UNITED STATES
SECURITIES EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the period ended March 27, 1998
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Commission File Number 0-19952
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CHRONIMED Inc.
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(Exact name of registrant as specified in its charter)
Minnesota 41-1515691
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10900 Red Circle Drive
Minnetonka, MN 55343
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(Address of principal executive offices)
(Zip code)
Registrant's telephone number, including area code (612) 979-3600
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes __X__ No _____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 par value - 11,990,532 shares outstanding as of April 27,
1998
<PAGE>
INDEX
CHRONIMED INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - March 27, 1998 and June 27, 1997
Consolidated Statements of Income - Three months ended March 27,
1998 and March 28, 1997; nine months ended March 27, 1998 and March
28, 1997
Consolidated Statements of Cash Flows - Nine months ended March 27,
1998 and March 28, 1997
Notes to Consolidated Financial Statements - March 27, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
PART II. OTHER INFORMATION
Items 1 through 5 required under Part II have been omitted since they are not
applicable or answers are negative.
Item 6. Exhibits and Reports on Form 8-K
3.2 Bylaws of the Company, as amended
11.1 Computation of Earnings Per Share
27.1 Financial Data Schedule - Quarter Ended March 27, 1998
27.2 Financial Data Schedule - Amended - Fiscal Years Ended
June 27, 1997 and June 28, 1996
27.3 Financial Data Schedule - Amended - Fiscal 1998 - Quarter
Ended September 26, 1997
27.4 Financial Data Schedule - Amended - Fiscal 1997 - Quarters
Ended September 27, 1996, December 29, 1996, and March 28,
1997
SIGNATURES
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
CHRONIMED INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
Mar 27, 1998 June 27, 1997
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ASSETS (Unaudited) (Note A)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,595 $ 5,038
Available-for-sale securities 13,359 10,274
Accounts receivable, net 20,162 20,372
Income taxes receivable -- 294
Inventory 9,720 7,858
Other current assets 521 274
Deferred taxes 965 965
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Total current assets 46,322 45,075
Property and equipment:
Property and equipment 18,072 12,916
Allowance for depreciation (7,328) (5,466)
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10,744 7,450
Intangible assets, net 11,066 11,639
Other assets, net 758 1,127
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Total assets $ 68,890 $ 65,291
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 8,859 $ 10,904
Short-term debt -- 350
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Total current liabilities 8,859 11,254
Deferred taxes 677 677
Shareholders' equity:
Preferred Stock -- --
Common Stock, issued and outstanding shares--
11,979 and 11,878, respectively 120 118
Additional paid-in capital 50,573 49,838
Retained earnings 8,698 3,408
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59,391 53,364
Unrealized (loss) on available-for-sale securities (37) (4)
-------- --------
Total shareholders' equity 59,354 53,360
Total liabilities and shareholders' equity $ 68,890 $ 65,291
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</TABLE>
<PAGE>
CHRONIMED INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Third Quarter Ended Nine Months Ended
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Mar 27, 1998 Mar 28, 1997 Mar 27, 1998 Mar 28, 1997
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<S> <C> <C> <C> <C>
REVENUE
Services $ 26,807 $ 20,017 $ 80,715 $ 61,843
Products 6,892 7,081 19,428 25,093
Total Revenue 33,699 27,098 100,143 86,936
YR TO YR GROWTH 24.4% 15.2%
COSTS AND EXPENSES
Cost of sales 24,395 18,186 71,679 61,587
Gross profit 9,304 8,912 28,464 25,349
% OF REVENUE 27.6% 32.9% 28.4% 29.2%
Selling and marketing 2,117 1,548 5,833 4,996
General and administrative 5,007 4,149 14,764 12,509
Research and development 96 86 229 371
Write-off of note receivable -- 1,391 -- 1,391
Total operating expenses 7,220 7,174 20,826 19,267
% OF REVENUE 21.4% 26.5% 20.8% 22.2%
INCOME FROM OPERATIONS 2,084 1,738 7,638 6,082
% OF REVENUE 6.2% 6.4% 7.6% 7.0%
Interest income 354 136 1,034 594
INCOME BEFORE INCOME TAXES 2,438 1,874 8,672 6,676
Provision for income taxes (963) (711) (3,382) (2,497)
NET INCOME $ 1,475 $ 1,163 $ 5,290 $ 4,179
% OF REVENUE 4.4% 4.3% 5.3% 4.8%
NET INCOME PER SHARE--BASIC $ 0.12 $ 0.10 $ 0.44 $ 0.34
NET INCOME PER SHARE--DILUTED $ 0.12 $ 0.10 $ 0.43 $ 0.33
AVERAGE SHARES OUTSTANDING--BASIC 11,965 11,763 11,943 12,125
AVERAGE SHARES OUTSTANDING--DILUTED 12,271 12,127 12,206 12,611
</TABLE>
<PAGE>
CHRONIMED INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
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Mar 27, 1998 Mar 28, 1997
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 5,290 $ 4,179
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,810 2,683
Changes in operating assets and liabilities:
Accounts and notes receivable 561 2,333
Inventory (1,787) (2,836)
Accounts payable and accrued expenses (2,445) (765)
Other assets 129 27
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Net cash provided by operating activities 4,558 5,621
INVESTING ACTIVITIES:
Acquisitions, net of cash purchased (1,870) (9,234)
Purchases of property and equipment (3,750) (2,869)
Purchases of available-for-sale securities (15,377) (4,041)
Sales and maturities of available-for-sale securities 12,259 17,606
-------- --------
Net cash (used in) provided by investing activities (8,738) 1,462
FINANCING ACTIVITIES:
Repurchase of Common Stock -- (14,452)
Net proceeds from sale of Common Stock 737 1,268
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Net cash provided by (used in) financing activities 737 (13,184)
Decrease in cash and cash equivalents (3,443) (6,101)
Cash and cash equivalents at beginning of period 5,038 11,434
-------- --------
Cash and cash equivalents at end of period $ 1,595 $ 5,333
======== ========
</TABLE>
<PAGE>
CHRONIMED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the quarter ended March 27, 1998 are not
necessarily indicative of the results that may be expected for the year ending
July 3, 1998. For further information, refer to the financial statements and
footnotes thereto for the year ended June 27, 1997.
The balance sheet at June 27, 1997, has been derived from the audited financial
statements at that date, but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
The Company uses a four-week, four-week, five-week (4-4-5) quarterly accounting
cycle with the fiscal year ending on the Friday closest to June 30 and the
fiscal quarters ending on the Friday closest to the last day of the respective
month.
NOTE B--INVENTORIES
Inventories consist primarily of goods held for resale and are valued at the
lower of cost or market under the average cost method.
NOTE C--INVESTMENTS
The Company's investment policy is to invest idle and excess funds in high
grade, fixed income securities generally for no more than two years. These
securities are classified as Available-for-Sale as of March 27, 1998 and June
27, 1997. The Company considers the net unrealized loss on these investments of
$37,000 and $4,000 at those respective dates to be temporary, and as such has
recorded it through shareholders' equity.
NOTE D--RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform with the current
year presentation. These reclassifications have no impact on net income or
shareholders' equity as previously reported.
<PAGE>
NOTE E--PER SHARE DATA
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, EARNINGS PER SHARE. Statement 128 replaced the
previously reported primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants, and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earnings per share amounts for
all periods have been presented, and where necessary, restated to conform to the
Statement 128 requirements.
