<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MAY 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
------------- --------------------
COMMISSION FILE NUMBER 0-20606
-------
CHOICE DRUG SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK 11-2310352
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2930 WASHINGTON BOULEVARD, BALTIMORE, MARYLAND 21230
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANTS'S TELEPHONE NUMBER, INCLUDING AREA CODE: (410) 646-7373
NONE
- --------------------------------------------------------------------------------
FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT.
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 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) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
---- ----
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE CLOSE OF THE LATEST PRACTICABLE DATE.
CLASS OUTSTANDING AT MAY 31, 1995
----- ---------------------------
COMMON STOCK, $.01 PAR VALUE 9,735,810
<PAGE> 2
CHOICE DRUG SYSTEMS, INC. AND SUBSIDIARIES
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements
Consolidated Balance Sheets as of May 31, 1995
and February 28, 1995 1-2
Consolidated Statements of Operations for the
three month periods ended May 31, 1995 and 1994 3
Consolidated Statement of Changes in Stockholder's
Equity for the three month period ended May 31, 1995 4
Consolidated Statements of Cash Flows for the
three month period ended May 31, 1995 and 1994 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Default Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE> 3
Part I. Financial Information
Item 1. Financial Statements
CHOICE DRUG SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
May 31,
1995 February 28,
(Unaudited) 1995
--------------- ---------------
<S> <C> <C>
Current assets:
Cash $ 1,430,612 $ 546,898
Accounts receivable, net of allowance for doubtful
accounts of $2,197,230 as of May 31, 1995
and $1,561,233 as of February 28, 1995 9,496,658 6,169,272
Inventories 5,244,451 3,888,163
Income tax refund receivable 500,000 500,000
Prepaid expenses and other current assets 977,836 350,568
Net assets of discontinued operations 271,170 302,820
-------------- --------------
17,920,727 11,757,721
-------------- --------------
Equipment and leasehold improvements, net 2,310,290 1,329,093
-------------- --------------
Other assets:
Notes receivable, less current portion 85,657 94,435
Security deposits and other assets 377,595 509,498
Deferred financing costs 232,436 -
Goodwill, net of accumulated amortization of $1,202,288 as
of May 31, 1995 and $1,117,181 as of February 28, 1995 14,243,600 5,521,512
-------------- --------------
14,939,288 6,125,445
-------------- --------------
Total assets $ 35,170,305 $ 19,212,259
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-1-
<PAGE> 4
CHOICE DRUG SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
May 31,
1995 February 28,
(Unaudited) 1995
--------------- ----------------
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 1,610,870 $ 765,387
Accounts payable 3,331,813 2,664,143
Accrued expenses and other current liabilities 2,837,268 1,702,711
Accrued restructuring charges 1,122,898 1,216,410
-------------- --------------
Total current liabilities 8,902,849 6,348,651
-------------- --------------
Deferred income taxes 546,497 -
Long-term debt, net of current portion 15,123,775 7,650,455
Long-term portion of accrued restructuring charges 435,623 435,623
-------------- --------------
16,105,895 8,086,078
-------------- --------------
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;
9,735,810 shares issued and outstanding as of May 31, 1995
and 8,120,810 shares issued and outstanding as of
February 28, 1995 97,358 81,208
Capital in excess of par 22,985,450 17,200,050
Accumulated deficit (12,921,247) (12,503,728)
-------------- --------------
10,161,561 4,777,530
-------------- --------------
Total liabilities and shareholders' equity $ 35,170,305 $ 19,212,259
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-2-
<PAGE> 5
CHOICE DRUG SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MAY 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
--------------- --------------
<S> <C> <C>
Net sales $ 10,709,003 $ 11,223,028
Cost of sales 6,907,797 6,934,103
-------------- --------------
Gross profit 3,801,206 4,288,925
-------------- --------------
Operating expenses:
Selling and administrative expenses 4,077,999 3,920,128
Depreciation 151,819 139,963
Amortization of intangibles 85,107 92,828
Costs in connection with claims and litigation 0 72,954
-------------- --------------
Total operating expenses 4,314,925 4,225,873
-------------- --------------
Operating(loss) income from continuing operations (513,719) 63,052
