<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Date of Report (Date of earliest event reported):
May 22, 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 Blvd., Baltimore, Maryland 21230
-------------------------------------------------
(Address of principal executive offices)
(410) 646-6987
----------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
-------------------------------------------------------------------------------
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Premier Pharmacy, Inc.
(i) Audited consolidated balance sheets of Premier
Pharmacy, Inc. as of May 31, 1995 and June 30, 1994
and the related consolidated statements of operations,
stockholders' deficit and cash flows for the eleven
months ended May 31, 1995 and for each of the years
ended June 30, 1994 and 1993.
(ii) Audited balance sheet of Compuscript, Inc. as of
October 31, 1993 and December 31, 1992 and the
related statements of income, stockholders' equity
and cash flows for the ten months ended October 31,
1993 and the year ended December 31, 1992. (Acquired
on November 1, 1993 by Premier Pharmacy, Inc. as a
wholly owned subsidiary.)
(b) Pro Forma Financial Statements
(i) Introductory information
(ii) Unaudited pro forma selected income statement data of
Choice Drug Systems, Inc. for the three months ended
May 31, 1995 and the year ended February 28, 1995.
(c) Exhibits - None
4
<PAGE> 3
Consolidated Financial Statements
Premier Pharmacy, Inc. and Subsidiaries
Eleven months ended May 31, 1995 and
Years ended June 30, 1994 and 1993
with Report of Independent Auditors
<PAGE> 4
Premier Pharmacy, Inc. and Subsidiaries
Consolidated Financial Statements
Eleven months ended May 31, 1995 and Years ended June 30, 1994 and 1993
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Audited Financial Statements
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Stockholders' Deficit . . . . . . . . . . . . . . . . . . . . . . . 6
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
<PAGE> 5
Report of Independent Auditors
Board of Directors
Premier Pharmacy, Inc.
We have audited the accompanying consolidated balance sheets of Premier
Pharmacy, Inc. and subsidiaries (the Company) as of May 31, 1995 and June 30,
1994, and the related consolidated statements of operations, stockholders'
deficit, and cash flows for the eleven months ended May 31, 1995, and the year
ended June 30, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Premier Pharmacy,
Inc. and subsidiaries at May 31, 1995 and June 30, 1994, and the consolidated
results of their operations and their cash flows for the eleven months ended
May 31, 1995, and the year ended June 30, 1994, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
July 20, 1995
1
<PAGE> 6
Report of Independent Public Accountants
To the Board of Directors of
Premier Pharmacy, Inc.
We have audited the accompanying consolidated statements of income,
stockholders' equity, and cash flows of Premier Pharmacy, Inc. (a Delaware
corporation) and Subsidiaries (the Company) for the year ended June 30, 1993.
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 audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Premier
Pharmacy, Inc. and subsidiaries for the year ended June 30, 1993, in conformity
with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
November 1, 1993
2
<PAGE> 7
Premier Pharmacy, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
MAY 31, JUNE 30,
1995 1994
-----------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 115,455 $ 1,111,354
Accounts receivable, net of allowance for doubtful accounts
of $241,605 in 1995 and $202,950 in 1994 3,850,456 2,575,163
Notes receivable, net of allowance for uncollectible notes
of $41,000 in 1995 and $40,000 in 1994 188,511 252,714
Employee receivables 58,750 59,255
Inventories 1,586,934 1,402,859
Prepaid expenses 89,404 182,129
Deferred income taxes (Note 8) - 269,586
Refundable income taxes (Note 8) 90,460 -
----------------------------
Total current assets 5,979,970 5,853,060
Deferred income taxes (Note 8) 165,393 29,675
Property and equipment:
Land 5,704 5,704
Buildings 28,836 28,836
Leasehold improvements 117,529 57,692
Automobiles 98,373 23,351
Furniture and fixtures 780,746 775,871
Equipment 653,670 438,613
---------------------------
1,684,858 1,330,067
Accumulated depreciation 700,552 481,500
---------------------------
984,306 848,567
Other assets:
Noncompete agreements, net of accumulated amortization of
$350,000 in 1995 and $139,167 in 1994 800,000 710,833
Goodwill, net of accumulated amortization of
$237,144 in 1995 and $76,420 in 1994 (Note 10) 4,989,657 3,361,451
Loan origination fee, net of accumulated amortization
of $55,271 285,151 -
Other 70,962 13,898
---------------------------
6,145,770 4,086,182
---------------------------
Total assets $13,275,439 $10,817,484
===========================
</TABLE>
See accompanying notes.