Basic net income per share is based on the weighted average number of shares of
common stock outstanding during the year. Diluted net income per share is based
on the weighted average number of shares of common stock and dilutive common
stock equivalents outstanding during the year. Common stock equivalents consist
of options and warrants outstanding to purchase shares of the Company's Common
Stock. The following table sets forth the computation of basic and diluted net
income per share.
<TABLE>
<CAPTION>
$s and Shares in Thousands
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Three Months Ended Nine Months Ended
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March 27, 1998 March 28, 1997 March 27, 1998 March 28, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Numerator:
- ----------
Net income for basic and
diluted net income per share $ 1,475 $ 1,163 $ 5,290 $ 4,179
Denominator:
- ------------
Denominator for basic net income
per share--weighted-average shares 11,965 11,763 11,943 12,125
Effect of dilutive securities:
Employee stock options 306 197 263 305
Warrants -- 167 -- 181
------- ------- ------- -------
Dilutive potential common shares 306 364 263 486
Denominator for diluted net income
per share--weighted-average shares
and assumed conversions 12,271 12,127 12,206 12,611
======= ======= ======= =======
Basic Net Income per Share $ .12 $ .10 $ .44 $ .34
======= ======= ======= =======
Diluted Net Income per Share $ .12 $ .10 $ .43 $ .33
======= ======= ======= =======
</TABLE>
Options to purchase 862,700 and 1,012,500 shares of common stock at various
prices were outstanding as of fiscal 1998 third quarter end and year-to-date,
respectively, but were not included in the computation of diluted net income per
share because the exercise prices of these options was greater than the average
market price of the common shares and, therefore, the effect would be
antidilutive.
<PAGE>
Part I. Financial Information
Item 2. Management's Discussion
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Chronimed Inc. is a healthcare company specializing in services and
products for patients with chronic health conditions. Such conditions include
diabetes, HIV/AIDS, organ transplantation, and complex diseases treated with
self-injectable drugs. The Company develops, manufactures, markets, and
distributes pharmaceuticals, medical diagnostic products, and patient education
materials directly to individuals, patients of managed care organizations, and
to institutions that serve these patients. By focusing on specific chronic
conditions, the Company believes it is able to provide valuable services to: the
patients affected by chronic conditions; the insurance companies, health
maintenance organizations, government agencies and other third-party payors
("Payors") that pay a large portion of the related health care costs; the
developers and manufacturers that produce the prescription drugs and other
products needed to manage chronic conditions; and the institutions, foundations
and health care providers working with these patients. The patient populations
for which the Company believes its services are most effective include patients
who:
* Require a costly regimen of maintenance prescription drugs or other
medical products over the course of their lives;
* Are treated by health care specialists; and
* Require a significant amount of self-management and on-going
education.
The Company is currently serving four such populations in the main: patients
with diabetes, patients who have had an organ transplant, patients with
HIV/AIDS, and patients who self-administer certain biotech injectable
medications. The Company is investigating programs for a variety of other
chronic conditions.
Chronimed provides patients with a convenient, competitively-priced
source of prescription drugs, medical products, and a variety of educational
materials and counseling support designed to help patients achieve maximum
control over their chronic conditions. Often, the greater the effort a patient
makes to stabilize or control his or her chronic condition, the lower the
incidence of complications and the better the patient's quality of life.
Historically, the Company has obtained patients primarily through
referrals from health care providers and direct patient contacts. As employers
have attempted to control their escalating health care costs, Payors have
increasingly adopted various specialized managed care techniques in
<PAGE>
order to limit the costs of health care. The specialty managed care industry has
developed principally in response to the demand from employers and Payors for
more effective control of cost increases in certain sectors, such as patients
with chronic conditions. In 1996, an estimated 80% of privately insured
individuals in the United States were enrolled in some type of managed care
program, up from 69% in 1995. Chronimed seeks to adopt managed care techniques
or to develop new techniques to manage the particular delivery systems, cost
structures, and utilization characteristics of patients with chronic conditions.
As a result of the increasing role of managed care, coupled with the Company's
experience in managing specific patient groups, patient referrals are
increasingly coming from the Company's Payor programs.
The Company has developed relationships with certain treatment centers,
foundations and associations which specialize in the treatment or support of
patients with chronic conditions. These relationships provide the Company with
access to a large number of individuals with chronic conditions and to the
health care providers treating these conditions.
Chronimed believes that its system is well-suited for developers and
manufacturers of pharmaceutical and medical products designed for small or
hard-to-identify patient populations. Chronimed provides these companies with
assistance in the design and rapid introduction of their products, a cost
effective means for distributing these products to specific patient populations,
and a method for monitoring the use of these products as well as outcomes.
Chronimed continues to emphasize the development and licensing of
proprietary products suitable for distribution through its system. The Company
launched a consumer version of its Supreme blood glucose monitoring system, the
Select GT, in March 1998. The Company acquired DiaScreen, a small blood and
urine diagnostics technology company in March 1998, which will expand its
proprietary products offerings. Pursuant to a variety of significant
distribution agreements, the Company continues to market diabetes-related
products including blood glucose monitoring systems, lancets, and infusion sets.
REVENUE
The Company has revised its revenue categories to more appropriately
reflect its current line of business. Starting this fiscal year, revenue falls
into two categories: Services and Products. The Services area includes a
collection of conceptually similar specialty pharmacy businesses focusing on
identifiable chronic conditions: the Self Injectables program, which is a
payor-sponsored program that serves patients who self-administer certain
injectable medications; StatScript Pharmacy, which serves HIV/AIDS patients
through localized specialty pharmacy centers; Organ Transplant Pharmacy, which
serves organ transplant recipients and patients with other chronic health
conditions; and Home Service Medical, which is a mail order diabetes services
business. The Products area includes the Medical Products manufacturing and
distribution business for blood and urine diagnostic products and accessories.
It also includes the Publishing business, which emphasizes diabetes, nutrition,
and health and wellness.
Total revenue increased 24%, from $27.1 million to $33.7 million, for
the quarters ended March 28, 1997 and March 27, 1998, respectively; and 15%,
from $86.9 million to $100.1
<PAGE>
million for the nine months ended March 28, 1997 and March 27, 1998,
respectively. Price increases have not been a significant reason for these
revenue increases.
Services revenue grew 34%, from $20.0 million to $26.8 million, for the
quarters ended March 28, 1997 and March 27, 1998, respectively. The growth came
from primarily two businesses. First, StatScript Pharmacy grew $3.3 million, or
71%, over last year's third quarter, driven mainly by the higher-cost
combination therapy HIV/AIDS medications, new patient acquisition, and new
pharmacy growth. Second, the Self Injectables program grew $3.4 million, or 85%,
over last year's third quarter due to the continued high rate of new patients
being added to the system under existing managed care contracts. For the
respective nine-month periods, revenue from Services grew 31%, from $61.8
million to $80.7 million, due primarily to $9.7 million in StatScript Pharmacy
growth and $8.9 million in Self Injectables growth for the same reasons noted
above.
Products revenue declined 4% from $7.1 million to $6.9 million for the
quarters ended March 28, 1997 and March 27, 1998, respectively. The decline was
caused mainly by the discontinuance of a non-proprietary diabetes product in
last year's third quarter. For the respective nine-month periods, revenue from
Products declined 23% from $25.1 million to $19.4 million due again to the
discontinuance of a non-proprietary diabetes product.
