SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K/A-3
X Annual Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 for the fiscal year ended April 30, 1995.
Transition report pursuant to Section 13 of 15(d) of the Securities
Exchange Act of 1934 for transition period from to .
Commission File No. 0-18472
HEALTH MANAGEMENT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2096632
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4250 VETERANS MEMORIAL HIGHWAY, HOLBROOK, NEW YORK 11741
(Address of principal executive offices)
Registrant's telephone number, including area code: (516) 981-0034
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
Common Stock, $.03 par value per share
Indicate by check mark whether the Registrant has (1) filed all reports
required to be filed by Section 12 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) been subject to such
filing requirements for the past 90 days.
Yes X No ______
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not 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-K.
As of July 25, 1995, the closing price of the Registrant's common stock
quoted on the NASDAQ National Market was $12.25. The aggregate market value of
the voting stock held by non-affiliates of the Registrant was $74,319,231. As
of July 25, 1995, there were 9,318,959 shares of common stock, $.03 par value,
outstanding.
The undersigned Registrant hereby amends the following items, financial
statements, exhibits or other portions of its Annual Report on Form 10-K for its
fiscal year ended April 30, 1995, as hereinafter set forth:
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial information for the five fiscal years
ended April 30, 1995 is derived from the financial statements of the Company,
which statements were audited by BDO Seidman, LLP, independent certified public
accountants, whose report with respect to such statements appears elsewhere in
this Report.
This information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and notes thereto included elsewhere in this Report.
The selected financial data for 1995 has been restated (see Note 9 to
Consolidated Financial Statements).
HEALTH MANAGEMENT, INC.
(Consolidated)
<TABLE>
<CAPTION>
Years Ended April 30,
1995 1994 1993 1992 1991
Income Statement Data (Amounts in Thousands except per share data)
<S> <C> <C> <C> <C> <C>
Revenues $88,456 $44,250 $ 26,393 $14,594 $ 7,817
Gross profit 24,748 15,606 9,023 4,822 2,699
Operating expenses 21,795 9,145 5,661 3,019 1,828
Operating income 2,953 6,461 3,362 1,803 871
Net income 1,946 4,001 2,207 1,066 572
Net income per share
-primary $0.21 $.54 $ .38 $ .23 $ .13
-fully diluted $0.21 $.53 .35 .22 .12
Weighted Average number of
shares of Common Stock
outstanding
-primary 9,408 7,383 5,884 4,599 4,554
-fully diluted 9,421 7,594 6,309 5,076 4,633
As of April 30,
1995 1994 1993 1992 1991
Balance Sheet Data (Amounts in Thousands except per share data)
Total Assets $88,690 $52,418 $ 17,158 $ 6,842 $ 3,390
Working Capital 12,486 32,333 8,946 2,158 1,470
Long term debt, including
current maturities 26,326 256 521 730 915
Shareholders' equity 48,171 44,096 9,755 2,372 1,298
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
All statements contained herein that are not historical facts, including, but
not limited to, statements regarding the Company's current business strategy,
the Company's projected sources and uses of cash, and the Company's plans for
future development and operations, are based upon current expectations. These
statements are forward-looking in nature and involve a number of risks and
uncertainties. Actual results may differ materially. Among the factors that
could cause actual results to differ materially are the following: the
availability of sufficient capital to finance the Company's business plans on
terms satisfactory to the Company; competitive factors; the ability of the
Company to adequately defend or reach a settlement of outstanding litigations
and investigations involving the Company or it management; changes in labor,
equipment and capital costs; changes in regulations affecting the Company's
business; future acquisitions or strategic partnerships; general business and
economic conditions; and other factors described from time to time in the
Company's reports filed with the Securities and Exchange Commission. The Company
wishes to caution readers not to place undue reliance on any such forward-
looking statements, which statements are made pursuant to the Private Litigation
Reform Act of 1995 and, as such, speak only as of the date made.
RESULTS OF OPERATIONS
YEAR ENDED APRIL 30, 1995 AS COMPARED TO YEAR ENDED APRIL 30, 1994
The financial information for the 1995 fiscal year has been restated. See
Note 9 to the Consolidated Financial Statements.
The Company's revenues were $88,456,028 for the year ended April 30, 1995,
an increase of $44,206,512 or 99.9%, over revenues of $44,249,516 for the year
ended April 30, 1994. Revenues generated through the Company's recent
acquisitions accounted for approximately $26,500,000 of the additional revenues,
of which approximately $20,000,000 is attributable to the acquisition of the
Murray Group. The balance of the increase in revenues was derived from internal
growth resulting from the expansion of the Lifecare Program into new disease
states and new referral sources.
Gross profit margins were 28.0% for the year ended April 30, 1995, as
compared to 35.3% for the year ended April 30, 1994. The decrease in gross
profit margin was primarily attributable to the following factors: (i) increases
in Betaseron revenues, which presently yields lower margins than have been
historically achieved by the Company for other disease management programs; (ii)
reductions in the fixed fee reimbursement rates from certain state Medicaid
programs (principally New York, which lowered its reimbursement by 10%); (iii)
an increase in the number of transplant patients receiving immunosuppressant
drug benefits under Medicare due to the extension of Medicare coverage beyond
the historical one year post-transplant period; (iv) and reduction of
reimbursement rates that occur when the drug benefit is carved out from the
major medical benefit and is switched to a drug card.
Operating expenses as a percentage of revenues increased to 24.6% for the
year ended April 30, 1995, as compared to 20.7% for the year ended April 30,
1994. Total operating expenses were $21,794,505 for the year ended April 30,
1995, an increase of $12,649,765 over the year ended April 30, 1994. The
increase was a result of the three factors. First, during the last quarter, the
Company consummated three acquisitions which resulted in approximately $550,000
of expenses which were one time charges to operations. Second, expenses to
increase the provision for doubtful accounts were approximately $5,800,000
higher for the fiscal year 1995. Third, to support the Company's continued
expansion, selling and marketing efforts, expenses increased by approximately
$1,051,000, while payroll related expense increased by approximately $2,600,000,
with the balance of the increase being general operating expenses.
Approximately $300,000 of the increased payroll expenses and approximately
$300,000 of the increased general operating expenses were attributable to
increased staffing, system development and training in the area of reimbursement
as the Company directed greater effort toward decreasing its days sales
outstanding.
Operating income was $2,953,502 for the year ended April 30, 1995, a
decrease of $3,507,800 or 54.3%, compared to operating income of $6,461,302 for
the year ended April 30, 1994. This increase is a result of the Company's
significant revenue growth offset by decreases in gross profit margins and
increases in the provisions for doubtful accounts.
Income before taxes was $3,286,579 for the year ended April 30, 1995, a
decrease of $3,464,884 or 51.3%, compared to $6,751,463 for the year ended April
30, 1994.
The effective tax rate for the year ended April 30, 1995 was 40.8%, an
increase of 0.1 points, compared to 40.7% for the fiscal year ended April 30,
1994.
Net income was $1,946,188 for the year ended April 30, 1995, compared to
$4,000,958 for the year ended April 30, 1994, a decrease of $2,054,770 or 51.4%.
Primary and fully diluted earnings per common share for the year ended
April 30, 1995 were $.21 and $.21, compared to $.54 and $.53 for the year ended
April 30, 1994. The weighted average number of shares outstanding used in the
calculation of fully diluted earnings per share was 9,420,816 and 7,593,465 for
the years ended April 30, 1995 and April 30, 1994, respectively.
YEAR ENDED APRIL 30, 1994 AS COMPARED TO YEAR ENDED APRIL 30, 1993
The Company's revenues were $44,249,516 for the year ended April 30, 1994,
an increase of $17,856,164, or 67.7%, over revenues of $26,393,352 for the year
ended April 30, 1993. In its initial month of consolidated activity, The Murray
Group (as defined below) contributed net revenues of approximately $1,919,000
for the month of April 1994. Revenues derived from organ transplantation for
the year ended April 30, 1994 increased to approximately $40,000,000, and
represented approximately 91.1% of total gross revenues, while revenues
generated from the sale or rental of durable medical equipment and supplies
produced approximately 4.6% of gross revenues.
Gross profit margins were 35.3% for the year ended April 30, 1994, as
compared to 34.2% for the year ended April 30, 1993. The increase in gross
profit margins was attributable to stable transplant and durable medical
equipment profit margins and increases derived from intravenous therapies
revenues which yield higher margins than those generally achieved from oral
immunosuppressant therapies.
Operating expenses as a percentage of revenues decreased by .8% to 20.7%
for the year ended April 30, 1994, as compared to 21.5% for the year ended April
30, 1993. Total operating expenses were $9,144,754, for the year ended April
30, 1994, an increase of $3,483,665 over the year ended April 30, 1993.
Provision for bad debt was $1,781,000, for the year ended April 30, 1994, an
increase of approximately $1,070,000, over last year. The increase in the
provision for bad debt expense was provided to offset any potential collection
disputes or future charges to earnings which may occur as a result of the
initial delays in billing which occurred in connection with the implementation
of the Company's new management information system. This increase represents a
60% increase in the level of the provision from approximately 2.5% on a
historical basis, to approximately 4% of revenues. To support the Company's
continued expansion, selling, and marketing expenses increased by approximately
$523,000, payroll related expenses increased by approximately $854,000, while
increases in other operating expenses represent the balance of the increase.
Operating income was $6,461,302, for the year ended April 30, 1994, an
increase of $3,098,912 or 92.2%, compared to operating income of $3,362,390, for
the year ended April 30, 1993. This increase is a result of the Company's
significant revenue growth, increases in gross profit margins combined with the
modest decrease in operating expenses as a percentage of total revenues.
The effective tax rate for the year ended April 30, 1994, was 40.7%, an
increase of 4.0%, compared to 36.7% for the fiscal year ended April 30, 1993,
due to the disproportionate increase in revenues generated from certain of the
Company's regional facilities which have higher state and local tax rates in
comparison to the mix of revenues last year.
Net income was $4,000,958, for the year ended April 30, 1994, compared to
$2,206,986 for the year ended April 30, 1993, an increase of $1,793,972, or
81.3%. The increase in net income was a result of the increase in revenue and
gross profit margins which outweighed the increase in operating expenses.
Primary and fully diluted earnings per common share for the year ended
April 30, 1994, were $.54 and $.53, compared to $.38 and $.35 for the year ended
April 30, 1993.
INFLATION
Inflation did not have a material effect on the Company's results during
the periods discussed.
