UNITED STATES
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) JULY 1, 1996
------------
CHRONIMED INC.
(Exact name of registrant as specified in its charter)
MINNESOTA
(State or other jurisdiction of incorporation)
0-19952 41-1515691
(Commission File Number) (IRS Employer Identification Number)
13911 RIDGEDALE DRIVE, MINNETONKA, MINNESOTA 55305
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (612) 541-0239
--------------
This filing is an amendment to Chronimed Inc.'s ("Chronimed"), previously filed
Form 8-K dated July 1, 1996 regarding Chronimed's acquisition of substantially
all of the assets of a group of nine companies doing business as "StatScript
Pharmacies." These nine companies include StatScript Management Services, Inc.,
a Missouri corporation; Stat Script, Inc., a Missouri corporation; Oaklawn
Pharmacy, Inc., a Texas corporation; Preston Center Pharmacy, Inc., a Texas
corporation; Mesa Pharmacy, Inc., an Arizona corporation; Chicago Pharmacy, LLC,
an Illinois limited liability company; North Avenue Pharmacy, LLC, an Illinois
limited liability company; Houston Pharmacy, Inc., a Texas corporation; and Fort
Lauderdale Pharmacy, Inc., a Florida corporation (collectively referred to as
"StatScript"). All or substantially all of the issued and outstanding capital
stock or limited liability company interests, as the case may be, of each of the
StatScript companies is owned by Phillip D. Short.
ITEM 7. FINANCIAL REPORTS AND EXHIBITS
Pro Forma Financial Information (giving effect to the acquisition of StatScript
by Chronimed)
1. Unaudited Pro Forma Consolidated Balance Sheet as of June 28, 1996
and Pro Forma Consolidated Statement of Income for the year ended June
28, 1996.
Financial Statements of Business Acquired
1. Audited Combined Financial Statements of StatScript Management
Services, Inc. as of December 31, 1995 and 1994 and for the years ended
December 31, 1995 and 1994.
2. Unaudited Condensed Statements of Income of StatScript Management
Services, Inc. for the six months ended June 28, 1996 and June 30,
1995, and Unaudited Condensed Balance Sheet of StatScript Management
Sevices, Inc. as of June 28, 1996.
EXHIBITS:
23.1 Consent of KPMG Peat Marwick LLP
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on behalf of the undersigned
thereunto duly authorized.
CHRONIMED INC.
Dated September 16, 1996 By: /s/ Norman A. Cocke
------------------------------
Norman A. Cocke
Its Chief Financial Officer
Chronimed Inc. and StatScript Management Services, Inc.
Unaudited Pro Forma Consolidated Financial Statements
The following unaudited pro forma consolidated financial statements give effect
to the acquisition by Chronimed Inc. ("Chronimed"), through its wholly-owned
subsidiary, Chronimed Holdings Inc., of substantially all of the assets of a
group of nine companies doing business as StatScript Pharmacies ("StatScript")
using the purchase method of accounting. The pro forma financial statements are
based on estimates and assumptions set forth below and in the notes to such
statements which include pro forma adjustments. These pro forma financial
statements are based upon the historical financial statements of Chronimed
adjusted to give effect to the acquisition of StatScript assuming the
acquisition had been completed as of July 1, 1995 for the statement of income
and as of June 28, 1996 for the balance sheet.
The pro forma adjustments are based upon preliminary estimates, available
information and certain assumptions that management deemed appropriate. Final
purchase accounting adjustments may differ from the pro forma adjustments
presented herein. The unaudited pro forma consolidated financial information
does not profess to represent Chronimed's results of operations had the above
transaction, in fact, occurred on that date, or to project Chronimed's
consolidated results of operations for any future dates or period. The pro forma
consolidated financial information should be read in conjunction with
Chronimed's historical financial statements and notes thereto.
<TABLE>
<CAPTION>
Chronimed Inc.