Total revenue growth for fiscal 1998 is expected to be approximately 20%
above fiscal 1997 as high growth performance is expected to continue at
StatScript Pharmacy and in the Self Injectables program. Equally important in
this projection is the Company's belief that its Products business will be
successful in replacing lost revenue from the diabetes product discontinuance
with its own proprietary products. The Company believes that its supplier inputs
and proprietary production rates are stable and sustainable but may be subject
to unforeseen shortfalls. The Company cautions readers that this and other
paragraphs in the Management's Discussion section include forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 and that actual results may differ from projections. Readers should review
the Outlook section in this Form 10-Q for further information.
GROSS PROFIT
Gross profit percentage for the current quarter and nine-month period
was 27.6% and 28.4%, respectively, against the prior year periods of 32.9% and
29.2%, respectively. Excluding a one-time favorable inventory adjustment in last
year's third quarter of $1.3 million, gross profit percentage declined from
28.3% to 27.6% for the quarters ended March 28, 1997 and March 27, 1998,
respectively, due primarily to growth in the lower-margin Services business
mostly offset by strong margins from Medical Products. Excluding the one-time
adjustment, the gross profit percentage improved from 27.7% to 28.4% for the
nine-month periods ended March 28, 1997 and March 27, 1998, respectively, due
primarily to improvements in Medical Products margins, partially offset by
growth in the lower-margin Services business.
<PAGE>
Chronimed faces continuing price pressure from managed care
organizations and expects gross profit percentages in its Services business,
which currently accounts for 80% of the Company's revenue, to decline in future
quarters. This decline is expected to be all or partially offset by operating
efficiencies in selling, general and administrative expenses.
SELLING AND MARKETING EXPENSES
Selling and marketing expenses increased 37% over the prior year's third
quarter as a result of increased spending in both its Services and Products
selling programs. As a percent of revenue, selling and marketing expenses
increased from 5.7% to 6.3% in the quarters ended March 28, 1997 and March 27,
1998, respectively. In the Services area, the Company has added senior sales
people to focus on the large account opportunities in managed care. In the
Products area, the Company has made changes to the organization including the
addition of salespeople, improved managerial spans of control, and increased
sales focus on large national accounts. For the respective nine-month periods,
selling and marketing expenses increased 17% for the same reasons noted above.
As a percent of revenue, selling and marketing expenses increased from 5.7% to
5.8% in the nine months ended March 28, 1997 and March 27, 1998, respectively.
Overall, the Company expects selling and marketing expenses to grow at a rate
consistent with revenue and to end the year at about six percent of total year
revenue.
GENERAL AND ADMINISTRATIVE EXPENSES
Excluding a one-time note receivable write-off in last year's third
quarter of $1.4 million, general and administrative (G&A) expenses increased 21%
over the prior year's third quarter. As a percent of revenue, G&A expenses
declined from 15.3% to 14.9% on a comparable basis. For the respective
nine-month periods, G&A expenses increased 18%, with expenses increasing from
14.4% of revenue to 14.7% of revenue. The most significant areas of spending
growth are in business unit and corporate management, in new information
systems, and in StatScript new store openings. The Company's G&A expenses
include customer service, billing, and pharmacy fulfillment as well as other
traditional G&A expenses such as Corporate and Business Unit Management,
Information Systems, Business Development, Finance, Quality, and Human
Resources. The Company expects G&A expenses to end the year between 14% and 15%
of total year revenue.
INCOME FROM OPERATIONS
Income from operations increased from $1.7 million to $2.1 million for
the quarters ended March 28, 1997 and March 27, 1998, respectively. For the same
periods, income from operations as a percent of revenue declined from 6.4% to
6.2% due mainly to the slight decline in gross profit percentages stemming from
the managed care pricing pressure in the Services business. Income from
operations increased from $6.1 million to $7.6 million for the nine months ended
March 28, 1997 and March 27, 1998, respectively. For the same periods income
<PAGE>
from operations as a percent of revenue increased from 7.0% to 7.6% due
primarily to improvements in gross profit percentages in the Medical Products
business.
INTEREST INCOME
Interest income increased from $140,000 in last year's third quarter to
$350,000 this quarter, and from $590,000 through nine months last year to
$1,030,000 through nine months this year. The increases for the quarter and
nine-month period are mainly due to the recognition of interest income from the
remaining balance due the Company from the Orphan Medical distribution rights,
supported by continuing positive cash flow from operations.
INCOME TAXES
The Company's income tax rate was 37.9% and 39.5% in the quarters ended
March 28, 1997 and March 27, 1998, respectively; and 37.4% and 39.0% in the
respective nine month periods. Last year's rates differ from the statutory rates
due primarily to favorable tax treatment on municipal bond interest income. The
Company has since reduced its investments in municipal bonds. The current year
rate of approximately 39% is expected to continue through year end.
LIQUIDITY AND CAPITAL RESOURCES
As of March 27, 1998, the Company had working capital of $37.5 million
with no long-term debt, and $59.4 million of shareholders' equity.
The Company believes that its current working capital, together with
existing sources of liquidity and cash generated by operations, will satisfy its
working capital requirements through fiscal 1998 and fiscal 1999.
The Company's accounts receivable are generally with Payors for which
the collection periods vary depending on the practices of the individual Payor
and whether or not Chronimed has a contract with the Payor. Electronic billing
and on-line adjudication of claims are positive trends that shorten cash
collection periods and improve cash flow. Nonetheless, the Company expects
working capital requirements to increase as revenues increase.
The days sales outstanding (DSO) of the Company's accounts receivable
improved to 51 at March 27, 1998, compared to 63 at March 28, 1997. The decrease
results from implementation of a number of quality improvements in collection
processes. Growth in revenue from Payors which are billed electronically has
also contributed favorably to the decrease in DSO.
The reserve for bad debts remained flat at $1.1 million from June 1997
to March 1998, reflecting the improving quality of receivables with continued
revenue growth.
<PAGE>
The Company is carrying $1.8 million in receivables on its balance sheet
as of March 27, 1998 related to the June 1997 sale of certain distribution
rights to Orphan Medical, Inc. The balance is to be paid principally from the
proceeds of quarterly issuances of Orphan Medical stock. The Company received
61,178 shares of unregistered Orphan Medical stock in April, 1998. We anticipate
that these shares will be registered with the SEC in Chronimed's fiscal fourth
quarter and to then be sold as soon as practicable at prevailing market prices.
The Company expects to receive payments over the next 12 to 18 months until the
balance plus interest is paid in full.
Inventory increased approximately $1.9 million, or 24%, from June 1997
to March 1998. Most of the increase has occurred in the last three months in the
Products business as the Company builds inventory for the release of the Select
GT blood glucose system and for expected fourth quarter demand.
The Company's capital expenditures for property and equipment total $3.8
million through March 1998, plus $1.9 million for acquisitions. As of March 27,
1998, the Company has no material outstanding commitments for capital
expenditures; however, the Company expects fourth quarter capital expenditures
for property and equipment to continue at its current pace of $1 to $2 million
per quarter.
The Company has a discretionary line of credit of $15 million. There was
no balance outstanding under the line of credit at March 27, 1998.
THE YEAR 2000 SOFTWARE ISSUE
The Company has assessed and continues to assess the impact of the Year
2000 issue on its reporting systems and operations. The Year 2000 issue exists
because many computer systems and applications currently use two-digit data
fields to designate a year. As the century date occurs, date sensitive systems
might recognize the year 2000 as 1900 or not at all. This inability to recognize
or properly treat the year 2000 may cause the Company's systems, or the systems
used by the Company's suppliers, payors, or other customers, to process critical
financial and operational information incorrectly.