LIQUIDITY AND CAPITAL RESOURCES
The net decrease of $8,932,768 in the Company's cash and cash equivalents
to $4,562,712 at April 30, 1995 was attributable to cash used in operating and
investing activities offset by net cash provided by financing activities. The
Company's continued growth resulted in utilization of cash for operating
activities. Increases in cash flows resulting from net income, accounts payable
and non-cash adjustments were offset primarily by increases in accounts
receivable and inventory, and decreases in income taxes payable. Net cash used
in investing activities was primarily attributable to the consummation of three
acquisitions, which substantially increased the Company's distribution network
and accounted for over $22,000,000 in cash outlays. To facilitate the
acquisition of the Clozaril patient management business from Caremark, the
Company borrowed $21,000,000 in the form of term loans and delivered a
$3,000,000 subordinated note to Caremark.
The Company presently has a line of credit with a bank in the amount of
$15,000,000, collateralized by a first security lien on the Company's assets.
The line of credit provides for interest at the bank's alternate base rate which
approximated 9.0%. At April 30, 1995, the Company had a $2,000,000 balance
under this line of credit. As a result of the restatement discussed in Note 9
of the financial statements, the Company is in violation of its loan agreements
and its loans have been classified as current liabilities.
Working capital at April 30, 1995, was $12,486,358, a decrease of
$19,526,835 from April 30, 1994. The components of the decrease were accounts
receivable (approximately $9,100,000), inventory (approximately $5,400,000) and
increases in deferred taxes (approximately $2,500,000) and prepaids
(approximately $1,200,000) offset by increases in accounts payable
(approximately $6,600,000), current maturities of long-term debt (approximately
$23,000,000) and a reduction in income taxes payable (approximately $1,800,000).
The Company's cash flow depends on its receipt of payments for its products
and services and upon reimbursements from private third-party payors, from
federal programs such as Medicare and from various state Medicaid programs. The
Company is paid for products and services it sells directly to individual
customers of its pharmacies, to customers covered by third-party prescription
plans and most Medicaid patients either at the time of purchase, or within 45
days of invoice to such payors. Medicare and private third-party insurers
generally pay the Company 60 to 90 days after invoicing. Hospitals and clinics
to whom the Company sells its products on a wholesale basis generally pay
approximately 90 days after invoicing.
During the year ended April 30, 1995, the Company allocated personnel and
other financial resources in order to sustain a concerted effort to reduce the
Company's days sales outstanding. As of April 30, 1995, days sales outstanding
were down 29 days from April 30, 1994 to 119.
ITEM 8. FINANCIAL STATEMENTS
The Restated Financial Statements for the fiscal year ended April 30, 1995
may be found beginning on page F-1 hereof.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) DOCUMENTS FILED AS A PART OF THIS REPORT
(1) FINANCIAL STATEMENTS. The restated financial statements of Health
Management, Inc. and Subsidiaries for the year ended April 30, 1995,
together with the Report of Independent Certified Public Accountants, are
set forth beginning on page F-1 hereof.
(2) FINANCIAL STATEMENT SCHEDULES. Restated financial statement schedules
required by Items 8 and 14(d) of this Report are set forth following page
S-1 of the financial statements.
(b) REPORTS ON FORM 8-K
The following reports on Form 8-K were filed during the fourth quarter of
the fiscal year ended April 30, 1995:
Form 8-K, dated April 14, 1995, was filed with the Securities Exchange
Commission on April 17, 1995.
(c) EXHIBITS
3.1 Certificate of Incorporation of the Company, as filed with the
Secretary of State of Delaware on March 25, 1986 (incorporated by
reference to Registration Statement on Form S-1, Registration No.
33-04485).
3.2 Certificate of Amendment to Certificate of Incorporation of the
Company, as filed with the Secretary of State of Delaware on
March 9, 1988 (incorporated by reference to Form 10-K for year
ended April 30, 1988).
3.3 Certificate of Amendment to Certificate of Incorporation of the
Company, as filed with the Secretary of State of Delaware on
March 31, 1992 (incorporated by reference to Registration
Statement on Form S-1, No. 33-46996).
3.4 Certificate of Amendment to Certificate of Incorporation of the
Company, as filed with the Secretary of State of Delaware on
October 27, 1994.
3.5 By-Laws of the Company (incorporated by reference to Registration
Statement on Form S-1, Registration No. 33-04485).
4.1 Form of 10% Convertible Subordinated Debenture (incorporated by
reference to Form 8-K dated March 4, 1991).
4.2 Specimen Form of Certificate for Common Stock (incorporated by
reference to Registration Statement on Form S-1, Registration No.
33-46996).
4.3 Form of Representatives' Purchase Warrant (incorporated by
reference to Amendment Number 2 to Registration Statement on Form
S-1, Registration No. 33-46996).
4.4 Form of Selling Shareholders' Power of Attorney (incorporated by
reference to Registration Statement on Form S-1, Registration No.
33-46996).
4.5 Form of Selling Shareholders' Custody Agreement (incorporated by
reference to Registration Statement on Form S-1, Registration No.
33-46996).
10.1 Stock Purchase Agreement dated December 8, 1988 (incorporated by
reference to Form 8-K dated December 23, 1988).
10.2 Addendum dated February 1, 1989 to Stock Purchase Agreement dated
December 23, 1988 (incorporated by reference to Amendment Number
1 to Registration Statement on Form S-1, Registration No. 33-
46996).
10.3 1989 Stock Option Plan (incorporated by reference to Registration
Statement on Form S-1, Registration No. 33-46996).
10.4 Lease dated April 20, 1990 on Company's Ronkonkoma, New York
facility between the Company and Four L Realty Co (incorporated
by reference to Registration Statement on Form S-1, Registration
No. 33-46996).
10.5 Amendment dated March 16, 1992 to Lease dated April 20, 1990 on
Company's Headquarters between the Company and Four L Realty Co.
(incorporated by reference to Form 10-K for year ended April 30,
1992).
10.6 Company 401(k) Plan (incorporated by reference to Amendment
Number 1 to Registration Statement on Form S-1, Registration No.
33-46996).
10.7 Employment Agreement between the Company and Clifford E. Hotte
(incorporated by reference to Amendment Number 2 to Registration
Statement on Form S-2, Registration No. 33-69548).
10.8 Assets Purchase Agreement, dated as of March 27, 1994, between
the Registrant, Murray Pharmacy Too, Inc. and the Shareholders
named therein (incorporated by reference to Current Report on
Form 8-K dated April 1, 1994).
10.9 Assets Purchase Agreement, dated as of March 27, 1994, between
HMI Retail Corp., Murray Pharmacy, Inc. and the Shareholders
named therein (incorporated by reference to Annual Report on Form
10-K filed August 2, 1994).
10.10 Asset Purchase Agreement, dated as of February 21, 1995,
between Caremark Inc. and Health Management, Inc.
(incorporated by reference to Current Report on Form 8-K
dated April 14, 1995).
10.11 First Amendment to Asset Purchase Agreement, dated as of
March 31, 1995, between Caremark Inc. and Health Management,
Inc. (incorporated by reference to Current Report on Form 8-
K dated April 14, 1995).
10.12 Transition Agreement, dated as of March 31, 1995, between
Caremark Inc. and HMI Illinois. (incorporated by reference
to Current Report on Form 8-K dated April 14, 1995).
10.13 Credit Agreement, dated as of March 31, 1995 among, Health
Management, Inc., Home Care Management, Inc., HMI
Pennsylvania, Inc., HMI Illinois, Inc., Chemical Bank, and
the Guarantors and Lenders named therein (incorporated by
reference to Current Report on Form 8-K dated April 14,
1995).
10.14 Security Agreement, dated as of March 31, 1995, among Health
Management, Inc., Home Care Management, Inc., Health
Reimbursement Corporation, HMI Retail Corp., Inc., HMI
Pennsylvania, Inc. and HMI Maryland, Inc. and Chemical Bank
for itself and the Lenders named therein (incorporated by
reference to Current Report on Form 8-K dated April 14,
1995).
10.15 Security Agreement and Mortgage-Trademarks and Patent, dated
as of March 31, 1994, among Health Management, Inc., Home
Care Management, Inc., Health Reimbursement Corporation, HMI
Retail Corp., Inc., HMI Pennsylvania, Inc. and HMI Maryland,
Inc. and Chemical Bank for itself and the Lenders named
therein (incorporated by reference to Current Report on Form
8-K dated April 14, 1995).
10.16 Agreement of Lease by and between Joseph M. Rosenthal and
the Company dated December 13, 1994.
10.17 Lease by and between Irwin Hirsh and Lloyd N. Myers and HMI
Pennsylvania, Inc. dated March 27, 1994.
10.18 Lease by and between Irwin Hirsh and HMI Retail Corp., Inc.
dated March 27, 1994.
10.19 Lease Agreement by and between Domas Mechanical Contractors,
Inc. and the Company dated May 18, 1995.
11* Restated Statement re Computation of Per Share Earnings.
21 Subsidiaries of the Registrant.
23* Consent of BDO Seidman, LLP
*Filed Herewith.
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.
HEALTH MANAGEMENT, INC.
April 30, 1996 By: /s/ James R. Mieszala
James R. Mieszala, Acting President
(Principal Executive Officer)
April 30, 1996 By: /s/ Paul Jurewicz
Paul Jurewicz, Treasurer, Chief
Financial Officer and Executive Vice
President (Principal Financial Officer
and Principal Accounting 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 and in the capacities and on the date indicated.
April 30, 1996 By: /s/ Andre C. Dimitriadis
Andre C. Dimitriadis, Chairman of the
Office of the Chief Executive Officer
and Director
April 30, 1996 By: /s/ Mark Weinberg
D. Mark Weinberg, Member of the Office
of the Chief Executive Officer
and Director
April 30, 1996 By: /s/ Dr. Timothy J. Triche
Dr. Timothy J. Triche, Member of the
Office of the Chief Executive
Officer and Director
INDEX TO EXHIBITS
EXHIBIT PAGE
3.1 Certificate of Incorporation of the Company, as filed with the
Secretary of State of Delaware on March 25, 1986 (incorporated by
reference to Registration Statement on Form S-1, Registration No.
33-04485).
3.2 Certificate of Amendment to Certificate of Incorporation of the
Company, as filed with the Secretary of State of Delaware on
March 9, 1988 (incorporated by reference to Form 10-K for year
ended April 30, 1988).
