SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): June 17, 1997
COMPLETE MANAGEMENT, INC.
-------------------------
(Exact name of Registrant as specified in its charter)
NEW YORK 0-27260 11-3149119
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
254 West 31st Street, New York, New York 10001
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(Address of principal executive office) (Zip Code)
(212) 868-1188
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Registrant's telephone number, including area code:
N/A
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(Former name or former address, if changed since last report)
<PAGE>
Item 7: Financial Statements, Pro Forma Financial
Information and Exhibits
Financial Statement of Business Acquired:
The financial statements of Consumer Health Network, Inc.
commencing on page F-2 hereof.
Pro Forma Financial Information
The unaudited pro forma consolidated statements of income for
Complete Management, Inc. and its subsidiaries commencing on
page F-10 hereof.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
COMPLETE MANAGEMENT, INC.
Date: August 27, 1997 By: /s/ Dennis Simmons,
-------------------------------------
Dennis Simmons, Executive Vice President
2
<PAGE>
I N D E X
PAGE
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CONSUMER HEALTH NETWORK, INC.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995 F-3
STATEMENTS OF INCOME AND RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1996 AND 1995 F-4
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995 F-5
NOTES TO FINANCIAL STATEMENTS F-6-9
COMPLETE MANAGEMENT, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME FOR
THE SIX MONTH PERIOD ENDED JUNE 30, 1997 AND FOR THE YEAR
ENDED DECEMBER 31, 1996. F-10-11
F-1
<PAGE>
CONSUMER HEALTH NETWORK, INC.
(formerly C.H.N. ACQUISITION CORP.,
INC. D/B/A CONSUMER HEALTH NETWORK)
REPORT ON FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31,
1996 AND 1995
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
Consumer Health Network, Inc.
We have audited the accompanying balance sheets of CONSUMER HEALTH NETWORK, INC.
(formerly C.H.N. Acquisition Corp., Inc. d/b/a Consumer Health Network) as of
December 31, 1996 and 1995, and the related statements of income and retained
earnings 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Consumer Health Network, Inc.
as of December 31, 1996 and 1995, and its results of operations and cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
/s/ J. H. Cohn LLP
Roseland, New Jersey
March 12, 1997
F-2
<PAGE>
CONSUMER HEALTH NETWORK, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS 1996 1995
------ ---------- ----------
Current assets:
Cash and cash equivalents $2,457,472 $1,495,477
Accounts receivable, net of allowance for
doubtful accounts of $87,000 and $69,000 1,164,789 891,150
Prepaid expenses and sundry receivable 26,013 52,470
---------- ----------
Total current assets 3,648,274 2,439,097
Furniture and equipment, at cost, net of
accumulated depreciation 273,380 240,117
Intangible assets, net of accumulated
amortization of $20,833 in 1996 104,167 125,000
Deposits 18,551 30,027
---------- ----------
Totals $4,044,372 $2,834,241
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of notes payable - bank $ 30,672 $ 79,560
Current portion of obligations under capital
leases 17,879 15,731
Accounts payable and accrued expenses 373,300 591,597
---------- ----------
Total current liabilities 421,851 686,888
Notes payable - bank, net of current portion 15,299 50,415
Obligations under capital leases, net of
current portion 60,868 78,744
---------- ----------
Total liabilities 498,018 816,047
---------- ----------
Commitments and contingency
Stockholders' equity:
Common stock, no par value; authorized
1,000,000 shares; issued and outstanding
1,564 shares, at stated value of $1 per
share 1,564 1,564
Additional paid-in capital 816,771 816,771
Retained earnings 2,728,019 1,199,859
---------- ----------
Total stockholders' equity 3,546,354 2,018,194
---------- ----------
Totals $4,044,372 $2,834,241
========== ==========
See Notes to Financial Statements.
