of Operations for the years ended
     March 31, 2001 and 2000........................................... F-4

Consolidated Statements of Stockholders' Equity for the years ended
     March 31, 2001 and 2000........................................... F-5

Consolidated Statements of Cash Flows for the years ended
     March 31, 2001 and 2000........................................... F-6 -F-7

Notes to Consolidated Financial Statements............................. F-8-F-20
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
 DrugMax.com, Inc.:

We have audited the accompanying consolidated balance sheets of DrugMax.com,
Inc. and subsidiaries (the "Company") as of March 31, 2001 and 2000, and the
related consolidated statement of operations, stockholders' equity, and cash
flows for the years then ended. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of DrugMax.com, Inc. and subsidiaries
as of March 31, 2001 and 2000, and the results of their operations and their
cash flows for the years then ended, in conformity with accounting principles
generally accepted in the United States of America.



/s/ DELOITTE & TOUCHE LLP





Tampa, Florida
June 13, 2001

                                      F-2
<PAGE>

                      DRUGMAX.COM, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                            MARCH 31, 2001 and 2000

<TABLE>
<CAPTION>
                                       ASSETS                                                   2001            2000
                                                                                                ----            ----
<S>                                    <C>                                                <C>             <C>
Current assets:
    Cash and cash equivalents                                                             $     384,307   $   6,020,129
    Restricted cash                                                                           2,052,080               -
    Accounts receivable, net of allowance for doubtful accounts
            of  $381,944 and $113,282                                                        14,864,396       4,106,105
    Inventory                                                                                10,694,155       1,416,241
    Due from affiliates                                                                          25,861          13,564
    Prepaid expenses and other current assets                                                   373,928         126,542
                                                                                          -------------   -------------

Total current assets                                                                         28,394,727      11,682,581

Property and equipment, net                                                                     504,906         693,340
Intangible assets, net                                                                       25,464,249      26,090,635
Stockholder notes receivable                                                                    100,000               -
Notes receivable                                                                                      -          37,614
Other assets                                                                                    159,888               -
Deposits                                                                                          7,520           9,742
                                                                                          -------------   -------------

Total assets                                                                               $ 54,631,290    $ 38,513,912
                                                                                          =============   =============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Accounts payable                                                                      $  11,448,473   $   3,170,890
    Accrued expenses and other current liabilities                                              360,911         442,598
    Credit lines payable                                                                     11,944,497       2,391,095
    Notes payable - current portion                                                             666,660           4,872
    Due to affiliates                                                                           552,658         511,717
                                                                                          -------------   -------------

Total current liabilities                                                                    24,973,199       6,521,172

Notes payable - long term portion                                                             1,111,118               -
Other long-term liabilities                                                                   1,968,750               -
                                                                                          -------------   -------------

Total liabilities                                                                            28,053,067       6,521,172
                                                                                          -------------   -------------

Commitments and contingencies (Note 7)
Stockholders' equity:
    Preferred stock, $.001 par value; 2,000,000 shares authorized; no
         preferred shares issued or outstanding                                                       -               -
    Common stock, $.001 par value; 24,000,000 shares authorized;
         6,468,754 and 6,200,499 shares issued and outstanding                                    6,470           6,202
    Additional paid-in capital                                                               36,481,755      34,079,957
    Accumulated deficit                                                                      (9,910,002)     (2,093,419)
                                                                                          -------------   -------------

Total stockholders' equity                                                                   26,578,223      31,992,740
                                                                                          -------------   -------------

Total liabilities and stockholders' equity                                                $  54,631,290   $  38,513,912
                                                                                          =============   =============
</TABLE>


         See accompanying notes to consolidated financial statements.

                                      F-3
<PAGE>

                       DRUGMAX.COM, INC. AND SUBIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                  For the Years Ended March 31, 2001 and 2000



<TABLE>
                                                               2001            2000
                                                          --------------   -------------
<S>                                                       <C>              <C>

Revenues                                                  $  177,713,064   $  21,050,547

Cost of goods sold                                           172,181,663      20,906,771
                                                          --------------   -------------

Gross profit                                                   5,531,401         143,776
                                                          --------------   -------------

Selling, general and administrative expenses                   5,163,124       1,524,059
Amortization expense                                           2,614,514         495,043
Depreciation expense                                             247,868          25,884
Impairment of intangible assets                                4,439,749          31,667
                                                          --------------   -------------
Total operating expenses                                      12,465,255       2,076,653
                                                          --------------   -------------

Operating loss                                                (6,933,854)     (1,932,877)
                                                          --------------   -------------

Other income (expense):
    Interest income                                              255,374         144,340
    Other income and expenses, net                               (13,861)        (93,312)
    Interest expense                                          (1,124,242)       (107,095)
                                                          --------------   -------------
Total other expense                                             (882,729)        (56,067)
                                                          --------------  --------------

Net loss                                                  $   (7,816,583)  $  (1,988,944)
                                                          ==============   =============

Basic and diluted net loss per share                      $        (1.22)  $        (.51)
                                                          ==============   =============


Basic and diluted weighted average number of common
shares of common shares outstanding                            6,419,950       3,875,445
                                                          ==============   =============
</TABLE>


         See accompanying notes to consolidated financial statements.

                                      F-4
<PAGE>

                      DRUGMAX.COM, INC, AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                  For the Years Ended March 31, 2001 and 2000


<TABLE>
<CAPTION>
                                                            Additional
                                            Common            Paid-in            Accumulated       Total Stockholders'
                                            Stock             Capital              Deficit               Equity
                                         ------------      --------------        ------------         ------------
<S>                                      <C>               <C>                   <C>                  <C>

Balances at April 1, 1999                $      2,677      $      139,725        $   (104,475)        $     37,927
Issuance of 20,000 shares for
acquisition of domain name                         20              39,980                   0               40,000

Issuance of 2,000,000 shares
for acquisition of Becan                        2,000          19,998,000                   0           20,000,000

Issuance of 1,380,000 shares in
public offering (includes
150,000 warrants issued to
underwriters)                                   1,380          11,847,874                   0           11,849,254

Issuance of 50,000 shares for
acquisition of Desktop                             50             821,850                   0              821,900

Issuance of 49,985 shares to
retire Desktop debt                                50             821,603                   0              821,653

Issuance of 25,000 shares for
acquisition of 20% of VetMall                      25             410,925                   0              410,950

Net loss                                            0                   0          (1,988,944)          (1,988,944)
                                         ------------      --------------        ------------         ------------

Balances at March 31, 2000                      6,202          34,079,957          (2,093,419)          31,992,740

Issuance of 217,255 shares for
acquisition of Valley Drug Co.                    217           2,199,490                   0            2,199,707

Issuance of 50,000 shares to
Utendahl Capital Partners LP                       50             196,825                   0              196,875

Issuance of 1,000 shares                            1               5,483                   0                5,484

Net loss                                            0                   0          (7,816,583)          (7,816,583)
                                         ------------      --------------        ------------         ------------

Balances at March 31, 2001               $      6,470      $   36,481,755        $ (9,910,002)        $ 26,578,223
                                         ============      ==============        ============         ============
</TABLE>


         See accompanying notes to consolidated financial statements.