The Company's primary strategy is and has been to replace its older,
inefficient systems with current technology to improve customer responsiveness
and employee productivity. To improve financial efficiency, in February 1997,
the Company implemented general ledger, accounts payable, and fixed assets
software; this software is Year 2000 compliant. The Company is also in the
process of implementing a pharmacy services system to improve operational
efficiency; this software is also Year 2000 compliant. Because the Company has
been active in implementing new systems, direct expenses related to specific
Year 2000 modifications should not be material to the financial statements.
Other operational systems focused on productivity improvements are being
evaluated with the intent to implement prior to the Year 2000.
During the current calendar year, the Company has incurred approximately
$50,000 over and above its ongoing software productivity projects to
specifically modify existing computer systems
<PAGE>
and applications for Year 2000 computing. The Company estimates that up to
$250,000 over and above its ongoing software productivity projects will be
incurred in each of calendar 1998 and 1999. Such costs have been or will be
charged to expense as incurred and are being funded through operating cash
flows.
The Company presently believes that with modifications to existing
systems and conversions to new systems the Year 2000 issue will not pose
significant operational problems. However, there can be no assurance that all
Year 2000 issues will be identified and resolved in a timely manner,
particularly those issues involving Payors' systems and other systems outside of
the Company's control. If the Company's remediation plan is not successful, or
if these outside systems should fail, there could be a significant disruption of
the Company's ability to transact business with its customers and suppliers.
HEALTH REFORM/GOVERNMENT REGULATION
Political, economic and regulatory influences are subjecting the health
care industry in the United States to fundamental change. A variety of new
approaches has been proposed, including mandated basic health care benefits,
controls on health care spending through limitations on the growth of private
health insurance premiums and Medicare and Medicaid spending, and the creation
of large purchasing groups and other fundamental changes to the health care
delivery system. In addition, some of the states in which the Company operates
have adopted or are considering various health care reform proposals. The
Company anticipates that both the public and private sectors will continue to
review and assess alternative health care delivery systems and payment methods
and that debate of these issues will likely continue in the future. Because of
uncertainty regarding the ultimate features of reform initiatives and their
enactment and implementation, the Company cannot predict which, if any, of such
reform proposals will be adopted, when they may be adopted, or what impact they
may have on the Company.
The Company's business is subject to substantial governmental
regulation, including laws governing the dispensing of prescription drugs and
laws prohibiting payments for patient referrals. Management believes that the
Company is in substantial compliance with all existing statutes and regulations
materially affecting the conduct of its business.
SEASONALITY
The Company has experienced a seasonal pattern in its operating results.
Historically, the Company has had higher revenues in its second fiscal quarter
ending in December than in its third fiscal quarter ending in March. The Company
believes the seasonality of its revenues and earnings results from the
acceleration of purchases of prescription drugs and medical products by
individuals prior to the beginning of a new calendar year (which is generally
when Payors impose new deductible calculations).
<PAGE>
OUTLOOK
Information contained in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations", other than historical
information, should be considered forward looking and reflects management's
current views of future events and financial performance that involve a number
of risks and uncertainties. The factors that could cause actual results to
differ include, but are not limited to, the following: competition and pricing
pressures; difficulties or delays in the marketing of the Company's products,
particularly the Select GT blood glucose system; the Company's inability to
execute its service and product sales plans; termination of key payor contracts;
termination of key supplier contracts; changes in or unknown violations of
various federal, state, and local regulations governing the business; loss or
retirement of key executives; and management of growth. Please see Exhibit 99
filed with the Company's Form 10-K on September 25, 1997, for additional
circumstances that could cause actual results to differ from forecasts.
PART II. OTHER INFORMATION
Items 1 through 5 required under Part II have been omitted since they are not
applicable or the answers negative.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
3.2 Bylaws of the Company, as amended
11.1 Computation of Earnings Per Share (see Note E of Notes
to Consolidated Financial Statements)
27 Financial Data Schedules (4)
(b) Reports on Form 8-K
The Company was not required to file any reports on Form 8-K
during the quarter ended March 27, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHRONIMED INC.
(REGISTRANT)
May 1, 1998 /s/ Maurice R. Taylor, II
- ------------------ ------------------------------------
Date Maurice R. Taylor, II
Chairman of the Board and
Chief Executive Officer
May 1, 1998 /s/ Norman A. Cocke
- ------------------ ------------------------------------
Date Norman A. Cocke
Senior Vice President, Chief Financial Officer and
Secretary
EXHIBIT 3.2
BY-LAWS
OF
CHRONIMED INC.
ARTICLE I
Offices
Section 1. Principal Executive Office. The principal executive office of
the Corporation shall be in the City of Minnetonka, County of Hennepin,
Minnesota.
Section 2. Registered Office. The location and address of the registered
office of the Corporation is 10900 Red Circle Drive, Minnetonka, Minnesota
55343. The registered office need not be identical with the principal executive
office of the Corporation and may be changed from time to time by the Board of
Directors.
Section 3. Other Offices. The Corporation may have other offices at such
places within and without the State of Minnesota as the Board of Directors may
from time to time determine.
ARTICLE II
Meetings of Shareholders
Section 1. Place of Meeting. All meetings of the shareholders of this
Corporation shall be held at its principal executive office unless some other
place for any such meeting
<PAGE>
within or without the State of Minnesota be designated by the Board of Directors
in the notice of meeting. Any regular or special meeting of the shareholders of
the Corporation called by or held pursuant to a written demand of shareholders
shall be held in the county where the principal executive office is located.
Section 2. Regular Meetings. Regular meetings of the shareholders of
this Corporation may be held at the discretion of the Board of Directors on an
annual or less frequent periodic basis on such date and at such time and place
as may be designated by the Board of Directors in the notice of meeting. At
regular meetings the shareholders shall elect a Board of Directors and transact
such other business as may be appropriate for action by shareholders. If a
regular meeting of shareholders has not been held for a period of fifteen (15)
months, one or more shareholders holding not less than three percent (3%) of the
voting power of all shares of the Corporation entitled to vote may call a
regular meeting of shareholders by delivering to the Chief Executive Officer or
the Chief Financial Officer a written demand for a regular meeting. Within
thirty (30) days after the receipt of such written demand by the recipient Chief
Officer, the Board of Directors shall cause a regular meeting of shareholders to
be called and held on notice no later than ninety (90) days after the receipt of
written demand, all at the expense of the Corporation.
Section 3. Special Meetings. Special meetings of the
<PAGE>
shareholders, for any purpose or purposes appropriate for action by
shareholders, may be called by the Chief Executive Officer, the Chief Financial
Officer, or any two or more members of the Board of Directors. Such meeting
shall be held on such date and at such time and place as shall be fixed by the
person or persons calling the meeting and designated in the notice of meeting.
Special meetings may also be called by one or more shareholders holding not less
than ten percent (10%) of the voting power of all shares of the Corporation
entitled to vote by delivering to the Chief Executive Officer or the Chief
Financial Officer a written demand for a special meeting, which demand shall
contain the purposes of the meeting. Within thirty (30) days after the receipt
of a written demand for a special meeting of shareholders by the recipient Chief
Officer, the Board of Directors shall cause a special meeting of shareholders to
be called and held on notice no later than ninety (90) days after the receipt of
such written demand, all at the expense of the Corporation. Business transacted
at any special meeting of shareholders shall be limited to the purpose or
purposes stated in the notice of meeting. Any business transacted at any special
meeting of shareholders that is not included among the stated purposes of such
meeting shall be voidable by or on behalf of the Corporation unless all of the
shareholders have waived notice of the meeting.