3
<PAGE> 8
<TABLE>
<CAPTION>
MAY 31, JUNE 30,
1995 1994
--------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts Payable $ 1,207,906 $ 1,087,709
Accrued liabilities 1,395,376 1,168,001
Due to Choice 200,000 -
Current maturities of long-term debt and capital
lease obligations (Note 3) 6,689,715 1,607,413
Income taxes payable (Note 8) - 19,922
--------------------------------
Total current liabilities 9,492,997 3,883,045
Deferred income taxes (Note 8) 589,964 546,497
Other liabilities (Note 2) 600,000 500,000
Long-term debt and capital lease obligations, less
current maturities (Note 3) 714,224 2,653,317
Subordinated debentures (Note 4) - 3,521,420
Commitments (Note 7)
Redeemable, convertible preferred stock (Note 5):
Series A, $.001 par value, redemption and
liquidation value $3,329,028:
Authorized, issued and outstanding shares - 1,752,120 3,191,934 3,131,612
Series B, $.001 par value, redemption and
liquidation value $3,679,274:
Authorized, issued and outstanding shares - 2,787,329 3,603,981 -
Stockholders' deficit (Notes 5 and 6):
Series A common stock, $.001 par value:
Authorized shares - 9,309,525
Issued and outstanding shares - 1,247,880 1,248 1,248
Series B common stock, $.001 par value:
Authorized shares - 581,800 - -
Warrants 216,301 104,123
Accumulated deficit (5,135,210) (3,523,778)
--------------------------------
Total stockholders' deficit (4,917,661) (3,418,407)
--------------------------------
Total liabilities and stockholders' deficit $13,275,439 $10,817,484
================================
</TABLE>
4
<PAGE> 9
Premier Pharmacy, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
ELEVEN MONTHS YEAR ENDED JUNE 30,
ENDED MAY 31, ---------------------------------
1995 1994 1993
--------------------------------------------------------
<S> <C> <C> <C>
Revenues, net of discounts $23,433,541 $22,689,244 $20,864,522
Cost of sales 13,790,535 12,803,969 12,538,490
--------------------------------------------------------
Gross margin 9,643,006 9,885,275 8,326,032
--------------------------------------------------------
Operating expenses:
Salaries 7,579,491 6,663,543 6,806,751
Other operating expenses 1,978,418 1,942,904 1,274,942
Depreciation and amortization 711,257 593,523 355,780
Goodwill write-off (Note 10) - 2,490,733 -
Restructuring costs (Note 12) 178,848 - -
Reorganization costs (Note 11) - - 630,524
--------------------------------------------------------
Total operating expenses 10,448,014 11,690,703 9,067,997
Loss from operations (805,008) (1,805,428) (741,965)
Interest expense, net of
investment income of
$216,988 in 1995, $253,867
in 1994 and $181,587 in 1993 525,480 326,293 154,766
--------------------------------------------------------
Loss before income taxes (1,330,488) (2,131,721) (896,731)
Income tax expense (benefit) (Note 8) 207,335 603,312 (239,598)
Net loss --------------------------------------------------------
$(1,537,823) $(2,735,033) $ (657,133)
========================================================
</TABLE>
See accompanying notes.
5
<PAGE> 10
Premier Pharmacy, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Deficit
<TABLE>
<CAPTION>
SERIES A SERIES B
COMMON COMMON ACCUMULATED
STOCK STOCK WARRANTS DEFICIT TOTAL
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1992 $1,248 $ - $ 50,123 $ - $ 51,371
Accretion of Series A
preferred stock - - - (65,806) (65,806)
Net loss - - - (657,133) (657,133)
--------------------------------------------------------------------
Balance at June 30, 1993 1,248 - 50,123 (722,939) (671,568)
Accretion of Series A
preferred stock (Note 5) - - - (65,806) (65,806)
Issuance of warrants (Note 6) - - 54,000 - 54,000
Net loss - - - (2,735,033) (2,735,033)
--------------------------------------------------------------------
Balance at June 30, 1994 1,248 - 104,123 (3,523,778) (3,418,407)
Accretion of Series A
preferred stock (Note 5) - - - (60,322) (60,322)
Accretion of Series B
preferred stock (Note 5) - - - (13,287) (13,287)
Issuance of Warrants (Note 6) - - 112,178 - 112,178
Net loss - - - (1,537,823) (1,537,823)
--------------------------------------------------------------------
Balance at May 31, 1995 $1,248 $ - $216,301 $(5,135,210) $(4,917,661)
====================================================================
</TABLE>
See accompanying notes.
6
<PAGE> 11
Premier Pharmacy, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
ELEVEN MONTHS YEAR ENDED JUNE 30
ENDED MAY 31, -----------------------------
1995 1994 1993
--------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(1,537,823) $(2,735,033) $ (657,133)
Adjustments to reconcile net loss to net
cash (used in) provided by operating
activities:
Depreciation and amortization 711,257 593,523 355,780
Debt discount amortization 55,540 9,620 15,923
Loss on sale of assets 16,985 5,551 -
Goodwill write-off - 2,490,733 -
Changes in operating assets and liabilities,
net of acquisitions:
Accounts receivable and employee receivables (419,546) 175,467 580,336
Notes receivable 64,203 244,036 (380,947)
Inventories 139,925 468,306 (15,087)
Prepaid expenses 92,725 (136,729) 21,757
Refundable income taxes and income taxes
payable (110,382) 166,457 (186,510)
Deferred income taxes 177,335 505,892 (289,088)
Other (57,064) 3,597 -
Accounts payable, accrued liabilities and
other liabilities (710,889) (858,434) 399,772
Due to Choice 200,000 - -
--------------------------------------------------
Net cash (used in) provided by operating (1,377,734) 932,986 (155,197)
activities
INVESTING ACTIVITIES
Acquisition of Compuscript, net of cash - (2,451,839) -
acquired
Acquisition of Jacobson, net of cash (947,684) - -
acquired
Acquisition of DCC, net of cash acquired (682,804) - -
Capital expenditures (471,049) (329,837) (197,878)
Proceeds from the sale of property and 57,978 113,900 -
equipment
Decrease in short-term investments - - 110,000
--------------------------------------------------
Net cash used in investing activities (2,043,559) (2,667,776) (87,878)
FINANCING ACTIVITIES
Proceeds from issuance of debt 6,819,020 2,887,575 -
Loan origination fee (340,422) - -
Payments on long-term debt, capital lease
obligations and subordinated debentures (4,053,204) (726,185) (181,433)
--------------------------------------------------
Net cash provided by (used in) financing 2,425,394 2,161,390 (181,433)
activities
Net (decrease) increase in cash (995,899) 426,600 (424,508)
Cash at beginning of year 1,111,354 684,754 1,109,262
--------------------------------------------------
Cash at end of year $ 115,455 $ 1,111,354 $ 684,754
==================================================
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for interest $ 509,904 $ 568,506 $ 311,421
==================================================
Cash paid during the year for income taxes $ - $ - $ 236,000
==================================================
See accompanying notes.