                                      F-5
<PAGE>

                      DRUGMAX.COM, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                  For the Years Ended March 31, 2001 and 2000

<TABLE>
<CAPTION>
                                                                                                       2001            2000
                                                                                                   ------------    ------------
<S>                                                                                               <C>             <C>
Cash flows from operating activities:
Net loss                                                                                          $  (7,816,583)  $  (1,988,944)

Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization                                                                         2,862,382         520,927
Impairment of intangible assets                                                                       3,983,004          31,667
Bad debt expense                                                                                         99,044         115,271
Loss on disposal of assets                                                                               13,861               -
Expense on issuance of common stock                                                                     202,359               -
Changes in operating assets and liabilities:
  Increase in accounts receivable, net of allowance for doubtful accounts                            (7,378,704)     (1,917,319)
  Increase in inventory                                                                              (2,587,278)       (188,560)
  Increase in due from affiliates                                                                       (12,297)         (8,393)
  Increase in prepaid expenses and other current assets                                                (214,466)        (80,487)
  Increase in other assets                                                                             (159,888)              -
  Decrease in shareholder notes receivable                                                               70,000               -
  Decrease in notes receivable                                                                           37,614          16,120
  Decrease in deposits                                                                                    2,222          (8,562)
  Increase in accounts payable                                                                        4,317,028         834,977
  Decrease in accrued expenses                                                                         (262,579)       (474,545)
                                                                                                   ------------     -----------
Net cash used in operating activities                                                                (6,844,281)     (3,147,848)

Cash flows from investing activities:
  Net change in property and equipment                                                                 (111,576)       (182,634)
  Increase in intangible assets                                                                               -          (4,584)
  Cash paid for acquisitions, net                                                                    (1,757,481)     (3,250,045)
                                                                                                   ------------     -----------
Net cash used in investing activities                                                                (1,869,057)     (3,437,263)

Cash flows from financing activities:
  Increase in restricted cash                                                                        (2,052,080)
  Net change under revolving line of credit agreements                                                5,339,402       2,391,095
  Payments for debt issuance costs                                                                     (276,466)
  Proceeds from issuance of long-term obligations                                                             -          23,603
  Payments of long-term obligations                                                                    (463,241)     (1,725,854)
  Repayment of principal on note payable                                                             (1,511,040)              -
  Proceeds from related party obligations                                                                     -         200,000
  Payments of related party obligations                                                                       -        (200,000)
  Proceeds from issuance of note payable                                                              2,000,000               -
  Increase in due to affiliates                                                                          40,941          10,156
  Proceeds from issuance of common stock                                                                      -      11,849,254
                                                                                                   ------------     -----------
Net cash provided by financing activities                                                             3,077,516      12,548,254
                                                                                                   ------------     -----------

Net (decrease) increase in cash and cash equivalents                                                 (5,635,822)      5,963,143

Cash and cash equivalents at beginning of year                                                        6,020,129          56,986
                                                                                                   ------------     -----------

Cash and cash equivalents at end of year                                                          $     384,307    $  6,020,129
                                                                                                   ============     ===========

Supplemental disclosures of cash flows information:
  Cash paid for interest                                                                          $   1,124,242    $     96,587
                                                                                                   ============     ===========
  Cash paid for income taxes                                                                      $           -    $          -
                                                                                                   ============     ===========
Supplemental schedule of non-cash investing and financing activities:
In August 1999, DrugMax.com, Inc. issued 20,000 shares of Company common stock
  (fair value of $40,000) to acquire the domain name.                                                              $     40,000
                                                                                                                    ===========
In November 1999, DrugMax.com, Inc. purchased all of the capital stock of Becan
  Distributors, Inc. for $2,000,000 in cash plus 2,000,000 shares of Company common stock
  (fair value of $20,000,000)
  In conjunction with the acquisition, liabilities were assumed as follows:
   Fair value of assets acquired                                                                                   $ 25,428,553
   Cash and stock issued for Becan capital stock                                                                     21,977,561
                                                                                                                    -----------
   Liabilities assumed                                                                                             $  3,450,992
                                                                                                                    ===========
</TABLE>

                                                  F-6

<PAGE>

<TABLE>
<S>                                                                                                               <C>
In March 2000, DrugMax.com, Inc. purchased all of the capital stock of Desktop Corporation,
 its 50% interest in VetMall, LLC, and retired existing debt of Desktop Corporation, as part
 of the acquisition, for $100,000 in cash and 99,985 shares of Company common stock
 (fair value of $1,643,553).
 In conjunction with the acquisition, liabilities were assumed as follows:
      Fair value of assets acquired                                                                               $   4,829,094
      Cash and stock issued for Desktop capital stock                                                                 2,916,037
                                                                                                                   ------------
      Liabilities assumed                                                                                             1,913,057
                                                                                                                   ============

In March 2000, DrugMax.com, Inc. purchased an additional 20% interest in VetMall for                              $     410,950
                                                                                                                   ============
 $1,000,000 in cash and 25,000 shares of Company common stock (fair value of $410,950).

In April 2000, DrugMax.com, Inc. purchased all of the capital stock of Valley Drug Company
 for $1,757,481 in cash and 217,255 shares of Company common stock (fair value of $2,199,707).
 In conjunction with the acquisition, liabilities were assumed as follows:
   Fair value of assets acquired                                                                  $  14,059,822
   Cash and stock issued for Valley capital stock                                                     3,957,188
                                                                                                   ------------
   Liabilities assumed                                                                            $  10,102,634
                                                                                                   ============

In December 2000, DrugMax.com, Inc. issued 50,000 shares of Company common stock to
 Utendahl Capital Partners, L.L.C., in connection with the termination agreement as lead
 Managing underwriter for a proposed offering.                                                    $     196,875
                                                                                                   ============

In January 2001, DrugMax.com, Inc. issued 1,000 shares of Company common stock                    $       5,484
                                                                                                   ============
</TABLE>

         See accompanying notes to consolidated financial statements.

                                      F-7
<PAGE>

                      DRUGMAX.COM, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  FOR THE YEARS ENDED MARCH 31, 2001 AND 2000


NOTE 1 - BUSINESS AND HISTORY

Business

     The Company is primarily a full-line, wholesale distributor of
pharmaceuticals, over-the-counter products, health and beauty care products, and
nutritional supplements. The Company expects that it will continue to derive a
significant portion of its revenue from its traditional "brick and mortar" full-
line wholesale distribution business.   Also, the Company is one of the early
entrants into the Internet business-to-business pharmaceutical market.  The
combination of its traditional wholesale business and its online business allows
the Company to utilize emerging technology in expanded markets.


History
     The Company was originally incorporated on October 18, 1993, as a Nevada
corporation under the name of NuMed Surgical, Inc. ("NuMed").  In March 1999,
NuMed's name was changed to Nutriceuticals.com Corporation ("Nutriceuticals").
In January 2000, Nutriceuticals' name was changed to DrugMax.com, Inc.  In March
2001, the Board of Directors approved a name change to DrugMax, Inc., effective
upon final shareholder approval.

     NuMed was engaged in the research, development and distribution of medical
instruments and surgical supplies to the health care market since February 1991.
Effective March 31, 1997, NuMed adopted a plan of liquidation in which it sold
its major product line and subsequently disposed of all its operating assets by
March 31, 1998.

     Effective March 1999, NuMed acquired all of the outstanding common stock of
Nutriceuticals, which was organized in the State of Florida on September 8, 1998
(date of inception).  Nutriceuticals was engaged in the retailing of nutritional
supplements via the Internet.  For accounting purposes, the acquisition has been
treated as an acquisition of NuMed by Nutriceuticals and as a recapitalization
of Nutriceuticals.  Additionally, Nutriceuticals was merged into NuMed and NuMed
changed its name to Nutriceuticals.  Mr. Jugal K. Taneja, a principal
shareholder and director of the Company  had beneficial ownership of
approximately 28% of NuMed prior to the merger and approximately 21% of
Nutriceuticals after the merger.