-------------- --------------
Non-operating expense (income):
Interest expense, net 215,839 228,629
Other income (28,675) (42,637)
-------------- --------------
Total non-operating expense (187,164) 185,992
-------------- --------------
Loss from continuing operations before
income taxes, discontinued operations
and extraordinary item (700,883) (122,940)
-------------- --------------
Income tax (benefit) 0 (6,939)
-------------- --------------
Loss from continuing operations before
extraordinary item (700,883) (116,001)
Discontinued Operations
Loss from operations of discontinued business segments 0 (36,874)
-------------- --------------
Net loss before extraordinary item (700,883) (152,875)
Extraordinary item - discount on repayment of vendor
debt not of tax benefit of $107,000 283,364 0
-------------- --------------
Net Loss $ (417,519) $ (152,875)
============== ==============
Net loss per common share:
Continuing operations $ (0.08) $ (0.02)
Discontinued operations 0.00 (0.01)
Extraordinary item 0.03 0.00
-------------- --------------
Net loss $ (0.05) $ (0.03)
============== ==============
Weighted average number of shares outstanding 8,300,267 6,086,810
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE> 6
CHOICE DRUG SYSTEMS, INC. AND SUBSIDIARIES
UNAUDTED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MAY 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 1,600,000 16,000 5,742,800
Stock issued in connection with
exercise of stock options 15,000 150 42,600
Net loss for the period (417,519)
--------- ------------- --------------- --------------
Balance, May 31, 1995 9,735,810 $ 97,358 $ 22,985,450 $ (12,921,247)
========= ============= =============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE> 7
CHOICE DRUG SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MAY 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (417,519) $ (152,875)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation 151,819 156,498
Amortization of intangibles 85,107 92,828
Provision for bad debts 159,503 68,822
(Gain) loss on sale of equipment - (1,745)
(Gain) on discount of debt repayment to a major vendor (283,364) -
Changes in assets and liabilities, net of effects of
acquisitions and divestitures:
Decrease in accounts receivable 345,207 195,720
Decrease (increase) in inventories 135,586 (201,597)
(Increase) decrease in prepaid expenses and
other current assets (281,038) 30,545
(Increase) decrease in other assets (88,979) 25,594
(Decrease) increase in accounts payable and
accrued expenses (356,287) (52,118)
(Increase) decrease in income tax refund receivable - (7,370)
-------------- --------------
Net cash (used in) provided by operating activities (549,965) 154,302
-------------- --------------
Cash flows from investing activities:
Purchase of equipment and leasehold improvements (130,230) (125,697)
Acquisition of Premier Pharmacy, Inc., net of cash acquired (4,168,872) -
Proceeds from notes receivable 56,406 64,433
Proceeds from sale of equipment - 1,745
-------------- --------------
Net cash provided by (used in) investing activities (4,242,696) (59,519)
-------------- --------------
Cash flows from financing activities:
Loan proceeds from Creditanstalt 9,650,000 -
Proceeds from issuance of common stock - net 5,801,551 -
Loan proceeds from Counsel Corp. 768,250 -
Net (repayments) of UJB bank debt (2,983,303) (109,707)
Repayments of other long-term debt (120,834) (295,553)
Repayment of debt to a major vendor (1,776,064) -
Repayment of Premier Pharmacy prior bank indebtedness (5,536,275) -
Principal payments of capital lease obligations (126,950) (49,924)
-------------- --------------
Net cash provided by (used in) financing activities 5,676,375 (455,184)
-------------- --------------
Net increase in cash 883,714 (360,401)
Cash, beginning of period 546,898 443,258
-------------- --------------
Cash, end of period $ 1,430,612 $ 82,857
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE> 8
CHOICE DRUG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1995
1. ORGANIZATION AND BACKGROUND:
Choice Drug Systems, Inc.(together with its subsidiaries, the "Company" or
the "Registrant"), a corporation organized in New York in 1973, is
principally engaged in the business of providing pharmaceuticals and
related services to long-term care facilities, correctional institutions,
hospitals, health maintenance organizations and medical surgical entities
(each a "Health Care Facility" and collectively, the "Health Care
Facilities"). The Company's long-term care and health maintenance
organization customers are primarily located in New York, New Jersey,
Maryland and Delaware, while the Company's hospital and correctional
facility customers are located throughout the United States.
