SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the eleven months ended December 31, 1999
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number:0-17821
ALLION HEALTHCARE, INC.
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(Exact name of registrant as specified in its charter)
Delaware 11-2962027
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
33 Walt Whitman Road, Suite 200A Huntington Station, NY 11746
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code...(631) 547-6520
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Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value per Share
(Title of Class)
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
and 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
Transitional small business disclosure format (check one):
YES NO X
<PAGE>
TABLE OF CONTENTS
PART I.
ITEM 1. BUSINESS.................................................. 3
ITEM 2. PROPERTIES................................................ 8
ITEM 3. LITIGATION................................................ 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....... 9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS....................................... 9
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED RESULTS
OF OPERATIONS AND CONSOLIDATED FINANCIAL CONDITION........ 9
ITEM 7. FINANCIAL STATEMENTS...................................... 11
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................. 23
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS................................................... 23
ITEM 10. EXECUTIVE COMPENSATION ................................... 24
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT...... ................ 24
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............ 26
ITEM 13. COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE ACT........ 26
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K.......................... 26
The Statements in this Report on Form 10-KSB that are not based on historical
information are considered forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including statements regarding the Company's hopes,
intentions, beliefs or strategies regarding the future.
<PAGE>
PART I
ITEM 1. BUSINESS
OVERVIEW
Allion Healthcare, Inc., controls three wholly owned subsidiary
companies, MOMSPharmacy.com, Mail Order Meds, Inc., and Mail Order Meds of New
York, Inc. The Company provides specialty prescription medication services to
all 50 U.S. States and provides a convenient, private and informative shopping
experience for health and personal care products through the Internet. The
Company believes it can focus on select niche markets such as Fertility, HIV,
Liver and Solid Organ Transplant, Diabetes and Asthma and provide those patients
medications directly from either of its two licensed pharmacies.
The Company has expanded its services to include more than 20,000 health and
beauty products that are available through the MOMSPharmacy.com Internet site.
The Company has established a strategic partnership with a leading distribution
facility for fulfillment services of orders for health and beauty items taken
over the Internet. In addition, the Company plans to provide medical information
content selection and healthy living and nutritional information direct to
customers from the site.
INDUSTRY BACKGROUND
THE GROWTH OF THE INTERNET AND ONLINE COMMERCE. The Internet is a significant
medium for communication and commerce, enabling millions of people to share
information and conduct business electronically. International Data Corporation
estimates the following:
- 142 million users worldwide accessed the Internet at the end of 1998,
and this number is expected to increase to approximately 502 million
users by the end of 2002; and
- worldwide business-to-consumer sales over the Internet will increase
from approximately $15 billion in 1998 to approximately $115 billion
by 2002.
The unique characteristics of the Internet provide a number of advantages for
online retailers. Without the physical constraints faced by traditional
retailers, online retailers are able to carry a larger number of products at a
lower cost and with greater merchandising flexibility. Additionally, they can
assist the consumer's purchase decision by providing relevant information and
enabling consumers to shop at their convenience by remaining open 24 hours a
day, seven days a week.
THE MARKET. The Company's market consists of prescription drugs,
non-prescription drugs, personal care products, beauty and spa, vitamins, herbs
and nutrition. Based on estimates from the National Association of Chain
Drugstores and Information Resources, Inc., the Company believes the U.S. market
for health and personal care products will exceed $170 billion in 1999, of which
prescription drugs comprised over $120 billion. The Company believes that the
aging of the U.S. population will continue to drive increased demand for these
products.
To date, these products have been sold primarily through chain
drugstores such as CVS, Eckerd, Rite Aid and Walgreens, mass market retailers
such as Kmart, Target and Wal-Mart, supermarkets, warehouse clubs, mail order
companies and independent drugstores and pharmacies. However, a significant
number of consumers are beginning to use the Internet to shop for healthcare
products.
PRESCRIPTION DRUGS. This segment includes prescription medication for chronic
illnesses, such as diabetes, depression and arthritis. The Company believes that
online demand for these chronic illness products will increase as the
Internet-enabled baby boomer generation ages and as new and improved drugs are
introduced to the market.
NON-PRESCRIPTION DRUGS. This segment includes over the counter remedies (such as
cough, cold, allergy and pain relief medications), first aid and other products
relate to the body's health needs.
PERSONAL CARE. This segment includes products related to hair, body and eye
care, shaving, oral hygiene and feminine needs.
BEAUTY AND SPA. This segment includes cosmetics; fragrances and a variety of
skin care products. Some of the factors driving consumer demand for beauty and
spa products include regular and seasonal new product introductions, as well as
changing fashion trends.
VITAMINS, HERBS AND NUTRITION. This segment includes vitamins, herbs and
nutritional supplements, homeopathy and other natural
products.
LIMITATIONS ON TRADITIONAL CHANNELS OF DISTRIBUTION
The Company believes that the use of the Internet to research and
purchase healthcare-related products is growing as a result of the limitations
of traditional channels for prescriptions drugs, non-prescription drugs,
personal care products and medical supplies. These limitations include the
following:
<PAGE>
INCONVENIENCE. The Company believes that many consumers find the experience of
shopping at traditional drugstores and pharmacies to be time-consuming and
inconvenient due to factors such as store location and layout, as well as hours
of operation, lack of privacy and level of customer service.
LIMITED SELECTION. Consumers appreciate the opportunity to select from a variety
of products to meet their particular needs. At most traditional stores, though,
the number of SKUs and the amount of product inventory is limited. Traditional
store-based retailers are constrained by the physical space available in the
store; inventory carrying costs and the need to allocate inventory dollars to
popular products, thereby limiting selection for consumers.
INSUFFICIENT INFORMATION. Traditional drugstores and pharmacies often lack
readily available and detailed information useful to consumers in making their
purchase decisions. Moreover, consumers' access to physicians and pharmacists to
meet these information needs is increasingly limited.
Due to these limitations, the Company believes there is a significant
market opportunity for an online store that offers convenient access to
prescription drugs, non-prescription drugs, and personal care products.
THE MOMSPHARMACY.COM SOLUTION
CONVENIENT SHOPPING EXPERIENCE. The Company provides consumers with an
intuitive, easy to use shopping interface that is available 24 hours a day,
seven days a week. The Company will allow consumers to shop quickly and
conveniently from anywhere Internet access is available. For example, a customer
can create personalized shopping lists for quick and easy reordering.