     As a result of the merger, each issued and outstanding share of
Nutriceutical's common stock was converted into one share of NuMed's common
stock.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

     The consolidated financial statements include the accounts of DrugMax.com,
Inc. (formerly known as Nutriceuticals and NuMed) and its wholly owned
subsidiaries, Discount Rx, Inc. ("Discount"), Valley Drug Company ("Valley"),
Desktop Ventures, Inc., and Desktop Media Group, Inc. and its subsidiary Desktop
Corporation ("Desktop"); and its 70% owned subsidiary VetMall, Inc. ("VetMall"),
and Healthseek.com Corporation ("Healthseek"), (collectively, the "Company").
All significant intercompany accounts and transactions have been eliminated.

Use of Estimates

     The preparation of consolidated 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 reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period.  Actual
results could differ from those estimates.

                                      F-8
<PAGE>

Cash and Cash Equivalents

     The Company considers cash on hand and amounts on deposit with financial
institutions which have original maturities of three months or less to be cash
and cash equivalents.

Restricted Cash

     Restricted cash includes amounts restricted as collateral for the credit
facility with Mellon Bank, N.A. ("Mellon").  The Company has deposited $2
million in a restricted cash account with Mellon.

Accounts Receivable

     Accounts receivable are due primarily from independent pharmacies via
traditional distribution channels and from companies and pharmacies via
e-commerce.

Inventory

     Inventory is stated at the lower of cost of market.  Cost is determined
using the first-in, first-out basis of accounting.  Inventories at March 31,
2001 and 2000 consist of legend and generic drugs and nutritional supplements
for resale.

Property and Equipment

     Property and equipment is stated at a cost.  A provision for depreciation
is computed using the straight-line method over the estimated useful lives
ranging from three to seven years.

     Maintenance and repairs are charged to operations.  Additions and
betterments which extend the useful lives of property and equipment are
capitalized.  Upon retirement or disposal of the operating property and
equipment, the cost and accumulated depreciation are eliminated from the
accounts and the resulting gain or loss is reflected in operations.

Computer Software

Computer software is stated at cost less accumulated amortization.  Amortization
is recorded using the straight-line method over an estimated useful life of
three to five years.

Intangible Assets

     Intangible assets consist primarily of the excess of cost over the fair
value of net assets acquired (goodwill) relating to the acquisitions (see Note
2).  The excess of cost over net assets acquired is amortized over 15 years for
acquisitions of Becan, Discount, and Valley for using the straight-line method.
Goodwill relating to the acquisitions of Desktop and VetMall was assigned a life
of 5 years and amortized for eleven months of the fiscal year ended March 31,
2001 on straight-line method.  An impairment of intangible assets was recorded
in March 2001 relative to the remaining goodwill for both Desktop and VetMall.
Accumulated amortization totaled approximately $2,225,000 and $485,000 at March
31, 2001 and 2000, respectively.

     In conjunction with the closing of the Mellon credit facility (see Note 6),
the Company capitalized approximately $277,000 in financing costs incurred in
securing the loans.  These costs are being amortized over three years, the life
of the loan, which approximates the effective interest rate method.


Impairment of Long-Lived Assets

     Periodically, the Company evaluates the recoverability of the net carrying
value of its property and equipment and its intangible assets by comparing the
carrying values to the estimated future undiscounted cash flows.  A deficiency
in these cash flows relative to the carrying amounts is an indication of the
need for a write-down due to impairment.  The impairment write-down would be the
difference between the carrying amounts and the fair value of these assets.
Losses on impairment are recognized by a charge to earnings.  As a result of
management's analysis, and using the best information available, in the fourth
quarter of the fiscal year ended March 31, 2001, the Company recorded an
impairment of assets comprised of goodwill and software associated with the
acquisitions of Desktop and VetMall in March 2000.  Additionally, during the
fourth quarter of 2001, management determined that approximately

                                      F-9
<PAGE>

$457,000 of costs, incurred and capitalized relative to the secondary offering
of common stock which was cancelled by the Company, and had no future value. As
such, a charge related to the write off of these assets is included in
impairment of intangible assets in the consolidated statement of operations for
the year ended March 31, 2001

Income Taxes

     The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes".  Under the asset and liability
method of SFAS No. 109, deferred tax assets and liabilities are recognized for
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis.  Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recorded or settled.  Valuation
allowances are established when necessary to reduce deferred tax assets to
amounts expected to be realized.

Net Loss Per Share

     Basic net loss per share is calculated by dividing the net loss by the
weighted average number of shares of common stock outstanding for the period.
Diluted net loss per share is calculated by dividing net loss by the weighted
average number of shares of common stock outstanding for the period, adjusted
for the dilutive effect of common stock equivalents, using the treasury stock
method.


Stock Based Compensation

     In October 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123, "Accounting for Stock-Based Compensation", which is effective for
fiscal years beginning after December 15, 1995.  Under SFAS No. 123, the Company
may elect to recognize stock-based compensation expense based on the fair value
of the awards or to account for stock-based compensation under Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees", and disclose in the consolidated financial statements the effects of
SFAS No. 123 as if the recognition provisions were adopted. The Company has
adopted the recognition provisions of APB Opinion No. 25.

Fair Value of Financial Instruments

  The estimated fair value of amounts reported in the consolidated financial
statements has been determined by using available market information and
appropriate valuation methodologies.  The carrying value of all current assets
and current liabilities approximates fair value because of their short-term
nature.  The fair value of long-term obligations approximates the carrying
value, based on current market prices.

  Advertising and Sales Promotion Costs

     Advertising costs are charged to expense as incurred.  Advertising expense
totaled approximately $64,000 and $157,000 for fiscal years ended March 31, 2001
and 2000, respectively.

Revenue Recognition

  The Company recognizes revenue on its core distribution segment when goods are
shipped and title or risk of loss resides with unaffiliated customers or when
services are provided. Revenues generated from the DrugMaxTrading.com site are
accounted for on a negotiated net transaction fee basis.

Reclassification

  Certain amounts in the 2000 consolidated financial statements have been
reclassified to conform to 2001 presentation.

New Accounting Standards

     SFAS No. 133, "Accounting for Derivative Instrument and Hedging Activities"
("SFAS No. 133"), is effective for all fiscal years beginning after June 15,
2000.  SFAS No. 133, as amended, establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities.  Under SFAS No. 133, certain
contracts that were not formerly considered derivatives may now meet the
definition of a derivative.  The Company will adopt

                                      F-10
<PAGE>

SFAS No. 133 effective April 1, 2001. The adoption of SFAS No. 133 will not have
a significant impact on the financial position, results of operations, or cash
flows of the Company.

     In December 1999, the Securities Exchange Commission ("SEC") issued Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements" ("SAB
101").  SAB 101, as amended, provides guidance related to revenue recognition
issues based on interpretations and practices followed by the SEC.  Conformity
of the Company's income recognition policy with SAB 101 in fiscal year 2001 did
not have a material effect on the financial position, results of operations, or
cash flows of the Company.