Section 4. Notice of Meetings. Except where a meeting of shareholders is
an adjourned meeting and the date, time, and place of such meeting were
announced at the time of adjournment,
<PAGE>
notice of all meetings of shareholders stating the date, time, and place
thereof, and any other information required by law or desired by the Board of
Directors or by such other person or persons calling the meeting, and in the
case of special meetings, the purpose thereof, shall be given to each
shareholder of record entitled to vote at such meeting not less than three (3)
nor more than sixty (60) days prior to the date of such meeting. In the event
that a plan of merger or the sale or other disposition of all or substantially
all of the assets of the Corporation is to be considered at a meeting of
shareholders, notice of such meeting shall be given to every shareholder,
whether or not entitled to vote, not less than fourteen (14) days prior to the
date of such meeting.
Notices of meeting shall be given to each shareholder entitled thereto
by oral communication, by mailing a copy thereof to such shareholder at an
address the shareholder has designated or to the last known address of such
shareholder, by handing a copy thereof to such shareholder, or by any other
delivery that conforms to law. Notice by mail shall be deemed given when
deposited in the United States mail with sufficient postage affixed.
Any shareholder may waive notice of any meeting of shareholders. Waiver
of notice shall be effective whether given before, at, or after the meeting and
whether given orally, in writing, or by attendance. Attendance by a shareholder
at a meeting is a waiver of notice of that meeting, except where the
<PAGE>
shareholder objects at the beginning of the meeting to the transaction of
business because the meeting is not lawfully called or convened and does not
participate thereafter in the meeting, or objects before a vote on an item of
business because the item may not lawfully be considered at that meeting and
does not participate in the consideration of that item at the meeting.
Section 5. Record Date. For the purpose of determining shareholders
entitled to notice of and to vote at any meeting of shareholders or any
adjournment thereof, or shareholders entitled to receive payment of any
dividend, or in order to make a determination of shareholders for any other
proper purpose, the Board of Directors of the Corporation may, but need not, fix
a date as the record date for any such determination of shareholders, which
record date, however, shall in no event be more than sixty (60) days prior to
any such intended action or meeting.
Section 6. Quorum. The holders of a majority of the voting power of all
shares of the Corporation entitled to vote at a meeting shall constitute a
quorum at a meeting of shareholders for the purpose of taking any action other
than adjourning such meeting. If the holders of a majority of the voting power
of all shares are not represented at a meeting, the shareholders present in
person or by proxy shall constitute a quorum for the sole purpose of adjourning
such meeting, and the holders of a majority of the shares so represented may
adjourn the meeting to such date, time, and place as they shall announce at the
time of
<PAGE>
adjournment. Any business may be transacted at the meeting held pursuant to such
an adjournment and at which a quorum shall be represented, which might have been
transacted at the adjourned meeting. If a quorum is present when a duly called
or held meeting is convened, the shareholders present may continue to transact
business until adjournment, even though the withdrawal of a number of
shareholders originally represented leaves less than the number otherwise
required for a quorum.
Section 7. Voting and Proxies. At each meeting of the shareholders every
shareholder shall be entitled to one vote in person or by proxy for each share
of capital stock held by such shareholder, but no appointment of a proxy shall
be valid for any purpose more than eleven (11) months after the date of its
execution, unless a longer period is expressly provided in the appointment.
Every appointment of a proxy shall be in writing (which shall include
telegraphing, cabling, or telephotographic transmission), and shall be filed
with the Secretary of the Corporation before or at the meeting at which the
appointment is to be effective. An appointment of a proxy for shares held
jointly by two or more shareholders shall be valid if signed by any one of them,
unless the Secretary of the Corporation receives from any one of such
shareholders written notice either denying the authority of that person to
appoint a proxy or appointing a different proxy. All questions regarding the
qualification of voters, the validity of appointments of proxies, and the
acceptance or rejection of votes shall be decided by the
<PAGE>
presiding officer of the meeting. The shareholders shall take action by the
affirmative vote of the holders of a majority of the voting power of the shares
present, in person or represented by proxy, and entitled to vote, except where a
different vote is required by law, the Articles of Incorporation, or these
By-Laws.
Section 8. Action Without Meeting by Shareholders. Any action required
or permitted to be taken at a meeting of the shareholders may be taken without a
meeting by written action signed by all of the shareholders entitled to vote on
such action. Such written action shall be effective when signed by all of the
shareholders entitled to vote thereon or at such different effective time as is
provided in the written action.
ARTICLE III
Directors
Section 1. General Powers. The business and affairs of the Corporation
shall be managed by or under the direction of its Board of Directors. The
directors may exercise all such powers and do all such things as may be
exercised or done by the Corporation, subject to the provisions of applicable
law, the Articles of Incorporation, and these By-Laws.
Section 2. Number, Tenure, and Qualification.
(a) The Board of Directors of this Corporation shall consist of four
directors, subject to increase by the Board of Directors or decrease by the
Board of Directors to no fewer than four directors; provided, however, that if
the holders of any
<PAGE>
class or series of Preferred Stock, voting as a separate class or series, have
the right to elect director(s) and such right is in effect, the number of
directors shall be increased by the number of directors that such holders may so
elect and upon termination of such right the number of directors shall be
decreased by the number of directors equal to such previous increase. No
decrease in the number of directors pursuant to this Section shall effect the
removal of any director then in office except upon compliance with the
provisions of these By-Laws and the Articles of Incorporation. Directors shall
be natural persons but need not be shareholders.
(b) The directors (other than those directors who may be elected by the
holders of any class or series of Preferred Stock voting as a separate class or
series) shall be divided into three classes (Class I, Class II and Class III),
with the number of directors in each class as nearly equal as reasonably
possible. The initial terms of office for the Class I, Class II and Class III
directors shall be as follows:
(i) Class I directors shall be elected to serve until the conclusion of
the 1998 Annual Meeting of Shareholders,
(ii) Class II directors shall be elected to serve until the conclusion
of the 1999 Annual Meeting of Shareholders, and
(iii) Class III directors shall be elected to serve until the conclusion
of the 2000 Annual Meeting of Shareholders, and until such directors'
successors shall have been duly elected
<PAGE>
and qualified. Commencing with the 1998 Annual Meeting of Shareholders
and continuing at each annual meeting of shareholders thereafter, a
director (other than those directors who may be elected by the holders
of any class or series of Preferred Stock voting as a separate class or
series) elected to succeed a director whose term has expired shall be
elected to serve until the conclusion of the third succeeding annual
meeting of shareholders from the date of such director's election and
until such director's successor shall have been duly elected and
qualified.
Section 3. Meetings. Meetings of the Board of Directors shall be held
immediately before or after, and at the same place as, regular meetings of
shareholders. Other meetings of the Board of Directors may be held at such times
and places as shall from time to time be determined by the Board of Directors.
Meetings of the Board of Directors also may be called by the Chief Executive
Officer, the Chief Operating Officer in the absence of the Chief Executive
Officer, the Chief Financial Officer in the absence of the Chief Executive
Officer and Chief Operating Officer, or by any director, in which case the
person or persons calling such meeting may fix the date, time, and place
thereof, either within or without the State of Minnesota, and shall cause notice
of meeting to be given.