7
</TABLE>
<PAGE> 12
Premier Pharmacy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
May 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND PRINCIPLES OF CONSOLIDATION
Premier Pharmacy, Inc. (PPI or the Company), manages pharmacies for small- to
medium-size hospitals and owns and operates long-term care pharmacies.
The consolidated financial statements include PPI and its wholly owned
subsidiaries: Compuscript, Inc. (Compuscript); PharmaSource, Inc.
(PharmaSource); Pharmacy Consulting Acquisition, Corp. (PCA); Innovative
Pharmacy Services, Inc. (IPS); Diversified Home Therapies, Inc.; Innovative
Pharmacy Services of Puerto Rico, Inc.; and Healthcare Pharmacy Services, Inc.
All material intercompany balances and transactions have been eliminated in
consolidation.
On May 22, 1995, effective for accounting purposes on May 31, 1995, the Company
was acquired by Choice Drug Systems, Inc. (Choice), for $4,250,000 in cash. The
financial statements do not reflect adjustments which may be required as a
result of this transaction.
CONTRACT REVENUE
Revenue on all contracts is recognized as services are performed. The Company
has one hospital contract which comprised 28.4%, 36.5%, and 50.4% of total
revenue for 1995, 1994, and 1993, respectively.
INVENTORIES
Inventories consist of pharmaceutical supplies and drugs stated at the lower of
cost or market on a first-in, first-out basis.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated on a straight-line
basis over the estimated useful lives (primarily five years). Equipment under
capital leases is amortized on a straight-line basis over the shorter of the
lease term or the estimated remaining useful life of the asset.
OTHER ASSETS
Goodwill and noncompete agreements are recorded at cost at the date of the
related acquisition and are amortized on a straight-line basis. Goodwill is
amortized over 30 years and noncompete agreements are amortized over the
five-year term of the agreements. Loan origination fees are stated at cost and
amortized over the term of the loan.
8
<PAGE> 13
Premier Pharmacy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISK
The Company performs periodic credit evaluations of its customers' financial
conditions and does not require collateral. Receivables are generally due
within 30 days. Credit losses from customers have been within management's
expectations, and management believes that the allowances for doubtful accounts
and uncollectible notes adequately provide for any expected losses.
INCOME TAXES
The Company accounts for income taxes under the liability method as required by
the Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes."
RECLASSIFICATIONS
Certain reclassifications have been made to prior year amounts to conform to
the 1995 presentation.
2. ACQUISITIONS
On July 1, 1994, PharmaSource acquired the assets of Robert Jacobson Pharmacy,
Ltd. (Jacobson). Consideration for the acquisition consisted of $1,000,000 in
cash and a $125,000 note payable to the sellers. PharmaSource will pay up to
$900,000 in additional consideration if Jacobson's total revenues exceed a
specified amount for the years ended June 30, 1995 and 1996. The acquisition
was accounted for as a purchase. The excess purchase price over the fair value
of the net assets of $1,155,145 was allocated to goodwill. PharmaSource agreed
to pay the sellers $50,000 per year for five years for a noncompete agreement.
On July 1, 1994, PCA acquired the assets of Drug Computer Consultants, Ltd.,
and Carl A. Pannuti Consultant Pharmacists, P.C. (DCC). Consideration for the
acquisition consisted of $650,000 in cash and a $150,000 note payable to the
sellers. The acquisition was accounted for as a purchase. The excess purchase
price over the fair value of the net assets of $587,040 was allocated to
goodwill. PCA paid the sellers $50,000 for a five-year noncompete agreement.
9
<PAGE> 14
Premier Pharmacy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. ACQUISITIONS (CONTINUED)
On November 1, 1993, PPI acquired all the capital stock of Compuscript for
$2,250,000 in cash and a $1,770,607 note payable. Additionally, PPI will pay
up to $1,100,000 in additional consideration if Compuscript achieves certain
cumulative earnings through June 30, 1998. The acquisition was accounted for as
a purchase. The excess purchase price over the fair value of the net assets of
$3,437,871 was allocated to goodwill. During 1995, goodwill was increased by
$46,745 related to adjustments to certain assets identified in the purchase
price allocation. PPI agreed to pay the sellers $150,000 per year for five
years for a noncompete agreement.
On July 15, 1992, effective for accounting purposes on June 30, 1992, PPI
acquired all of the capital stock of IPS for $4,168,133 cash, a $1,250,000 note
payable, and 468,000 shares of PPI stock for a total purchase price of
$5,418,601. The acquisition has been accounted for as a purchase. The excess
purchase price over the fair value of the net assets of $2,649,476 was
allocated to goodwill.
10
<PAGE> 15
Premier Pharmacy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations at May 31, 1995, and June 30,
1994, consist of the following:
<TABLE>
<CAPTION>
1995 1994
---------------------------
<S> <C> <C>
Term loan with CreditAnstalt Corporate Finance, Inc.