EXTENSIVE SELECTION. The Company will offer an extensive selection of
healthcare-related products that would be impractical to stock in most
traditional stores. The Company will offer both traditional drugstore items as
well as a broad selection of health, beauty and wellness products, including
alternative-care products.
MOMSPHARMACY.COM STRATEGY
The Company's objective is to become a leading Internet commerce site
providing confidentiality, convenience and a competitively priced and extensive
selection of products. The Company believes that customers will benefit from and
patronize our site because of its selection, simplicity and ease of use.
CONTINUE TO BUILD OUR BRAND. Through existing customers and current patient
referral sources the Company will market the launch of its expanded Internet
Pharmacy. The Company has plans to advertise in select markets in areas such as
California, New York, Washington, Virginia, Florida and Texas with print media
and radio. Since 80% of the purchases made for products used in the home are
made by women, the Company believes the name MOMSPharmacy.com conveys security
will be easily remembered. In addition, the Company has reserved additional
names including MOMRX.com and WECOSTLESS.com, which will be directed to the
site. The Company has also reserved the LAPHARMACIA.com domain name, which will
initially direct visitors to the site. In the near future, the Company hopes to
expand its business line to a Spanish pharmacy, and capitalize on this
undeveloped market of five million Spanish speaking Internet users.
MAINTAIN OUR OWN INDEPENDENT PHARMACY LICENSES. The Company maintains necessary
licenses to ship prescription medications to all 50 United States and has
licensed pharmacies located in New York and Texas. The Company owns the
pharmacies and provides confidential services and consultation to patients.
Since it may not be possible for certain of our competitors to obtain licenses
in all 50 states, the Company believes these licenses may have significant value
to the Company.
OUTSOURCING OF WAREHOUSING AND DISTRIBUTION FUNCTIONS. The Company believes that
by outsourcing these functions, it will be able to maintain its prices at levels
at or below other leading Internet pharmacies. In addition, the Company will
have minimal carrying costs for products, as it does not order until a confirmed
Internet order has been placed. The Company believes that its competitors who
are spending millions to lease warehouse space, bring in inventory and build
computer systems and delivery mechanisms to deliver products to consumers are
missing out on the opportunities of the Internet for Business 2 Business cost
saving opportunities.
<PAGE>
AFFILIATE PROGRAMS WITH IPA'S AND GROUPS. The Company believes that IPA's and
other insurance groups are looking to build identity and communication with
their members. The Company hopes to be able to offer these groups an affiliate
program that will accomplish these goals. The Company is planning to give
selected groups an individual code to pass on to their members when they
register at the online pharmacy. While other affiliate programs offer 15% and
more in commissions, the fees are only paid if the customer arrives at the site
through the affiliate's portal. Affiliates of the Company will receive smaller
fees; however, the customer will be assigned to the affiliate for all subsequent
purchases. This should encourage support from such desired sources as students
at large universities, mothers and small civic and business groups.
COMMERCE
CONVENIENCE AND PERSONALIZATION. The Company will strive to offer a personalized
and convenient shopping experience for its customers. Advantages of its online
store include:
- access 24 hours a day, seven days a week from anywhere Internet access
is available
- direct shipping to the customer, with a choice of carrier and time of
delivery;
- the ability to create preferred shopping lists and favorite items;
- the ability to track orders online;
- instant e-mail confirmation and in stock status.
SELECTION. Because the Company does not have the same inventory and shelf space
limitations as traditional retail stores, it believes it is able to offer a
significantly greater number of SKUs than are generally available in a
traditional drugstore.
OUR PHARMACIES. The Company owns and operates pharmacies in New York and Texas.
The Company will only accept prescriptions that it can verify as being written
by licensed healthcare providers. The Company does not prescribe medications or
give medical advice. The focus of the Company pharmacies will be on dispensing
medications and providing information to its customers.
ACCEPTING PRESCRIPTIONS. Any customer can initiate the prescription process by
ordering online from one of the pharmacies. The customer can direct their
physicians to call or fax their prescriptions or a pharmacist can contact the
physician directly to obtain prescription information. The Company pharmacists
are required to validate and verify the completeness of each prescription
utilizing the same methodology as a traditional drugstore. This may include
contacting the physician or another retail pharmacist. Once the prescription is
verified, the order is usually filled and shipped the same day.
PAYMENT. Customers may pay for their prescriptions either by credit card or
check or by entering insurance information that shows they are covered by a
managed care organization, insurance plan or pharmacy benefit manager with whom
we have a contract.
MARKETING AND PROMOTION. The marketing and promotion strategy of the Company is
designed to build branch recognition, drive customer traffic to our online
store, add new customers, build strong customer loyalty, encourage repeat
business and develop additional revenue opportunities.
The Company will employ niche market development tactics to capture
additional market share. Since the Company has serviced thousand of patients, it
has existing customers to target for its expanded product availability. The
Company has been including pre-launch information in shipments for the past
several months to its customers and this has resulted in thousands of visits to
the MOSPharmacy.com web site.
The Company may advertise in print media and radio in select markets
where research indicates high Internet usage and purchases such as New York,
California, Virginia, Washington, Florida and Texas. The Company does not
currently plan to utilize the expensive branding agreements with AOL or Yahoo at
this time.
The Company may plan to roll out its affiliate program to IPA's, HMOs, colleges
and Universities and small business groups, by mid-2000. The Company also plans
to target "MOMS", who actually make more than 80% of the household purchases for
the products the Company plans to offer online. The Company believes an
aggressive affiliate program that generates profits for the affiliates will
allow it to expand name recognition and generate sales from across the country.
<PAGE>
COMPETITION. The online commerce market is new, rapidly evolving and intensely
competitive. In particular, the health and personal care categories are
intensely competitive and are highly fragmented with no clear dominant leader in
any of the market segments. The competition can be divided into several groups:
- chain drugstores, such as Walgreen's, RiteAid, CVS and Eckerd;
- mass market retailers such as Wal-mart, Kmart and Target;
- supermarkets, such as Safeway, Albertson's and Kroger;
- warehouse clubs
- online retailers of health, beauty, wellness, personal care and/or
pharmaceutical products, such as drugstore.com, Planetrx.com and
CVS/Soma.com;
- mail order pharmacies, such as Express Scripts and Merck-Medco
- Internet-portals and online service providers that feature shopping
services such as AOL, Yahoo!, Excite and Lycos; and
- Cosmetics departments at major departments stores, such as Nordstrom,
Macy's and Bloomingdale's and hair salons.