F-3
<PAGE>
CONSUMER HEALTH NETWORK, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1996 AND 1995
INCOME 1996 1995
------ ---------- ----------
Net revenue $7,853,265 $6,211,415
---------- ----------
Expenses:
Salaries and fringe benefits 2,593,284 2,106,338
Selling 594,140 587,711
General and administrative 1,493,909 1,022,264
Depreciation and amortization 155,950 84,022
---------- ----------
Totals 4,837,283 3,800,335
---------- ----------
Operating income 3,015,982 2,411,080
---------- ----------
Other income (expense):
Special professional fees (155,825) (187,643)
Interest income, net 53,144 1,667
---------- ----------
Totals (102,681) (185,976)
---------- ----------
Income before income taxes 2,913,301 2,225,104
Provision for income taxes 88,500 48,000
---------- ----------
Net income 2,824,801 2,177,104
RETAINED EARNINGS
-----------------
Balance, (deficit), beginning of year 1,199,859 (42,012)
Distributions to stockholders (1,296,641) (935,233)
---------- ----------
Balance, end of year $2,728,019 $1,199,859
========== ==========
See Notes to Financial Statements.
F-4
<PAGE>
CONSUMER HEALTH NETWORK, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
---------- ----------
Operating activities:
Net income $2,824,801 $2,177,104
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 155,950 84,022
Provision for bad debts 47,746 38,000
Changes in operating assets and liabilities:
Accounts receivable (321,385) (59,182)
Prepaid expenses and sundry receivables 26,457 (31,180)
Deposits 11,476 (4,173)
Accounts payable and accrued expenses (93,297) 114,484
---------- ----------
Net cash provided by operating activities 2,651,748 2,319,075
---------- ----------
Investing activities:
Acquisition of company (125,000)
Purchase of furniture and equipment (168,380) (85,715)
---------- ----------
Net cash used in investing activities (293,380) (85,715)
---------- ----------
Financing activities:
Payment of notes payable (84,004) (79,560)
Payment of obligations under capital leases (15,728) (11,646)
Distributions to stockholders (1,296,641) (935,233)
---------- ----------
Net cash used in financing activities (1,396,373) (1,026,439)
---------- ----------
Net increase in cash and cash equivalents 961,995 1,206,921
Cash and cash equivalents, beginning of year 1,495,477 288,556
---------- ----------
Cash and cash equivalents, end of year $2,457,472 $1,495,477
========== ==========
Supplemental disclosure of cash flow data:
Interest paid $ 14,776 $ 23,383
========== ==========
Income taxes paid $ 78,063 $ 69,833
========== ==========
Supplemental disclosure of noncash investing and financing activities: During
1995, the Company acquired equipment in the amount of $72,440 under capital
lease obligations.
See Notes to Financial Statements.
F-5
<PAGE>
CONSUMER HEALTH NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Business and summary of accounting policies:
Business:
Consumer Health Network, Inc., formerly C.H.N. Acquisition Corp.
Inc. d/b/a/ Consumer Health Network, (the "Company") is a preferred
provider organization establishing economic partnerships between
the payers of health care benefits and the providers of health care
services. The Company has contracts with hospitals, physicians and
other health care providers to provide discounted fees to payers of
such services who use the Company's network. Because of these
separate relationships with the provider of services and the payer
of such services, the Company is not a risk entity.
In December 1995, another preferred provider organization was
merged into the Company. The assets of the acquired entity
consisted exclusively of contracts with physicians and other
healthcare providers to provide discounts to network members. The
purchase price was $125,000 which was paid in 1996. In conjunction
with the merger, stockholders of the acquired organization executed
noncompete agreements.
Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect certain reported amounts
and disclosures. Accordingly, actual results could differ from
those estimates.
Cash equivalents:
The Company considers all highly liquid investments with a maturity
of three months or less when purchased as cash equivalents.
Concentrations of credit risk:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and cash
equivalents and accounts receivable. The Company maintains its cash
and cash equivalents in bank deposit accounts which, at times, may
exceed Federally insured limits. A substantial portion of the
Company's revenue is derived from, and its accounts receivable are
concentrated in, entities in the health care industry. At December
31, 1996, accounts receivable from five of these entities accounted
for approximately 74% of total accounts receivable. The Company
routinely assesses the financial strength of its customers and
establishes an allowance for doubtful accounts based upon factors
surrounding the credit risk of specific customers, historical
trends and other information.
F-6
<PAGE>
CONSUMER HEALTH NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Business and summary of accounting policies (concluded):
Depreciation and amortization:
Depreciation of furniture and equipment is calculated on
accelerated methods by annual charges to operations over the
estimated useful lives of the assets.