(CreditAnstalt), interest at prime plus 1-3/4% (9% at May 31,
1995); due June 30, 1996; collateralized by substantially all assets $2,194,029 $
Borrowings under a $5,000,000 revolving loan with CreditAnstalt;
expires June 30, 1999; interest at prime plus 1-1/2%; collateralized
by substantially all assets 3,225,000 -
Term loan with Silicon Valley Bank (the Bank), interest at prime
plus 3%; due in monthly installments of approximately $10,638
plus interest through July 1996; collateralized by substantially all
assets - 255,320
Borrowings under a $3,000,000 line of credit with the Bank; due on
November 5, 1994; interest at prime plus 2% payable monthly;
collateralized by substantially all assets - 993,240
Note payable; interest at 9% payable monthly; principal payable
annually in varying amounts through July 1997; collateralized by
common stock of IPS - 1,083,375
Notes payable to former stockholders of Compuscript; interest at 6%;
due October 31, 1995 1,000,000 1,000,000
Notes payable to former stockholders of Compuscript; due in monthly
installments of $14,898, including interest at 6% through
October 31, 1988 551,036 680,686
Note payable to former stockholder of Jacobson; interest at 7%; due
August 11, 1996 125,000 -
Notes payable to former stockholders of DCC; interest at 7%; due in
annual installments of $30,000 through June 30, 1999 150,000 -
Capital lease obligations 103,771 168,167
Other 111,741 79,942
---------------------------
7,460,577 4,260,730
Less unamortized discount 56,638 -
---------------------------
7,403,939 4,260,730
Less current maturities 6,689,715 1,607,413
---------------------------
$ 714,224 $2,653,317
===========================
</TABLE>
11
<PAGE> 16
Premier Pharmacy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (CONTINUED)
The aggregate maturities of long-term debt, net of unamortized discount, and
capital lease obligations at May 31, 1995, were as follows:
<TABLE>
<S> <C>
1996 $6,689,715
1997 373,216
1998 197,995
1999 113,013
2000 and thereafter 30,000
----------
$7,403,939
==========
</TABLE>
The principal amount of the term loan with CreditAnstalt has been reduced by
$112,178, which has been recorded as warrants to reflect the value of 581,800
detachable warrants to purchase PPI Series A common stock or Series B common
stock (see Note 6).
Agreements with CreditAnstalt stipulate that PPI provide certain information
and maintain certain financial ratios and minimum net worth and earnings
levels. As of May 31, 1995, the Company was in violation of these covenants.
Therefore, the amounts due under the agreements with CreditAnstalt have been
reflected as current. All borrowings from CreditAnstalt were repaid in
connection with the acquisition of the Company.
4. SUBORDINATED DEBENTURES
On August 11, 1994, PPI converted the outstanding subordinated debentures
including accrued interest totaling $3,590,694, net of unamortized discount of
$78,580 and issuance costs of $10,000, into 2,787,329 shares of Series B
preferred stock at $.001 par value. (See Note 5.) Therefore, the debentures
have been classified as noncurrent at June 30, 1994.
On November 1, 1993, PPI issued $2,800,000 of subordinated debentures at a
stated interest rate of prime plus 2%. These debentures are subordinate to all
of the long-term debt. The principal amount of the subordinated debentures has
been reduced by $54,000, which has been recorded as warrants to reflect the
value of 540,000 detachable warrants to purchase PPI Series A common stock.
(See Note 6.)
In July 1992, PPI issued $1,000,000 of subordinated debentures at a stated
interest rate of 10%. These debentures are subordinate to all of the long-term
debt. The principal amount of the subordinated debentures has been reduced by
$50,123, which has been recorded as
12
<PAGE> 17
Premier Pharmacy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. SUBORDINATED DEBENTURES (CONTINUED)
warrants to reflect the value of 529,412 detachable warrants to purchase PPI
Series A common stock at $.001 per share. (See Note 6.)
Unamortized discount relating to subordinated debentures at June 30, 1994 and
1993, was $78,580, and $34,200, respectively.
5. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
In connection with the purchase of IPS in 1992, PPI issued 1,752,120 shares of
its redeemable, $.001 par value Series A preferred stock for $3,000,000, net of
a $335,000 issuance fee paid to a related party. Each Series A preferred share
is convertible to one share of common stock at the option of the Series A
preferred shareholder. The Series A preferred stock has voting rights equal to
those of the common stock.
The Series A preferred stock pays dividends at the discretion of the Board of
Directors but at least equal to any dividends paid to the common stock.
Commencing July 15, 1997, the Series A preferred shares earn $.0476 per share
per year in dividends, and such dividends are cumulative. Each Series A
preferred share can be liquidated at the option of the preferred stockholder on
or after July 17, 1997, for $1.90 per share plus accrued dividends.
Accordingly, Series A preferred stock is accreted to reflect this liquidation
preference over the period from issuance to July 17, 1997.
In connection with the acquisition of IPS, PPI also issued 468,000 shares of
Series A common stock to IPS shareholders.
In connection with the conversion of the subordinated debentures, PPI amended
its Certificate of Incorporation for new series of preferred stock (Series B)
and common stock (Series B).
The $.001 par value, Series B preferred stock is convertible to one share of
Series A common stock at the option of the Series B preferred shareholder. The
Series B preferred stock pays dividends at the discretion of the Board of
Directors but at least equal to any dividends paid to the common stock. The
Series B preferred stock ranks, as to dividends and upon liquidation, equally
with the Series A preferred stock and senior to the Series A and Series B
common stock. Each Series B preferred share can be liquidated at the option of
the preferred stockholder on or after August 11, 1999, for $1.32 per share plus
accrued dividends. Accordingly, the Series B preferred stock is accreted to
reflect this liquidation preference over the period from issuance to August 11,
1999.