     In March 2000, the FASB issued FASB Interpretation No. 44 ("FIN 44"),
"Accounting for Certain Transactions Involving Stock Compensation".  FIN 44
clarifies the application of APB Opinion No. 25 regarding (a) the definition of
employee for purposes of applying APB Opinion No. 25, (b) the criteria for
determining whether a stock option plan qualifies as a non-compensatory plan,
(c) the accounting consequence of various modifications to the terms of a
previously fixed stock option or award, and (d) the accounting for an exchange
of stock compensation awards in a business combination.  FIN 44 was effective
July 1, 2000, but certain conclusions cover specific events that occur after
either December 15, 1998, or January 12, 2000.  Conformity with FIN 44 in fiscal
year 2001 did not have a material effect on the financial position or results of
operations of the Company.

NOTE 2 - ACQUISITIONS

     On November 26, 1999, the Company acquired all the issued and outstanding
capital stock of Becan, an Ohio corporation, incorporated in 1997, from Dynamic
Health Products, Inc. ("Dynamic"), an affiliate of Jugal K. Taneja, a principal
shareholder, officer  and director of the Company, in exchange for 2,000,000
shares of restricted common stock of the Company (with an estimated fair value
of $10.00 per share) and $2,000,000 cash.  Additional consideration of 1,000,000
shares of common stock of the Company was placed into escrow for future issuance
to Dynamic, upon the attainment of certain financial targets by the Company for
the years ending March 31, 2000 and 2001.  The Company did not attain the
financial target for the fiscal year end March 31, 2000 and 500,000 shares were
returned from escrow to the Company.  The Company did attain the financial
target for fiscal year ended March 31, 2001; therefore the remaining 500,000
shares of the Company's common stock held in escrow will be issued to Dynamic.
Becan is a wholesale distributor of pharmaceutical products and to a lesser
extent, over-the-counter drugs and health and beauty care products.  The Company
has recorded an increase to the purchase price (goodwill) of approximately $2
million and an increase to non-current liabilities to account for the contingent
consideration due to the sellers at March 31, 2001.

     On March 20, 2000, the Company acquired all the issued and outstanding
capital stock of Desktop in exchange for 50,000 shares of the Company's common
stock.  In addition, the following additional consideration was paid: (i)
$100,000 and 31,176 shares of the Company's common stock at $16.44 per share to
satisfy obligations owed to HCT Capital Corp. ("HCT") by Desktop and VetMall
LLC, an entity owned 50% by Desktop, and (ii) 8,938 and 9,871 shares of the
Company's common stock at $16.44 per share issued to Messrs. Fagala and Miller,
respectively, to satisfy outstanding obligations of Desktop.   Desktop is an
Internet e-commerce solutions provider specializing in the design, development
and delivery of technology solutions by providing custom programming services
and web hosting services.

     VetMall was founded in June 1999 as a Nevada limited liability corporation
known as VetMall LLC, which merged with VetMall, Inc. on March 20, 2000.
VetMall is an Internet-based consumer pet care product sales distributor.
VetMall maintains a web site whereby consumers can order pet care products which
are then shipped directly by the manufacturer.  The products are primarily
supplied by one vendor who is a 30% shareholder in VetMall.  In addition,
VetMall derives income from advertisers on its web site and from veterinarians
subscribing to a listing on its web site.

     The Desktop acquisition agreement specified that the purchase price would
be adjusted based on changes in the audited liabilities of Desktop.  The Company
and the selling shareholders of Desktop are currently negotiating the amount of
the purchase price adjustments as they have interpreted the definition of
liabilities differently and, thus, the purchase price may be adjusted once an
agreement is reached.  As of March 31, 2001, the Company has recorded the
purchase price related to the Desktop acquisition based on the 50,000 shares
issued.

     In addition, upon (i) the closing of any initial public offering (the
"IPO") of VetMall or its successors, (ii) the sales by the Company of all of the
shares acquired from Messrs. Fagala and Miller and HCT, regardless of the form
of such transaction, or (iii) the sale by VetMall of all or substantially all of
its assets, the Company will either (A) issue to the sellers that number of
shares of the VetMall common stock which, when multiplied by the closing price
of VetMall's common stock on the date the IPO or the sale closes, exceeds
$4,800,000, or (B) pay to the sellers 16% of 50% of the proceeds of the closing
of a direct sale to a third party of substantially all of the assets of VetMall
or its successors, whichever of (A) or (B) has a lower value based on the IPO or
sales price of VetMall common stock and the closing price of VetMall's common
stock on the date that the IPO is declared effective by the Securities and
Exchange Commission or the closing of the sale has occurred.

                                      F-11
<PAGE>

     Simultaneously with the acquisition described above, the Company purchased
from W.A. Butler ("Butler") 2,000 membership shares of VetMall, which shares
constituted 20% of the issued and outstanding membership shares of VetMall, in
exchange for the payment of $1,000,000 cash plus the issuance to Butler of
25,000 shares of Company common stock.

     As a result of the acquisitions described above, the Company owns through
its ownership of Desktop, a 50% indirect interest in VetMall, together with a
20% direct interest in VetMall.

     On April 19, 2000, DrugMax Acquisition Corporation ("Buyer"), a wholly
owned subsidiary of the Company, Valley, Ronald J. Patrick ("Patrick") and Ralph
A. Blundo ("Blundo" and together with Patrick, the "Sellers") signed a Merger
Purchase Agreement (the "Agreement"). In connection with the merger, the Sellers
received an aggregate of 226,666 shares of the Company's common stock and cash
in the amount of $1.7 million. The Sellers were granted the right to include
their shares in any registration filed by the Company until such time as their
shares of the Company common stock may be sold pursuant to Rule 144 of the
General Rules and Regulations promulgated under the Securities Act of 1933, as
amended. In addition, the Sellers deposited 22,666 shares of the Company's
common stock with an escrow agent (the "Holdback Shares"). Based on audited
financial statements of Valley as of April 19, 2000, the stockholders' equity
amounted to $400,667, which was $141,160 less than the threshold amount of
$541,827. Therefore, 9,411 of the Holdback Shares have been returned to the
Company. After consideration of the return of the Holdback Shares, a total of
217,255 shares at $10.125 per share were issued for the acquisition. The
acquisition was accounted for using the purchase method of accounting and
accordingly $3.6 million of goodwill was recorded. The goodwill will be
amortized over fifteen (15) years.

     On April 18, 2000, Valley loaned the Sellers $170,000, of which $100,000 is
outstanding at March 31, 2001, to pay for a portion of the flow through effects
of their S Corporation taxable income resulting from the sale of Valley.  These
interest-free notes receivable are to be repaid upon the Sellers' sale of
Company common stock, which is restricted stock subject to a holding period
through April 19, 2001.