Pro Forma Consolidated Balance Sheet
June 28, 1996
(UNAUDITED)
PRO FORMA
----------------------------------
CHRONIMED STATSCRIPT ADJUSTMENTS CONSOLIDATED
------------ -------------- ------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,433,774 $ 258,834 $(10,128,782)(1) $ 1,563,826
Available for sale securities 12,802,788 -- -- 12,802,788
Accounts receivable, net 19,891,458 1,744,440 (54,076)(1) 21,581,822
Inventory 5,475,987 452,126 -- 5,928,113
Other current assets 1,052,772 -- -- 1,052,772
------------ ------------ ------------ ------------
Total current assets 50,656,779 2,455,400 (10,182,858) 42,929,321
Notes receivable 1,374,601 -- -- 1,374,601
Available for sale securities 9,069,248 -- -- 9,069,248
Property and equipment, net 5,445,351 91,873 -- 5,537,224
Other assets, net 1,362,258 28,636 8,889,022 (1) 10,279,916
------------ ------------ ------------ ------------
Total assets $ 67,908,237 $ 2,575,909 $ (1,293,836) $ 69,190,310
============ ============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,054,234 $ 1,282,073 $ -- $ 6,336,307
Accrued expenses 4,366,565 -- -- 4,366,565
Income taxes payable 570,956 -- -- 570,956
Short-term debt 404,000 -- -- 404,000
------------ ------------ ------------ ------------
Total current liabilities 10,395,755 1,282,073 -- 11,677,828
Long-term debt 350,000 -- -- 350,000
Shareholders' equity:
Common stock and additional paid-in capital
49,693,914 9,334 (9,334)(1) 49,693,914
Treasury stock -- (8,000) 8,000 (1) --
Retained earnings 7,475,642 1,292,502 (1,292,502)(1) 7,475,642
Unrealized loss on available-for-sale
securities (7,074) -- -- (7,074)
------------ ------------ ------------ ------------
Total shareholders' equity 57,162,482 1,293,836 (1,293,836) 57,162,482
------------ ------------ ------------ ------------
Total liabilities and shareholders' equity $ 67,908,237 $ 2,575,909 $ (1,293,836) $ 69,190,310
============ ============ ============ ============
SEE ACCOMPANYING NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<CAPTION>
Chronimed Inc.
Pro Forma Consolidated Statement of Income
Year ended June 28, 1996
(UNAUDITED)
PRO FORMA
------------------------------------
CHRONIMED STATSCRIPT ADJUSTMENTS CONSOLIDATED
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 90,511,550 $ 12,855,467 $ -- $ 103,367,017
Cost of sales 65,152,167 8,840,593 -- 73,992,760
------------- ------------- ------------- -------------
Gross profit 25,359,383 4,014,874 -- 29,374,257
Operating expenses:
Selling and marketing 6,348,369 -- -- 6,348,369
Research and development 437,185 -- -- 437,185
General and administrative 10,501,258 2,418,128 741,000(3) 13,660,386
Provision for uncollectible accounts 1,099,063 434,357 -- 1,533,420
------------- ------------- ------------- -------------
Total operating expenses 18,385,875 2,852,485 741,000 21,979,360
------------- ------------- ------------- -------------
Operating income 6,973,508 1,162,389 (741,000) 7,394,897
Interest income 1,327,380 -- (440,000)(2) 887,380
------------- ------------- ------------- -------------
Income before income taxes 8,300,888 1,162,389 (1,181,000) 8,282,277
Income tax expense (2,841,500) -- (197,000)(3) (3,038,500)
------------- ------------- ------------- -------------
Net income $ 5,459,388 $ 1,162,389 $ (1,378,000) $ 5,243,777
============= ============= ============= =============
Income per share $ 0.42 $ 0.40
============= =============
Weighted average number of shares outstanding
13,137,460 13,137,460
============= =============
SEE ACCOMPANYING NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
Chronimed Inc.
Notes to Pro Forma Consolidated Financial Statements
June 28, 1996
(UNAUDITED)
The following adjustments are incorporated in the unaudited pro forma
consolidated financial information:
(1) To reflect the consideration paid for StatScript, eliminate assets not
acquired and shareholders' equity of the acquired company, and reflect
the excess of the purchase price over the assets acquired.
(2) To reflect the lost interest income from investments used to fund the
acquisition.
(3) To reflect the amortization of the excess of the purchase price over
the assets acquired.
(4) To reflect the tax effect of pro forma adjustments (2) and (3) and
StatScript's income not taxed during the year.