3.3 Certificate of Amendment to Certificate of Incorporation of the
Company, as filed with the Secretary of State of Delaware on
March 31, 1992 (incorporated by reference to Registration
Statement on Form S-1, No. 33-46996).
3.4 Certificate of Amendment to Certificate of Incorporation of the
Company, as filed with the Secretary of State of Delaware on
October 27, 1994.
3.5 By-Laws of the Company (incorporated by reference to Registration
Statement on Form S-1, Registration No. 33-04485).
4.1 Form of 10% Convertible Subordinated Debenture (incorporated by
reference to Form 8-K dated March 4, 1991).
4.2 Specimen Form of Certificate for Common Stock (incorporated by
reference to Registration Statement on Form S-1, Registration No.
33-46996).
4.3 Form of Representatives' Purchase Warrant (incorporated by
reference to Amendment Number 2 to Registration Statement on Form
S-1, Registration No. 33-46996).
4.4 Form of Selling Shareholders' Power of Attorney (incorporated by
reference to Registration Statement on Form S-1, Registration No.
33-46996).
4.5 Form of Selling Shareholders' Custody Agreement (incorporated by
reference to Registration Statement on Form S-1, Registration No.
33-46996).
10.1 Stock Purchase Agreement dated December 8, 1988 (incorporated by
reference to Form 8-K dated December 23, 1988).
10.2 Addendum dated February 1, 1989 to Stock Purchase Agreement dated
December 23, 1988 (incorporated by reference to Amendment Number
1 to Registration Statement on Form S-1, Registration No. 33-
46996).
10.3 1989 Stock Option Plan (incorporated by reference to Registration
Statement on Form S-1, Registration No. 33-46996).
10.4 Lease dated April 20, 1990 on Company's Ronkonkoma, New York
facility between the Company and Four L Realty Co (incorporated
by reference to Registration Statement on Form S-1, Registration
No. 33-46996).
10.5 Amendment dated March 16, 1992 to Lease dated April 20, 1990 on
Company's Headquarters between the Company and Four L Realty Co.
(incorporated by reference to Form 10-K for year ended April 30,
1992).
10.6 Company 401(k) Plan (incorporated by reference to Amendment
Number 1 to Registration Statement on Form S-1, Registration No.
33-46996).
10.7 Employment Agreement between the Company and Clifford E. Hotte
(incorporated by reference to Amendment Number 2 to Registration
Statement on Form S-2, Registration No. 33-69548).
10.8 Assets Purchase Agreement, dated as of March 27, 1994, between
the Registrant, Murray Pharmacy Too, Inc. and the Shareholders
named therein (incorporated by reference to Current Report on
Form 8-K dated April 1, 1994).
10.9 Assets Purchase Agreement, dated as of March 27, 1994, between
HMI Retail Corp., Murray Pharmacy, Inc. and the Shareholders
named therein (incorporated by reference to Annual Report on Form
10-K filed August 2, 1994).
10.10 Asset Purchase Agreement, dated as of February 21, 1995, between
Caremark Inc. and Health Management, Inc. (incorporated by
reference to Current Report on Form 8-K dated April 14, 1995).
10.11 First Amendment to Asset Purchase Agreement, dated as of March
31, 1995, between Caremark Inc. and Health Management, Inc.
(incorporated by reference to Current Report on Form 8-K dated
April 14, 1995).
10.12 Transition Agreement, dated as of March 31, 1995, between
Caremark Inc. and HMI Illinois. (incorporated by reference to
Current Report on Form 8-K dated April 14, 1995).
10.13 Credit Agreement, dated as of March 31, 1995 among, Health
Management, Inc., Home Care Management, Inc., HMI Pennsylvania,
Inc., HMI Illinois, Inc., Chemical Bank, and the Guarantors and
Lenders named therein (incorporated by reference to Current
Report on Form 8-K dated April 14, 1995).
10.14 Security Agreement, dated as of March 31, 1995, among Health
Management, Inc., Home Care Management, Inc., Health
Reimbursement Corporation, HMI Retail Corp., Inc., HMI
Pennsylvania, Inc. and HMI Maryland, Inc. and Chemical Bank for
itself and the Lenders named therein (incorporated by reference
to Current Report on Form 8-K dated April 14, 1995).
10.15 Security Agreement and Mortgage-Trademarks and Patent, dated as
of March 31, 1994, among Health Management, Inc., Home Care
Management, Inc., Health Reimbursement Corporation, HMI Retail
Corp., Inc., HMI Pennsylvania, Inc. and HMI Maryland, Inc. and
Chemical Bank for itself and the Lenders named therein
(incorporated by reference to Current Report on Form 8-K dated
April 14, 1995).
10.16 Agreement of Lease by and between Joseph M. Rosenthal and the
Company dated December 13, 1994.
10.17 Lease by and between Irwin Hirsh and Lloyd N., Myers and HMI
Pennsylvania, Inc. dated March 27, 1994.
10.18 Lease by and between Irwin Hirsh and HMI Retail Corp., Inc. dated
March 27, 1994.
10.19 Lease Agreement by and between Domas Mechanical Contractors, Inc.
and the Company dated May 18, 1995.
11* Restated Statement re Computation of Per Share Earnings.
21 Subsidiaries of the Registrant.
23* Consent of BDO Seidman, LLP
*Filed Herewith.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-3
CONSOLIDATED BALANCE SHEETS:
April 30, 1995 and 1994 F-4
CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE
YEARS ENDED APRIL 30, 1995:
Statements of income F-5
Statements of stockholders' equity F-6
Statements of cash flows F-7 - F-8
SUMMARY OF ACCOUNTING POLICIES F-9 - F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-12 - F-28
Report of Independent Certified Public Accountants
Health Management, Inc. and Subsidiaries
Holbrook, New York
We have audited the consolidated balance sheets of Health Management, Inc.
(formerly Homecare Management, Inc.) and Subsidiaries as of April 30, 1995 and
1994 and the related consolidated statements of income, stockholders' equity and
cash flows for each of the three years in the period ended April 30, 1995. 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 presentation of financial
statements. We believe that our audits provide a reasonable basis for our
opinion.
As discussed in Note 9 to the consolidated financial statements, the Company has
restated its financial statements for the year ended April 30, 1995.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Health Management,
Inc. and Subsidiaries at April 30, 1995 and 1994 and the results of their
operations and cash flows for each of the three years in the period ended April
30, 1995 in conformity with generally accepted accounting principles.
BDO Seidman, LLP
Mitchel Field, New York
July 27, 1995, except for Note 9
which is as of April 26, 1996
<TABLE>
<CAPTION>
April 30, 1995 1994
<S> <C> <C>
Assets (Note 3(a))
Current:
Cash and cash equivalents $4,562,712 $13,495,480
Accounts receivable, less allowance for doubtful
accounts of approximately $7,998,000 and
$2,206,000 31,339,809 22,257,279
Inventories 7,787,661 2,341,488
Other receivable (Note 1(d)) - 1,444,426
Tax refund receivable 1,827,000 -
Deferred taxes (Note 4) 3,133,300 617,000
Prepaid expenses and other 1,163,541 71,811
TOTAL CURRENT ASSETS 49,814,023 40,227,484
IMPROVEMENTS AND EQUIPMENT, LESS ACCUMULATED
DEPRECIATION AND AMORTIZATION (NOTES 2 AND 3) 2,136,062 1,456,557
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED
(NOTE 1) 35,464,260 10,319,317
OTHER 1,275,775 414,746
$88,690,120 $52,418,104
Liabilities and Stockholders' Equity
Current:
Accounts payable $12,329,991 $5,237,210
Accrued expenses 1,862,407 1,070,075
Income taxes payable - 1,759,590
Current maturities of long-term debt (Note 3) 23,135,267 147,416
TOTAL CURRENT LIABILITIES 37,327,665 8,214,291
LONG-TERM DEBT, LESS CURRENT MATURITIES (NOTE 3) 3,191,123 108,311
TOTAL LIABILITIES 40,518,788 8,322,602
COMMITMENTS AND CONTINGENCIES (NOTES 5 AND 9)
Stockholders' equity (Note 6):
PREFERRED STOCK - $.01 PAR VALUE - SHARES
AUTHORIZED 1,000,000; ISSUED AND OUTSTANDING,
NONE
COMMON STOCK - $.03 PAR VALUE - SHARES AUTHORIZED
20,000,000; ISSUED AND OUTSTANDING 9,316,017
AND 9,104,431 279,481 273,133
ADDITIONAL PAID-IN CAPITAL 38,019,510 35,953,281
RETAINED EARNINGS 9,872,341 7,926,153
UNEARNED RESTRICTED STOCK COMPENSATION - (57,065)
TOTAL STOCKHOLDERS' EQUITY 48,171,332 44,095,502
$88,690,120 $52,418,104
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES
AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30, 1995 1994 1993
<S> <C> <C> <C>
REVENUES $88,456,028 $44,249,516 $26,393,352
COST OF SALES 63,708,021 28,643,460 17,369,873