Many current and potential competitors have longer operating histories,
larger customer bases, greater brand recognition and significantly greater
financial, marketing and other resources than the Company. Many of these current
and potential competitors can devote substantially more resources to their
website and systems development than the Company. In addition, larger,
well-established and well-financed entities may acquire, invest in or form joint
ventures with online competitors or drugstore retailers as the use of the
Internet and other online services increases. Some of the Company's competitors
may be able to secure products from vendors on more favorable terms, fulfill
customer orders more efficiently and adopt more aggressive pricing or inventory
availability policies than the Company. These retailers also enable customers to
see and feel products in a manner that is not possible over the Internet.
Traditional store based retailers can also sell products to address immediate,
acute care needs, which the Company and other online sites cannot address.
GOVERNMENT REGULATION. The Company's business is subject to extensive federal,
state and local regulations, many of which are specific to pharmacies and the
sale of over the counter drugs. For example, under the Omnibus Budget
Reconciliation Act of 1990 and related state and local regulations, pharmacists
are required to offer counseling to customers about medication, dosage, delivery
systems, common side effects, adverse effects or interactions and therapeutic
contraindications, proper storage, prescription refill and other information
deemed significant by the pharmacists. The Company is also subject to federal,
state and local licensing and registration regulations with respect to, among
other things, pharmacy operations and the pharmacists employed.
The federal kickback law prohibits the knowing and willful
solicitation, offer, payment or receipt of "any remuneration (including any
kickback, bribe or rebate) directly or indirectly, overtly or covertly, in cash
or in kind" in return for referring an individual for healthcare services or
supplies for which payment may be made in whole or in part under any federally
funded healthcare program. The statute extends to both physicians and
non-physicians alike. At the state level, laws and regulations that prohibit the
offer, payment, solicitation, or receipt of kickbacks in exchange for patient
referral may use terms such as "bribes", "rebates", "commissions" or
"fee-splitting" to describe the same prohibited conduct. Similarly, federal and
state self-referral laws exist, which are aimed at curtailing over-utilization
of health care services and supplies by generally prohibiting a physician who
(or whose family) has a financial relationship with a facility or entity for
health care services or supplies from referring patients to such a facility or
entity for healthcare services or supplies.
Until recently, Health Care Financing Administration guidelines
prohibited transmission of Medicare eligibility information over the Internet.
The Company is also subject to extensive regulation relating to the
confidentiality and release of patient records. Additional legislation governing
the distribution of medical records exists or has been proposed at both the
state and federal level. As Congress and State reimbursement entities assess
alternative health care delivery systems and payment methodologies, the Company
cannot predict which additional reforms may be adopted or what impact they may
have on the Company.
CUSTOMERS. The Company provides medications to thousands of individual patients,
who choose the Company as their pharmacy provider, and no single customer is
significant enough to adversely impact revenue or income if lost.
THIRD PARTY REIMBURSEMENT AND MANAGED CARE. Because the Company is reimbursed
for its services primarily by the Medicare/Medicaid programs, insurance
companies, managed care companies and other third party payors, in addition to
private pay patients, the implementation of alternative payment methodologies
for any of these payors could have an impact on revenues and profit margins.
Generally, managed care companies have sought to contain costs by reducing
payments to providers. Continued cost reduction efforts by managed care
companies could adversely affect the Company's results of operations. If the
Company were to lose its ability to secure payment from a third party payor or
the Medicare/Medicaid programs, it could have a material and adverse effect on
the Company's operating results.
<PAGE>
EMPLOYEES. As of December 31, 1999, the Company had 19 full-time employees. None
of our employees is represented by a labor union. The Company has not
experienced any work stoppages and considers our employee relations to be good.
FORWARD-LOOKING STATEMENTS
In addition to historical information, this Annual Report contains
forward-looking statements. These forward-looking statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those reflected in these forward-looking statements. Factors
that might cause such a difference include, but are not limited to; those
discussed in the section entitled "Management's Discussion and Analysis of
Consolidated Results of Operations and Consolidated Financial Condition," as
well as the Company's ability to attract customers to its online pharmacy, build
brand recognition and obtain the necessary capital to effectively launch and
market its online pharmacy. Readers are cautioned not to place undue reliance on
these forward-looking statements, which reflect management's opinions only as of
the date hereof. The Company undertakes no obligation to revise or publicly
release the results of any revision to these forward-looking statements. Readers
should carefully review the risk factors described in other documents the
Company files from time to time with the Securities and Exchange Commission,
including the Quarterly Reports on Form 10-Q to be filed by the Company in
fiscal year 2000.
ITEM 2. PROPERTIES
The Company occupies approximately 2,700 square feet of space in
Huntington Station, New York, which is leased to the Company through December
31, 2003. Both the executive offices and the New York Pharmacy are located at
this site. The Company also leases approximately 3,600 square feet of space in
Austin, Texas for its nationally licensed mail order pharmacy. This lease
expires May 30, 2003. The Company also sublets space on an annual basis in
Wilmington, Delaware for MOMSPharmacy.com.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders of the
Company during the fourth quarter of 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDERS
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 5,000,000
shares of Common Stock, par value of $.01 per share. There were 3,000,000 shares
of Common Stock outstanding at December 31, 1999. The Company's Certificate of
Incorporation is available for review upon request.
COMMON STOCK. The holders of Common Stock are entitled to one vote for each
share held of record on all matters submitted to a vote of stockholders. Holders
of Common Stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available therefore. In
the event of a liquidations, dissolution, or winding-up of the Company, holders
of Common Stock are entitled to share ratably in all assets remaining after
payment of liabilities. Holders of Common Stock have no preemptive rights and
have no rights to convert their common Stock into any other securities. All of
the outstanding shares of common Stock are fully paid and non-assessable.
MARKET FOR COMMON EQUITY. The Company is working with its Counsel and a market
maker to obtain approval from the National Association of Securities Dealers to
trade on the Over The Counter Bulletin Board.