STATSCRIPT MANAGEMENT
SERVICES, INC.
COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Statscript Management Services, Inc.:
We have audited the accompanying combined balance sheets of Statscript
Management Services, Inc. (the Company) as of December 31, 1995 and 1994 and the
related combined statements of earnings, stockholders' equity and cash flows for
the years then ended. These combined financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these combined 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of Statscript
Management Services, Inc. as of December 31, 1995 and 1994 and the results of
its operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
March 2, 1996
<TABLE>
<CAPTION>
STATSCRIPT MANAGEMENT SERVICES, INC.
COMBINED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
Assets 1995 1994
------ ---- ----
<S> <C> <C>
Current assets:
Cash $ 29,892 8,512
Accounts receivable (net of $63,000 and $23,511 allowance
for uncollectible accounts in 1995 and 1994) (note 2) 1,662,786 853,469
Inventory 506,795 249,917
Advances to stockholders (note 4) 44,798 28,000
----------- -----------
Total current assets 2,244,271 1,139,898
----------- -----------
Property, plant and equipment, at cost:
Furniture, fixtures, and equipment 176,098 150,651
Automobiles 108,757 108,757
----------- -----------
284,855 259,408
Less accumulated depreciation 174,240 123,422
----------- -----------
Net property, plant and equipment 110,615 135,986
----------- -----------
Other assets 14,831 10,604
----------- -----------
$ 2,369,717 1,286,488
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Bank overdraft $ 43,742 29,259
Accounts payable 877,062 405,556
Current portion of long-term debt (note 3) 20,249 233,610
Accrued liabilities 56,224 53,388
----------- -----------
Total current liabilities 997,277 721,813
Long-term debt, less current portion (note 3) 28,142 50,529
----------- -----------
Total liabilities 1,025,419 772,342
----------- -----------
Stockholders' equity:
Common stock, $1.00 par value; 150,000 shares authorized,
39,050 shares issued 39,050 39,050
Additional paid-in capital 12,000 12,000
Retained earnings 1,301,248 471,096
----------- -----------
1,352,298 522,146
Treasury stock at cost, 8,000 shares (8,000) (8,000)
----------- -----------
Total stockholders' equity 1,344,298 514,146
----------- -----------
$ 2,369,717 1,286,488
=========== ===========
See accompanying notes to combined financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATSCRIPT MANAGEMENT SERVICES, INC.
COMBINED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
---- ----
<S> <C> <C>
Net sales $ 9,851,067 5,692,622
Cost of sales 6,438,392 3,529,712
----------- -----------
Gross profit 3,412,675 2,162,910
----------- -----------
Operating costs and expenses:
General and administrative 2,163,462 1,821,576
Depreciation 50,818 55,797
----------- -----------
Total operating costs and expenses 2,214,280 1,877,373
----------- -----------
Operating income 1,198,395 285,537
----------- -----------
Other income (expense):
Other income 15,130 15,114
Interest expense (18,281) (11,437)
----------- -----------
Total other income (expense) (3,151) 3,677
----------- -----------
Net earnings $ 1,195,244 289,214
=========== ===========
See accompanying notes to combined financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATSCRIPT MANAGEMENT SERVICES, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994
Additional
Common paid-in Retained Treasury
stock capital earnings stock Total
---------- ---------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $ 38,550 12,000 322,263 -- 372,813
Net earnings -- -- 289,214 -- 289,214
Distributions to stockholders -- -- (140,381) -- (140,381)
Purchase of 8,000 shares of
common stock for treasury -- -- -- (8,000) (8,000)
Issuance of 500 shares of
common stock 500 -- -- -- 500
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1994 39,050 12,000 471,096 (8,000) 514,146
Net earnings -- -- 1,195,244 -- 1,195,244
Distributions to stockholders -- -- (365,092) -- (365,092)
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1995 $ 39,050 12,000 1,301,248 (8,000) 1,344,298
========== ========== ========== ========== ==========
See accompanying notes to combined financial staements.
</TABLE>
<TABLE>
<CAPTION>
STATSCRIPT MANAGEMENT SERVICES, INC.