GROSS PROFIT 24,748,007 15,606,056 9,023,479
OPERATING EXPENSES:
SELLING 2,898,208 1,847,197 1,324,245
GENERAL AND ADMINISTRATIVE 18,626,981 7,209,342 4,162,875
INTEREST 269,316 88,215 173,969
TOTAL OPERATING EXPENSES 21,794,505 9,144,754 5,661,089
INCOME FROM OPERATIONS 2,953,502 6,461,302 3,362,390
INTEREST INCOME 333,077 290,341 125,246
INCOME BEFORE INCOME TAXES 3,286,579 6,751,643 3,487,636
INCOME TAXES (NOTE 4) 1,340,391 2,750,685 1,280,650
$1,946,188 $4,000,958 $2,206,986
NET INCOME
EARNINGS PER SHARE OF COMMON STOCK $.21 $.54 $.38
- primary
$.21 $.53 $.35
- fully diluted
WEIGHTED AVERAGE SHARES OUTSTANDING
9,408,300 7,383,040 5,884,122
- primary
9,420,816 7,593,465 6,308,503
- fully diluted
See accompanying summary of accounting policies
and notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
Common Stock Unearned
$.03 Par Value Additional restricted
Paid-in Retained stock
Shares Amount Capital Earnings compensation
<S> <C> <C> <C> <C> <C>
BALANCE, MAY 1, 1992 4,591,296 $137,739 $ 516,150 $ 1,718,209 $ -
Common stock issued upon public
offering 1,347,997 40,439 4,990,680 - -
Common stock issued upon
conversion of subordinated
debentures 119,049 3,571 121,430 - -
Common stock issued upon
exercise of stock options 17,721 532 19,215 - -
Net income for the year ended
April 30, 1993 - - - 2,206,986 -
BALANCE, APRIL 30, 1993 6,076,063 182,281 5,647,475 3,925,195 -
Common stock issued upon
exercise of stock options 2,833 85 12,663 - -
Common stock issued upon
exercise of stock warrants 40,330 1,210 216,572 - -
Common stock issued upon
conversion of subordinated
debentures 357,145 10,715 364,288 - -
Common stock issued upon public
offering 2,000,000 60,000 21,922,258 - -
Common stock issued upon
acquisition of Murray Group 617,060 18,512 7,676,230 - -
Restricted stock issued to
consultants 11,000 330 113,795 - (114,125)
Compensation under restricted
stock - - - - 57,060
Net income for the year ended
April 30, 1994 - - - 4,000,958 -
BALANCE, APRIL 30, 1994 9,104,431 273,133 35,953,281 7,926,153 (57,065)
Common stock issued upon
acquisition of:
Pharmaceutical Marketing
Alliance 20,000 600 242,775 - -
Maryland Pharmacies 108,757 3,263 1,356,112 - -
Common stock issued upon
exercise of stock warrants 78,996 2,370 424,208 - -
Common stock issued upon
exercise of stock options 2,833 85 24,414 - -
Common stock issued to
directors 1,000 30 18,720 - -
Compensation under restricted
stock - - - - 57,065
Net income for the year ended
April 30, 1995 - - - 1,946,188
BALANCE, APRIL 30, 1995 9,316,017 $279,481 $38,019,510 $9,872,341 $ -
See accompanying summary of accounting policies
and notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
Year ended April 30, 1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,946,188 $ 4,000,958 $ 2,206,986
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH USED IN OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 846,869 453,149 228,354
PROVISION FOR DOUBTFUL ACCOUNTS
RECEIVABLE 7,978,189 1,781,000 705,206
DEFERRED TAXES (2,516,300) (701,315) (338,000)
LOSS FROM DISPOSITION OF RENTAL
EQUIPMENT 287,287 - -
COMPENSATION UNDER RESTRICTED STOCK 57,065 57,060 -
COMMON STOCK ISSUED TO DIRECTOR 18,750 - -
INCREASE (DECREASE) IN CASH FLOWS FROM
CHANGES IN OPERATING ASSETS AND
LIABILITIES, NET OF EFFECTS OF PURCHASE
OF CPMB AND OTHER ACQUISITIONS IN 1995
AND MURRAY GROUP IN 1994:
ACCOUNTS RECEIVABLE (16,706,549) (9,624,966) (7,129,507)
TAX REFUND RECEIVABLE (1,827,000) - -
INVENTORIES (1,826,911) 205,220 152,637
PREPAID EXPENSES AND OTHER (976,058) (205,307) (18,596)
OTHER ASSETS (239,758) (249,281) (113,418)
ACCOUNTS PAYABLE 4,870,054 99,675 1,986,569
ACCRUED EXPENSES 396,332 203,075 259,867
INCOME TAXES PAYABLE (1,759,590) 280,467 1,046,218
NET CASH USED IN OPERATING ACTIVITIES (9,451,432) (3,700,265) (1,013,684)
CASH FLOWS FROM INVESTING ACTIVITIES:
CASH USED IN ACQUISITION OF CPMB (20,630,212) - -
CASH USED IN ACQUISITION OF MURRAY GROUP - (7,500,000) -
OTHER ACQUISITIONS (2,167,500) (250,000) -
COLLECTION OF RECEIVABLE FROM THE SELLER
OF MURRAY GROUP 1,444,426 - -
CAPITAL EXPENDITURES (948,368) (565,815) (653,555)
PROCEEDS FROM SALE OF RENTAL EQUIPMENT 214,598 - -
PROCEEDS FROM SALE OF PHARMACY - - 47,836
NET CASH USED IN INVESTING ACTIVITIES (22,087,056) (8,315,815) (605,719)
CASH FLOWS FROM FINANCING ACTIVITIES:
PROCEEDS FROM LONG-TERM DEBT 23,000,000 - -
PRINCIPAL PAYMENTS ON LONG-TERM DEBT (123,357) (44,202) (184,184)
DECREASE IN BANK LOAN - NET - (200,000) (150,000)
PROCEEDS FROM ISSUANCE OF COMMON STOCK - 21,982,258 5,166,246
CASH PAID FOR DEFERRED BORROWING FEES (722,000) - -
PROCEEDS FROM EXERCISE OF WARRANTS 426,578 217,782 -
PROCEEDS FROM EXERCISE OF OPTIONS 24,499 12,748 -
NET CASH PROVIDED BY FINANCING
ACTIVITIES 22,605,720 21,968,586 4,832,062
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (8,932,768) 9,952,506 3,212,659
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 13,495,480 3,542,974 330,315
CASH AND CASH EQUIVALENTS, END OF YEAR $ 4,562,712 $13,495,480 $ 3,542,974
SEE ACCOMPANYING SUMMARY OF ACCOUNTING POLICIES
AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
ORGANIZATION THE CONSOLIDATED FINANCIAL STATEMENTS INCLUDE
AND BASIS OF HEALTH MANAGEMENT, INC. (FORMERLY HOMECARE
FINANCIAL MANAGEMENT, INC.) (THE "COMPANY"), (A DELAWARE
STATEMENT CORPORATION), ITS WHOLLY-OWNED SUBSIDIARIES HOME
PRESENTATION CARE MANAGEMENT, INC. (HMI-NY), A NEW YORK
CORPORATION, HMI PENNSYLVANIA, INC., HMI RETAIL
CORP. INC., HEALTH REIMBURSEMENT CORP., HMI PMA
INC., HMI MARYLAND INC., AND HMI ILLINOIS, INC.
ALL MATERIAL INTERCOMPANY ACCOUNTS AND
TRANSACTIONS HAVE BEEN ELIMINATED IN
CONSOLIDATION.
IN PREPARING FINANCIAL STATEMENTS IN CONFORMITY
WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES,
MANAGEMENT IS REQUIRED TO MAKE ESTIMATES AND
ASSUMPTIONS THAT AFFECT THE REPORTED AMOUNTS OF
ASSETS AND LIABILITIES AND THE DISCLOSURE OF
CONTINGENT ASSETS AND LIABILITIES AT THE DATE OF
THE FINANCIAL STATEMENTS AND REVENUES AND
EXPENSES DURING THE REPORTING PERIOD. ACTUAL
RESULTS COULD DIFFER FROM THOSE ESTIMATES.
INDUSTRY THE COMPANY AND ITS SUBSIDIARIES PROVIDE TWO
SEGMENTS PRINCIPAL SERVICES: (1) LIFECARE PROGRAM AND (2)
DURABLE MEDICAL EQUIPMENT AND HOME INFUSION
SERVICES. FOR EACH OF THE THREE YEARS ENDED
APRIL 30, 1995, DURABLE MEDICAL EQUIPMENT AND
HOME INFUSION SERVICES COMPRISED LESS THAN 10%
OF REVENUES, OPERATING PROFIT AND IDENTIFIABLE
ASSETS.
CREDIT RISK FINANCIAL INSTRUMENTS WHICH POTENTIALLY SUBJECT
THE COMPANY TO CONCENTRATIONS OF CREDIT RISK
CONSIST PRINCIPALLY OF TEMPORARY CASH
INVESTMENTS, TAX-EXEMPT OBLIGATIONS AND TRADE
RECEIVABLES. THE COMPANY PLACES ITS TEMPORARY
CASH INVESTMENTS WITH HIGH CREDIT QUALITY
FINANCIAL INSTITUTIONS AND LIMITS THE AMOUNT OF
CREDIT EXPOSURE TO ANY ONE FINANCIAL
INSTITUTION. AT TIMES, SUCH CASH INVESTMENTS
EXCEED THE FEDERAL DEPOSIT INSURANCE CORP.
INSURANCE LIMIT. CONCENTRATIONS OF CREDIT RISK
WITH RESPECT TO TRADE RECEIVABLES ARE LIMITED
DUE TO THE DIVERSE GROUP OF PATIENTS WHOM THE
COMPANY SERVICES. NO SINGLE CUSTOMER ACCOUNTED
FOR A SIGNIFICANT AMOUNT OF THE COMPANY'S SALES
IN THE YEARS ENDED APRIL 30, 1995, 1994 AND
1993. APPROXIMATELY 40%, 35% AND 35% OF THE
COMPANY'S REVENUES ARE REIMBURSED UNDER
ARRANGEMENTS WITH FEDERAL AND STATE MEDICAL
ASSISTANCE PROGRAMS FOR THE YEARS ENDED APRIL
30, 1995, 1994, AND 1993. AT APRIL 30, 1995 AND
1994, APPROXIMATELY 36% AND 41% OF THE COMPANY'S
ACCOUNTS RECEIVABLE ARE FROM FEDERAL AND STATE
MEDICAL ASSISTANCE PROGRAMS. THE COMPANY
REVIEWS A CUSTOMER'S CREDIT HISTORY BEFORE
EXTENDING CREDIT. THE COMPANY ESTABLISHES AN
ALLOWANCE FOR DOUBTFUL ACCOUNTS BASED UPON
FACTORS SURROUNDING THE CREDIT RISK OF SPECIFIC
CUSTOMERS, HISTORICAL TRENDS AND OTHER
INFORMATION.
INVENTORIES ARE VALUED AT THE LOWER OF COST OR
INVENTORIES MARKET. COST IS DETERMINED BY THE FIRST-IN,
FIRST-OUT METHOD (FIFO). INVENTORIES ARE
PRINCIPALLY COMPRISED OF PRESCRIPTION AND OVER-
THE-COUNTER DRUGS.
REVENUE REVENUES ARE RECOGNIZED ON THE DATE SERVICES AND
RECOGNITION RELATED PRODUCTS ARE PROVIDED TO PATIENTS AND
ARE RECORDED AT AMOUNTS ESTIMATED TO BE RECEIVED
FROM PATIENTS OR UNDER REIMBURSEMENT
ARRANGEMENTS WITH THIRD PARTY PAYORS.
CASH AND CASH THE COMPANY CONSIDERS ALL HIGHLY LIQUID
EQUIVALENTS INVESTMENTS WITH A MATURITY OF THREE MONTHS OR
LESS WHEN PURCHASED TO BE CASH EQUIVALENTS.