DIVIDENDS AND DIVIDEND POLICY. The Company has never paid cash dividends on its
capital stock and has no
<PAGE>
intention of paying any cash dividends in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED RESULTS OF
OPERATIONS AND CONSOLIDATED FINANCIAL CONDITION
The following discussion and analysis provides information, which the Company's
management believes is relevant to an assessment and understanding of the
Company's results of operations and financial condition. This discussion should
be read in conjunction with the consolidated financial statements and notes
thereto appearing elsewhere herein.
This discussion contains forward-looking statements that are subject to a number
of known and unknown risks that, in addition to general economic, competitive
and other business conditions, could cause actual results, performance and
achievements to differ materially from those described or implied in the
forward-looking statements (See Forward-Looking Statements).
The Company is subject to significant external factors that could significantly
impact its business, including changes in Medicare and Medicaid reimbursement,
government fraud and abuse initiatives and other factors that are beyond the
control of the Company. These factors, as well as future changes in
reimbursement methodologies and new or changes in interpretations of
regulations, including Pharmacy Laws and regulations, could cause future results
to differ materially from historical trends.
RESULTS OF OPERATIONS
- ---------------------
The Company's fiscal year end is December 31st. The Company emerged from
bankruptcy on February 1, 1999, and will report on the eleven months ended
December 31, 1999. In 2000, the Company will report on the twelve months ended
December 31, 2000.
ELEVEN MONTHS ENDED DECEMBER 31, 1999
NET SALES. Net sales of the Company's mail order medications divisions were
$6,937,625 for the eleven months ended December 31, 1999. The Company was able
to promote its services through the Internet and was successful in developing
retail sales in Austin, TX and Long Island, NY. The Company was also able to
generate Internet sales for both prescription medications and health and beauty
products during 1999.
GROSS PROFIT. Gross profit was 23.43% of sales for the eleven months ended
December 31, 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $2,638,367 for the eleven months ended December 31,
1999, and represented 38.03 % of net sales. In an effort to implement cost
savings and improve profitability, the Company's management team aggressively
updated systems in both Retail Pharmacy Operations.
INTEREST EXPENSE. Interest expense during the eleven months ended December 31,
1999 was $965,235.
INCOME TAXES. There was no provision due to the fact that the Company had an
operating loss for the eleven months ended December 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES. At December 31, 1999, the Company had a
cash balance of $316,871. Inventories at December 31, 1999 were $94,718 and
accounts receivable net of the allowance for doubtful accounts was
$1,137,469. In addition, the Company has a revolving credit facility in the
amount of $4.0 million available to the Company for short-term borrowings.
Borrowings under the facility bear interest at Prime + two percent and are
collateralized by a perfected and primary security interest in all assets,
accounts receivable, trademarks, licenses, and values of any kind of the
Company. At December 31, 1999, borrowings under this facility were
$727,804. In addition, The Company secured a loan from a bank for
$1,500,000 that bears interest at 8.5%, payable monthly, with the full
principle payable in March of 2001.
The Company believes that its existing capital resources will enable it to
maintain its current and planned operations for at least 12 months from the
date hereof.
YEAR 2000 COMPLIANCE: The Company utilizes and is dependent upon data
processing systems and software to conduct its business. The data
processing systems and software include those developed and
<PAGE>
maintained by the Company's third-party data processing vendors and software,
which is run on in-house computer networks. During the first quarter of fiscal
1999, the Company initiated a review and assessment of all hardware and software
to confirm that it will function properly in the year 2000.
With respect to internal systems, the results of that evaluation to date have
not revealed any year 2000 issues that, in the Company's opinion, cannot be
remedied in a timely manner; and therefore are not expected to create a material
risk of disruption of operations. With respect to outside vendors, those
vendors, which have responded, have indicated that their hardware or software is
or will be year 2000 compliant in time frames that meet regulatory requirements.
Evaluations of these issues is continuing and there can be no assurance that
additional issues, not presently known to the Company, will not be discovered
which could present a material risk of disruption to the Company's operations.
ITEM 7. FINANCIAL STATEMENTS
Page
Independent Auditors' Report F-1
Consolidated Balance Sheet as of
December 31, 1999 F-2
Consolidated Statement of Operations for the
Period from February 1, 1999 to December 31, 1999 F-3
Consolidated Statement of Cash Flows for the Period
From February 1, 1999 to December 31, 1999 F-4
Consolidated Statement of Stockholders' Equity
For the Eleven Months Ended December 31, 1999 F-5
Notes to Consolidated Financial Statements F-6 -
F-12
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Allion Healthcare, Inc. and Subsidiaries
Huntington Station, New York
We have audited the accompanying consolidated balance sheet of Allion
Healthcare, Inc. and Subsidiaries, as of December 31, 1999, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the period from February 1, 1999 to December 31, 1999. 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 audit.
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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Allion Healthcare,
Inc. and Subsidiaries as of December 31, 1999 and the results of its operations
and its cash flows for the period from February 1, 1999 to December 31, 1999 in
conformity with generally accepted accounting principles.
HOLTZ RUBENSTEIN & CO., LLP
Melville, New York
March 18, 2000
F-1
<PAGE>
<TABLE>
ALLION HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31,1999
<CAPTION>
ASSETS (Note 6)
------
<S> <C> <C>
CURRENT:
Cash and cash equivalents $ 316,871
Accounts receivable, net of allowance
for doubtful accounts of $ 235,000 1,137,469
Inventories 94,718
Note receivable (Note 4) 326,393
Prepaid expenses and other current assets 177,593
----------
Total current assets 2,053,044
PROPERTY AND EQUIPMENT, at cost, $ 20,659
less accumulated depreciation and
amortization of ($ 2,134)
TOTAL PROPERTY AND EQUIPMENT 18,525
OTHER ASSETS 20,219
-----------
$ 2,091,788
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 284,792
Accrued expenses and other current liabilities 518,799
Revolving credit line (Note 6) 727,804
----------
Total current liabilities 1,531,395
LONG TERM LIABILITIES:
Note Payable (Note 7) 1,500,000
---------
Total long term liabilities 1,500,000
COMMITMENTS (Note 9)
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; shares authorized
5,000,000; issued and outstanding 3,000,000 (Notes 3,7,10 and 12) 30,000
Additional paid-in capital 1,080,000
Unearned compensation (33,000)
Accumulated deficit (2,016,607)
------------
TOTAL STOCKHOLDERS' DEFICIT (939,607)
$ 2,091,788
See notes to consolidated financial statements.
