<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Date of Report (Date of earliest event reported):
August 31, 1995
CHOICE DRUG SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
New York 0-20606 11-2310352
-------- ----------- ----------
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification
incorporation) Number)
2930 Washington Boulevard, Baltimore, Maryland 21230
----------------------------------------------------
(Address of principal executive offices)
(410) 646-7373
---------------------------------------
(Registrant's telephone number, including area code)
Not applicable
-------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
----------------------------------------------------------------------------
Exhibit Index on Page 9
Page 1 of 9
<PAGE> 2
ITEM 5. OTHER EVENTS
On July 15, 1995, Nasdaq granted the Company a temporary exemption, expiring
August 31, 1995, in order to comply with Nasdaq's net tangible assets criteria.
If by such date the Company did not regain compliance as evidenced by the
filing of a Current Report on Form 8-K with the Securities and Exchange
Commission and Nasdaq, then the Company's common stock would be de-listed from
Nasdaq. On August 28, 1995, the shareholders of the Company approved the
issuance of up to 3.5 million shares of common stock in a private placement.
On August 30, 1995, the Company completed the private placement, raising
estimated net proceeds after expenses of $15.0 million. This Current Report on
Form 8-K, including the financial statements set forth below, is being made at
the request of Nasdaq to evidence renewed compliance with the net tangible
assets criteria.
2
<PAGE> 3
CHOICE DRUG SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
July 31, 1995 Proforma July 31, 1995
Actual Adjustments As Adjusted
--------------- ------------- ---------------
<S> <C> <C> <C>
Current assets:
Cash $ 927,918 $4,900,000 $ 5,827,918
Accounts receivable, net of allowance for
doubtful accounts of $2,165,000 10,439,443 10,439,443
Inventories 5,166,375 5,166,375
Income tax refund receivable 665,233 665,233
Prepaid expenses and other current assets 564,388 564,388
Net assets of discontinued operations 211,686 211,686
----------- -----------
17,975,043 4,900,000 22,875,043
----------- ---------- -----------
Equipment and leasehold improvements, net 2,344,634 0 2,344,634
----------- ---------- -----------
Other assets:
Notes receivable, less current portion 80,204 80,204
Security deposits and other assets 583,253 583,253
Deferred financing costs 225,979 225,979
Goodwill, net of accumulated amortization of
$1,255,000 14,360,003 14,360,003
----------- -----------
15,249,439 0 15,249,439
----------- ---------- -----------
Total assets 35,569,116 4,900,000 40,489,116
=========== ========== ===========
</TABLE>
3
<PAGE> 4
CHOICE DRUG SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEET
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
July 31, 1995 Proforma July 31, 1995
Actual Adjustments As Adjusted
------------- -------------- --------------
<S> <C> <C> <C>
Current liabilities:
Current portion of long-term debt $ 1,289,477 $ (500,000) $ 789,477
Accounts payable 4,303,863 4,303,863
Accrued expenses and other current liabilities 2,280,311 2,280,311
Accrued restructuring charges 1,184,575 1,184,575
------------ ------------
Total current liabilities 9,058,226 (500,000) 8,558,226
------------ ------------ ------------
Long-term debt, net of current portion 13,947,192 (9,600,000) 4,347,192
Non-compete agreements 800,000 800,000
Deferred income taxes 589,964 589,964
Long-term portion of accrued restructuring
charges 262,559 262,559
Other long term liabilities 150,614 150,614
------------ ------------
15,750,329 (9,600,000) 6,150,329
------------ ------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 500,000
shares authorized; none issued - -
Common stock, $.01 par value; 15,000,000
shares authorized; 9,818,810 shares issued
and outstanding 98,188 35,000 133,188
Capital in excess of par 23,234,870 14,965,000 38,199,870
Accumulated deficit (12,572,497) (12,572,497)
------------ ------------
10,760,561 15,000,000 25,760,561
------------ ------------ ------------
Total liabilities and shareholders' equity $ 35,569,116 $ 4,900,000 $ 40,469,116
============ ============ ============
</TABLE>
4
<PAGE> 5
CHOICE DRUG SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FIVE MONTHS ENDED JULY 31, 1995
<TABLE>
<S> <C>
Net sales $21,382,357
Cost of sales 13,668,185
-----------
Gross profit 7,714,172
-----------
Operating expenses:
Selling and administrative expenses 7,965,779
Depreciation 303,716
Amortization of intangibles 191,997
-----------
Total operating expenses 8,461,492
-----------
Operating loss from continuing operations before income
taxes and extraordinary items (747,320)
-----------
None-operating expense (income):
Interest expense, net 431,020
Other income (58,502)
-----------
Total non-operating expense 372,518
-----------
Loss from continuing operations before
income taxes and extraordinary items 1,119,838
-----------
Income taxes 0
-----------
Loss from continuing operations before (1,119,838)
extraordinary items
Extraordinary items:
Discount on repayment of vendor debt 283,364
Gain on sale of subsidiary assets 477,840
Gain on sale of inventory 289,865
-----------
Net Loss for the Period $ (68,769)
===========
</TABLE>
NOTE:
(1) Includes Premier Pharmacy, Inc. for all periods subsequent to June 1,
1995.