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,195,244 289,214
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 50,818 55,797
Forgiveness of advances to stockholders 15,000 --
Increase in assets:
Accounts receivable (809,317) (362,885)
Inventory (256,878) (49,095)
Other assets (4,227) (8,004)
Increase in liabilities:
Accounts payable 471,506 63,492
Accrued liabilities 2,836 27,026
----------- -----------
Total adjustments (530,262) (273,669)
----------- -----------
Net cash provided by operating activities 664,982 15,545
----------- -----------
Cash flows used for investing activities - purchase of equipment (25,447) (61,882)
----------- -----------
Cash flows from financing activities:
Bank overdrafts 14,483 29,259
Proceeds from long-term debt -- 228,671
Repayments of long-term debt (235,748) (43,670)
Issuance of common stock -- 500
Purchase of treasury stock -- (8,000)
Advances to stockholders (44,798) (13,000)
Repayment of advances to stockholders 13,000 --
Distributions to stockholders (365,092) (140,381)
----------- -----------
Net cash provided by (used in) financing activities (618,155) 53,379
----------- -----------
Net increase in cash 21,380 7,042
Cash at beginning of period 8,512 1,470
----------- -----------
Cash at end of period $ 29,892 8,512
=========== ===========
Cash paid during the year for interest $ 20,253 9,511
=========== ===========
See accompanying notes to combined financial statements.
</TABLE>
STATSCRIPT MANAGEMENT SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Statscript Management Services, Inc. (Statscript or the Company)
operates eight pharmacies throughout the United States,
serving primarily HIV positive patients. Statscript and the
Kansas City, Oaklawn (Dallas), Mesa, Houston, Ft. Lauderdale
and Preston pharmacies are Subchapter S Corporations. The
Chicago pharmacy and the North Avenue pharmacy (Chicago) are
Limited Liability Corporations (LLC's). One stockholder owns
100% of the Subchapter S Corporation pharmacies with the
exception of the Kansas City pharmacy, of which he owns 77%.
This shareholder and his spouse also own 100% of the LLC's.
These corporations are collectively referred to as the
Company.
The combined financial statements include the accounts of the Company
and the eight pharmacies. All intercompany balances have been
eliminated on the combined statements.
Inventories
Inventories consist of pharmaceutical products and are valued at the
lower of cost (first-in, first-out) or market (net realizable
value).
Property, Plant and Equipment
Property, plant and equipment additions are recorded at cost.
Depreciation expense is computed using accelerated methods
over the useful lives of the assets as follows:
Fixed and moveable equipment 5 years
Furniture and fixtures 5 - 7 years
Net Patient Service Revenue
Net patient service revenue is reported at the estimated net realizable
amounts from patients, third-party payors and others for
services rendered.
Income Taxes
The Company has elected under both federal and state income tax laws to
be taxed as a Subchapter S Corporation or as an LLC. Under
these elections, the Company makes no provision for income
taxes as the taxable income of the Company is reported by the
stockholders on their individual income tax returns.
STATSCRIPT MANAGEMENT SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
Use of Estimates
The preparation of combined financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the combined financial
statements. Estimates also affect the reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from those estimates.
(2) NET PATIENT SERVICE REVENUE
The Company sells pharmaceutical products to patients from its eight
pharmacies in Florida, Missouri, Illinois, Texas and Arizona.
The Company requires customers to have either insurance
coverage or pay cash and extends credit to customers for
amounts not covered by third-party payors.
The Company serves certain patients whose medical care costs are paid
under government or privately-sponsored contractual programs.
These programs are principally medical insurance companies. A
small percentage of the Company's business is with Medicaid
and other federal programs.
(3) LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Line of credit, prime rate plus 1% (9 1/2% at December 31,
1994), payable on demand, secured by all assets of the
Company $ -- 206,000
Notes payable with interest rates ranging from 6.5% to 7.24%,
payable in monthly payments through November 1998,
secured with automobiles with a carrying value of $47,090 48,391 78,139
------- --------
48,391 284,139
Less current portion 20,249 233,610
------- --------
Total long-term debt, excluding current portion $28,142 $ 50,529
======= ========
</TABLE>
At December 31, 1995, aggregate annual maturities of long-term debt
are as follows:
1996 $ 20,249
1997 16,850
1998 11,292
--------
$ 48,391
========
At December 31, 1995, the Company had available borrowings under a bank
line of credit totaling $500,000 at prime of 8 1/2%.