Section 4. Notice of Meetings. If the date, time, and place of a meeting
of the Board of Directors has been announced at a previous meeting, no notice is
required. In all other cases three
<PAGE>
(3) days' notice of meetings of the Board of Directors, stating the date and
time thereof and any other information required by law or desired by the person
or persons calling such meeting, shall be given to each director. If notice of
meeting is required, and such notice does not state the place of the meeting,
such meeting shall be held at the principal executive office of the Corporation.
Notice of meetings of the Board of Directors shall be given to directors in the
manner provided in these By-Laws for giving notice to shareholders of meetings
of shareholders.
Any director may waive notice of any meeting. A waiver of notice by a
director is effective whether given before, at, or after the meeting, and
whether given orally, in writing, or by attendance. The attendance of a director
at any meeting shall constitute a waiver of notice of such meeting, unless such
director objects at the beginning of the meeting to the transaction of business
on grounds that the meeting is not lawfully called or convened and does not
participate thereafter in the meeting.
Section 5. Quorum and Voting. A majority of the directors currently
holding office shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors. In the absence of a quorum, a majority of the
directors present may adjourn the meeting from time to time until a quorum is
present. If a quorum is present when a duly called or held meeting is convened,
the directors present may continue to
<PAGE>
transact business until adjournment, even though the withdrawal of a number of
directors originally present leaves less than the number otherwise required for
a quorum.
The Board of Directors shall take action by the affirmative vote of a
majority of the directors present at any duly held meeting, except as to any
question upon which any different vote is required by law, the Articles of
Incorporation, or these By-Laws. A director may give advance written consent or
objection to a proposal to be acted upon at a meeting of the Board of Directors.
If the proposal acted on at the meeting is substantially the same or has
substantially the same effect as the proposal to which the director has
consented or objected, such consent or objection shall be counted as a vote for
or against the proposal and shall be recorded in the minutes of the meeting.
Such consent or objection shall not be considered in determining the existence
of a quorum.
Section 6. Vacancies and Newly Created Directorships.
(a) Subject to the rights of the holders of any class or series of
Preferred Stock then outstanding, newly created directorships resulting from any
increase in the number of authorized directors or eliminated directorships
resulting from any decrease in the number of authorized directors shall be
apportioned by the Board of Directors among the Class I, Class II and Class III
directors to keep the number in each such class as nearly equal as reasonably
possible; provided, however, that no increase in the number of authorized
directors shall shorten the
<PAGE>
term or effect the removal of any incumbent director except upon compliance with
the provisions of Sections 7(a) or 7(b) of this Article III and the Articles of
Incorporation. Vacancies on the Board of Directors created by any increase in
the number of authorized directors may be filled by the affirmative vote of a
majority of the directors then holding office. A director so chosen shall hold
office for a term expiring at the next annual meeting of shareholders at which
the term of office of the class of directors to which such director has been
elected and until such director's successor shall have been duly elected and
qualified.
(b) Subject to the rights of the holders of any class or series of
Preferred Stock then outstanding, any vacancies on the Board of Directors
resulting from the death, resignation, retirement, disqualification, removal
pursuant to Sections 7(a) or 7(b) of this Article III and the Articles of
Incorporation, or other cause (other than a vacancy due to an increase in the
number of authorized directors) may be filled by the affirmative vote of a
majority of the directors then holding office, though less than a quorum. A
director so chosen shall hold office for a term expiring at the next annual
meeting of shareholders at which the term of office of such director's
predecessor expires and until such director's successor shall have been duly
elected and qualified.
Section 7. Removal of Directors.
(a) Subject to the rights of the holders of any class or
<PAGE>
series of Preferred Stock then outstanding, the shareholders may remove a
director, at any time, with or without cause, but only if such removal is
approved by the affirmative vote of the holders of at least 80% of the voting
power of all of the then outstanding shares of capital stock of this Corporation
entitled to vote on such removal.
(b) Subject to the rights of the holders of any class or series of
Preferred Stock then outstanding, the Board of Directors of this Corporation, by
the affirmative vote of a majority of the directors then holding office, (i) may
remove a director, at any time, with or without cause, pursuant to the terms and
provisions of Minnesota Statutes, Section 302A.223, subdivision 2 (or similar
provision of future law) or (ii) may remove a director, at any time, but only if
such removal is for cause (as defined below), regardless of whether (a) such
director was appointed by the Board of Directors to fill a vacancy on the Board
of Directors and the shareholders have elected any directors in the interval
between the time of appointment to fill such vacancy an the time of removal or
(b) such director was elected by the shareholders. For purposes of this
subsection (b), "cause" shall mean (1) misconduct as a director of this
Corporation or any subsidiary of this Corporation which involves dishonesty with
respect to a substantial or material corporate activity or corporate assets or
(2) conviction of an offense punishable by one (1) or more years of imprisonment
(other than minor regulatory infractions and traffic violations which do not
<PAGE>
materially and adversely affect this Corporation).
Section 8. Committees. The Board of Directors, by a resolution approved
by the affirmative vote of a majority of the directors then holding office, may
establish one or more committees of one or more persons having the authority of
the Board of Directors in the management of the business of the Corporation to
the extent provided in such resolution. Such committees, however, shall at all
times be subject to the direction and control of the Board of Directors.
Committee members need not be directors and shall be appointed by the
affirmative vote of a majority of the directors present. A majority of the
members of any committee shall constitute a quorum for the transaction of
business at a meeting of any such committee. In other matters of procedure the
provisions of these By-Laws shall apply to committees and the members thereof to
the same extent they apply to the Board of Directors and directors, including,
without limitation, the provisions with respect to meetings and notice thereof,
absent members, written actions, and valid acts. Each committee shall keep
regular minutes of its proceedings and report the same to the Board of
Directors.
Section 9. Action in Writing. Any action required or permitted to be
taken at a meeting of the Board of Directors or of a lawfully constituted
committee thereof may be taken by written action signed by all of the directors
then in office or by all of the members of such committee, as the case may be.
If the action does not require shareholder approval, such action
<PAGE>
shall be effective if signed by the number of directors or members of such
committee that would be required to take the same action at a meeting at which
all directors or committee members were present. If any written action is taken
by less than all directors, all directors shall be notified immediately of its
text and effective date. The failure to provide such notice, however, shall not
invalidate such written action.
Section 10. Meeting by Means of Electronic Communication. Members of the
Board of Directors of the Corporation, or any committee designated by such
Board, may participate in a meeting of such Board or committee by means of
conference telephone or similar means of communication by which all persons
participating in the meeting can simultaneously hear each other, and
participation in a meeting pursuant to this section shall constitute presence in
person at such meeting.
ARTICLE IV
Officers
Section 1. Number and Qualification. The officers of the Corporation
shall be elected by the Board of Directors and shall include a Chief Executive
Officer, Chief Operating Officer, Chief Financial Officer, Secretary and
Treasurer. The Board of Directors may also appoint one or more Vice Presidents
or such other officers and assistant officers as it may deem necessary. Except
as provided in these By-Laws, the Board of Directors shall
<PAGE>
fix the powers, duties, and compensation of all officers. Officers may, but need
not, be directors of the Corporation. Any number of offices may be held by the
same person.
Section 2. Term of Office. An officer shall hold office until the
officer's successor shall have been duly elected, unless prior thereto the
officer shall have resigned or been removed from office as hereinafter provided.
Section 3. Removal and Vacancies. Any officer or agent elected or
appointed by the Board of Directors shall hold office at the pleasure of the
Board of Directors and may be removed, with or without cause, at any time by the
vote of a majority of the Board of Directors. Any vacancy in an office of the
Corporation shall be filled by the Board of Directors.