5
<PAGE> 6
CHOICE DRUG SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FIVE MONTHS ENDED JULY 31, 1995
<TABLE>
<CAPTION>
Common Stock Capital Retained
--------------------------------- in excess earnings
Shares Amount of par (deficit)
-------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Balance, February 28, 1995 8,120,810 $ 81,208 $17,200,050 $(12,503,728)
Issuance of common stock:
Stock issued in connection
with Private Placement,
net of related expense on
May 22, 1995 1,600,000 16,000 5,742,800
Stock issued in
connection with exercise
of stock options 98,000 980 292,020
Net loss for the period (68,769)
---------- ------- ----------- ------------
Actual Balance, July 31, 1995 9,818,810 98,188 23,234,870 (12,572,497)
Stock issued in connection
with Private Placement, net
of related expense 3,500,000 35,000 14,965,000
---------- ------- ----------- ------------
Proforma Balance, July 31, 1995 13,318,810 133,188 38,199,870 (12,572,497)
========== ======= =========== ============
</TABLE>
6
<PAGE> 7
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) and (b) Certain financial statements not required in Item 7
have been set forth in Item 5 at the request of
Nasdaq.
(c) The exhibits filed as a part of this Report are
listed in the Exhibit Index immediately following the
signature page.
7
<PAGE> 8
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 thereunto duly authorized.
CHOICE DRUG SYSTEMS, INC.
By: /s/ Don Thompson
-------------------------------------
Name: Don Thompson
-------------------------------------
Title: Chief Financial Officer and Secretary
-------------------------------------
Date: August 31, 1995
8
<PAGE> 9
Exhibit Index
<TABLE> -------------
<CAPTION>
Exhibit No.
- -----------
<S> <C>
4.1 Form of Registration Rights Agreement dated as of May 22, 1995
(incorporated by reference to Exhibit 4.4 of Registrant's current
report on Form 8-K dated May 22, 1995).
4.2 Form of Amendment to Registration Rights Agreement dated August 30,
1995.
27. Financial Data Schedule (SEC use only)
</TABLE>
9
<PAGE> 1
AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
This Amendment to Registration Rights Agreement is entered into as of
August ___, 1995 among Choice Drug Systems, Inc. (the "Company"), the other
parties (collectively, the "Initial Investors") to that certain Registration
Rights Agreement dated May 22, 1995 (the "Registration Rights Agreement") and
the new investors listed on the signature page attached hereto (collectively,
the "Secondary Investors").
WHEREAS, the Company and the Initial Investors have entered into the
above-referenced Registration Rights Agreement pursuant to a private placement
of Units which closed on May 22, 1995 (the "Unit Offering"); and
WHEREAS, the Company subsequently conducted a private offering of up
to 3,500,000 shares of common stock (the "Common Offering"), which Common
Offering was closed on August ___, 1995; and
WHEREAS, in connection with the Common Offering, the Company desires
to offer to the Secondary Investors demand and piggyback registration rights
comparable (but not identical) to those provided the Initial Investors pursuant
to the Registration Rights Agreement; and
WHEREAS, the Registration Rights Agreement provides that under certain
circumstances the Company may grant registration rights that are pari passu to
the rights originally granted in the Registration Rights Agreement; and
WHEREAS, Initial Investors holding at least two-thirds of the
securities which are subject to the Registration Rights Agreement as of May 22,
1995 are being asked to consent to this Amendment.