The business combinations of Becan, Discount, Desktop, VetMall, and Valley were
accounted for by the purchase method of accounting in accordance with APB
Opinion No. 16.  The results of operations of the above named businesses are
included in the consolidated financial statements from their respective purchase
dates.  The Company acquired the following assets and liabilities (net of cash
received of $53,207) in the above business combinations:


<TABLE>
<CAPTION>
                                                                    For the Year Ended          For the Year Ended
                                                                      March 31, 2001              March 31, 2000
                                                                     ----------------            ----------------
<S>                                                        <C>                                <C>
Accounts receivable..............................                    $      3,478,637                   2,294,779
Inventory........................................                           6,690,636                   1,211,378
Property and equipment...........................                              67,146                     489,091
Other assets.....................................                             266,380                     100,589
Goodwill.........................................                           3,557,023                  26,572,760
Assumption of liabilities........................                         (10,102,634)                 (5,364,049)
                                                                     ----------------            ----------------
Net value of purchased assets....................                           3,957,188                  25,304,548
Value of common stock issued.....................                          (2,199,707)                (22,054,503)
                                                                     ----------------            ----------------
Cash paid for acquisitions.......................                    $      1,757,481                   3,250,045
                                                                     ================            ================
</TABLE>

     The unaudited pro forma effect of the acquisitions of Becan, Discount,
Valley, Desktop and VetMall on the Company's revenues, net loss and net loss per
share, had the acquisitions occurred on April 1, 1999 is as follows:


<TABLE>
<CAPTION>
                                                                For the Year                         For the Year
                                                            Ended March 31, 2001                 Ended March 31, 2000
                                                     ----------------------------------------------------------------------
<S>                                                  <C>                                         <C>
Revenues                                                         $180,530,063                        $106,225,681
Net loss                                                          ($7,967,327)                        ($5,173,261)
Basic and diluted net loss per share                                   ($1.24)                             ($0.94)
</TABLE>


                                      F-12
<PAGE>

NOTE 3 - IMPAIRMENT OF ASSETS

     Since the acquisitions of Desktop and VetMall, management has been faced
with substantial changes to the original business plans. The offices of Desktop
and VetMall were relocated from Dallas, Texas to the Company's corporate office
facilities in Largo, Florida during August 2000. The primary function of Desktop
is to design and develop customized Internet solutions for businesses and to a
greater extent to continue to design, develop and maintain the VetMall web site.
The amount of transition expense, loss of customer base, and problems with the
web site and the delay of its startup, are all factors which contributed to a
negative cash flow for the twelve months ending March 31, 2001. Although
management has made improvements to the VetMall web site, there are no current
plans for operations which would generate a positive cash flow.

     During the fourth quarter of the fiscal year ended March 31, 2001, the
Company reassessed the value of the intangible assets and property, equipment
and software recorded by the Company as a result of the acquisitions of Desktop
and VetMall. Prior to that reassessment, the unamortized balances of the
intangible and real assets consisted of $4,748,100 of goodwill, and $462,300 of
acquired property, equipment and software. Management assessed the value of the
related goodwill and property, equipment and software and concluded that the
carrying value exceeded the fair value of the assets. The economic factors
indicated above have caused management to revise downward its estimates of
future cash flows from current and future revenues associated with the Desktop
and VetMall businesses. As a result of management's analysis, and using the best
information available, management recorded impairment of asset charges of
$471,387 to the software segment, and $3,511,617 to the distribution segment,
during the fourth quarter of fiscal 2001.


NOTE 4 - PROPERTY AND EQUIPMENT

  At March 31, 2001 and 2000 property and equipment consist of the following:

<TABLE>
<CAPTION>

                                                                                2001                       2000
                                                                                ----                       ----
<S>                                                                       <C>                           <C>
     Furniture and equipment...........................................         $ 246,848                   $254,130
     Computer software, including web site domain......................           411,906                    460,433
     Leasehold improvements............................................            68,301                      7,162
                                                                           -----------------------------------------
     Total.............................................................           727,055                    721,725
     Accumulated depreciation and amortization.........................          (222,149)                   (28,385)
                                                                           -----------------------------------------
     Property and equipment, net.......................................         $ 504,906                   $693,340
                                                                           =========================================
</TABLE>


  Depreciation expense for the years ended March 31, 2001 and 2000 was
$247,900 and  $25,900, respectively.

NOTE 5 - INCOME TAXES

     The Company had no income tax expense for the years ended March 31, 2001
or March 31, 2000.

     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 components of
deferred tax assets and liabilities net of valuation allowance as of March 31,
2001 and 2000 are as follows:

<TABLE>
<CAPTION>

                                                                                2001          2000
                                                                          ------------    ----------
 <S>                                                                     <C>             <C>
  Net operating losses                                                    $    780,000    $  560,000
  Net operating losses - acquired                                              416,000       416,000
  Use of cash basis method of accounting for income tax purposes              (193,500)     (258,505)
  Bad debt and other accruals                                                  310,000             -
                                                                          ------------    ----------
  Net deferred tax asset                                                     1,312,500       717,495
  Valuation allowance                                                       (1,312,500)     (717,495)
                                                                          ------------    ----------
  Net deferred tax asset after valuation allowance                        $          -    $        -
                                                                          ============    ==========
</TABLE>

                                      F-13
<PAGE>

     SFAS 109 requires a valuation allowance to reduce the deferred tax assets
reported, if based on the weight of the evidence, it is more likely than not
that some portion or all of the deferred tax assets will not be realized.  As
such, valuation allowances of $1,312,500 and $717,500 have been established at
March 31, 2001 and March 31, 2000, respectively.

     The net operating and acquired tax loss carry forward benefits expire in
various years beginning in 2020.  Due to the Company's acquisition of Desktop
(see Note 2), the Company's ability to utilize the acquired net operating loss
carry forward of $1,100,000 will be limited by IRS Section 382 to $113,000 per
year.

NOTE 6 - DEBT

     In October 1999, the Company established a $100,000 revolving line of
credit with First Community Bank of America, to provide additional working
capital for the Company. The note bears interest at 6.5% per annum on the unpaid
outstanding principal of each advance, payable monthly. The note was
collateralized by a guarantee in the form of a Third Party Pledge Agreement in
favor of First Community Bank of America, from Dynamic Health Products, Inc., of
which Jugal K. Taneja is Chairman and a 33.18% shareholder. The principal on the
note was due and payable on October 10, 2000. The line of credit has since been
repaid and the note satisfied with the establishment of a revolving line of
credit with First Community Bank of America in March 2000.

     On March 17, 2000, the Company signed a $1,000,000 line of credit agreement
with First Community Bank of America. Terms of the agreement provided for
interest to be charged at 1% over the rate of interest paid on the Company's
$1,000,000 certificate of deposit, held by First Community Bank of America and
were used to collateralize the loan facility. The balance on the line of credit
became due on October 1, 2000. On November 6, 2000, documents were executed to
extend the line of credit agreement for an additional six-month period with a
due date of April 1, 2001. The First Community Bank of America certificate of
deposit matured on March 15, 2001, and on March 19, 2001, was used to satisfy
the line of credit agreement.

     In March 2000, the Company entered into a line of credit agreement with
Merrill Lynch. The line of credit enabled the Company to borrow a maximum of
$5,000,000 with borrowings limited to 80% of eligible accounts receivable and
50% of inventory (capped at $1,000,000). The Merrill Lynch line of credit was
paid in full on October 24, 2000, with proceeds from the new Mellon credit
facility.

     On October 24, 2000, the Company obtained from Mellon a line of credit and
a $2 million term loan to refinance its prior bank indebtedness, to provide
additional working capital and for other general corporate purposes. The new
line of credit enables the Company to borrow a maximum of $15 million, with
borrowings limited to 85% of eligible accounts receivable and 65% of eligible
inventory. The term loan is payable over a 36-month period with interest at
0.75% per annum over the base rate, which is the higher of Mellon's prime rate
or the effective federal funds rate plus 0.50% per annum. The interest rate on
the term loan at March 31, 2001 was 8.75%. The revolving credit facility will
bear interest at the floating rate of 0.25% per annum above the base rate. The
interest rate on the revolving credit facility at March 31, 2001 was 8.25%.
After the Company delivers its audited financial statements for the fiscal year
ending March 31, 2001, to Mellon, the applicable margin over the base rate may
change on an annual basis depending on the ratio of funded debt to EBITDA
(Earnings Before Interest, Taxes, Depreciation and Amortization). At the
Company's option, it may instead pay interest at a LIBOR rate plus an applicable
margin, which also varies on the ratio of funded debt to EBITDA. The credit
facility imposes financial covenants on net worth, net income and working
capital ratios on a quarterly and annual basis. At March 31, 2001, the Company
was not in compliance with the financial covenants since the borrowers, namely,
DrugMax.com, Inc. and Valley did not meet the net worth or net income thresholds
as stated within the October 24, 2000 loan documents. On June 13, 2001, Mellon
provided an amendment that modified the financial covenants in order to achieve
loan compliance at March 31, 2001. The amendment modified the financial
covenants as of March 31, 2001, and future quarterly and annual covenants
through March 31, 2002 and thereafter. All other loan provisions will remain in
effect.