Section 4. Chief Executive Officer. The Chief Executive Officer shall be
the chief executive of the Corporation, shall preside at all meetings of the
shareholders and, in the absence of the Chairman of the Board, at meetings of
the Board of Directors. The Chief Executive Officer shall exercise such duties
as customarily pertain to the office of Chief Executive Officer and shall have
the general supervision of the several officers of the Corporation. The Chief
Executive Officer shall see that all orders and resolutions of the Board of
Directors are carried into effect and shall have such other powers and perform
such other duties as the Board of Directors may from time to time prescribe.
Section 5. Chief Operating Officer. The Chief Operating
<PAGE>
Officer shall be the President of the Corporation and shall have general and
active supervision over the property, business, and affairs of the Corporation.
The Chief Operating Officer shall have the general powers and duties usually
vested in the offices of the Chief Operating Officer and President and shall
have such other powers and perform such other duties as the Chief Executive
Officer or the Board of Directors may from time to time prescribe.
Section 6. Chief Financial Officer. The Chief Financial Officer shall
have the general and active management of the funds and securities of the
Corporation. The Chief Financial Officer shall from time to time report the
Corporation's financial status and affairs to the Board of Directors. The Chief
Financial Officer shall have such other powers and perform such other duties as
the Chief Executive Officer or the Board of Directors may from time to time
prescribe.
Section 7. Secretary. The Secretary shall attend all meetings of the
Board of Directors and of the shareholders and shall maintain records of, and
whenever necessary, certify all proceedings of the Board of Directors and of the
shareholders. The Secretary shall keep the stock books of the Corporation and,
when so directed by the Board of Directors or other person or persons authorized
to call such meetings, shall give or cause to be given notice of meetings of the
shareholders and of meetings of the Board of Directors. The Secretary shall also
perform such other duties and have such other powers as the Chief Executive
<PAGE>
Officer or the Board of Directors may from time to time prescribe.
Section 8. Treasurer. The Treasurer shall keep full and accurate
financial records for the Corporation and shall disburse the funds of the
Corporation as may be ordered from time to time by the Chief Executive Officer
or the Board of Directors. The Treasurer shall have such other powers and
perform such other duties as the Chief Executive Officer or the Board of
Directors may from time to time prescribe.
Section 8. Vice Presidents. The Vice President, if any, or Vice
Presidents in case there be more than one, shall have such powers and perform
such duties as the Chief Executive Officer or the Board of Directors may from
time to time prescribe.
Section 9. Other Officers. The Assistant Secretaries and Assistant
Treasurers in the order of their seniority, unless otherwise determined by the
Board of Directors, shall, in the absence or disability of the Secretary or
Treasurer, perform the duties and exercise the powers of the Secretary and
Treasurer respectively. Such Assistant Secretaries and Assistant Treasurers
shall have such other powers and perform such other duties as the Chief
Executive Officer or the Board of Directors may from time to time prescribe. Any
other officers appointed by the Board of Directors shall hold office at the
pleasure of the Board of Directors and shall have such powers, perform such
duties, and be responsible to such other officers as the Board of Directors may
from time to time prescribe.
<PAGE>
ARTICLE V
Certificates and Ownership of Shares
Section 1. Certificates. All shares of the Corporation shall be
represented by certificates. Each certificate shall contain on its face (a) the
name of the Corporation, (b) a statement that the Corporation is incorporated
under the laws of the State of Minnesota, (c) the name of the person to whom it
is issued, and (d) the number and class of shares, and the designation of the
series, if any, that the certificate represents. Certificates shall also contain
any other information required by law or desired by the Board of Directors, and
shall be in such form as shall be determined by the Board of Directors. Such
certificates shall be signed by either the Chief Executive Officer, the
Secretary, or the Treasurer. If a certificate is signed (1) by a transfer agent
or an assistant transfer agent or (2) by a transfer clerk acting on behalf of
the Corporation and a registrar, the signature of any such Chief Executive
Officer, Secretary or Treasurer may be a facsimile. If a person signs or has a
facsimile signature placed upon a certificate while an officer, transfer agent,
or registrar of a Corporation, the certificate may be issued by the Corporation,
even if the person has ceased to have that capacity before the certificate is
issued, with the same effect as if the person had that capacity at the date of
its issue. All certificates for shares shall be
<PAGE>
consecutively numbered or otherwise identified. The name and address of the
person to whom the shares represented thereby are issued with the number of
shares and date of issue shall be entered on the stock transfer books of the
Corporation. All certificates surrendered to the Corporation or the transfer
agent for transfer shall be canceled and no new certificate shall be issued
until the former certificate for a like number of shares shall have been
surrendered and canceled, except that in case of a lost, destroyed, or mutilated
certificate, a new one may be issued therefor upon such terms and indemnity to
the Corporation as the Board of Directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of the Corporation
shall be made only on the stock transfer books of the Corporation by the holder
of record thereof or by the holder's legal representative who shall furnish
proper evidence of authority to transfer, or by the holder's attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary of
the Corporation, and on surrender of such shares to the Corporation or the
transfer agent of the Corporation.
Section 3. Ownership. Except as otherwise provided in this Section, the
person in whose name shares stand on the books of the Corporation shall be
deemed by the Corporation to be the owner thereof for all purposes. The Board of
Directors, however, by a resolution approved by the affirmative vote of a
majority of directors then in office, may establish a procedure whereby a
shareholder may certify in writing to the Corporation that all or
<PAGE>
a portion of the shares registered in the name of the shareholder are held for
the account of one or more beneficial owners. Upon receipt by the Corporation of
the writing, the persons specified as beneficial owners, rather than the actual
shareholder, shall be deemed the shareholders for such purposes as are permitted
by the resolution of the Board of Directors and are specified in the writing.
ARTICLE VI
Contracts, Loans, Checks and Deposits
Section 1. Contracts. The Board of Directors may authorize such officers
or agents as they shall designate to enter into contracts or execute and deliver
instruments in the name of and on behalf of the Corporation, and such authority
may be general or confined to specific instances.
Section 2. Loans. The Corporation shall not lend money to, guarantee the
obligation of, become a surety for, or otherwise financially assist any person
unless the transaction, or class of transactions to which the transaction
belongs, has been approved by the affirmative vote of a majority of directors
present, and (a) is in the usual and regular course of business of the
Corporation, (b) is with, or for the benefit of, a related Corporation, an
organization in which the Corporation has a financial interest, an organization
with which the Corporation has a business relationship, or an organization to
which the
<PAGE>
Corporation has the power to make donations, (c) is with, or for the benefit of,
an officer or other employee of the Corporation or a subsidiary, including an
officer or employee who is a director of the Corporation or a subsidiary, and
may reasonably be expected, in the judgment of the Board of Directors, to
benefit the Corporation, or (d) has been approved by the affirmative vote of the
holders of two-thirds of the outstanding shares, including both voting and
nonvoting shares.
Section 3. Checks, Drafts, etc. All checks, drafts or other orders for
the payment of money, notes, or other evidences of indebtedness issued in the
name of the Corporation shall be signed by such officers or agents of the
Corporation as shall be designated and in such manner as shall be determined
from time to time by resolution of the Board of Directors.
Section 4. Deposits. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks or other financial institutions as the Board of Directors may select.
ARTICLE VII
Miscellaneous
Section 1. Dividends. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares in the
manner and upon the terms and conditions provided by law.