NOW, THEREFORE, to induce the Secondary Investors to purchase the
shares of common stock which are the subject of the Common Offering and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree to amend the Registration Rights
Agreement as follows:
1. The first sentence of the Registration Rights Agreement shall
be deleted in its entirety and substituted with the following:
This REGISTRATION RIGHTS AGREEMENT is made as of May 22, 1995
among Choice Drug Systems, Inc. (the "Company"), Counsel
Corporation and the other investors (collectively, the
"Initial Investors"), who participated in the Company's
offering of units consisting of common stock and Warrants
which closed on May 22, 1995 (the "Unit Offering")
<PAGE> 2
and the investors (collectively, the "Secondary Investors")
who participated in the Company's offering of common stock
which closed on August ___, 1995 (the "Common Offering").
2. The second recital of the Registration Rights Agreement is
hereby deleted in its entirety and substituted with the following:
WHEREAS, in connection with the Unit Offering and the Common
Offering, the Company desires to offer to Counsel, the Initial
Investors and the Secondary Investors comparable (but not
identical) registration rights similar to those set forth in
the 1994 Agreement; and
3. The fifth paragraph of the Registration Rights Agreement is
hereby deleted in its entirety and substituted with the following:
NOW, THEREFORE, to induce Counsel to terminate the 1994
Agreement, to induce the Initial Investors to participate in
the Unit Offering and to induce the Secondary Investors to
participate in the Common Offering, the Company has agreed to
provide the various registration rights set forth in this
Agreement and the Holders have agreed to accept the same, all
subject to the terms and conditions set forth herein.
4. Paragraph 1(a) of the Registration Rights Agreement which
contains the definition of the term "Registerable Securities" shall be deleted
in its entirety and substituted with the following:
(a) The term "Registerable Securities" means (i) the
Shares of the Company's common stock issued to, and issued
upon exercise of the Warrants held by, Counsel pursuant to the
1994 Stock Purchase Agreement or by persons to whom Counsel
has transferred any of said shares in a transaction not
involving any public offering, (ii) the Stock and shares of
the Company's common stock issued upon exercise of the
Warrants held by the Initial Investors pursuant to the Unit
Offering or by persons to whom the Initial Investors have
transferred any of said stock in a transaction not involving
any public offering, (iii) the stock held by the Secondary
Investors pursuant to the Common Offering or by persons to
whom the Secondary Investors have transferred any of said
stock in a transaction not involving any public offering, (iv)
any securities issued or issuable with respect to the
securities referred to in
2
<PAGE> 3
clauses (i), (ii) or (iii) above by way of a stock dividend or
stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other
reorganization.
5. Paragraph 1(b) of the Registration Rights Agreement which
contains the definition the term "Holders" shall be deleted in its entirety and
substituted with the following:
(b) The term "Holders" means Counsel, the Initial
Investors, the Secondary Investors and any of their respective
permitted successors and assigns. The term "Initial Holders"
means Counsel, the Initial Investors, any of their respective
permitted successors and assigns; and the term "Secondary
Holders" means the Secondary Investors and any of their
respective permitted successors and assigns.
6. There shall be added a new paragraph 1(c), and the preexisting
paragraph 1(c) will be redesignated paragraph 1(d). New paragraph 1(c) will
read as follows:
(c) The term "Investors" means the Initial Investors
(including Counsel) and the Secondary Investors.
7. Paragraph 2(c) of the Registration Rights Agreement will be
amended by deleting that portion of the paragraph beginning with clause (ii)
and substituting in its stead the following:
(ii) second, the Registerable Securities requested to be
included in such registration, pro rata among the Initial
Holders of such Registerable Securities on the basis of the
number of shares requested to be included by such Initial
Holders, (iii) third, the Registerable Securities requested to
be included in such registration, pro rata among the Secondary
Holders of such Registerable Securities on the basis of the
number of shares requested to be included by such Secondary
Holders, and (iv) fourth, other securities requested to be
included in such registration.