Acquisition costs are amortized over the six year period of the
noncompete agreement.
Advertising:
The Company expenses the cost of advertising and promotions as
incurred. Advertising costs charged to operations were $99,652 and
$201,624 in 1996 and 1995, respectively.
Income taxes:
The Company has elected to be treated as an "S" Corporation under
the applicable sections of the Internal Revenue Code. Under these
sections, corporate income or loss, in general, is allocated to the
stockholders for inclusion in their personal income tax returns.
Accordingly, there is no provision for Federal income tax in the
accompanying financial statements.
The Company has also elected to be treated as an "S" Corporation
for New Jersey state income tax purposes. However, the State of New
Jersey does impose a tax on "S" Corporation income at a reduced
rate and, accordingly, a provision for such tax has been made in
the accompanying financial statements.
Note 2 - Furniture and equipment:
Furniture and equipment consists of the following:
Estimated
Useful
Lives 1996 1995
---------- -------- --------
Equipment 5 years $279,618 $239,992
Office furniture and
fixtures 7 years 151,349 123,826
Software 3-5 years 143,468 42,237
-------- --------
574,435 406,055
Less accumulated
depreciation and amortization 301,055 165,938
-------- --------
Totals $273,380 $240,117
======== ========
F-7
<PAGE>
CONSUMER HEALTH NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
Note 2 - Furniture and equipment (concluded):
Included in equipment and office furniture is $138,262 of equipment
under capital lease obligations at December 31, 1996 and 1995.
Related accumulated depreciation amounted to $84,749 and $49,620 at
December 31, 1996 and 1995, respectively.
Note 3 - Notes payable - bank:
Notes payable - bank are payable in monthly installments with
interest at prime plus 1% (9.25% at December 31, 1996) through July
1998, are secured by all assets of the Company and are guaranteed by
the stockholders.
Principal payment requirements subsequent to December 31, 1996 are
$30,672 in 1997 and $15,299 in 1998.
Note 4 - Related party transactions:
Selling, general and administrative expenses and other special
professional fees amounting to $435,948 and $249,030 in 1996 and
1995, respectively, were incurred for services rendered by companies
in which certain stockholders have an interest. At December 31, 1996
and 1995, these companies were due $14,145 and $95,848, respectively,
which amounts are included in accounts payable and accrued expenses
in the accompanying balance sheets.
Note 5 - Commitments and contingency:
Capital lease obligations:
The Company leases equipment under lease agreements expiring
through 2000. The following is a schedule by year of future minimum
lease payments under capital lease obligations, together with the
present value of net minimum lease payments, as of December 31,
1996:
Year Ending
December 31, Amount
------------ -------
1997 $27,072
1998 26,847
1999 26,175
2000 19,631
-------
Total minimum lease payments 99,725
Less amount representing interest 20,978
-------
Present value of net minimum lease
payments 78,747
Less current portion 17,879
-------
Long-term portion $60,868
=======
F-8
<PAGE>
CONSUMER HEALTH NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
Note 5 - Commitments and contingency (concluded):
Operating lease:
The Company leases its office facilities under a lease which
expires in November 1999. In addition to minimum annual rentals,
the lease requires the payment of certain operating expenses.
Minimum rental commitments under the noncancelable operating lease
as of December 31, 1996 are as follows:
Year Ending
December 31, Amount
------------ ------
1997 $108,300
1998 108,300
1999 99,275
--------
Total $315,875
========
Rent expense amounted to $107,554 and $131,007 in 1996 and 1995,
respectively.
Stock purchase agreement:
The Company had an employment agreement with a key
officer/stockholder which expired on December 31, 1995 and was not
renewed. According to the terms of the agreement, the Company was
required to purchase all shares of common stock owned by the
related key officer/stockholder within two years of the termination
of employment at the then current appraisal price, as defined.
Noncompete agreement:
In connection with the acquisition of another preferred provider
organization (see Note 1), the Company is obligated under a
noncompete agreement with the stockholders of the acquired
organization to pay 10% of eligible revenue (as defined) through
December 31, 2001, not to exceed $475,000. During the year ended
December 31, 1996, the Company derived revenue, subject to this
agreement, amounting to approximately $3,000 and recorded a
liability to the stockholders of the acquired organization of
approximately $300. It is not certain that the Company will earn
revenue sufficient to require the payment of $475,000 during the
period and, accordingly, no liability has been provided.