2. INCOME PER SHARE:
Net income per share is based on the weighted average number of the
Company's common shares outstanding May 1994 and 1995.
3. BASIS OF PRESENTATION:
The interim condensed consolidated financial statements of the Company for
the three months ended May 31, 1994 and 1995 included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulation of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have
been condensed or omitted pursuant to such rules and regulations. In the
opinion of management of the Company, the accompanying unaudited interim
consolidated financial statements reflect all adjustments necessary to
present fairly the financial position at May 31, 1995 and the results of
operations and the cash flows for the three months ended May 31, 1995 and
1994.
The results of operations for the three month period ended May 31, 1995
are not necessarily indicative of the results to be expected for the full
year. These interim consolidated financial statements should be read in
conjunction with the audited financial statements and notes thereto
included in the Company's Annual Report on Form 10-K/A2 as filed with the
Securities and Exchange Commission for the fiscal year ended February 28,
1995. The balance sheet at February 28, 1995 has been derived from the
audited financial statements at that date. Certain interim prior period
amounts have been reclassified to conform to the current period
presentation.
-6-
<PAGE> 9
CHOICE DRUG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
4. ACQUISITIONS:
On May 22, 1995, and effective for accounting purposes as of May 31, 1995,
the Company acquired PremierPharmacy, Inc. ("Premier"), another
institutional pharmacy, for a purchase price of $4.25 million. Premier's
operations generate annualized revenues of approximately $30 million,
primarily from pharmacy services provided to long-term care facilities and
hospitals. In connection with such transaction, Dirk Allison, Chief
Executive Officer of Premier, and Don Thompson, Chief Financial Officer of
Premier, have been elected as Chief Executive Officer and Chief Financial
Officer of the Company, respectively. The unaudited consolidated balance
sheet at May 31, 1995 reflects the acquisition of PremierPharmacy, Inc.
based on Premier's preliminary financial statements. Pro forma
information is being developed and will be filed under cover of Form
8-K/A.
5. CREDIT FACILITY:
On May 22, 1995, the Company entered into a three-year revolving line of
credit (the "Line of Credit") in the amount of $10,000,000 with
Creditanstalt Corporate Finance, Inc. ("CreditAnstalt"). The initial
borrowings under the Line of Credit were used in conjunction with funds
from the Private Placement (as defined below) to pay off the Company's
prior bank indebtedness, pay off Premier's prior bank indebtedness, fund
the Premier Acquisition and retire certain other trade debts. The Line of
Credit currently bears interest at prime rate plus .5%. In connection
with the Line of Credit, the Company paid a facility fee to CreditAnstalt
in the amount of $50,000. The Line of Credit is secured by substantially
all the assets of the Company. The Line of Credit also replaces a
$6,500,000 credit facility at prime rate plus 1.5%.
6. PRIVATE PLACEMENT:
On May 22, 1995, the Company completed a private offering of 1,600,000
units (the "Units"). Each Unit consisted of one share of Common Stock, a
three-year warrant to acquire 0.5 shares of Common Stock at the exercise
price of $4.50 per share, and a three-year warrant to acquire 0.4 share of
Common Stock at the exercise price of $5.50 per share. Investors were
granted registration rights with respect to both the Common Stock included
in the Units and the Common Stock underlying the related warrants. The
offering of Units raised $5,840,000 at a price of $3.65 per Unit.