13
<PAGE> 18
Premier Pharmacy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
The Series A and Series B common stock rank equally as to dividends and upon
liquidation and junior to the Series A and Series B preferred stock.
6. STOCK PURCHASE WARRANTS AND STOCK OPTIONS
In connection with the financing obtained from CreditAnstalt, PPI issued
warrants to purchase 581,800 shares of Series A common stock or Series B common
stock at a price of $.001 per share. The warrants expire August 12, 2004.
In connection with the issuance of subordinated debentures in July 1992,
warrants were issued to purchase 529,412 shares of common stock at $.001
expiring July 15, 2002. In connection with the issuance of subordinated
debentures in November 1993, warrants were issued to purchase 540,000 shares of
common stock at $.10 expiring November 1, 2003.
The 1992 stock option plan (the Plan) authorizes the granting of incentive and
nonqualified stock options. The purchase price of the shares under option must
be at least 100% of the fair market value of the common stock at date of grant.
The options granted become exercisable over five years and have to be exercised
the earlier of ten years from the date of grant or a date determined by the
Board of Directors. Data with respect to stock options under the Plan are as
follows:
<TABLE>
<CAPTION>
OPTIONS
SHARES ---------------------
RESERVED PRICE PER
FOR GRANT SHARES SHARE
-------------------------------------------
<S> <C> <C> <C>
June 30, 1992 300,000 - $
Granted (5,000) 5,000
June 30, 1993 295,000 5,000 .03
------------------------------
Granted (202,000) 202,000 .03-.10
Canceled 14,000 (14,000) .03
------------------------------
June 30, 1994 107,000 193,000 -
Additional shares reserved for grant 796,600 - -
Granted (476,742) 476,742 .21
Canceled 1,000 (1,000) .03
May 31, 1995 427,858 668,742 .03-.21
===========================================
Exercisable at May 31, 1995 - 39,650 $.03-.10
===========================================
</TABLE>
14
<PAGE> 19
Premier Pharmacy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. STOCK PURCHASE WARRANTS AND STOCK OPTIONS (CONTINUED)
In connection with the conversion of the subordinated debentures, PPI reserved
an additional 796,600 shares of Series A common stock for issuance under the
Plan.
7. COMMITMENTS
PPI entered into operating leases for office space and equipment. Rent expense
of $239,058, $103,814, and $80,678 was recognized during 1995, 1994, and 1993.
Future minimum rental payments under operating leases, including abandoned
leases, as of May 31, 1995, are as follows:
<TABLE>
<CAPTION>
OPERATING ABANDONED
LEASES LEASES
-----------------------------
<S> <C> <C>
1996 $ 239,095 $ 63,887
1997 232,852 198,560
1998 231,512 46,583
1999 232,526 -
2000 161,104 -
Thereafter 47,150 -
----------------------------
Total future minimum payments $1,144,239 $309,030
============================
</TABLE>
8. INCOME TAXES
The income tax expense (benefit) reflected in the statements of operations for
the eleven months ended May 31, 1995, and the years ended June 30,1994 and
1993, is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------------------------------------------
<S> <C> <C> <C>
Current $ 30,000 $ 97,420 $ 49,490
Deferred 177,335 505,892 (289,088)
-------------------------------------------
$207,335 $603,312 $(239,598)
===========================================
</TABLE>
15
<PAGE> 20
Premier Pharmacy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. INCOME TAXES (CONTINUED)
A reconciliation between income taxes computed at the federal statutory rate
and the Company's expense for income taxes for the eleven months ended May 31,
1995, and the years ended June 30, 1994 and 1993, is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------------------------------------------------
<S> <C> <C> <C>
Federal income tax (benefit) at
statutory rate $(452,366) $(850,161) $(304,859)
Nondeductible goodwill write-off - 972,225 -
Puerto Rico taxes - 452,137 -
Nondeductible expense items 41,093 60,482 31,822
State income taxes 30,000 30,000 5,153
Change in valuation allowance 587,319 (59,962) 28,286
Other 1,289 (1,409) -
--------------------------------------------------
$ 207,335 $ 603,312 $(239,598)
==================================================
</TABLE>
The Puerto Rico Income Tax Act imposes a 25% withholding tax on dividends from
sources within Puerto Rico to foreign corporations. This withholding tax was
not accrued as of June 30, 1993, because it is not payable as long as
operations continue in Puerto Rico. However, during the year ended June 30,
1994, the two major Puerto Rico contracts were terminated and management is
considering whether to continue operations in Puerto Rico. Therefore, $452,137
of withholding tax was recorded as of June 30, 1994.
16
<PAGE> 21
Premier Pharmacy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets as of May 31, 1995 and
June 30, 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
------------------------------
<S> <C> <C>
Deferred tax liabilities:
Depreciation $(145,164) $(121,926)
Puerto Rico withholding tax (424,571) (424,571)
Goodwill amortization (20,229) -
------------------------------
Total deferred tax liabilities (589,964) (546,497)
Deferred tax assets:
Foreign tax credit carryforwards 60,750 86,938
Bad debt reserves 107,010 92,321
Accrued liabilities 104,327 177,265
Puerto Rico loss carryforward - 17,843
Net operating loss carryforward 498,057 -
Amortization of noncompete agreements 83,811 -
Other 3,538 29,675
------------------------------
Total deferred tax assets 857,493 404,042
Valuation allowance (692,100) (104,781)
------------------------------
Deferred tax assets after valuation allowance 165,393 299,261
------------------------------
Net deferred tax liability $(424,571) $(247,236)
==============================
</TABLE>
The Company has established a valuation allowance as of May 31, 1995, and June
30, 1994, for the foreign tax credit carryforward and other deferred tax assets
not likely to be recovered. The net operating loss carrforward expires in 2010.
