SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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Date of Report (Date of earliest event reported): May 5, 2000
MEDIQ/PRN Life Support Services, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 1-11286 95-3692387
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(State of other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
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One MEDIQ Plaza
Pennsauken, New Jersey 08110
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (856) 662-3200
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Not Applicable
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(Former name or former address, if changed since last report)
Exhibit Index on page 4
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Item 5. Other Events.
See our statement, dated May 5, 2000, which is filed as Exhibit 5.1
hereto and incorporated by reference herein.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits.
5.1 Statement of MEDIQ/PRN Life Support Services, Inc., dated as of
May 5, 2000.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
MEDIQ/PRN LIFE SUPPORT SERVICES, INC.
By: /s/ Kenneth Kreider
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Name: Kenneth Kreider
Title: Chief Financial Officer
Dated: May 5, 2000
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EXHIBIT INDEX
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Exhibit No. Document Page
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<S> <C> <C>
5.1 Statement of MEDIQ/PRN Life Support Services, Inc., dated 5
as of May 5, 2000
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Statement of MEDIQ/PRN Life Support Services, dated May 5, 2000
Delay in Completing Audit for Fiscal 1999 and Filing of Annual Report for Fiscal
1999 and Quarterly Report for First Quarter of Fiscal 2000
On January 13, 2000, we reported on Form 8-K (the "January 8K") that as a result
of unforeseen delays in the collection and review of information and documents
necessary to complete our year-end audit for the fiscal year ending on September
30, 1999, we were unable to file our annual report on Form 10-K on a timely
basis. We encountered such delays when our outside auditors informed our Audit
Committee that they were concerned with our treatment of certain items and
whether they had received all material information pertinent to the 1999 audit.
On February 15, 2000, we further reported on Form 8-K (the "February 8K") that
as a result of delays in completing our September 30, 1999 financial statements,
we were unable to file our quarterly report for the first quarter of fiscal
2000. As reported in the February 8K, our ability to file our annual and
quarterly reports and to restate our financial statements for earlier periods to
the extent necessary depends upon our ability to (1) complete an independent
investigation into the accounting issues described below and identify
appropriate remedial action to the satisfaction of our Audit Committee, (2)
finalize our September 30, 1999 financial statements and (3) obtain the report
of our outside auditors as to such financial statements.
The purpose of this filing is to report that we have completed the independent
investigation described in clause (1) above, and we expect to complete the items
described in clauses (2) and (3) above and be in a position to file our annual
and quarterly reports in the near future.
Audit Committee Investigation, Report & Response
As reported in the January 8K and the February 8K, our Audit Committee retained
a nationally recognized law firm to interview (with assistance from an
independent, nationally recognized accounting firm) members of our management
team and accounting staff in order to (1) gather background information on the
accounting issues for use in giving legal advice to the Audit Committee, (2)
determine, based on the interviews, whether all material information pertinent
to completion of the 1999 audit was being provided to our outside auditors, and
(3) determine what remedial actions, if any, we need to take concerning the
accounting issues. After oral presentation of the findings of such interviews,
our outside auditors requested that the Audit Committee's special counsel (with
further assistance from the independent accounting firm) perform a second phase
of the investigation in order to (1) gather additional information relating to
our financial and accounting processes and certain unrecorded customer credits,
(2) provide auditable evidence with respect to our accounts receivable for
certain periods, (3) determine whether or not it is likely that illegal acts
were committed with respect to our financial reporting and if so, further
determine the identity of the responsible individual(s) and any remedial action
to be taken by the Company, and (4) identify and investigate additional areas of
concern arising as a result of the independent investigation.
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The Audit Committee's special counsel delivered its report (the "Report") to the
Audit Committee on February 22, 2000, and presented its findings to the Audit
Committee on February 23, 2000. For the purpose of completing the audit, our
outside auditors requested access to the Report and we made the Report available
for their review shortly thereafter. On March 17, 2000, the Audit Committee and
the investigative team met with the outside auditors to answer questions about
the Report.
The Report provides all of the information described in the preceding paragraph
to the satisfaction of our Audit Committee and, we believe, to our auditors.
In addition, the Report's findings indicate that the investigative team was
unable to conclude that it was likely that illegal conduct occurred.
Notwithstanding that finding, the Audit Committee decided to institute certain
remedial measures discussed in the Report to improve our internal controls and
financial reporting environment in order to prevent any repetition of the
circumstances which prompted this inquiry.
Based on the Report's findings, we expect to restate our financial statements
for each quarter of fiscal 1999. These adjustments to prior quarters result from
the Company's adoption of a new method for determining the reserves for doubtful
accounts, a change in the Company's policy regarding the capitalization of
accessories for its medical equipment and a reevaluation by the Company of its
reserves for excess and obsolete inventories. We do not, however, expect to
restate our financial statements for any period prior to fiscal 1999. In
addition, the Audit Committee is implementing (and in some instances has already
implemented) many of the remedial measures discussed in the Report.