7. RESTRUCTURING:
On February 14, 1995 the Company adopted a formal plan of restructuring in
order to realign and consolidate businesses, concentrate resources, and
better position itself to achieve its strategic growth objectives. This
plan included the sale of the Company's Medical/Surgical Supply Operations
and the closing of the Company's Missouri long-term care pharmacy
operation.
The Company entered into a contract to sell its Medical/Surgical supply
operations effective June 1, 1995. On that date the Company formally
ceased taking orders for its Medical/Surgical supply products at which
time it entered into an arrangement whereby the buyer of its
-7-
<PAGE> 10
CHOICE DRUG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Medical/Surgical supply operations would fulfill all customer order
requirements outstanding at and subsequent to June 1, 1995.
The Company formally closed its Missouri operations on June 9, 1995.
8. DISCONTINUED OPERATIONS:
In connection with the adoption of a formal restructuring plan (Note 7),
the Company determined to discontinue the operations of its mail order
pharmacy operations and sell its software division.
On June 30, 1995, the Company entered into an agreement to sell the assets
of its software operations.
The Company plans to close the operation of its mail order pharmacy
business on or about August 1, 1995.
The net assets and liabilities relating to the mail order and computer
software operations have been segregated on the balance sheet from their
historic classifications to separately identify them as assets held for
sale. Such amounts are summarized at May 31, 1995 as follows:
<TABLE>
<S> <C>
Accounts Receivable $363,322
Fixed Assets 3,211
Current Liabilities (95,363)
------
$271,170
========
</TABLE>
9. TANGIBLE NET WORTH:
As a result of the Company's past financial performance and the effect of
the Premier acquisition, the Company does not currently comply with NASDAQ
listing requirements for tangible net worth. The Company has a current
negative tangible net worth of $3,554,000. NASDAQ requires a minimum
positive tangible net worth of $4,000,000 if a registrant has incurred
losses in three of its last four years. The Company attended a meeting
with representatives of the Nasdaq Stock Market and is awaiting a decision
on its request for an exception to this requirement given that the Company
intends to raise additional equity of $8,000,000 to $10,000,000 in a
private placement in late August, 1995. Should this exception be denied
the Company may be moved to the Nasdaq SmallCap Market or delisted until
such time as it has met the tangible net worth requirement or qualified
for the Nasdaq SmallCap Market. The Company anticipates a response from
the Nasdaq Stock Market on July 19, 1995.
-8-
<PAGE> 11
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
QUARTER ENDED MAY 31,1995
COMPARED WITH THE QUARTER ENDED MAY 31, 1994
OVERVIEW:
During the first quarter of fiscal year 1996 and continuing into the
second quarter of fiscal year 1995 management has actively implemented a
corporate restructuring of the Company by concentrating on its core
business lines of long-term care pharmacy and correctional pharmacy
services. The Company has been successful in developing new revenues in
both the long-term care division and the correctional division with much
of the new business coming under contract in the months of June, July and
August. At the same time the Company has actively worked to sell or
close non-core and unprofitable business segments. The Company began in
the first quarter and completed in June and July the sale of it's medical
surgical operations and software division. The Company has successfully
completed the shut-down of the Missouri long-term care operation and began
the process for closing it's mail-order operation which is expected to be
completed by the end of July, 1995. In addition the Company has taken
major steps to reduce it's operating cost through a consolidation of three
corporate offices into Baltimore, Maryland, and by reducing overhead cost
through a reduction in work force which took place in June, 1995. The
effect of these changes will begin to reflect themselves in the results of
operations and cash flow of the second and third quarter as the costs
associated with these various activities continue to decrease.