The foreign tax credits of $60,750 are available for carryforward through 1999.
9. PROFIT-SHARING PLAN
PPI has a 401(k) profit-sharing plan (the Profit-Sharing Plan) covering all
eligible employees. Employee contributions are voluntary. PPI matches employee
contributions equal to 35% of the employee's contribution up to 3% of the
employee's annual salary. The trustees of the Profit-Sharing Plan are the
chief executive officer and the vice president of finance of PPI. During 1995,
1994, and 1993, PPI recognized expense of $33,461, $20,045, and $19,110,
respectively, of expense for its contributions to the Profit-Sharing Plan.
17
<PAGE> 22
Premier Pharmacy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. GOODWILL
Changes in goodwill are summarized as follows:
<TABLE>
<S> <C>
Balance at July 1, 1993 $2,583,802
Amortization (169,489)
Compuscript purchase 3,437,871
Write-off (2,490,733)
----------
Balance at June 30, 1994 3,361,451
Amortization (160,724)
Jacobson purchase 1,155,145
DCC purchase 587,040
Compuscript adjustment 46,745
----------
Balance at May 31, 1995 $4,989,657
==========
</TABLE>
During 1994, the Company began concentrating sales, operations, and acquisition
efforts in long-term care pharmacy operations rather than hospital operations.
The Company has acquired three long-term care pharmacy operations and is
actively selling to this market. During 1994, hospital contracts were reduced
from 43 to 25 and additional contracts were not being actively pursued.
Accordingly, the Company determined that projected results of the hospital
division would not support the future amortization of the remaining goodwill
balance related to these operations.
To assess the recoverability of goodwill relating to hospital operations, the
Company projected the operating results of the hospital operations over the
estimated life of key contracts. Based on these estimates, the cumulative net
income before goodwill amortization was insufficient to recover the goodwill
balance. Accordingly, the Company wrote off its remaining goodwill balance
relating to hospital operations.
11. REORGANIZATION COSTS
As of June 30, 1993, the Company had committed to a centralization of all
administrative functions that had been performed in Atlanta, Georgia; Austin,
Texas; and San Juan, Puerto Rico, to a new location in Dallas, Texas. This
centralization process included terminating certain employees and closing and
relocating certain corporate offices. In conjunction with the reorganization,
the Company recognized expenses totaling $630,524, representing primarily the
discounted value of the remaining lease commitments, the costs of moving to
the new location, and severance pay for terminated employees.
18
<PAGE> 23
Premier Pharmacy, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. ACQUISITION OF THE COMPANY
In anticipation of the acquisition of PPI by Choice, the employees of PPI
assisted in certain management functions at Choice. In addition, PPI incurred
travel expenses related to these services and other costs (primarily severance
and professional fees) directly related to the acquisition totaling $178,848.
19
<PAGE> 24
Financial Statements
Compuscript, Inc.
Ten-Month Period ended October 31, 1993 and
Year ended December 31, 1992
with Report of Independent Auditors
<PAGE> 25
Ernst & Young [LOGO]
Report of Independent Auditors
Board of Directors
Premier Pharmacy, Inc.
We have audited the accompanying balance sheet of Compuscript, Inc. (the
Company) as of October 31, 1993 and December 31, 1992, and the related
statements of income, stockholders' equity, and cash flows for the ten month
period ended October 31, 1993 and year ended December 31, 1992. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Compuscript, Inc. at October
31, 1993 and December 31, 1992, and the results of its operations and its cash
flows for the ten month period ended October 31, 1993 and year ended December
31, 1992, in conformity with generally accepted accounting principles.
Ernst & Young LLP
ERNST & YOUNG LLP
March 10, 1995
<PAGE> 26
Compuscript, Inc.
Balance Sheets
<TABLE>
<CAPTION>
OCTOBER 31, DECEMBER 31,
1993 1992
--------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 149,513 $ 169
Accounts receivable 872,578 833,408
Inventories 467,438 449,943
Prepaid expenses 7,100 690
------------------------------
Total current assets 1,496,629 1,284,210
Property and equipment:
Leasehold improvements 115,726 109,913
Automobiles 54,492 39,895
Furniture and fixtures 180,116 141,959
Equipment 69,460 44,949
------------------------------
419,794 336,716
Accumulated depreciation (224,689) (178,122)
------------------------------
195,105 158,594
Other assets 6,680 4,745
------------------------------
Total assets $1,698,414 $1,447,549
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 620,723 $ 674,580
Current maturities of long-term debt 76,360 85,219
------------------------------
Total current liabilities 697,083 759,799
Long-term debt, less current maturities 67,237 107,222
Commitments
Stockholders' equity
Common stock, no par value:
Authorized, issued, and
outstanding shares - 200 - -
Paid-in capital 1,000 1,000
Retained earnings 933,094 579,528
------------------------------
Total stockholders' equity 934,094 580,528
------------------------------
Total liabilities and stockholders' equity $1,698,414 $1,447,549
==============================
</TABLE>
See accompanying notes.
2
<PAGE> 27
Compuscript, Inc.