8. Paragraph 2(d) of the Registration Rights Agreement will be
amended by deleting that portion of the paragraph beginning with clause (i) and
substituting in its stead the following:
(i) first, the Registerable Securities requested to be
included in such registration, pro rata among the Initial
Holders of such
3
<PAGE> 4
securities on the basis of the number of securities requested
to be included by such Initial Holders, (ii) second, the
Registerable Securities requested to be included in such
registration, pro rata among the Secondary Holders of such
securities on the basis of the number of securities requested
to be included by such Secondary Holders, (iii) third, other
securities requested to be included in such registration, and
(iv) fourth, the securities the Company proposes to sell.
9. Paragraph 3(e) of the Registration Rights Agreement shall be
amended by deleting the reference to "3,800,000" and substituting in its stead
the number which is equal to 3,800,000 minus the number of shares of common
stock issued pursuant to the Common Offering.
10. Paragraph 10(j) of the Registration Rights Agreement shall be
amended by deleting the notice address of the Company contained therein and
substituting the following:
Choice Drug Systems, Inc.
2930 Washington Boulevard
Baltimore, Maryland 21230-1197
Attention: President
11. Except as specifically amended by this Amendment, the
Registration Rights Agreement and its provisions shall remain in full force and
effect. This Amendment may be executed in any number of counterparts, each of
which when so executed and delivered will be deemed an original, but all such
counterparts together shall constitute but one and the same instrument.
12. This Amendment shall be effective upon its execution by
Initial Investors holding at least two-thirds of the securities which were
subject to the Registration Rights Agreement as of May 22, 1995.
4
<PAGE> 5
IN WITNESS WHEREOF, the Company and the Investors have caused this
Amendment to be entered into and effected as of August ___, 1995.
CHOICE DRUG SYSTEMS, INC.
By:
----------------------------------
Title:
----------------------------------
SECONDARY INVESTORS
-------------------------------------------
Signature
-------------------------------------------
Name (Type or Print)
Address:
----------------------------------
-------------------------------------------
-------------------------------------------
Social Security or FEIN Number:
-----------
-------------------------------------------
Signature
-------------------------------------------
Name (Type or Print)
Address:
----------------------------------
-------------------------------------------
-------------------------------------------
Social Security or FEIN Number:
-----------
-------------------------------------------
Signature
-------------------------------------------
Name (Type or Print)
Address:
----------------------------------
-------------------------------------------
-------------------------------------------
Social Security or FEIN Number:
----------
5
<PAGE> 6
INITIAL INVESTORS
-----------------------------------------------
Signature
-----------------------------------------------
Name (Type or Print)
Address:
-----------------------------------
-----------------------------------------------
-----------------------------------------------
Social Security or FEIN Number:
--------------
-----------------------------------------------
Signature
-----------------------------------------------
Name (Type or Print)
Address:
-----------------------------------
-----------------------------------------------
-----------------------------------------------
Social Security or FEIN Number:
--------------
-----------------------------------------------
Signature
-----------------------------------------------
Name (Type or Print)
Address:
-----------------------------------
-----------------------------------------------
-----------------------------------------------
Social Security or FEIN Number:
--------------
6
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INCOME
STATEMENT FOR THE SEVEN MONTH PERIOD ENDED JULY 31, 1995 - PRO FORMA BALANCE
SHEET - JULY 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FORM 8K FILED ON AUGUST 31, 1995.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> FEB-28-1996
<PERIOD-START> MAR-01-1995
<PERIOD-END> JUL-31-1995
<CASH> 4,778
<SECURITIES> 0
<RECEIVABLES> 12,604
<ALLOWANCES> 2,165
<INVENTORY> 5,166
<CURRENT-ASSETS> 21,825
<PP&E> 7,089
<DEPRECIATION> 4,744
<TOTAL-ASSETS> 39,419
<CURRENT-LIABILITIES> 8,558
<BONDS> 6,100
<COMMON> 37,333
0
0
<OTHER-SE> (12,572)
<TOTAL-LIABILITY-AND-EQUITY> 39,419
<SALES> 21,382
<TOTAL-REVENUES> 0
<CGS> 13,668
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,209
<LOSS-PROVISION> 194
<INTEREST-EXPENSE> 431
<INCOME-PRETAX> (1,120)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,120)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,051
<CHANGES> 0
<NET-INCOME> (69)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> 0
</TABLE>