IMPROVEMENTS IMPROVEMENTS AND EQUIPMENT ARE STATED AT COST.
AND EQUIPMENT DEPRECIATION OF EQUIPMENT AND AMORTIZATION OF
LEASEHOLD IMPROVEMENTS ARE COMPUTED OVER THE
ESTIMATED USEFUL LIVES OF THE ASSETS AND THE
LEASE TERM, RESPECTIVELY, RANGING FROM 3 TO 7
YEARS FOR EQUIPMENT AND 13 YEARS FOR
IMPROVEMENTS. ACCELERATED METHODS ARE USED FOR
BOTH BOOK AND TAX PURPOSES.
RENTAL EQUIPMENT CONSISTS OF MEDICAL EQUIPMENT
RENTED TO PATIENTS FOR USE IN THEIR HOMES AND IS
STATED AT COST. DEPRECIATION IS PROVIDED USING
AN ACCELERATED METHOD OVER THE ESTIMATED USEFUL
LIVES OF THE EQUIPMENT WHICH RANGE FROM THREE TO
FIVE YEARS.
EXCESS OF EXCESS OF PURCHASE PRICE OVER NET ASSETS
PURCHASE ACQUIRED IS AMORTIZED OVER THE ESTIMATED PERIOD
PRICE OVER TO BE BENEFITTED OF THIRTY YEARS. MANAGEMENT
NET ASSETS EVALUATES THE CONTINUING REALIZABILITY OF THESE
ACQUIRED ASSETS BY ASSESSING THE FUTURE VALUE ASSOCIATED
WITH THESE ASSETS BASED UPON PROJECTED FUTURE
REVENUES.
INCOME TAXES DEFERRED TAXES ARE RECORDED TO REFLECT THE
TEMPORARY DIFFERENCES IN THE TAX BASES OF ASSETS
AND LIABILITIES AND THEIR REPORTED AMOUNTS IN
THE FINANCIAL STATEMENTS. THE DIFFERENCES RELATE
PRINCIPALLY TO THE ALLOWANCE FOR DOUBTFUL
ACCOUNTS.
EARNINGS PER EARNINGS PER SHARE ARE COMPUTED ON THE BASIS OF
SHARE THE WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND
COMMON STOCK EQUIVALENTS OUTSTANDING DURING THE
YEAR. FULLY DILUTED EARNINGS PER SHARE RESULTS
MAINLY FROM CONSIDERING THE SHARES ISSUABLE UPON
THE CONVERSION OF THE CONVERTIBLE SUBORDINATED
DEBENTURES AND ADJUSTING THE NET INCOME BY
ADDING BACK THE AFTER-TAX EFFECT OF THE INTEREST
EXPENSE THEREON.
RECLASSIFICAT CERTAIN OF THE PRIOR YEAR NUMBERS WERE
ION OF PRIOR RECLASSIFIED TO REFLECT THE PROPER ALLOCATION OF
YEAR BALANCE PURCHASE PRICE IN CONNECTION WITH THE MURRAY
SHEET ACQUISITION.
1. ACQUISITIONS (A) Effective March 31, 1995, HMI
Illinois, a wholly-owned subsidiary of
the Company, acquired certain assets
subject to certain liabilities of
Caremark Inc.'s Clozaril Patient
Management Business ("CPMB"). The
aggregate purchase price was
approximately $23,260,000 consisting
of $20,060,000 in cash provided by
bank financing, a $200,000 escrow
deposit, and a $3,000,000 five year
subordinated note with an annual
interest rate of 8% payable semi-
annually.
The acquisition has been accounted for
by the purchase method of accounting.
the purchase price has been allocated to
the assets acquired based on the
estimated fair values of each asset and
liability. The purchased assets consist
primarily of inventory and equipment.
the excess of purchase price over fair
value of the assets acquired was
approximately $22,536,000 and is being
amortized over thirty years, the
estimated life of this asset.
The unaudited pro-forma condensed
combined statements of income for the
years ended April 30, 1995 and 1994,
giving effect to the acquisition of cpmb
by the Company as if it had occurred as
of the beginning of each separate year,
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30, 1995 1994
(IN THOUSANDS)
<S> <C> <C>
REVENUES $133,178 $94,573
INCOME $ 6,237 $ 9,333
NET INCOME $ 3,505 $ 5,026
EARNINGS PER SHARE
PRIMARY $ .87 $ .68
FULLY DILUTED $ .87 $ .66
</TABLE>
(B) On February 6, 1995, the Company acquired
substantially all of the assets, subject
to certain liabilities, of two specialty
pharmacies located in Maryland.
Immediately following this acquisition,
the Company contributed all of the
acquired assets, subject to assumed
liabilities, to HMI, Maryland, Inc., a
newly formed subsidiary wholly-owned by
the Company ("HMI-Maryland"). The
aggregate purchase price for the two
specialty pharmacies approximated
$3,172,000 and consisted of $1,812,500 in
cash and cash equivalents and 108,757
newly-issued shares of common stock of
the Company discounted at 25% and valued
at $1,359,500.
The acquisition has been accounted for by
the purchase method of accounting. The
purchase price has been allocated to the
assets acquired based on the estimated
fair value of each asset. The excess of
purchase price over fair value of the
assets was approximately $2,454,000 and
is being amortized over thirty years, the
estimated life of this asset.
(C) On June 16, 1994, the Company acquired
certain assets of Pharmaceutical
Marketing Alliance, Inc. (PMA) for a
total purchase price of $598,375 which is
comprised of cash of $355,000 and 20,000
shares of common stock. Should certain
performance levels be met on the first,
second and third anniversary dates, an
additional purchase price of up to
$2,954,000 can be earned. Immediately
following this acquisition, the Company
contributed all of the acquired assets,
subject to assumed liabilities to HMI-
PMA, Inc., a newly-formed wholly-owned
subsidiary. The Company also entered
into a three-year employment agreement
with three employees of PMA at an
aggregate of $225,000 per annum. There is
no additional payment due at the first
anniversary date because the specified
performance level was not achieved.
(D) On April 1, 1994, the Company acquired
substantially all of the net assets of
Murray Pharmacy, Inc. and Murray Pharmacy
Too, Inc. (collectively "Murray Group"),
for total consideration of up to
$16,195,000, comprised of cash of
$7,500,000, 617,060 shares of non-
registered common stock of the Company,
discounted at 25% and valued at
$7,695,000, and a $1,000,000 earn-out
based on performance of the companies for
the year ended April 30, 1995. The
$1,000,000 earn-out was not recorded
because the specified performance level
was not achieved.
In connection with the acquisition, the
Company entered into employment
agreements with the two shareholders of
the Murray Group. The Company also
entered into leases for buildings owned
by the two Murray Group's shareholders
(see note 5(a)).
The acquisition has been accounted for by
the purchase method of accounting. The
purchase price has been allocated to the
assets acquired based on the estimated
fair value of each asset. The purchased
assets consist primarily of accounts
receivable and inventory. The excess of
purchase price over the fair value of the
assets acquired was approximately
$10,100,000 and is being amortized over
thirty years, the estimated life of this
asset. as of april 30, 1994, the Company
had a receivable of $1,444,426 from the
seller in connection with the
acquisition. This receivable was
collected in June 1994.
(E) On December 6, 1993, the Company
acquired certain assets of a company
located in Dallas, Texas for the total
purchase price of $600,000 payable in
three payments of $175,000 due
December 6, 1993 through March 1, 1994
with the $75,000 balance due June 1,
1994. The excess of purchase price
over net assets acquired amounted to
$250,000 which is being amortized over
30 years.
(F) On June 11, 1993 the Company acquired
certain assets of a pharmacy located
in Sneads, Florida for the total price
of $97,500 of which $75,000 was
allocated towards the purchase of
inventory. The Company did not assume
any debt or other liabilities of the
seller.
As a result of the above acquisitions, total
excess of purchase price in excess of net
assets acquired are as follows:
<TABLE>
<CAPTION>
APRIL 30, 1995 1994
EXCESS OF PURCHASE PRICE IN EXCESS OF NET ASSETS
ACQUIRED RESULTING FROM ACQUISITION OF:
<S> <C> <C>
CPMB (A) $22,535,855 $ -
MARYLAND PHARMACIES (B) 2,453,959 -
PMA (C) 581,507 -
MURRAY GROUP (D) 10,099,860 10,099,860
DALLAS PHARMACY (E) 250,000 250,000
35,921,181 10,349,860
LESS: ACCUMULATED AMORTIZATION 456,921 30,543
$35,464,260 $10,319,317
</TABLE>
2. IMPROVEMENTS IMPROVEMENTS AND EQUIPMENT CONSIST OF THE
AND EQUIPMENT FOLLOWING:
<TABLE>
<CAPTION>
APRIL 30, 1995 1994
<S> <C> <C>
RENTAL EQUIPMENT $ - $ 955,229
FURNITURE AND EQUIPMENT 1,575,503 794,241
TRANSPORTATION EQUIPMENT 88,906 96,742
COMPUTER EQUIPMENT 777,133 431,963
LEASEHOLD IMPROVEMENTS 491,108 116,921
2,932,650 2,395,096
LESS ACCUMULATED DEPRECIATION AND AMORTIZATION 796,588 938,539
$2,136,062 $1,456,557
</TABLE>
3. LONG-TERM LONG-TERM DEBT CONSISTS OF THE FOLLOWING:
DEBT
<TABLE>
<CAPTION>
<S>
APRIL 30, 1995 1994
TERM LOAN (A) <C> <C>
$21,000,000 $ -
REVOLVING CREDIT (A) 2,000,000 -
SUBORDINATED NOTE PAYABLE (B) 3,000,000 -
CAPITALIZED LEASES REQUIRING MONTHLY PAYMENTS OF
$7,835 INCLUDING ASSUMED INTEREST RANGING FROM
10% TO 16%, COLLATERALIZED BY EQUIPMENT WITH A
BOOK VALUE OF $221,159. 264,481 142,445
NOTES PAYABLE ON EQUIPMENT REQUIRING TOTAL MONTHLY
PAYMENTS OF $1,142 INCLUDING INTEREST RANGING
FROM APPROXIMATELY 5% - 21% COLLATERALIZED BY
EQUIPMENT WITH A BOOK VALUE OF $33,696. 61,909 113,282
26,326,390 255,727
LESS CURRENT MATURITIES 23,135,267 147,416
$ 3,191,123 $108,311
</TABLE>
(A) On April 4, 1995, the Company borrowed
$21,000,000 on a term loan to fund the
cash portion of the acquisition of CPMB
(Note 1(a)). The term loan bears
interest at a rate of .5% above the
Alternative Base Rate (as defined by the
Credit Agreement and was 9.00% at April
30, 1995) and is convertible into
Eurodollar loans. The principal is
payable over five years in quarterly
installment payments of $750,000 through
March 31, 1996; $1,000,000 through March
31, 1997, $1,250,000 through March 31,
1999 and $1,000,000 through March 21,
2000.