</TABLE>
F-2
<PAGE>
ALLION HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
ELEVEN MONTHS ENDED DECEMBER 31, 1999
NET SALES $6,937,625
COST OF GOODS SOLD 5,312,546
Gross profit 1,625,079
OPERATING EXPENSES: (Note 9)
Selling, general and administrative expenses 2,638,367
Operating loss (1,013,288)
INTEREST EXPENSE: ( 965,235)
----------
LOSS FROM CONTINUING OPERATIONS (1,978,523)
DISCONTINUED OPERATIONS: (Note 4)
Loss from discontinued operations, net of tax benefit (1,497,155)
of $ 820,000.
Gain on disposal, net of income taxes of $ 820,000 1,459,071
---------
LOSS FROM DISCONTINUED OPERATIONS (38,084)
NET LOSS $(2,016,607)
BASIC AND DILUTED LOSS PER COMMON SHARE:
Continuing operations $ (.66)
Discontinued operations (.50)
Gain on disposal .49
------
Net loss $ (.67)
============
BASIC AND DILUTED WEIGHTED AVERAGE
OF COMMON SHARES OUTSTANDING: 3,000,000
See notes to consolidated financial statements
F-3
<PAGE>
ALLION HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
ELEVEN MONTHS ENDED DECEMBER 31, 1999
OPERATING ACTIVITIES:
Net loss $ (2,016,607)
Adjustments to reconcile net loss to net cash used
by operating activities:
Loss from discontinued operations (1,497,155)
Gain on sale of discontinued operations 1,459,071
Non-cash compensation 28,000
Depreciation and amortization 2,134
Provision for doubtful accounts 554,798
Changes in operating assets and liabilities:
Accounts receivable 522,537
Inventory 97,454
Note receivable (326,393)
Prepaid expenses and other assets 176,224
Accounts payable and accrued expenses 54,023
-----------
Net cash used by operating activities (945,914)
----------
INVESTING ACTIVITIES:
Proceeds from dispositions of businesses
and sales of property and equipment 3,188,524
Purchase of property and equipment (18,630)
Net cash provided by investing activities 3,169,894
---------
FINANCING ACTIVITIES:
Proceeds from sale of Common Stock 1,000,000
Proceeds from draws of line of credit 9,265,000
Proc eeds from note payable 1,500,000
Repayment of line of credit (13,672,109)
Net cash used in financing activities (1,907,109)
NET INCREASE IN CASH AND CASH EQUIVALENTS 316,871
CASH, BEGINNING OF PERIOD -
---------
CASH, END OF PERIOD $ 316,871
=========
SUPPLEMENTAL DISCLOSURE:
Income taxes paid $ -
==========
Interest paid $1,039,894
Non-cash compensation $ 28,000
See notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
ALLION HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(NOTES 3,7,10 AND 12)
<CAPTION>
Common Stock
5,000,000 Shares
$ .01 par value Additional
-------------------
Par Paid-In Unearned
Shares Value Capital Compensation Deficit Total
------ ----- ------- ------------ ------- -----
<S> <C> <C> <C> <C> <C> <C>
February 1, 1999 -- $ -- $ -- $ -- $ -- $ --
Issuance of stock 2,500,000 25,000 975,000 -- -- 1,000,000
Stock options issued
for services -- -- 61,000 (61,000) -- --
Amortization of
unearned compensation -- -- -- 28,000 -- 28,000
Warrants issued -- -- 44,000 -- -- 44,000
Stock issued to
unsecured creditors 500,000 5,000 -- -- -- 5,000
Net loss -- -- -- -- (2,016,607) (2,016,607)
Balance,
December 31,1999 3,000,000 $ 30,000 $ 1,080,000 $ (33,000) $(2,016,607) $ (939,607)
=========== =========== =========== =========== =========== ===========
</TABLE>
F-5
<PAGE>
ALLION HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. THE COMPANY
Allion Healthcare, Inc. and Subsidiaries (the "Company") is the parent
corporation of three wholly owned subsidiaries; MOMSPharmacy.com, Mail Order
Meds, Inc. and Mail Order Meds of New York, Inc. The Company provides specialty
prescription medication services to all 50 U.S. States and provides a
convenient, private and informative shopping experience for health and personal
care products through the Internet.
On September 15, 1998, the Company, formally known as The Care Group,
Inc., filed for protection under Chapter 11 of the Bankruptcy Code. On February
1, 1999, the United States Bankruptcy Court for the Western District of Texas
entered an order confirming the Company's First Amended Plan of Reorganization.
In accordance with generally accepted accounting principles, the
Company was required to adopt "fresh start" reporting, which valued all assets
and liabilities at their fair values as of the effective date. The financial
statements are not comparable with those prepared prior to confirmation because
they are, in effect, those of a new company. See Note 3 regarding the plan of
reorganization.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The consolidated financial statements include the
accounts of the Company and its three wholly owned subsidiaries. All significant
inter-company accounts and transactions have been eliminated in consolidation.
INVENTORIES. Inventories consist entirely of pharmaceuticals. Inventories are
recorded at lower of cost or market, cost being determined on a first-in,
first-out ("FIFO") basis.
USE OF ESTIMATES BY MANAGEMENT. The preparation of the Company's financial
statements in conformity with generally accepted accounting principles require
the Company's management to make certain estimates and assumptions that affect
the amounts reported in these financial statements and accompanying notes. Such
estimates primarily relate to accounts receivable, inventory and deferred tax
valuation. Actual results could differ from those estimates.
PROPERTY AND EQUIPMENT. Property and equipment are stated at cost and are
depreciated using the straight-line method over their estimated useful lives of
five years for office furniture and equipment.
INCOME TAXES. Deferred tax assets and liabilities are determined based on
differences between financial reporting and tax basis of assets and liabilities,
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
STATEMENT OF CASH FLOWS. For purposes of the statement of cash flows, the
Company considers all highly liquid debt instruments purchased with a maturity
of three months or less to be cash equivalents.
CREDIT RISK. Financial instruments that potentially subject the Company to
concentrations of credit risk
F-6
<PAGE>
consist principally of cash equivalents and trade receivables. The Company
places its cash equivalents with high-quality financial institutions. The
Company's customer base consists of a large number of diverse customers.