<PAGE>
Section 2. Reserves. There may be set aside out of any funds of the
Corporation available for dividends such sum or sums as the directors from time
to time, in their absolute discretion, deem proper as a reserve or reserves to
meet contingencies, or for equalizing dividends, or for repairing or maintaining
any property of the Corporation, or for the purchase of additional property, or
for such other purpose as the directors shall deem to be consistent with the
interests of the Corporation, and the directors may modify or abolish any such
reserve.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be
established according to a four-week, four-week, five-week (4-4-5) quarterly
accounting cycle with the fiscal year ending on the Friday closest to June 30
and the fiscal quarters ending on the Friday closest to the last day of the
respective month.
Section 4. Amendments.
(a) Except as limited by Minnesota Statutes Section 302A.181, subd. 2
(or similar provision of future law), the Articles of Incorporation or Section
4(b) of this Article VII, these By-Laws may be amended, added to, altered,
changed or repealed by the Board of Directors at any meeting of directors to the
full extent permitted by law, subject however to the power of the shareholders
of this Corporation to amend, add to, alter, change or repeal such By-Laws.
(b) No amendment, addition, change or repeal of Sections 2, 6 or 7 of
Article III of these By-Laws, after which this
<PAGE>
Corporation is to continue in existence, shall be made unless such amendment,
addition, alteration, change or repeal is approved by the affirmative vote of
the holders of at least 80% of the voting power of all of the then outstanding
shares of capital stock entitled to vote on such amendment, addition,
alteration, change or repeal.
The undersigned, Chief Executive Officer of Chronimed Inc., a Minnesota
Corporation, does hereby certify that the foregoing By-Laws are the By-Laws
adopted for the Corporation by its Board of Directors by unanimous action in
writing dated the 4th day of March, 1998.
- --------------------------------
Maurice R. Taylor II,
Chief Executive Officer
EXHIBIT 11.1
CHRONIMED INC.
COMPUTATION OF EARNINGS PER SHARE
See Note E of Notes to Consolidated Financial Statements for Chronimed Inc. for
periods ended March 27, 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-03-1998
<PERIOD-START> DEC-27-1997
<PERIOD-END> MAR-27-1998
<CASH> 1,595,000
<SECURITIES> 13,359,000
<RECEIVABLES> 21,231,000
<ALLOWANCES> 1,069,000
<INVENTORY> 9,720,000
<CURRENT-ASSETS> 521,000
<PP&E> 18,072,000
<DEPRECIATION> 7,328,000
<TOTAL-ASSETS> 68,890,000
<CURRENT-LIABILITIES> 8,859,000
<BONDS> 0
0
0
<COMMON> 120,000
<OTHER-SE> 59,234,000
<TOTAL-LIABILITY-AND-EQUITY> 68,890,000
<SALES> 33,699,000
<TOTAL-REVENUES> 33,699,000
<CGS> 24,395,000
<TOTAL-COSTS> 31,455,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 160,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,438,000
<INCOME-TAX> 963,000
<INCOME-CONTINUING> 1,475,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,475,000
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> JUN-27-1997 JUN-28-1996
<PERIOD-START> JUN-29-1996 JUL-01-1995
<PERIOD-END> JUN-27-1997 JUN-28-1996
<CASH> 5,038,000 11,434,000
<SECURITIES> 10,274,000 12,803,000
<RECEIVABLES> 20,372,000 20,751,000
<ALLOWANCES> 1,120,000 860,000
<INVENTORY> 7,858,000 5,476,000
<CURRENT-ASSETS> 45,075,000 50,657,000
<PP&E> 12,916,000 8,542,000
<DEPRECIATION> 5,466,000 3,097,000
<TOTAL-ASSETS> 65,291,000 67,908,000
<CURRENT-LIABILITIES> 11,254,000 10,396,000
<BONDS> 0 0
0 0
0 0
<COMMON> 118,000 125,000
<OTHER-SE> 53,242,000 57,038,000
<TOTAL-LIABILITY-AND-EQUITY> 65,291,000 67,908,000
<SALES> 117,171,000 90,512,000
<TOTAL-REVENUES> 117,171,000 90,512,000
<CGS> 82,829,000 65,152,000
<TOTAL-COSTS> 108,295,000 83,538,000
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 1,873,000 1,099,000
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 11,374,000 8,301,000
<INCOME-TAX> 4,330,000 2,842,000
<INCOME-CONTINUING> 7,044,000 5,459,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 7,044,000 5,459,000
<EPS-PRIMARY> 0.59 0.45
<EPS-DILUTED> 0.56 0.42
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-03-1998
<PERIOD-START> JUN-28-1997
<PERIOD-END> SEP-26-1997
<CASH> 8,849,000
<SECURITIES> 10,032,000
<RECEIVABLES> 18,728,000
<ALLOWANCES> 1,100,000
<INVENTORY> 7,761,000
<CURRENT-ASSETS> 45,640,000
<PP&E> 14,153,000
<DEPRECIATION> 5,993,000
<TOTAL-ASSETS> 66,072,000
<CURRENT-LIABILITIES> 9,869,000
<BONDS> 0
0
0
<COMMON> 119,000
<OTHER-SE> 55,407,000
<TOTAL-LIABILITY-AND-EQUITY> 66,072,000
<SALES> 31,673,000
<TOTAL-REVENUES> 31,673,000
<CGS> 22,991,000
<TOTAL-COSTS> 29,408,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 249,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,616,000
<INCOME-TAX> 1,020,000
<INCOME-CONTINUING> 1,596,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,596,000
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> JUN-27-1997 JUN-27-1997 JUN-27-1997
<PERIOD-START> JUN-29-1996 SEP-28-1996 DEC-30-1996
<PERIOD-END> SEP-27-1996 DEC-29-1996 MAR-28-1997
<CASH> 3,890,000 563,000 5,333,000
<SECURITIES> 7,219,000 1,418,000 6,457,000
<RECEIVABLES> 22,695,000 23,331,000 19,893,000
<ALLOWANCES> 990,000 890,000 960,000
<INVENTORY> 13,626,000 16,117,000 8,312,000
<CURRENT-ASSETS> 47,622,000 41,898,000 40,029,000
<PP&E> 9,528,000 10,678,000 11,412,000
<DEPRECIATION> 3,732,000 4,281,000 4,899,000
<TOTAL-ASSETS> 74,122,000 64,614,000 58,078,000
<CURRENT-LIABILITIES> 16,596,000 16,292,000 9,576,000
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 125,000 118,000 117,000
<OTHER-SE> 57,401,000 48,204,000 48,385,000
<TOTAL-LIABILITY-AND-EQUITY> 74,122,000 64,614,000 58,078,000
<SALES> 28,506,000 31,332,000 27,098,000
<TOTAL-REVENUES> 28,506,000 31,332,000 27,098,000
<CGS> 20,757,000 22,634,000 18,186,000
<TOTAL-COSTS> 20,757,000 28,682,000 25,360,000
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 369,000 419,000 454,000
<INTEREST-EXPENSE> 0 0 0
<INCOME-PRETAX> 1,955,000 2,841,000 1,874,000
<INCOME-TAX> 708,000 1,078,000 711,000
<INCOME-CONTINUING> 1,247,000 1,763,000 1,163,000
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 1,247,000 1,763,000 1,163,000
<EPS-PRIMARY> 0.10 0.15 0.10
<EPS-DILUTED> 0.09 0.14 0.10
</TABLE>