THE CREDIT AGREEMENT ALSO PROVIDES FOR A
REVOLVING CREDIT FACILITY OF UP TO
$15,000,000, INCLUDING UP TO A $1,000,000
LETTER OF CREDIT FACILITY. THIS
AGREEMENT EXPIRES IN MARCH 1997.
BORROWINGS UNDER THIS FACILITY BEAR
INTEREST AT THE ALTERNATIVE BASE RATE (AS
DEFINED IN THE CREDIT AGREEMENT) AND IS
CONVERTIBLE INTO EURODOLLAR LOANS. AT
APRIL 30, 1995, THE COMPANY HAD
BORROWINGS UNDER THIS LINE OF CREDIT OF
$2,000,000 BEARING INTEREST AT 9% LEAVING
AN AVAILABILITY OF $13,000,000 UNDER THIS
LINE OF CREDIT.
THE TERM LOAN AND THE REVOLVING CREDIT
FACILITY ARE COLLATERALIZED BY AN
ASSIGNMENT OF A SECURITY INTEREST IN ALL
ASSETS OF THE COMPANY AND ITS
SUBSIDIARIES.
THE AGREEMENT CONTAINS RESTRICTIONS
RELATING TO THE PAYMENT OF DIVIDENDS,
LIENS, INDEBTEDNESS, INVESTMENTS AND
CAPITAL EXPENDITURES. IN ADDITION, THE
COMPANY MUST MAINTAIN CERTAIN FINANCIAL
RATIOS AND A MINIMUM NET WORTH. AS A
RESULT OF THE RESTATEMENT OF THE
COMPANY'S FINANCIAL STATEMENTS (SEE NOTE
9), THE COMPANY WAS IN VIOLATION OF
CERTAIN PROVISIONS AND COVENANTS OF THE
CREDIT AGREEMENT. ACCORDINGLY, ALL
BORROWINGS UNDER THE TERM LOAN AND THE
REVOLVING CREDIT FACILITY WERE CLASSIFIED
AS CURRENT.
(B) In connection with the CPMB acquisition
(see Note 1(a)), the Company is also
obligated on a $3,000,000 subordinated
note, bearing interest at an annual rate
of 8% and maturing March 31, 2000.
(C) The Company had a $5,000,000 line of
credit with a bank. Borrowings under
the line of credit bear interest at
prime plus .5% (7.50% at April 30,
1994). On April 4, 1995, the line of
credit was terminated and replaced by
the revolving credit facility of
$15,000,000 (see (a) above).
THE MAXIMUM AMOUNT OF SHORT-TERM BORROWINGS
OUTSTANDING DURING THE YEARS ENDED APRIL 30,
1995 AND 1994 WAS $2,300,000 AND $2,000,000,
RESPECTIVELY. THE AVERAGE AMOUNTS
OUTSTANDING FOR THE YEARS ENDED APRIL 30,
1995 AND 1994 WERE $591,667 AND $796,000,
RESPECTIVELY. THE AVERAGE BORROWING RATES
WERE 8.875% AND 7% FOR THE YEARS ENDED APRIL
30, 1995 AND 1994, RESPECTIVELY.
LONG TERM DEBT WILL MATURE AS FOLLOWS:
YEAR ENDED APRIL 30,
1996 $23,135,267
1997 80,112
1998 40,506
1999 37,609
2000 3,032,896
$26,326,390
4. INCOME TAXES THE INCOME TAX EXPENSES (BENEFITS) ARE
COMPRISED OF THE FOLLOWING:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30, 1995 1994 1993
<S> <C> <C> <C>
CURRENT:
FEDERAL $2,793,223 $2,640,000 $1,243,650
STATE AND LOCAL 1,063,468 812,000 375,000
3,856,691 3,452,000 1,618,650
DEFERRED
FEDERAL (1,851,000) (580,000) (273,000)
STATE AND LOCAL (665,300) (121,315) (65,000)
(2,516,300) (701,315) (338,000)
TOTAL INCOME TAXES $1,340,391 $2,750,685 $1,280,650
</TABLE>
THE FOLLOWING RECONCILES THE FEDERAL STATUTORY
TAX RATE WITH THE ACTUAL EFFECTIVE RATE:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30, 1995 1994 1993
<S> <C> <C> <C>
STATUTORY RATE 34% 34% 34%
INCREASE (DECREASE)
IN TAX RATE
RESULTING FROM:
STATE AND LOCAL
TAXES, NET OF
FEDERAL BENEFIT 7 7 6
OTHER - - (3)
EFFECTIVE RATE 41% 41% 37%
</TABLE>
DEFERRED TAX ASSETS (LIABILITIES) CONSIST OF THE
FOLLOWING:
<TABLE>
<CAPTION>
APRIL 30, 1995 1994
DEFERRED TAX ASSETS RESULTING
FROM:
<S> <C> <C>
ALLOWANCE FOR DOUBTFUL
ACCOUNTS $3,163,000 $660,000
DEFERRED TAX LIABILITY - OTHER (29,700) (43,000)
$3,133,300 $617,000
</TABLE>
5. COMMITMENTS (A) LEASES
AND
CONTINGENCIES
THE COMPANY LEASES ITS OFFICES, WAREHOUSE
AND RETAIL PHARMACIES UNDER OPERATING
LEASES EXPIRING AT VARIOUS TIMES THROUGH
AUGUST 2002. THE COMPANY ALSO LEASES DATA
PROCESSING EQUIPMENT UNDER AGREEMENTS
WHICH EXPIRE AT VARIOUS TIMES THROUGH
2000. THESE LEASES HAVE BEEN CLASSIFIED
AS CAPITAL LEASES (NOTE 3).
AS OF APRIL 30, 1995, FUTURE NET MINIMUM
LEASE PAYMENTS UNDER CAPITAL LEASES AND
NONCANCELLABLE OPERATING LEASE AGREEMENTS
ARE AS FOLLOWS:
<TABLE>
<CAPTION> CAPITAL OPERATING
<S> <C> <C>
1996 $ 90,652 $1,144,664
1997 80,849 1,193,537
1998 40,443 980,119
1999 40,443 646,429
2000 33,702 557,519
THEREAFTER - 240,374
TOTAL MINIMUM LEASE PAYMENTS 286,089 4,762,642
LESS AMOUNTS REPRESENTING INTEREST 21,608 -
PRESENT VALUE OF NET MINIMUM LEASE
PAYMENTS $264,481 $4,762,642
</TABLE>
RENT EXPENSE FOR THE YEARS ENDING APRIL
30, 1995, 1994 AND 1993 AMOUNTED TO
$364,448, $252,534 AND $216,416,
RESPECTIVELY. RENT EXPENSE FOR THE
BUILDINGS OWNED BY THE TWO MURRAY GROUP
SHAREHOLDERS AMOUNTED TO $106,410 AND
$8,868 FOR THE YEARS ENDED APRIL 30,
1995 AND 1994.
(B) RETIREMENT PLAN
EFFECTIVE AUGUST 1, 1990, THE COMPANY
ESTABLISHED A 401(K) PLAN FOR ELIGIBLE
SALARIED EMPLOYEES. THE CONTRIBUTION FOR
ANY PARTICIPANT MAY NOT EXCEED STATUTORY
LIMITS. AFTER ONE YEAR OF EMPLOYMENT,
THE COMPANY WILL MATCH 25% OF EACH
EMPLOYEE PARTICIPANT'S CONTRIBUTIONS UP
TO THE FIRST 5% OF COMPENSATION. THE
TOTAL MATCHING CONTRIBUTIONS CHARGED
AGAINST OPERATIONS AMOUNTED TO $71,281,
$22,935 AND $17,823 FOR THE YEARS ENDED
APRIL 30, 1995, 1994 AND 1993.
(C) EMPLOYMENT AGREEMENTS
THE COMPANY HAS IN EFFECT EMPLOYMENT
AGREEMENTS WITH CERTAIN KEY OFFICERS AND
EMPLOYEES, WHICH EXPIRE AT VARIOUS DATES
THROUGH JUNE, 1998. TOTAL SALARIES
UNDER THESE AGREEMENTS AMOUNT TO
APPROXIMATELY $1,200,000 ANNUALLY.
(D) LITIGATION
(1) THE COMPANY WAS A DEFENDANT IN A LAW
SUIT COMMENCED IN APRIL 1994, IN THE
UNITED STATES BANKRUPTCY COURT. THE
SUIT ALLEGES THAT THE COMPANY AND
ANOTHER UNRELATED DEFENDANT IMPROPERLY
OBTAINED CONFIDENTIAL INFORMATION
REGARDING THE PLAINTIFF. IT IS ALSO
ALLEGED THAT THE COMPANY AND THE OTHER
DEFENDANT INTERFERED WITH ONGOING AND
POTENTIAL NEW CONTRACTUAL
RELATIONSHIPS OF THE PLAINTIFF. THE
PLAINTIFF IS SEEKING DAMAGES IN EXCESS
OF $30 MILLION AND INJUNCTIVE RELIEF.
IN MARCH 1995, THE BANKRUPTCY COURT
ABSTAINED FROM EXERCISING JURISDICTION
AND DISMISSED THE ACTION.
ON OR ABOUT APRIL 13, 1995, THE
PLAINTIFF COMMENCED ANOTHER ACTION
AGAINST THE COMPANY, AND CERTAIN OTHER
DEFENDANTS, CONTAINING MANY OF THE
SAME ALLEGATIONS CONTAINED IN THE
PRIOR ACTION. DAMAGES IN EXCESS OF
$40 MILLION ON A VARIETY OF THEORIES
ARE ASSERTED. MANAGEMENT BELIEVES
THIS SUIT TO BE WITHOUT MERIT AND
INTENDS TO DEFEND THE PROCEEDING
VIGOROUSLY. IN MANAGEMENT'S OPINION,
THIS PROCEEDING WILL NOT RESULT IN AN
OUTCOME HAVING A MATERIAL ADVERSE
EFFECT ON THE COMPANY'S RESULTS OF
OPERATIONS OR FINANCIAL POSITION. THE
COMPANY COUNTERCLAIMED FOR LIBEL AND
SLANDER PREDICATED UPON AN ALLEGED
FALSE PRESS RELEASE ISSUED BY THE
PLAINTIFF AND TO ADD AS DEFENDANTS THE
PRINCIPALS OF THE PLAINTIFF.