NET LOSS PER SHARE INFORMATION. The Company accounts for net loss per share in
accordance with SFAS No. 128. Basic earnings per share is computed using the
weighted average number of common and dilutive common equivalent shares
outstanding during the period. Common equivalent shares, consist of the
incremental common shares issuable upon the exercise of stock options and
warrants (using the Treasury Stock Method): common equivalent shares are
excluded from the calculation if their effect is anti-dilutive. Diluted loss per
share for the eleven months ended December 31, 1999, does not include the impact
of 735,100 and 100,000 common stock options and warrants then outstanding,
respectively, as the effect of their inclusion would be anti-dilutive.
STOCK-BASED COMPENSATION. The Company applies APB Opinion No. 25 and related
interpretations in accounting for stock-based compensation to employees. Stock
compensation to non-employees is accounted for at fair value in accordance with
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation."
NOTE 3. PLAN OF REORGANIZATION
On February 1, 1999 the Bankruptcy Court confirmed the Company's Plan
of Reorganization. The confirmed plan provided for the following:
SECURED DEBT. The Company's $5,135,000 secured debt (secured by a first and
senior lien on all assets and intangibles), was reaffirmed. This debt was
converted into a $4,000,000 line of credit, with interest accruing at prime plus
2%, not to exceed 85% of qualified accounts as defined. The balance was
converted into a three-year note, with quarterly interest payments due, at a
rate of prime plus 4%. The prime rate at December 31, 1999 was 8.5%. In
addition, the Company issued 750,000 warrants (See Note 10).
PRIORITY TAX CLAIMS. The Company is required to pay the State of Texas a claim
of approximately $16,000 in equal quarterly payments over six years with annual
interest of 12%.
TRADE AND OTHER MISCELLANEOUS CLAIMS. The holders of approximately $7,844,000 of
trade and other miscellaneous claims received a total of 500,000 shares of
common stock, issued on a pro-rata basis. The stock certificates were
distributed in February 2000.
PREFERRED STOCK. The holders of all shares of preferred stock received no
compensation of any kind from the Company.
COMMON STOCK. The holders of all shares of common stock received no compensation
of any kind from the Company.
NOTE 4. DISCONTINUED OPERATIONS
On June 25, 1999, the Company sold certain assets of its Houston, Texas
operation including all
F-7
<PAGE>
licenses, inventory, customer lists and names. The Company retained all accounts
receivable for services rendered prior to June 25, 1999. As a result, the
Company discontinued its operation in Houston, Texas as of June 25, 1999. The
proceeds of the sale were $2,820,805, including $2,420,805 in cash and a note
for $400,000 payable on June 30, 2000. The Company has recorded $2,683,000 in
bad debt expense representing all accounts receivable from Houston uncollected
as of December 31, 1999.
In addition, the Company sold all of its records, specified contracts
and licenses, operating certificates and permits of Commonwealth Certified Home
Care, Inc., a certified home health agency, for $302,000. The sale was
consummated in August 1999 in accordance with the confirmation order from the
Bankruptcy Court.
Net revenues and loss from discontinued operations are as follows:
Revenues, net $ 4,024,771
-----------
Cost and expenses:
Cost of revenues 2,445,112
Selling, general and administrative 3,829,201
Depreciation and amortization 67,613
-----------
6,341,926
-----------
Operating loss (2,317,155)
Income tax benefit 820,000
-----------
Net Loss $(1,497,155)
===========
NOTE 5. SETTLEMENT OF CLAIM WITH THE I.R.S.
The United States Bankruptcy Court entered an order confirming the
settlement of the I.R.S. claim against the Company on September 29, 1999. The
Company has agreed to pay $130,000 over the next six years to satisfy the I.R.S.
claim. The Company will not carry forward any net operating losses or credits
available from pre-1999 periods, into post-1998 tax years. Also, the Company
will not carry back any net operating losses to pre-1999 tax years. The Company
will have no federal income tax liability from any periods prior to January 1,
1999. In addition, the I.R.S. will not conduct any further audits of the company
for periods prior to January 1, 1999, provided that the terms of the Bankruptcy
Court's confirmation order of February 1, 1999 apply.
NOTE 6. REVOLVING CREDIT LINE
The Company has a revolving credit facility in the amount of $4.0
million available for short-term borrowings. This credit facility expires on
April 21, 2001. Borrowings under the facility bear interest at Prime + two
percent and are collaterized by a perfected and primary security interest in all
assets, accounts receivable, trademarks, licenses and values of any kind of the
Company.
NOTE 7. NOTE PAYABLE
The Company has a promissory note in the amount of $1,500,000 that is
due and payable on March 31, 2001. The note bears interest at 8.5% annually and
the Company is required to make monthly interest
F-8
<PAGE>
payments. The note was guaranteed by a Director of the Company, in exchange for
375,000 warrants to purchase common stock of the Company at a price of $1.00 per
share (See Note 13).
NOTE 8. INCOME TAXES
A reconciliation of the income tax (benefit) computed at the statutory
Federal income tax rate to the reported amount follows:
December 31, 1999
-----------------
Federal Statutory Rate: 34%
---
Tax benefit at Federal Statutory Rates $ (672,693)
Loss in excess of available benefit 670,908
Other, net 1,785
---------------
$ -
Deferred tax assets comprise the following:
December 31, 1999
-----------------
Allowance for doubtful accounts $ 94,813
Depreciation 360
Loss carryforwards 725,979
-----------
Gross deferred tax assets 821,152
Valuation allowance ( 821,152)
-------------
$ -
NOTE 9. LEASE COMMITMENTS
The Company leases office space in Huntington Station, New York and
Austin, Texas. The lease for the New York space expires in December 2003 and the
lease for the Texas space expires in May 2003.
At December 31, 1999, the Company's lease commitments provide for the
following minimum annual rentals.
2000 $ 117,110
2001 121,668
2002 128,841
2003 99,891
---------
$ 467,510
=========
During the eleven months ended December 31, 1999, rental expense
amounted to $ 106,805.