     The Company used the proceeds from this credit facility to repay its prior
credit facilities. The outstanding balances on the revolving line of credit and
term loan were $11,944,497 and $1,777,778, respectively as of March 31, 2001.
The availability on the line of credit at March 31, 2001 was $3.1 million. In
conjunction with the closing of the credit facility, the Company deposited $2
million in a restricted account with Mellon. The balance, including accrued
interest thereon, was $2,052,000 at March 31, 2001.

NOTE 7 - COMMITMENTS AND CONTINGENCIES

Operating Leases

                                      F-14
<PAGE>

     The Company has operating leases for facilities that expire at various
dates through 2008.  Certain leases provide an option to extend the lease term.
Certain leases provide for payment by the Company of any increases in property
taxes, insurance, and common area maintenance over a base amount and others
provide for payment of all property taxes and insurance by the Company.

     The Company leases computer equipment with original lease terms ranging
from three to five years. These leases expire at various dates through 2005. The
monthly equipment rental expense is approximately $10,600.

     Future minimum lease payments, by year and in aggregate under non-
cancelable operating leases, were the following at March 31:


                             Year Ending March 31
                             --------------------


                         2002.......................  264,000
                         2003.......................  164,300
                         2004.......................  100,300
                         2005.......................   89,400
                         2006 ......................   72,000
                         2007 and thereafter........  144,000

          Total minimum lease payments.............. $834,000
                                                     ========

     Total rent expense for the years ended March 31, 2001 and 2000 was
approximately $177,700 and $29,000 respectively.


Management Agreement and Letter of Intent

     On September 13, 2000, the Company entered into a letter of intent to
purchase substantially all of the assets of Penner & Welsch, Inc. ("P&W"), a
wholesale distributor of pharmaceuticals, over-the-counter products and health
and beauty care products, headquartered near New Orleans, Louisiana. Also on
that date, P&W filed a voluntary petition for Chapter 11 relief under the United
States Bankruptcy Code. The case is pending in the United States Bankruptcy
Court for the Eastern District of Louisiana. Pursuant to the letter of intent,
the Company agreed to work with P&W, on an exclusive basis, to formulate a
bankruptcy reorganization plan (the "Plan"). On May 30, 2001, the Plan was filed
with the bankruptcy court, pursuant to which the Company will purchase certain
of P&W's assets for $750,000 worth of restricted common stock of the Company,
plus certain additional consideration, which will be based on the adjusted value
of P&W's inventory and accounts receivable, plus the assumption of certain
limited liabilities on the closing date. The Company can not guarantee that the
Bankruptcy Court will confirm the Plan or any other bankruptcy reorganization
plan that is acceptable to the Company or that the Bankruptcy Court will approve
the transactions contemplated by the letter of intent. In addition, even if the
contemplated transactions are completed, the Company cannot guarantee that it
will successfully assimilate the additional personnel, operations, acquired
technology and products of P&W into the Company's business, or retain key
personnel and customers.

     In addition, on September 13, 2000, the Company entered into a management
agreement with P&W, pursuant to which it manages the day-to-day operations of
P&W, in exchange for a management fee equal to a percentage of the gross
revenues of P&W each month. Also on September 13, 2000, the Company entered into
a financing and security agreement with P&W, pursuant to which the Company
agreed to provide P&W with a secured revolving line of credit for the sole
purpose of purchasing inventory from the Company, up to an aggregate amount of
$2.5 million as may be requested by P&W and as may be allowed by the Company in
its sole discretion. The line of credit is collateralized by a second lien on
substantially all of the assets of P&W, second only to P&W's primary banking
facility, as well as real estate owned by an affiliate of P&W. On November 20,
2000, the Bankruptcy Court entered a final order approving the financing and
security agreement, and on January 30, 2001, the Court entered a final order
approving the management agreement. On February 15, 2001, the Bankruptcy Court
granted an order approving an increase in the line of credit extended to P&W to
an aggregate amount of $3 million. The Company anticipates but cannot guarantee
that the management and financing arrangements will continue until such time as
a bankruptcy plan is approved by the Court.

     The Company recorded management fees revenue of $551,200 from P&W for the
year ended March 31, 2001 in accordance with the management agreement.

Litigation

                                      F-15
<PAGE>

     The Company is, from time to time, involved in litigation relating to
claims arising out of its operations in the ordinary course of business.  The
Company believes that none of the claims should have a material or adverse
impact on its financial position, results of operations, or cash flows.

     On February 14, 2001, in connection with the P&W Bankruptcy proceedings
described above, McKesson HBOC, Inc. ("McKesson") , an unsecured creditor of
P&W, filed a complaint naming P&W, the Company and the Company's subsidiary,
Discount, Inc. ("Discount"), as defendants in an adversary proceeding related to
the above mentioned bankruptcy proceeding (McKesson HBOC, Inc. v. Penner &
Welsch, Inc., et. al., Adversary Case No. 01-1030). In the Adversary Proceeding,
McKesson demanded unspecified damages and injunctive relief and alleged that
Discount and the Company were accomplices to a scheme by P&W to defraud McKesson
due to Discount's interest in acquiring P&W, and its subsequent post petition
financing of P&W. Discount and the Company subsequently filed a motion for
summary judgment asking that Discount and the Company be dismissed from the
Adversary Proceeding. On May 9, 2001, the Court granted Discount's and the
Company's motion, and on May 22, 2001, an order was entered granting summary
judgment in favor of Discount and the Company, thereby dismissing Discount and
the Company as defendants in the Adversary Proceeding. However, on or about June
4, 2001, McKesson filed a motion to have the dismissal reconsidered or,
alternatively, for a new trial. While the Company does not believe that McKesson
will be successful in setting a new trial or having the court's order of
dismissal overturned, the Company can make no assurances in this regard. The
Company intends to vigorously oppose McKesson's latest motion.

NOTE 8 - STOCK AND BENEFIT PLANS

     The information regarding the Company's shares of common stock has been
adjusted to give effect to (i) the one-for-fifty reverse split of the Company's
common stock effected in March 1999, (ii) the two-for-one stock split in the
form of a stock dividend effected in April 1999, and (iii) a one-for-two reverse
stock split in October 1999.

Offering

     On November 22, 1999, the Company successfully completed a public offering
the ("Offering") of 1,380,000 shares of common stock at a price of $10.00 per
share.  Gross proceeds of the Offering were $13.8 million and net offering
proceeds received by the Company were approximately $11.9 million, after payment
of underwriting discounts and commissions and other offering expenses totaling
$1.9 million.

     On November 1, 2000, the Company filed a registration statement with the
Securities and Exchange Commission for a proposed secondary offering of
2,000,000 shares of the Company's common stock.  Utendahl Capital Partners, L.P.
("Utendahl") was contracted to act as lead managing underwriter of the proposed
offering.  However, on December 29, 2000, the Company and Utendahl agreed to
terminate their agreement and Utendahl received 50,000 shares of the Company's
common stock, valued at $3.9375 per share, for full release of the agreement.