STATSCRIPT MANAGEMENT SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
Fair value for the long-term debt was not materially different from
carrying value at December 31, 1995 based on borrowing rates
assumed to be available to the Company for similar terms and
maturities.
(4) RELATED PARTY TRANSACTIONS
In August 1993, the Company advanced $15,000 to a stockholder. The
advance was forgiven by the Company in 1995.
In December 1994, the Company advanced $13,000 to the majority
stockholder of the Company. The advance was repaid to the
Company in January 1995.
During 1995, the Company advanced $44,798 to a related entity of which
the Company's majority stockholder is the sole member.
(5) EMPLOYEE BENEFIT PLANS
The Company's 401(k) Profit Sharing Plan includes substantially all
officers and employees. The Company matches employee
contributions to a maximum of 4% of the employee's eligible
earnings. Employees may contribute up to 9% of their eligible
earnings.
The Company was required to make contributions of $13,963 and $6,920
in 1995 and 1994, respectively, to satisfy minimum funding
requirements for certain non-stockholder employees. Statscript
has accrued for this contribution at December 31, 1995.
Company contributions to the employee benefit plan amounted to $43,142
and $31,277 in 1995 and 1994, respectively.
(6) COMMITMENTS
The Company leases its office space, store locations and computer
equipment under agreements which are considered operating
leases. Rent expense charged to operations in 1995 and 1994
amounted to $243,436 and $285,759, respectively.
A summary of noncancelable long-term lease commitments follows. It is
expected in the ordinary course of business that leases will
be renewed or replaced as they expire.
1996 $ 215,000
1997 149,000
1998 67,000
1999 27,000
=========
StatScript Management Services, Inc.
Condensed Statements of Income
(Unaudited)
FOR THE SIX MONTHS ENDED
JUNE 28, 1996 JUNE 30, 1995
------------- -------------
Revenues $7,397,110 $4,450,413
Cost of sales 5,275,434 2,875,046
---------- ----------
Gross profit 2,121,676 1,575,367
Operating expenses:
General and administrative 1,161,773 829,897
Provision for uncollectible accounts 341,868 50,581
---------- ----------
Total operating expenses 1,503,641 880,478
---------- ----------
Net income $ 618,035 $ 694,889
========== ==========
SEE ACCOMPANYING NOTES.
StatScript Management Services, Inc.
Condensed Balance Sheet
June 28, 1996
(Unaudited)
ASSETS
Current assets:
Cash $ 258,834
Accounts receivable (net of allowance of $342,000) 1,744,440
Inventory 452,126
----------
Total current assets 2,455,400
Property and equipment, net 91,873
Other assets, net 28,636
----------
Total assets $2,575,909
==========
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued expenses $1,282,073
----------
Total current liabilities 1,282,073
Equity 1,293,836
----------
Total liabilities and equity $2,575,909
==========
SEE ACCOMPANYING NOTES.
StatScript Management Services, Inc.
Notes to Condensed Financial Statements
June 28, 1996
1. ACCOUNTING POLICIES
The unaudited condensed financial statements present the accounts of StatScript
Management Services, Inc. and its respective pharmacies. In the opinion of
management, all adjustments necessary for a fair presentation have been made.
Operating results for interim periods are not necessarily indicative of results
which may be expected for the year as a whole.
2. SUBSEQUENT EVENT
On July 1, 1996, StatScript Management Services, Inc. and its respective
pharmacies were sold to Chronimed, Inc.
Exhibit 23.1
Accountants' Consent
The Board of Directors
Chronimed, Inc.
We consent to the inclusion of our report dated March 2, 1996, with respect to
the combined balance sheets of StatScript Management Services, Inc., as of
December 31, 1995 and 1994, and the related combined statements of earnings,
stockholders' equity, and cash flows for each of the years in the two year
period ended December 31, 1995, which report appears in the Form 8-K/A of
Chronimed, Inc. dated September 9, 1996.
KPMG Peat Marwick LLP
Kansas City, Missouri
September 10, 1996