F-9
<PAGE>
NOTE 10. STOCKHOLDERS' EQUITY
a. Common stock
Pursuant to the Company's Plan of Reorganization, 2,500,000
shares of common stock were issued to an investor group led by a
director of the Company for proceeds of $1,000,000.
b. Common shares reserved
Common shares reserved at December 31,1999, are as follows:
Stock Option Plan 514,900
Warrants 100,000
c. Stock Options
(i) Under the terms of the Company's Stock Option Plan, the
Board of Directors may grant incentive and nonqualified stock options
to employees, officers, directors, agents, consultants and independent
contractors of the Company. In connection with the introduction of the
Stock Option Plan, 1,250,000 shares of common stock were reserved for
future issuance. Generally, the Company grants stock options with
exercise prices equal to the fair market value of the common stock on
the date of the grant, as determined by the Board of Directors. Options
generally vest over a two to five year period and expire ten years from
the date of the grant.
The following table summarizes activity under the Company's Stock Option Plan
for the eleven months ended December 31, 1999:
Number of Weighted Average
shares Exercise Price
------ --------------
Initial Authorization:
Options granted 735,100 $ .18
Options exercised
Options cancelled - -
-------- ---------
Outstanding at
December 31, 1999 735,100 $ .18
========= ========
The following table summarizes information regarding stock options outstanding
and exercisable as of December 31, 1999:
<TABLE>
Options Outstanding Options Exercisable
- ------------------------------------------------------------ ------------------------------
Weighted Weighted Weighted
Range of Average Average Average
Exercise Number Remaining Exercise Number Exericse
Prices Outstanding Contractual Life Price Outstanding Price
- ------ ----------- ---------------- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$.17-$.66 735,100 9.1 years $.18 334,822 $ .17
</TABLE>
F-10
<PAGE>
(ii) Under APB No. 25, no compensation expense is recognized when the exercise
price of the Company's employee stock options equals the fair value of the
underlying stock on the date of the grant. The Company has elected the
disclosure-only provisions of Statement of Financial Accounting Standard No.
123, Accounting for Stock-Based Compensation ("FASB 123") in accounting for its
employee stock options. Accordingly, no compensation expense has been
recognized. Had the Company recorded compensation expense for the stock options
based on the fair value at the grant date for awards, consistent with the
provisions of SFAS No. 123, the Company's net loss and net loss per share would
not have been impacted.
The fair value of each option grant is estimated on the date of the
grant using the Black-Scholes option pricing model. The following range of
weighted-average assumptions were used for grants during the year ended December
31, 1999.
Year Ended December 31, 1999
----------------------------
Dividend yield 0.00%
Volatility 0.00%
Risk-free interest rate 5.50%
Expected life Five years
The weighted average grant date fair value of options granted during
1999 was $.13.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options.
d. Warrants
On June 30, 1999, the Company repurchased 750,000 warrants previously
issued to a lender in connection with its new financing agreement for $500,000.
The Company has recorded the payment as prepaid interest and is amortizing the
balance over the expected term of the credit facility.
During 1999, the Company issued 100,000 common stock warrants to
consultants, which resulted in compensation approximating $12,000.
NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The methods and assumptions used to estimate the fair value of the
following classes of financial instruments were:
Current Assets and Current Liabilities: The carrying amount of cash,
current receivables and payables and certain other short-term financial
instruments approximate their fair value.
Long-Term Debt: The fair value of the Company's long term debt,
including the current portions, was
F-11
<PAGE>
estimated using a discounted cash flow analysis, based on the Company's assumed
incremental borrowing rates for similar types of borrowing arrangements. The
carrying amount of variable and fixed rate debt at December 31, 1999
approximates its fair value.
NOTE 12. SUBSEQUENT EVENTS
On January 4, 2000, the Company settled a pending lawsuit whereby the
Company will receive $121,580 in six monthly installments beginning in January
2000.
On January 11, 2000, The Board of Directors finalized an agreement with a
outside Director for his guarantee of the $1.5 million loan with a bank. The
Director was granted warrants to purchase 375,000 shares of common stock at
$1.00, for his personal guarantee on the loan, which serves as collateral for
the loan, and to guarantee an extension for the loan until March 31, 2001.
On February 7, 2000, the Company was deemed to have complied with all
requirements of the Confirmation order issued on February 1, 1999 related to
issuance of Common Stock of approved creditors. In accordance with the
Confirmation Order, the Company issued 500,000 shares of Common Stock to
approved creditors.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 9. MANAGEMENT OF THE COMPANY
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and Directors, their ages and the positions held
by them, as of December 31, 1999 are as follows:
NAME AGE POSITION
- ---- --- --------
Michael P. Moran................. 39 President and Chief Executive Officer,
Chief Financial Officer and Secretary
John Pappajohn .................. 71 Director
Derace Schaffer, M.D. ........... 52 Director
MICHAEL P. MORAN has served as President and CEO since September 1997.
Mr. Moran was hired to turn around the financial picture of the Company and
refocus its core business units. Mr. Moran managed the Company through a
successful Chapter 11 reorganization in 4 months, increased business in the
Specialty Pharmacy divisions, and launched the Internet Pharmacy operations.
From 1996 to September of 1997 Mr. Moran was a Regional Vice President at Coram
Healthcare, Inc. From 1990 to 1996 Mr. Moran was a Regional Vice President for
Chartwell Home Therapies, Inc. From 1982 to 1990 Mr. Moran held various sales
and management positions at Critical Care America, Inc. Mr. Moran received a
B.A. in Management from
F-12
<PAGE>
Assumption College, and was a second team All-American Football player.
JOHN PAPPAJOHN has served as a Director since 1997. Since 1969, Mr.
Pappajohn has been the sole owner of Pappajohn Capital Resources, a Venture
Capital Firm and President of Equity Dynamics, Inc., a financial Consulting
firm, both based in Des Moines, Iowa. Mr. Pappajohn currently serves as a
Director of the following public companies: American Physician Partners, Inc.,
Patient InfoSystems, Inc., and Pace Health Management Systems. Mr. Pappajohn
received his B.S.C. from the University of Iowa.
DERACE SCHAFFER, M.D. has served as a Director since 1997. Dr. Schaffer
is President of the Ide Imaging Group, P.C., as well as the LAN Group, a venture
capital firm specializing in healthcare and high technology investments. He
serves as a Director of the following public companies: Patient Information
Systems, Inc., American Physician Partners, Inc., and Oncor, Inc. He is also a
Director of several private companies including: Analytica, Inc., Card Systems,
Inc., and Logisticare, Inc. Dr. Schaffer is a board certified Radiologist. He
received his post-graduate radiology training at Harvard Medical School and The
Massachusetts General Hospital, where he served as Chief Resident. Dr. Schaffer
is a member of Alpha Omega Alpha, the national medical honor society and is a
Clinical Professor of Radiology at the University of Rochester School of
Medicine.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the compensation received for services
rendered to Allion Healthcare, Inc., for 1999 by its Chief Executive Officer.