     The total costs incurred by the Company were approximately $456,700, and
were capitalized during the third quarter of 2001.  During the fourth quarter of
2001, management determined that market conditions were not conducive to a
successful secondary

                                      F-16
<PAGE>

offering of securities and cancelled the registration. As such, all costs
incurred and capitalized during the year, relative to this offering, were
expensed as an impairment of intangible assets during 2001.


Warrants

     In connection with the offering on November 22, 1999, and as additional
compensation to the underwriters, the Company issued warrants for the purchase
of 150,000 shares of common stock. The warrants are exercisable, in whole or in
part, between the first and fifth years, at an exercise price of $16.50. The
underwriters shall have the option to require the Company to register the
warrants and/or the common stock underlying the warrants. The warrants had an
estimated fair market value of approximately $839,000 on the date of issuance,
determined under the Black-Scholes Model, which is included in additional paid
in capital along with other issuance costs of the Offering.

     On January 23, 2000, the Company granted a director a three-year warrant to
purchase 200,000 shares of common stock at an exercise price of $15.98, which
approximates the 30 day weighted average of the stock price from January 23,
2000 to February 22, 2000. The grant was made as a result of the director acting
as a guarantor of the $5,000,000 Merrill Lynch line of credit. The warrants had
an estimated fair value of approximately $1,625,000, which was determined using
the Black-Scholes Model.

   On February 15, 2000, the Company entered into an Agreement with
Purchasepro.com, Inc. ("PPRO") wherein PPRO was to design and develop a "sell-
side" private e-marketplace, powered by PPRO, labeled to include the marks and
logos of the Company. The custom e-marketplace will be utilized within the
Company's site. PPRO's development and unlimited buyer license fee for
private e-marketplace will be issued in the form of 200,000 of the Company's
warrants. Revenue sharing will take place on transactions and subscriptions
resulting from the Company's marketplace. The warrants shall be exercisable, in
whole or in part, during the term commencing on the date of project completion
(the "Initial Exercise Date"), and ending at 5:00 p.m., Pacific Standard Time,
six months after the date of completion (the "Exercise Period"), and shall be
void thereafter. In consideration for the hosting, archiving, maintenance and
recurring customization of the private e-Marketplace, the Company was to
guarantee PPRO at least $80,000 in annual transaction revenue. The "sell-side"
private e-marketplace project with PPRO is inactive; a termination agreement has
been drafted and no warrants will be issued.

Stock Options

   In August 1999, the Company's Board of Directors adopted a stock option plan
(the "Plan"), which was approved by the Company's shareholders at its annual
meeting in August 2000. The Plan provides for the grant of incentive and
nonqualified stock options to key employees, including officers, directors and
consultants of the Company. Under the provisions of the Plan, all options,
except for options granted to "greater-than-10%-stockholders," have an exercise
price equal to the fair market value on the date of the grant and expire ten
years after the grant date. The exercise price of options issued to "greater-
than-10%-stockholders" shall not be less than 110% of the fair market value of
the common stock on the date of the grant, and such options shall expire five
years after the date of the grant. At a Board Meeting held on March 30, 2001, it
was agreed to increase the number of options to purchase shares of common stock
by an aggregate of 1,000,000. At March 31, 2001, options to acquire up to
1,400,000 shares of common stock may be granted pursuant to the Plan.

     Stock option activity is summarized as follows:

<TABLE>
<CAPTION>
                                                                                                                 Weighted
                                                                                                                 Average
                                                                                        Number of                Exercise
                       Incentive and Non-Qualified Stock Options                          Shares                   Price
      ---------------------------------------------------------------------------   ---------------------      ------------------
          <S>                                                                       <C>                       <C>
          Outstanding March 31, 1999.............................................                       -                       -

          Granted................................................................                 261,800       $           13.08
                                                                                    ---------------------       -----------------
          Outstanding March 31, 2000.............................................                 261,800       $           13.08

          Granted................................................................                  75,000       $           11.69
          Forfeited..............................................................                 (46,500)                  13.53
                                                                                    ---------------------       -----------------
          Outstanding March 31, 2001.............................................                 290,300       $           12.65
                                                                                    =====================       =================
</TABLE>

                                      F-17
<PAGE>

     Outstanding options under the Plan vest over a one- to three-year period.
     As of March 31, 2001, 106,432 options were exercisable.  The following is a
     summary of stock options outstanding and exercisable as of March 31, 2001.

<TABLE>
<CAPTION>
                                                                      Weighted Average
                                            Options                 Remaining Contractual         Options
               Exercise Price              Outstanding                  Life (years)            Exercisable
               --------------              -----------                  ------------            -----------
<S>            <C>                         <C>                      <C>                         <C>
$                  10.00                           15,000                   8.58                      15,000
                   13.00                          180,300                   8.75                      74,766
                   14.30                           50,000                   3.75                      16,666
                   11.38                            7,500                   9.08                           -
                   10.88                           30,000                   9.17                           -
                    7.00                            7,500                   9.42                           -
                                           ---------------                                      -------------
                                                  290,300                                            106,432
                                           ===============                                      =============
</TABLE>


     Remaining non-exercisable options as of March 31, 2001 become exercisable
as follows:

          2002...........................................      84,434
          2003...........................................      84,434
          2004...........................................      15,000
                                                            ----------
                                                              183,868
                                                            ==========

     In January 2000, the Company granted 50,000 options to Stephen M. Watters,
a greater-than-10%-stockholder, at an exercise price of $14.30, which was 110%
of the fair market value of the stock on the date of the grant.  Such options
expire 5 years from the date of the grant.

     The Company applies APB No. 25 in accounting for its warrants and stock
options.  Accordingly, no compensation cost has been recognized for the warrants
and options granted to employees and directors because the exercise price
equaled or exceeded the fair market value on the date of the grant.  Had
compensation cost been determined on the basis of fair value pursuant to SFAS
No. 123, net loss and net loss per share would have increased as follows for the
years ended March 31, 2001 and 2000:

<TABLE>
<CAPTION>

                                           March 31, 2001                    March 31, 2000
                                           --------------                    --------------

                                                            Net Loss                             Net Loss
                                          Net Loss         Per Share            Net Loss        Per Share
                                    ----------------    ---------------   -----------------   ---------------
<S>                                 <C>                 <C>               <C>                 <C>
As reported.......                  $    (7,816,584)    $       (1.22)    $     (1,988,944)   $       (0.51)
Pro forma.........                  $    (9,174,766)    $       (1.43)    $     (3,916,377)   $       (0.71)
</TABLE>

     The weighted-average fair value of options granted for the years ending
March 31, 2001 and 2000 was $10.11 and $10.17, respectively.  The estimated fair
value for the above options and warrants was determined using the Black-Scholes
method with the following weighted-average assumptions used for grants in 2001
and  2000:

                                                           2001           2000
                                                           ----           ----

                                     F-18
<PAGE>

          Dividend Yield.....................             0.00%          0.00%
          Option term........................          10 years     5-10 years
          Warrant term.......................              None        3 years
          Expected volatility................               85%            75%
          Risk-free interest rate............             5.38%    6.27%-6.56%


NOTE 9  - RELATED PARTY TRANSACTIONS

     In May 1999, 21/st/ Century Healthcare Fund, LLC, an affiliate of a
principal shareholder, officer, and director of the Company, Jugal K. Taneja,
loaned $50,000 to the Company for the purpose of assisting the Company with its
working capital needs.  The principal sum, together with interest on the unpaid
principal balance at an annual rate equal to prime plus one percent, was due and
payable on demand at any time following the earlier to occur of either (i) a
public offering of the Company's common stock, or (ii) December 31, 1999.  This
note was repaid  prior to March 31, 2001.