Note 6 - Major customers:
Five customers accounted for 71% and 81% of the Company's total
revenue for the years ended December 31, 1996 and 1995, respectively.
* * *
F-9
<PAGE>
COMPLETE MANAGEMENT, INC.
Unaudited Pro forma Consolidated Statements of Income
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the Six Months Ended June 30, 1997
---------------------------------------------------
CMI CHN Adjustments Pro forma
-------- -------- -------------- ------------
(4) (1)
<S> <C> <C> <C> <C>
Revenue $ 12,496 $ -- $ -- $ 12,496
Other revenue 20,647 3,227 23,874
Interest discount (1,549) -- (1,549)
-------- -------- -------- --------
Net revenue 31,594 3,227 0 34,821
Cost of revenue 15,116 -- 15,116
General and administrative expenses 10,430 3,042 (402)(2) 13,070
-------- -------- -------- --------
Operating income 6,048 185 402 6,635
Interest discount included in income 1,129 -- 1,129
Interest expense (3,193) (7) (3,200)
Interest, dividends and other income, net 1,790 54 1,844
Other income/(expense) 445 -- 445
-------- -------- -------- --------
Income before provision for income taxes 6,219 232 402 6,853
Provision for taxes 2,416 32 310(3) 2,758
-------- -------- -------- --------
Net income $ 3,803 $ 200 $ 92 $ 4,095
======== ======== ======== ========
Primary net income per share $ 0.37 $ 0.38
======== ========
Weighted average number of shares outstanding 10,405 10,720(5)
======== ========
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended December 31, 1996
------------------------------------------------------------------
CMI CHN AAMC OTHER Adjustments Pro forma
-------- ------ -------- -------- ------------ ------------
(4) (1)
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 21,463 $ -- $ 5,581 $ 1,787 $ -- $ 28,831
Other revenue 11,695 7,853 -- -- -- 19,548
Interest discount (2,166) -- -- -- -- (2,166)
-------- ------ ------- ------- ----- --------
Net revenue 30,992 7,853 5,581 1,787 -- 46,213
Cost of revenue 12,308 0 5,835 1,526 -- 19,669
General and administrative expenses 9,143 4,993 864 308 828(2) 16,136
-------- ------ ------- ------- ----- --------
Operating income 9,541 2,860 (1,118) (47) (828) 10,408
Interest discount included in income 2,452 -- -- -- -- 2,452
Interest expense (2,740) -- -- -- -- (2,740)
Interest, dividends and other income, net 1,040 53 (8) (10) -- 1,075
-------- ------ ------- ------- ----- --------
Income before provision for income taxes 10,293 2,913 (1,126) (57) (828) 11,195
Provision for taxes 4,879 88 -- 1 (450)(3) 4,518
-------- ------ ------- ------- ----- --------
Net income $ 5,414 $2,825 $(1,126) $ (58) $(378) $ 6,677
======== ====== ======= ======= ===== ========
Primary net income per share $ 0.68 $ 0.80
======== ========
Weighted average number of shares
outstanding 8,008 8,323(5)
======== ========
</TABLE>
F-10
<PAGE>
COMPLETE MANAGEMENT, INC.
Unaudited Pro forma Consolidated Statements of Income
- -------------------------------------------
(1) Reflects the acquisitions as if they had occurred at
the beginning of each year.
(2) Reflects the following adjustments: 1997 1996
---- ----
amortization of purchase price in excess of net assets $ 172 $828
acquired non-recurring general and administrative expenses $(574) $ --
(3) Pro forma net income reflects a provision for income
taxes since certain acquisitions had been S
Corporations through such date. Such provision assumes
an effective tax rate of 47%.
(4) The adjustments are based on available information and
upon certain assumptions that the Company believes are
reasonable under circumstances; however, the actual
recording of the acquisitions (which management does
not expect to vary materially) will be based on
ultimate appraisals, evaluations and estimates of fair
values.
(5) Reflects the issuance of 314,651 shares in connection
with the acquisition of CHN.
F-11