The Company is currently going through a conversion of it's financial
systems to a mid-range IBM based platform and has just completed the
conversion of it's payroll and human resource systems. The Company is
also working on the conversion of all pharmacy systems to a single
solution and plans to have several sites converted by the end of the third
quarter. Operating expenses are being reviewed and reduced as
opportunities are identified and additional steps are being made to
improve the billing and collections function of each division. The
Company will continue to focus on the reduction of its operating cost as
it further integrates the various operations and improves its management
information systems. Product costs are being evaluated as the Company
implements a new primary wholesaler relationship and purchasing policies.
In addition, inventory levels are being reduced as the company works to
eliminate excess inventory.
-9-
<PAGE> 12
RESULTS OF OPERATIONS
QUARTER ENDED MAY 31,1995
COMPARED WITH THE QUARTER ENDED MAY 31, 1994
(CONTINUED)
THREE MONTHS ENDED MAY 31, 1995 COMPARED TO THREE MONTHS ENDED MAY 31, 1994
NET REVENUES:
Net revenues decreased from $11,223,000 to $10,709,000, a decrease of
$514,000 or 4.6%. This decrease was primarily attributable to reduced
sales in medical/surgical supplies which were not offset by pharmacy sales
increases.
COST OF SALES:
Cost of sales includes the cost of drugs and medical/surgical supplies
sold to patients and institutions. Cost of sales decreased from
$6,934,000 to $6,908,000 a decrease of less than 1%. As a percentage of
sales, cost of sales for the comparable quarter increased from 61.6% to
64.5%. The cost of sales percentage for the first quarter of fiscal year
1996 is comparable to the 64.8% cost of sales percentage for the fiscal
year ended February 28, 1995.
SELLING AND ADMINISTRATIVE EXPENSES:
Selling and administrative expenses excluding depreciation and
amortization increased from $3,920,000 to $4,078,000, an increase of
$158,000 or 4.0%. This increase was attributable to costs associated with
the settlement of amounts owed under an agreement not to compete, costs
of consultants and related travel expenses associated with the company's
reorganization, and the implementation of a standard bad debt expense
accrual. The current periods operating cost do not reflect the majority
of the Company's ongoing efforts to reduce payroll and operating costs.
INTEREST EXPENSE:
Net interest expense decreased from $229,000 to $216,000 a decrease of
$13,000. The decrease is primarily attributable to changes in the mix of
the Company's debt between the corresponding periods and the changes
associated with the CreditAnstalt debt facility, proceeds from the
Private Placement and the retirement of vendor debt.
OTHER INCOME:
Included in other income for the current period is $283,000 arising from
the discounting of indebtedness to a major vendor. The vendor debt was
retired in May, 1995 in conjunction with the company's Private Placement
and the Premier acquisition.
-10-
<PAGE> 13
RESULTS OF OPERATIONS
QUARTER ENDED MAY 31,1995
COMPARED WITH THE QUARTER ENDED MAY 31, 1994
(CONTINUED)
NET LOSS:
Net loss for the period increased to $418,000 from $153,000 in the
comparable prior period. This increase is a direct result of the lower
gross profit margin on decreased sales and the increases in operating
expenses, including the newly implemented bad debt expense accrual, which
were not fully offset by the gain on the discounted indebtedness.
-11-
<PAGE> 14
LIQUIDITY, CAPITAL RESOURCES AND CASH FLOW
The Company's net cash used in operating activities was $550,000 for the three
month period ended May 31, 1995 compared to the $154,000 net cash provided by
operations for the three month period ended May 31, 1994. Cash used by
operations for the three month period ended May 31, 1995 resulted from the
Company's significant operating loss which included a non-recurring gain on the
discount of indebtedness in the amount of $283,000, the reduction of accounts
payable and accrued expenses and the increase in prepaid expenses and other
current assets which was partially offset by the reduction in accounts
receivable and inventories and additions to the allowance for doubtful
accounts.