(2) IN APRIL 1995, A COMPLAINT WAS FILED
AGAINST THE COMPANY AND OTHER
UNRELATED DEFENDANTS IN THE NEW YORK
SUPREME COURT FOR TORTIOUS
INTERFERENCE WITH EXISTING AND
PROSPECTIVE CONTRACTUAL RELATIONSHIPS
OF THE PLAINTIFF. DAMAGES IN EXCESS
OF $20 MILLION AND INJUNCTIVE RELIEF
ARE SOUGHT. MANAGEMENT BELIEVES THIS
SUIT TO BE WITHOUT MERIT, INTENDS TO
DEFEND THE PROCEEDINGS VIGOROUSLY AND
BELIEVES THE OUTCOME WILL NOT HAVE A
MATERIAL ADVERSE EFFECT ON THE
COMPANY'S RESULTS OF OPERATIONS OR
FINANCIAL POSITION.
(3) SEE NOTE 9 FOR CERTAIN LITIGATION
ARISING SUBSEQUENT TO APRIL 30, 1995.
6. CAPITAL (A) PUBLIC OFFERINGS
TRANSACTIONS
(1) ON NOVEMBER 18, 1993, THE COMPANY
COMPLETED A SECONDARY PUBLIC
OFFERING OF 2,000,000 SHARES OF
STOCK AT $12.00 PER SHARE. PROCEEDS
FROM THIS OFFERING, NET OF EXPENSES
OF THE OFFERING OF $2,017,742, WERE
$21,982,258.
(2) IN JUNE 1992, THE COMPANY COMPLETED
A SECONDARY PUBLIC OFFERING OF
1,502,612 SHARES OF COMMON STOCK AT
$4.50 PER SHARE, OF WHICH 1,347,997
SHARES WERE SOLD BY THE COMPANY AND
154,615 SHARES BY SELLING
SHAREHOLDERS. IN CONNECTION WITH
THIS OFFERING, THE COMPANY ISSUED TO
ITS UNDERWRITERS 130,662 WARRANTS
EXERCISABLE AT $5.40 PER SHARE
EXPIRING IN 1997. AS OF APRIL 30,
1995, 119,326 OF THE UNDERWRITER'S
WARRANTS WERE EXERCISED.
PROCEEDS FROM THIS OFFERING, NET OF
EXPENSES OF THE OFFERING OF
$1,034,867, WERE $5,031,119.
(B) ACQUISITIONS
(1) ON FEBRUARY 6, 1995, THE COMPANY
ISSUED 108,757 SHARES OF THE
COMPANY'S NON-REGISTERED COMMON
STOCK IN CONNECTION WITH THE
ACQUISITION OF THE TWO MARYLAND
PHARMACIES (NOTE 1(B)).
(2) ON JUNE 16, 1994, THE COMPANY ISSUED
20,000 SHARES OF THE COMPANY'S NON-
REGISTERED COMMON STOCK IN
CONNECTION WITH THE ACQUISITION OF
PMA (NOTE 1(C)).
(3) IN CONNECTION WITH THE MURRAY
ACQUISITION ON APRIL 1, 1994, THE
COMPANY ISSUED 617,060 SHARES OF
NON-REGISTERED COMMON STOCK (NOTE 1
(D)).
(C) OPTIONS AND WARRANTS
STOCK OPTIONS AND WARRANTS ACTIVITIES
ARE SHOWN BELOW:
<TABLE>
<CAPTION>
OMNIBUS INCENTIVE
INCENTIVE STOCK STOCK OPTION WARRANTS DIRECTORS'
OPTION PLAN (1) PLAN (2) (NOTE 6(A)) OPTIONS (3)
<S> <C> <C> <C> <C>
SHARES COVERED 1,000,000 50,000 130,662 12,000
OUTSTANDING AT MAY 1,
1993 - 12,221 130,662 -
GRANT 420,000 2,500 - -
EXERCISED - (2,833) (40,330) -
CANCELLED - (833) - -
OUTSTANDING AT APRIL
30, 1994 420,000 11,055 90,332 -
GRANT 117,500 - - 12,000
EXERCISED (2,000) (833) (78,996) -
CANCELLED - - - -
OUTSTANDING AT APRIL
30, 1995 535,500 10,222 11,336 12,000
AT APRIL 30, 1995:
PRICE RANGE $10.38 - $ .90 -
$16.25 $10.375 $5.40 $18.75
SHARES EXERCISABLE 177,500 10,222 11,336 12,000
AVAILABLE FOR GRANT 462,500 5,669 - -
</TABLE
>
(1) ON MAY 26, 1993 THE COMPENSATION
COMMITTEE AUTHORIZED AND ON OCTOBER 14,
1993, THE STOCKHOLDERS APPROVED THE
ESTABLISHMENT OF AN OMNIBUS INCENTIVE
STOCK OPTION PLAN TO PROVIDE INCENTIVES
FOR KEY EMPLOYEES AND MEMBERS OF THE
BOARD OF DIRECTORS. THE MAXIMUM NUMBER OF
SHARES ISSUABLE UNDER THE PLAN IS 10% OF
THE OUTSTANDING SHARES UP TO 1,000,000
SHARES. THE EXERCISE PERIOD FOR AN OPTION
SHALL NOT EXCEED TEN YEARS FROM THE DATE
OF GRANT, EXCEPT IN THE CASE OF A MORE
THAN 10% STOCKHOLDER SUCH PERIOD SHALL
NOT EXCEED FIVE YEARS. THE OPTION PRICE
PER SHARE SHALL BE NOT LESS THAN THE
AVERAGE MARKET VALUE OR, IN THE CASE OF A
10% STOCKHOLDER WITH RESPECT TO INCENTIVE
STOCK OPTIONS, 110% OF FAIR VALUE ON THE
DATE OF GRANT.
(2) ON FEBRUARY 16, 1990, THE COMPANY
APPROVED THE ADOPTION OF AN INCENTIVE
STOCK OPTION PLAN COVERING 50,000 COMMON
SHARES. THE OPTIONS ARE EXERCISABLE OVER
A TEN YEAR PERIOD.
(3) DURING THE YEAR ENDED APRIL 30, 1995, THE
COMPANY GRANTED A TOTAL OF 12,000 OPTIONS
TO ITS THREE OUTSIDE DIRECTORS AT AN
EXERCISE PRICE OF $18.75, THE MARKET
PRICE ON THE DATE OF THE GRANT.
AT APRIL 30, 1995, 1,037,227 SHARES OF THE
COMPANY'S AUTHORIZED AND UNISSUED COMMON
STOCK WERE RESERVED FOR ISSUANCE UPON
EXERCISE OF OPTIONS AND WARRANTS, WHICH
INCLUDED 569,058 SHARES FOR OUTSTANDING
OPTIONS AND WARRANTS AND 468,169 SHARES FOR
OPTIONS AVAILABLE FOR GRANT.
(D) RESTRICTED STOCK
ON MAY 1, 1993, THE COMPANY AWARDED
11,000 SHARES OF RESTRICTED COMMON STOCK
TO THREE OUTSIDE CONSULTANTS. THE SHARES
AWARDED ARE SUBJECT TO CERTAIN
RESTRICTIONS OR FORFEITURE. VESTING
OCCURS OVER A TWO YEAR PERIOD FROM THE
DATE THE SHARES ARE AWARDED. THE SHARES
WERE RECORDED AT THEIR QUOTED MARKET
VALUE AT THE DATE OF GRANT OF $10.375 PER
SHARE, OR $114,125. THE COMPENSATION
ELEMENT RELATED TO THE AWARDING OF SUCH
SHARES IS RECOGNIZED RATABLY OVER THE
TWO-YEAR RESTRICTION PERIOD.
COMPENSATION EXPENSE RECOGNIZED RELATED
TO SUCH SHARES FOR THE YEARS ENDED APRIL
30, 1995 AND 1994 WERE $57,065 AND
$57,060, RESPECTIVELY.
7. SUPPLEMENTAL (A) Supplemental disclosures of cash flow
CASH FLOW information:
INFORMATION
</TABLE>
<TABLE>
<CAPTION>
Year ended April 30, 1995 1994 1993
<S> <C> <C> <C>
(1) Cash paid for
interest expense $ 174,430 $ 94,468 $ 96,047
(2) Cash paid for
income taxes $7,745,067 $3,157,483 $ 543,737
</TABLE> (B) Supplemental disclosures of non-cash
investing and financing activities:
(1) THE COMPANY FINANCED $177,286 AND
$124,780 OF NEW EQUIPMENT DURING THE
YEARS ENDED APRIL 30, 1995 AND 1994.
(2) DURING THE YEAR ENDED APRIL 30,
1995, $3,000,000 OF THE PURCHASE
PRICE OF CPMB WAS A FIVE YEAR
SUBORDINATED NOTE (NOTE 1(A)).
(3) DURING THE YEAR ENDED APRIL 30,
1995, THE COMPANY ISSUED 128,757
SHARES OF NON-REGISTERED COMMON
STOCK IN CONNECTION WITH THE
ACQUISITION OF MARYLAND PHARMACIES
AND PMA (NOTE 1(B) AND (C)).
(4) DURING THE YEAR ENDED APRIL 30,
1994, HOLDERS OF $374,999 OF THE
COMPANY'S CONVERTIBLE SUBORDINATED
DEBENTURES CONVERTED THEIR DEBT INTO
357,145 SHARES OF COMMON STOCK.
(5) DURING THE YEAR ENDED APRIL 30,
1994, THE COMPANY AWARDED 11,000
SHARES OF RESTRICTED COMMON STOCK TO
THREE OUTSIDE CONSULTANTS. (NOTE
6(D)).
(6) DURING THE YEAR ENDED APRIL 30,
1994, THE COMPANY ISSUED 617,060
SHARES OF NON-REGISTERED COMMON
STOCK IN CONNECTION WITH THE MURRAY
ACQUISITION. (NOTE 1(D)).