Long Term
Compensation
Awards
Name and 1999 Securities
Principal Annual Compensation Underlying All Other
Position Salary Bonus Options Compensation (1)
- ------------------- ---------- ---------- --------------- ----------------
Michael P. Moran $140,231 $64,231 (1) 500,000 $120,000
President, Chief
Executive Officer,
Chief Financial
Officer, Secretary
(1) Represents commission earned for sale of Houston operations, which was not
paid out to Mr. Moran during 1999.
Mr. Moran holds options to purchase 500,000 shares of common stock of the
Company. There is no public market for the Company's securities. Accordingly, it
is difficult to determine the value of such options.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 1999, set forth below are the number of shares and
the percentage of outstanding shares of Common Stock of the Company owned
beneficially by each director of the Company and by each shareholder known by
the company to own more than five percent of the Company's common stock.
(INCLUDING THOSE SHARES SUBJECT TO OUTSTANDING OPTION OR WARRANTS):
BENEFICIAL OWNERSHIP
NAME AND ADDRESS NUMBER OF
OF BENEFICIAL OWNER SHARES (1) PERCENTAGE (2)
- ------------------- ----------- --------------
John Pappajohn 1,100,000 (3) 35.48%
2116 Financial Center
Des Moines, IA 50309
Derace Schaffer, M.D. 300 9.67%
3489 Elmwood Avenue
Rochester, NY 14610
Michael P. Moran 500,000 (5) 16.12%
33 Walt Whitman Road, Suite 200A
Huntington Station, NY 11746
Northwest Holdings, Ltd. 250,000 8.06%
4th Floor, Bank of Nova Scotia Bldg.
P.O. Box 1068, Georgetown
Grand Cayman, Cayman Islands, B/.W.I.
Edgewater Private Equity Fund II, L.P. 562,500 18.14%
900 N. Michigan Avenue, 14th Floor
Chicago, IL 60611
Officers and Directors 1,900,000 61.29%
As a group (3 persons)
(1) This table is based upon information supplied by the officer, directors and
principal shareholders and applicable schedules filed with the Securities and
Exchange Commission. Unless otherwise indicated in the footnotes to this table
and subject to community property laws where applicable, the Company believes
that each of the shareholders named in this table has sole voting and investment
power with respect to the shares indicated as beneficially owned. The number of
shares for each person is calculated in accordance with the rules of the
Securities and Exchange Commission and includes shares each person has the right
to acquire within 60 days from the exercise of stock options.
Percentages are calculated on the basis of the amount of outstanding shares of
stock (2,500,000), plus for each person or group, any shares that person or
group has the right to acquire within 60 days through the exercise of options.
Includes 475,000 shares held by Halkis, Ltd., a sole proprietorship owned by
Mr. Pappajohn, 250,000 shares held by Thebes, Ltd., a sole proprietorship owned
by Mr. Pappajohn's spouse. Mr. Pappajohn disclaims beneficial ownership of the
shares owned by Thebes, Ltd. Includes 50,000 Director Options granted effective
February 1, 1999.
(4) Includes 50,000 Director Options granted effective February 1, 1999.
(5) Includes 500,000 options granted effective February 1, 1999.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
One of the Company's Directors, John Pappajohn, personally
guaranteed a loan made by West Bank to the Company. The loan was
for $ 1,500,000 and is due on June 16, 2000. On January 11, 2000,
Mr. Pappajohn, agreed to personally guarantee the note, as
collateral, through March 31, 2001 in exchange for 375,000 warrants
to purchase common stock at $1.00 per share.
ITEM 13. COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE ACT
The Company knows of no existing failure to file a required form.
ITEM 14. EXHIBITS AND REPORTS ON FOR 8-K
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Exhibit 2.1 Confirmation Order dated February 1, 1999.*
2.2 First Amended Plan of Reorganization of The
Care Group, Inc., et al dated January 2,
1998.*
3.1 Restated Certificate of Incorporation of the
Registrant, filed with the Secretary of
State of Delaware on October 7, 1999.*
3.2 Amended and Restated By-laws of the
Registrant.*
10.1 Asset Purchase Agreement, dated as of June
25, 1999, by and between The Care Group of
Texas, Inc., Care Line of Houston, Inc. and
Osher Investments, Ltd.*
10.2 Agreement, dated as of November 1, 1999,
among The Care Group, Inc., Commonwealth
Certified Home Care, Inc. and Visiting Nurse
Service of New York Home Care.*
*Filed as an exhibit to the Company's Current Report on Form 10-K filed on
October 18, 1999 SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: March 18, 2000
ALLION HEALTHCARE, INC., AND SUBSIDIARIES
-----------------------------------------
(Registrant)
By: Michael P. Moran
------------------------------------
Michael P. Moran, Director
President, Chief Executive Officer,
Chief Financial Officer, Secretary
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
/s/ John Pappajohn
- ----------------------------------------
John Pappajohn, Director
Date: March 16, 2000
/s/ Derace Schaffer, M.D.
- ----------------------------------------
Derace Schaffer, M.D., Director
Date: March 16, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 316,871
<SECURITIES> 0
<RECEIVABLES> 1,372,469
<ALLOWANCES> 235,000
<INVENTORY> 94,718
<CURRENT-ASSETS> 2,053,044
<PP&E> 20,659
<DEPRECIATION> 2,134
<TOTAL-ASSETS> 2,091,788
<CURRENT-LIABILITIES> 1,531,395
<BONDS> 1,500,000
0
0
<COMMON> 30,000
<OTHER-SE> (969,607)
<TOTAL-LIABILITY-AND-EQUITY> 2,091,788
<SALES> 6,937,625
<TOTAL-REVENUES> 6,937,625
<CGS> 5,312,546
<TOTAL-COSTS> 5,312,546
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 965,235
<INCOME-PRETAX> (1,978,523)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,978,523)
<DISCONTINUED> (38,084)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,016,607)
<EPS-BASIC> (.67)
<EPS-DILUTED> (.67)
</TABLE>