Statements of Income
<TABLE>
<CAPTION>
TEN MONTH
PERIOD ENDED YEAR ENDED
OCTOBER 31, DECEMBER 31,
1993 1992
--------------------------------
<S> <C> <C>
Revenues, net of discounts $6,414,045 $5,597,982
Cost of sales 3,798,212 3,409,507
------------------------------
Gross margin 2,615,833 2,188,475
------------------------------
Operating expenses:
Salaries 1,450,078 1,396,499
Other operating expenses 560,156 554,352
Depreciation 53,938 54,434
------------------------------
Total operating expenses 2,064,172 2,005,285
Income from operations 551,661 183,190
Interest expense 15,166 21,036
------------------------------
Net income $ 536,495 $ 162,154
==============================
</TABLE>
See accompanying notes.
3
<PAGE> 28
Compuscript, Inc.
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
--------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1992 $ - $1,000 $ 417,374 $ 418,374
Net income 162,154 162,154
-------------------------------------------------------
Balance at December 31, 1992 - 1,000 579,528 580,528
Net income - - 536,495 536,495
Dividends - - (182,928) (182,928)
-------------------------------------------------------
Balance at October 31, 1993 $ - $1,000 $ 933,094 $ 934,094
=======================================================
</TABLE>
See accompanying notes.
4
<PAGE> 29
Compuscript, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
TEN MONTH
PERIOD ENDED YEAR ENDED
OCTOBER 31 DECEMBER 31
1993 1992
--------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 536,495 $ 162,154
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 53,938 54,434
Changes in operating assets and liabilities:
Accounts receivable (39,170) (328,246)
Inventories (17,495) (93,437)
Prepaid expenses (6,410) (690)
Accounts payable and accrued liabilities (53,857) 314,762
Other (1,935) 290
------------------------------
Net cash provided by operating activities 471,566 109,267
INVESTING ACTIVITIES
Capital expenditures (92,656) (63,390)
Proceeds from the sale of property and equipment 2,204 -
------------------------------
Net cash used for investing activities (90,452) (63,390)
FINANCING ACTIVITIES
Proceeds from issuance of debt 26,395 100,000
Payments on long-term debt (75,239) (163,069)
Dividends (182,928) -
------------------------------
Net cash used for financing activities (231,770) (63,069)
Net change in cash 149,344 (17,192)
Cash at beginning of period 169 17,361
------------------------------
Cash at end of period $ 149,513 $ 169
==============================
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for interest $ 15,166 $ 21,036
==============================
</TABLE>
See accompanying notes.
5
<PAGE> 30
Compuscript, Inc.
Notes to Financial Statements
October 31, 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Compuscript, Inc. (the Company) owns and operates long-term care pharmacies in
New York. The Company was acquired by Premier Pharmacy, Inc. on November 1,
1993.
INVENTORIES
Inventories consist of pharmaceutical supplies and drugs stated at the lower of
cost or market on a first-in, first-out basis.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated on a straight-line
basis over the estimated useful lives (primarily five to seven years).
CONCENTRATION OF CREDIT RISK
The Company performs periodic credit evaluations of its customers' financial
condition and does not require collateral. Receivables are generally due within
30 days. There have been no credit losses from customers.
INCOME TAXES
The Company has elected to be taxed as an S Corporation. Therefore, taxable
income of the Company is allocated to the stockholders and no income taxes are
payable by the Company.
6
<PAGE> 31
Compuscript, Inc.
Notes to Financial Statements (continued)
2. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
October 31, December 31,
1993 1992
-----------------------------
<S> <C> <C>
Term loan with Hudson Valley Bank; interest at 7.5%; due in
monthly installments of approximately $4,167 plus interest
through July 1994; guaranteed by stockholders of
Compuscript $ 37,500 $ 79,167
Note payable; interest at 10%; due in monthly installments of
approximately $2,868 through July 1996; guaranteed by
stockholders of Compuscript 82,435 103,275
Other 23,662 9,999
---------------------------
$143,597 $192,441
===========================
</TABLE>
The aggregate maturities of long-term debt at October 31, 1993 are as follows:
<TABLE>
<S> <C>
For the two months ended December 31, 1993: $ 16,012
For the year ended December 31:
1994 66,820
1995 37,372
1996 22,825
1997 568
1998 -
--------
$143,597
========
</TABLE>
3. RETIREMENT PLANS
Compuscript has a defined benefit pension plan covering all employees after age
21 who have completed two years of service. The benefits are based on years of
service and the employee's average annual compensation during the five highest
compensated years of employment. compuscript's policy is to make contributions
to the plan in such amounts as are actuarially required to fund plan benefits.
pension costs totaled $181,868 and $130,391 for 1993 and 1992, respectively.
the plan was terminated with no additional liability to the company.
7
<PAGE> 32
Compuscript, Inc.
Notes to Financial Statements (continued)
4. Commitments
The company entered into an operating lease for office space. rent expense of
$13,510 and $21,865 was recognized during the ten-month period ended october
31, 1993 and the year ended december 31, 1992, respectively. Future minimum
rental payments under the operating lease are as follows:
<TABLE>
<S> <C>
For the two months ended December 31, 1993: $ 3,554
For the year ended December 31:
1994 21,320
1995 21,320
1996 21,320
1997 21,320
1998 21,320
Thereafter 63,960
--------
Total future minimum payments $174,114
========
</TABLE>
8
<PAGE> 33
CHOICE DRUG SYSTEM, INC.
PRO FORMA SELECTED FINANCIAL DATA
(unaudited)
On May 22, 1995, Choice Drug Systems, Inc. (the "Company") closed on the
acquisition of Premier Pharmacy, Inc. ("Premier"), a provider of institutional
and hospital pharmacy services. The acquisition was accomplished by a merger
of a wholly-owned subsidiary of the Company into Premier. The Company assumed
responsibility for the operations effective June 1, 1995.