8. QUARTERLY THE FOLLOWING TABLE SUMMARIZES QUARTERLY
FINANCIAL RESULTS (AFTER RESTATEMENT AS DISCUSSED IN
INFORMATION NOTE 9):
(UNAUDITED,
IN THOUSANDS,
EXCEPT FOR
PER SHARE
DATA)
<TABLE>
<CAPTION>
YEAR ENDED APRIL FIRST SECOND THIRD FOURTH
30, 1995 QUARTER QUARTER QUARTER QUARTER YEAR
<S> <C> <C> <C> <C> <C>
REVENUE:
AS PREVIOUSLY
REPORTED $18,118 $20,087 $22,025 $29,067 $89,298
ADJUSTMEN (902) 797 (43) (693) (842)
AS RESTATE 17,216 20,884 21,982 28,374 88,456
GROSS PROFIT:
AS PREVIOUSLY
REPORTED 6,140 6,622 7,056 9,126 28,944
ADJUSTMENTS (1,154) (519) (243) (2,280) (4,196)
AS RESTATED 4,986 6,103 6,813 6,846 24,748
INCOME (LOSS)
BEFORE INCOME
TAXES:
AS PREVIOUSLY
REPORTED 2,777 3,179 3,424 2,188 11,567
ADJUSTMENTS (2,232) (1,372) (1,176) (3,501) (8,280)
AS RESTATED 545 1,807 2,248 (1,313) 3,287
NET INCOME
(LOSS):
AS PREVIOUSLY
REPORTED 1,620 1,853 2,036 1,332 6,842
ADJUSTMENTS (1,316) (809) (581) (2,189) (4,896)
AS RESTATED 304 1,044 1,455 (857) 1,946
EARNINGS (LOSS)
PER COMMON SHARE
- - - - PRIMARY:
AS PREVIOUSLY
REPORTED .17 .20 .22 .14 .73
ADJUSTMENTS (.14) (.09) (.07) (.23) (.52)
AS RESTATED .03 .11 .15 (.09) .21
EARNINGS (LOSS)
PER COMMON SHARE
- - - - FULLY DILUTED:
AS PREVIOUSLY
REPORTED .17 .20 .22 .14 .73
ADJUSTMENTS (.14) (.09) (.07) (.23) (.52)
AS RESTATED .03 .11 .15 (.09) .21
YEAR ENDED APRIL FIRST SECOND THIRD FOURTH
30, 1994 QUARTER QUARTER QUARTER QUARTER YEAR
REVENUE $ 9,557 $10,148 $10,821 $13,724 $44,250
GROSS PROFIT 3,284 3,507 3,790 5,026 15,606
INCOME BEFORE
INCOME TAXES 1,317 1,494 1,767 2,174 6,752
NET INCOME 792 890 1,063 1,256 4,001
EARNINGS PER
COMMON SHARE:
- PRIMARY .13 .14 .13 .14 .54
- FULLY
DILUTED .12 .14 .13 .14 .53
</TABLE>
9. RESTATEMENT IN FEBRUARY 1996, A SPECIAL COMMITTEE OF THE
BOARD OF DIRECTORS WAS ESTABLISHED TO REVIEW
CERTAIN ACCOUNTING AND FINANCIAL MATTERS.
THE SPECIAL COMMITTEE DETERMINED THAT AS A
RESULT OF CERTAIN ACCOUNTING IRREGULARITIES
THAT RESTATEMENTS OF PRIOR 1995 AND 1996
FISCAL PERIODS WOULD BE REQUIRED.
AS A RESULT OF THESE DEVELOPMENTS, THE
COMPANY'S AUDITORS WITHDREW THEIR PREVIOUSLY
ISSUED UNQUALIFIED OPINION DATED JULY 27,
1995 ON THE FINANCIAL STATEMENTS OF THE
COMPANY FOR THE YEAR ENDED APRIL 30, 1995.
ALSO, THE RESTATEMENT CAUSED THE COMPANY TO
BE IN VIOLATION OF ITS CURRENT LOAN
AGREEMENTS AND, ACCORDINGLY, ALL BORROWINGS
UNDER SUCH AGREEMENTS ARE CLASSIFIED AS
CURRENT LIABILITIES AS OF APRIL 30, 1995.
SUBSEQUENT TO THE DISCLOSURE OF THE
IRREGULARITIES, THE COMPANY AND CERTAIN OF
ITS PAST AND CURRENT DIRECTORS AND OFFICERS
HAVE BEEN NAMED AS DEFENDANTS IN TEN SEPARATE
CLASS ACTION SECURITIES FRAUD LAWSUITS. IN
ADDITION, THE COMPANY, CERTAIN OF ITS CURRENT
AND FORMER OFFICERS AND DIRECTORS, AND ITS
AUDITORS WERE NAMED IN A DERIVATIVE LAWSUIT
BROUGHT BY CERTAIN SHAREHOLDERS ON BEHALF OF
THE COMPANY. SINCE THE OUTCOME OF THIS
LITIGATION CANNOT BE DETERMINED AT THIS TIME,
NO PROVISIONS FOR THEM HAVE BEEN RECORDED IN
THE FINANCIAL STATEMENTS.
THE COMPANY HAS RESTATED ITS 1995 FINANCIAL
STATEMENTS AS WELL AS THE QUARTERLY FINANCIAL
STATEMENTS FOR EACH OF THE FOUR QUARTERS IN
THE YEAR ENDED APRIL 30, 1995 (SEE NOTE 8). A
RECONCILIATION OF THE COMPANY'S PREVIOUSLY
REPORTED NET INCOME TO THE RESTATED NET
INCOME IN THE RESTATED FINANCIAL STATEMENTS
IS AS FOLLOWS:
YEAR ENDED APRIL 30, 1995
NET INCOME, AS PREVIOUSLY
REPORTED $ 6,842,000
ADJUSTMENTS:
OVERSTATEMENT OF REVENUES (842,000)
OVERSTATEMENT OF INVENTORIES (3,354,000)
UNDERSTATEMENT OF ALLOWANCE
FOR DOUBTFUL ACCOUNTS (4,084,000)
TOTAL ADJUSTMENTS (8,280,000)
LESS TAX BENEFIT OF
ADJUSTMENTS 3,384,000
NET INCOME, AS RESTATED $ 1,946,000
EARNINGS PER SHARE OF COMMON
STOCK, AS PREVIOUSLY REPORTED $ .73
- PRIMARY AND FULLY-DILUTED
Adjustments, net of tax
benefit (.52)
Earnings per share of common
stock, as restated - primary
and fully-diluted $ .21
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS S - 3
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
AND RESERVES S - 4
Report of Independent Certified Public Accountants
on Financial Statement Schedule
Health Management, Inc. and Subsidiaries
Holbrook, New York
The audits referred to in our report dated July 27, 1995, except for Note 9
which is as of April 26, 1996, relating to the consolidated financial statements
of Health Management, Inc. and subsidiaries, which is contained in Item 8 of
this Form 10-K, included the audit of the accompanying schedule of valuation and
qualifying accounts. This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based upon our audits.
In our opinion such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
BDO Seidman, LLP
Mitchel Field, New York
July 27, 1995, except for Note 9 which
is as of April 26, 1996
<TABLE>
<CAPTION>
Balance at
Beginning of Additions Charged Balance at End of
Classification Year to Operations Deductions Year
<S> <C> <C> <C> <C>
Allowance for doubtful accounts
Year ended April 30, 1995 $2,206,000 $7,978,000 (1) $2,186,000 $7,998,000
Year ended April 30, 1994 $ 925,000 $1,781,000 $ 500,000 $2,206,000
Year ended April 30, 1993 $ 375,000 $ 705,206 $155,206 $ 925,000
(1) Restated, as discussed in Note 9 to the consolidated financial statements.
</TABLE>
Exhibit 11
<TABLE>
<CAPTION>
Year ended April 30, 1995 1994 1993
<S> <C> <C> <C>
NET INCOME - PRIMARY $1,946,188 $4,000,958 $2,206,986
ADDBACK:
Interest from subordinated debentures (net of
tax effect) - 9,587 23,000
NET INCOME - FULLY DILUTED $1,946,188 $4,010,545 $2,229,986
WEIGHED AVERAGE SHARES OUTSTANDING
COMMON STOCK 9,194,816 7,236,147 5,877,184
COMMON STOCK EQUIVALENTS 213,484 146,893 6,938
PRIMARY 9,408,300 7,383,040 5,884,122
ADDITIONAL COMMON STOCK EQUIVALENTS 12,516 - -
SHARES ISSUABLE UPON CONVERSION OF
CONVERTIBLE DEBENTURES - 210,425 424,381
FULLY DILUTED 9,420,816 7,593,465 6,308,503
EARNINGS PER SHARE OF COMMON STOCK $.21
- PRIMARY $.54 $.38
- FULLY DILUTED $.21 $.53 $.35
</TABLE>
<TABLE>
<CAPTION>
Year ended April 30, 1995 1994 1993
<S> <C> <C> <C>
NET INCOME - PRIMARY $1,946,188 $4,000,958 $2,206,986
ADDBACK:
Interest from subordinated debentures (net of tax
effect) - 9,587 23,000
NET INCOME - FULLY DILUTED $1,946,188 $4,010,545 $2,229,986
WEIGHED AVERAGE SHARES OUTSTANDING
COMMON STOCK 9,194,816 7,236,147 5,877,184
COMMON STOCK EQUIVALENTS 213,484 146,893 6,938
PRIMARY 9,408,300 7,383,040 5,884,122
ADDITIONAL COMMON STOCK EQUIVALENTS 12,516 - -
SHARES ISSUABLE UPON CONVERSION OF CONVERTIBLE
DEBENTURES - 210,425 424,381
FULLY DILUTED 9,420,816 7,593,465 6,308,503
EARNINGS PER SHARE OF COMMON STOCK $.21
- PRIMARY $.54 $.38
- fully diluted $.21 $.53 $.35
</TABLE>
Exhibit 23
Consent of BDO Seidman,LLP
Independent Certified Public Accountants
Health Management, Inc.
We hereby consent to the incorporation by reference in the Company's
Registration Statement on Form S-8 (Registration No. 33-90130) filed with the
Securities and Exchange Commission on March 8, 1995 of our reports dated July
27, 1995, except for Note 9 which is as of April 26, 1996, relating to the
consolidated financial statements and schedules of Health Management, Inc.
(formerly Homecare Management, Inc.) appearing in this Annual Report on Form 10-
K for the year ended April 30, 1995.
BDO Seidman, LLP
Mitchel Field, New York
April 29, 1996