Specifically, (1) in early March we terminated the employment of our CFO and
elected Mr. Kenneth Kreider to serve as his replacement, (2) we engaged a
business consulting group to analyze and make recommendations for improving our
billing and collection functions, (3) we changed our reporting structure so that
our new CFO will report directly to our Board of Directors through the Audit
Committee chairman, at least for the foreseeable future, (4) we adopted a new
methodology for calculating our doubtful accounts reserves, which will be
reflected in all internal and external financial reports and projections (unless
otherwise specifically approved by the Audit Committee), (5) we created (and are
searching to fill) the positions of Vice President of Internal Audit (to oversee
the internal audit of branch operations, headquarters and our finance group and
to establish a business ethics program) and Chief Operating Officer, and (6) we
appointed Mr. John F. McNamara to serve as our new Chairman of the Board to
oversee the management of the Company. As described in our press release dated
March 16, 2000, Mr. McNamara has substantial experience in the pharmaceutical
distribution and healthcare industries and is the current Chairman of the Board
of ImpactHealth.com, a full service e-commerce company in the developing area of
Internet care-space.
Now that the independent investigation is complete and the Report has been
accepted by our Audit Committee and reviewed with our outside auditors, we
expect to (1) finalize our year-end and restated financial statements for
earlier periods to the extent necessary, (2) have our outside auditors complete
the 1999 audit expediently and issue their report as to our financial
statements, and (3) file our annual and quarterly reports in the near future.
There can be no assurances, however, that our outside auditors will complete
their audit and issue their report.
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Effect on Debt Instruments; Effect on Liquidity and Operations
Our failure to deliver audited year-end financial statements and unaudited
financial statements for the first fiscal quarter of fiscal 2000 constitutes an
event of default under our senior credit facility with a syndicate of banks led
by Banque Nationale de Paris. The credit facility allows the banks to accelerate
all amounts outstanding under the facility as a result of such event of default.
Although the banks have not yet exercised that right, there can be no assurances
that they will not do so in the future. In addition, as a result of such event
of default we are now paying interest on our senior indebtedness at a default
rate of 2% per annum in addition to the applicable rate under the credit
facility (which applicable rate is, as a result of the defaults described above,
.25% per annum higher than it was prior to the defaults). Based on our current
estimate of the extent of the potential restatement of our financial results, we
believe such restated financial results will give rise to additional events of
default including the failure to comply with our financial covenants. As
reported in the January 8K and the February 8K, until a formal agreement
relating to those defaults and potential defaults is reached with the banks, we
are unable to access our senior credit facility and must fund our working
capital needs through other sources of cash. Although to date we have had
adequate funds from working capital and operating activities to fund our
operations (including capital expenditures and our March 2000 payment on our
senior credit facility), our current cashflow forecast indicates additional
sources of cash will be required to meet our future working capital needs and
primarily for the funding of our June 2000 payments on both our senior credit
facility and our 11% Senior Subordinated Notes. The aggregate amount of such
payments will be approximately $22 million. We are currently investigating
alternative sources of liquidity sufficient to satisfy our working capital
needs.
While recent events have not given rise to any events of default under the
indentures governing our outstanding 11% Senior Subordinated Notes Due 2008 and
13% Senior Discount Debentures Due 2009, our failure to file our annual and
quarterly reports on time constitutes a default of certain covenants requiring
us to promptly file reports with the SEC and provide copies of such filings to
the trustees and the holders of the bonds. Upon our receipt of notice from the
trustees, or holders of at least 25% of the outstanding bonds, that we are in
default of such covenants, we will have 30 days to file our annual and quarterly
reports and cure the default. Our failure to cure the default within such 30 day
period would give rise to an event of default under the indentures. There would
be additional events of default under the indentures if the banks ultimately
decide to accelerate the indebtedness outstanding under the senior credit
facility and such acceleration is not rescinded within 10 days. If events of
default exist under the indentures, the trustees or the holders of at least 25%
of the outstanding bonds, in each case subject to certain rights of our senior
lenders, will be entitled to accelerate the payment of all principal and
interest outstanding under the bonds. To date we have not received a notice of
default with respect to either indenture.
This filing contains forward-looking statements which are made pursuant to the
safe harbor provisions of the Securities Litigation Reform Act of 1995, each of
which involves risks and uncertainties that may affect our business and
prospects. Such forward-looking statements include, without limitation, our
ability to file our annual report within the time frame discussed above, our
estimates as to the actual effects that the accounting issues discussed above
may have on our
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financial results and our beliefs as to our liquidity. Investors should consult
the Corporation's ongoing interim and quarterly filings and annual reports for
additional information on risks and uncertainties relating to forward-looking
statements. Investors are cautioned not to rely on these forward-looking
statements. We do not undertake to update these forward-looking statements.
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