The unaudited pro forma income statement data for the year ended February 28,
1995 and the three months ended May 31, 1995 have been prepared based on
historical income statements of the Company, as adjusted to reflect the
acquisition of Premier as if such agreement had been effective March 1, 1994.
The pro forma income statement data may not be indicative of the future results
of operations and what the actual results of operations would have been had the
acquisitions described above been effective March 1, 1994. The assets and
liabilities of the Premier acquisition are included in the Company's balance
sheet as of May 31, 1995 as filed on Form 10-Q, as amended, with the
Commission on July 14, 1995 and thus no pro forma balance sheet is required or
provided.
<PAGE> 34
CHOICE DRUG SYSTEMS, INC.
PRO FORMA INCOME STATEMENT DATA
FOR THE YEAR ENDED FEBRUARY 28, 1995
(unaudited in thousands, except share amounts)
<TABLE>
<CAPTION>
CHOICE DRUG PREMIER
SYSTEMS, INC. PHARMACY, INC. ADJUSTMENTS PRO-FORMA
------------- -------------- ----------- ---------
<S> <C> <C> <C> <C>
Net Sales $ 43,507 $24,996 $ 0 $ 68,503
Cost of Sales 28,185 14,519 0 $ 42,704
---------- ------- ------ ----------
Gross Profit 15,322 10,477 0 25,799
Operating Expenses
Selling and administrative expenses 18,637 10,185 (1,368) $ 27,454
Depreciation 605 363 0 968
---------- ------- ------ ----------
Operating Income (Loss) from continuing (3,920) (71) 1,368 (2,623)
operations before income taxes
Non-Operating expense (Income)
Interest expense, net 905 591 (54)(B) 1,442
Amortization expense 384 404 (200)(C) 588
Other Income (421) (56) 0 (477)
---------- ------- ------ ----------
Total non-operating expense 868 939 (254) 1,553
Income (Loss) from continuing operations (4,788) (1,010) 1,622 (4,176)
before income taxes
Provision (benefit) for income taxes (466) 77 681 292
---------- ------- ------ ----------
Income (Loss) from continuing operations ($4,322) ($1,087) $ 941 ($4,468)
Weighted average number of equivalent common
shares outstanding 6,458,891 6,458,891
---------- ----------
Income (Loss) from continuing operations
per share ($0.67) ($0.69)
---------- ----------
</TABLE>
The accompanying notes are an integral part of this statement
<PAGE> 35
CHOICE DRUG SYSTEMS,INC.
PRO FORMA INCOME STATEMENT DATA
FOR THE THREE MONTHS ENDED MAY 31, 1995
(unaudited in thousands, except share amounts)
<TABLE>
<CAPTION>
CHOICE DRUG PREMIER
SYSTEMS, INC. PHARMACY, INC. ADJUSTMENTS PRO-FORMA
------------- -------------- ----------- ---------
<S> <C> <C> <C> <C>
Net Sales $ 10,709 $6,277 $ 0 $ 16,936
Cost of Sales 6,908 3,679 0 $ 10,587
---------- ------ ---- ----------
Gross Profit 3,801 2,548 0 6,349
Operating Expenses
Selling and administrative expenses 4,078 2,614 (342) $ 6,350
Depreciation 152 82 0 $ 234
---------- ------ ---- ----------
Operating Income (Loss) from continuing (429) (148) 342 (235)
operations before income taxes
Non-Operating expenses (Income)
Interest expense, net 216 174 (14)(B) $ 375
Amortization expense 85 102 (50)(C) $ 137
Other Income (29) (7) 0 $ (36)
---------- ------ ---- ----------
Total non-operating expense 272 269 (64) 477
Income (Loss) from continuing operations (701) (417) 406 (712)
before income taxes
Provision benefit for income taxes 0 0 0 0
---------- ------ ---- ----------
Income (loss) from continuing operations ($701) ($417) $406 ($712)
Weighted average number of equivalent common
shares outstanding 8,300,267 8,300,267
---------- ----------
Income (Loss) from continuing operations per share ($0.08) ($ 0.09)
</TABLE>
The accompanying notes are an integral part of this statement
<PAGE> 36
CHOICE DRUG SYSTEM, INC.
NOTES TO PRO FORMA INCOME STATEMENT DATA
FOR THE YEAR ENDED FEBRUARY 28, 1995
AND THE THREE MONTHS ENDED MAY 31, 1995
(a) Reflects additional operating and general and administrative expenses of
$1,368,000 for the year ended February 28, 1995 and $342,000 for the three
months ended May 31, 1995 as a result of integrating acquired operations. This
adjustment includes salary and personnel expenses for Premier and other
corporate expenses which were terminated as a result of the merger.
(b) Reflects reduced interest expense as a result a 1% of lower interest cost
under the Company's restructured line of credit agreement with CreditAnstalt
which averaged $5,425,000 during the year.
(c) Reflects adjustments to amortization of goodwill and non-compete agreements
associated with the acquisition calculated as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
FEB. 28, 1995 MAY 31, 1995
------------- ------------
<S> <C> <C>
Premier amortization expense as recorded $404,000 $102,000
Post acquisition amortization expense 204,000 52,000
-------- --------
Pro Forma Adjustment $200,000 $ 50,000
</TABLE>
(d) Reflects income taxes for acquired operations at statutory rates.
<PAGE> 37
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 H. Thompson
-------------------------------------
Name: Don H. Thompson
-------------------------------------
Title: Senior Vice President
and Principal Financial Officer
-------------------------------------
Date: August 4, 1995