     In July 1999, Stephen M. Watters, then President of the Company, loaned
$70,000 to the Company for the purpose of assisting the Company with its working
capital needs.  The principal sum, together with interest on the unpaid
principal balance at an annual rate equal to prime plus one percent, was due and
payable on demand at any time following the earlier to occur of either (i) a
public offering of the Company's common stock, or (ii) December 31, 1999.  This
note was repaid prior to March 31, 2001.

     In August 1999, Carnegie Capital, Ltd., an affiliate of a director of the
Company, Jugal K. Taneja, a principal shareholder, officer, and director of the
Company, loaned $20,000 to the Company for the purpose of assisting the Company
with its working capital needs.  The principal sum, together with interest on
the unpaid principal balance at an annual rate equal to prime plus one percent,
was due and payable on demand at any time following the earlier to occur of
either (i) a public offering of the Company's common stock, or (ii) December 31,
1999.  This note was repaid prior to March 31, 2001.

     In August 1999, a director of the Company, Howard Howell D.D.S. loaned
$50,000 to the Company for the purpose of assisting the Company with its working
capital needs.  The principal sum, together with interest on the unpaid
principal balance at an annual rate equal to prime plus one percent, was due and
payable on demand at any time following the earlier to occur of either (i) a
public offering of the Company's common stock, or (ii) December 31, 1999.  This
note was repaid prior to March 31, 2001.

     GO2 Pharmacy, Inc., a publicly traded company, formerly Innovative Health
Products, Inc. ("GO2"), is a supplier of manufactured dietary supplements and
health and beauty care products sold by the Company. Jugal K. Taneja is a
Director and Chairman of the Board of GO2 and of the Company.  In the fiscal
year ended March 31, 2001, the Company generated approximately $173,000 worth of
gross revenue from product purchased from Innovative, and in addition, purchased
approximately $49,000 in products which were used for promotional giveaways to
attract new customers to the Company's web site in the first quarter.  The
promotional products were charged to cost of sales.

     In August 1999, Stephen M. Watters, then President of the Company, loaned
$10,000 to the Company for the purpose of assisting the Company with its working
capital needs.  The principal sum, together with interest on the unpaid
principal balance at an annual rate equal to prime plus one percent, was due and
payable on demand at any time following the earlier to occur of either (i) a
public offering of the Company's common stock, or (ii) December 31, 1999.  This
note was repaid prior to March 31, 2001.

     In April 2000, in connection with the acquisition of Valley, the Company
loaned, the sellers of Valley, a total of $170,000 to pay for a portion of the
flow through effects of their S Corporation taxable income resulting from the
sale of Valley.  These are interest-free notes receivable and are to be repaid
by Patrick and Blundo upon their sale of the Company stock, which is restricted
stock subject to a holding period through April 19, 2001.  At March 31, 2001,
the outstanding balance on the notes was $100,000.

     The President of Valley Drug Company and the Chief Financial Officer of the
Company together are 2/3 owners of Professional Pharmacy Solutions, LLC ("PPS"),
a pharmacy management company.  Valley sells products to PPS under normal terms
and conditions.  During the fiscal year ended March 2001, the Company generated
revenues of approximately $1.1 million from PPS.  The receivable balance due
from PPS at March 31, 2001 was approximately $200,000.

     In August 2000, the Company performed and delivered web site and software
related services in the amount of $10,500, for Doctor Surf , a company owned by
Jugal K. Taneja, a principal shareholder, officer, and director of the Company,
and Stephen M. Watters, a director of the Company.

                                     F-19
<PAGE>

NOTE 10 - SEGMENT INFORMATION

     The Company has adopted SFAS No. 131, "Disclosures About Segments of
Enterprise and Related Information, " which established standards for reporting
information about a Company's operating segments.  Operating segments are
defined as components of an enterprise for which separate financial information
is available that is evaluated on a regular basis by the chief operating
decision maker, or decision making group, in deciding how to allocate resources
to an individual segment and in assessing performance of the segment.

     During the years ended March 31, 2001 and 2000, the Company operated two
industry segments: wholesale distribution and computer software development.
The following table reports financial data that management uses in its business
segment analysis.  Amounts shown below are as of and for the years ended March
31, 2001 and 2000.

<TABLE>
<CAPTION>
                                                                              2001                  2000
                                                                       -----------------     -----------------
<S>                                         <C>                        <C>                   <C>
Revenue
                                            Distribution               $    177,563,881      $     21,048,147
                                            Software Development                149,183                 2,400
                                                                         ---------------       ---------------
                                            Total                      $    177,713,064      $     21,050,547
                                                                         ===============       ===============

Gross profit
                                            Distribution               $      5,421,513      $        141,376
                                            Software Development                109,888                 2,400
                                                                         ---------------       ---------------
                                            Total                      $      5,531,401      $        143,776
                                                                         ===============       ===============

Operating loss before other income and
expenses
                                            Distribution               $     (6,468,715)     $     (1,898,580)
                                            Software Development               (465,139)              (34,297)
                                                                         ---------------       ---------------
                                            Total                      $     (6,933,854)     $     (1,932,877)
                                                                         ===============       ===============


Assets
                                            Distribution               $     54,568,796      $     38,408,017
                                            Software Development                 62,494               105,895
                                                                         ---------------       ---------------
                                            Total                      $     54,631,290      $     38,513,912
                                                                         ===============       ===============

Capital expenditures
                                            Distribution               $        111,576      $        182,634
                                            Software Development                      -                     -
                                                                         ---------------       ---------------
                                            Total                      $        111,576      $        182,634
                                                                         ===============       ===============
</TABLE>


NOTE 11 - SUBSEQUENT EVENTS

     In April 2001, the Company negotiated terms with Dell Computer Corporation
("Dell") for the buy-out of the leases on computer equipment acquired with the
acquisition of Desktop.  The Company paid $23,000 to settle the outstanding
leases with Dell.  The leases carried a minimum monthly lease payment of
approximately $3,500 with lease terms into the fiscal year ending March 31,
2003.

     On June 1, 2001, the Company launched its online pharmacy directory
PharmacyMax.com.  PharmacyMax.com is a web site that allows the Company's
members to create their own web sites.  The user-friendly site enables members
to choose the theme of their site, upload pictures, write content, and post
health news.  PharmacyMax.com offers the Company's members the opportunity to
personalize their own web sites with options such as community bulletin boards,
directions to the member's location, information

                                     F-20
<PAGE>

about the member pharmacy and also provides each site with unique e-mail
accounts. The web site will potentially provide the Company with an additional
source of revenue based upon a service fee charged to its customers for use of
its site.

NOTE 12 - MAJOR CUSTOMER CONCENTRATION

     The Company services customers in the continental United States.  During
the fiscal years ended 2001 and 2000, the Company had one customer which
accounted for 16% and 21%, respectively, of the Company's gross sales.  The
Company sells goods to its customers on various payment terms which entail
accounts receivable exposure.  Although the Company monitors closely the
creditworthiness of its customers, there can be no assurance that the Company
will not incur a write-off or write-down of a significant account in the future.

                                     F-21