Net cash used in investing activities was $4,243,000 for the three month period
ended May 31, 1995 compared to $60,000 for the prior period. This significant
increase in cash used in investing activities resulted from the acquisition of
PremierPharmacy, Inc. as of May 31, 1995. (See note 4 to the Unaudited
Consolidated Financial Statements.)
Cash provided by financing activities was $5,676,000 for the three month period
ended May 31, 1995 compared to the $455,000 of cash used in financing
activities for the prior period. This significant change resulted from the
receipt of $9,650,000 from the loan facility with CreditAnstalt, $5,840,000
received from the private placement of 1,600,000 shares of the Company's common
stock and $750,000 from the proceeds of a loan made to the Company by Counsel
Corp. These funds were used to retire United Jersey Bank debt in the amount of
$2,983,000, retire the debt to a major vendor in the amount of $1,776,000
(which resulted in a gain on the discount of debt in the amount of $283,000)
and to retire CreditAnstalt senior debt of $5,536,000 associated with Premier
prior to its merger with the Company.
Working capital increased to $9,018,000 from $5,409,000 at May 31, 1995. The
increase in working capital resulted from the excess of the receipts from the
proceeds of the loan facility with CreditAnstalt and the private placement of
1,600,000 shares of the Company common stock over the funds which were
disbursed to retire bank debt, vendor debt and the bank debt of Premier.
The Company's current ratio of May 31, 1995 was 2.01:1 compared to 1.85:1 at
February 28, 1995. At May 31, 1995, prior to its merger with the Company,
Premier had working capital in the amount of $3,472,000 and a current ratio of
2.50:1.
As previously discussed, a result of its past financial performance and the
Premier acquisition, the Company does not comply with current NASDAQ listing
criteria for tangible net worth. Steps are being taken to comply with
applicable NASDAQ listing criteria, which includes raising approximately $8.0
to $10.0 million in additional capital.
-12-
<PAGE> 15
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.
Not Applicable
Item 2. Changes in Securities.
Not Applicable
Item 3. Default Upon Senior Securities.
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable
Item 5. Other Information:
Not Applicable
Item 6. Exhibits and Reports on Form 8-K:
(a) The exhibits filed as a part of this Report are listed
in the Exhibit Index immediately following the signature page.
(b) A report has been filed on Form 8-K, dated May 22, 1995,
disclosing a possible change in control of the Registrant involving
Counsel Corporation, an Ontario corporation, and the acquisition by
merger of PremierPharmacy, Inc. Relevant financial statements
will be filed under cover of Form 8-K/A.
-13-
<PAGE> 16
SIGNATURES
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.
-------------------------
(Registrant)
Dated: July 14, 1995 By:/S/ Don H. Thompson
-------------------
Don H. Thompson
Senior Vice President and Principal
Financial Officer
-14-
<PAGE> 17
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No.
- -----------
<S> <C>
2.1 Agreement and Plan Merger dated April 5, 1995 by and among Premier
Pharmacy, Inc., Registrant and a Delaware corporation organized as a
wholly owned subsidiary of Registrant (Incorporated by reference to
Exhibit 2.1 to Registrant's Annual Report on Form 10-K for the year ended
February 28, 1995 (the "1995 Annual Report Form 10-K"))
4.1 Form of Warrants issued pursuant to Registrant's private offering which
closed on May 22, 1995. (Incorporated by reference to Exhibits 4.5 and
4.6 to Registrant's 1995 Annual Report on Form 10-K.)
4.2 Form of Registration Rights Agreement dated as of May 22, 1995 among
Registrant and investors of such Offering. (Incorporated by reference
to Exhibit 4.1 to Registrants Form 8-K dated May 22, 1995).
99.1 Credit Agreement among Registrant and CreditAnstalt Corporate Finance,
Inc., dated May 19, 1995. (Incorporated by reference to Exhibit 10.19
to Registrant's Annual Report on Form 10-K.)
[ARE THERE ANY OTHER MATERIAL CONTRACTS FOR THE QUARTER?]
</TABLE>
-15-
