SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): February 28, 2002
CURATIVE HEALTH SERVICES, INC.
(Exact name of registrant as specified in its charter)
Minnesota 000-19370 41-1503914
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
150 Motor Parkway Hauppauge, New York 11788
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (631) 232-7000
5051 Highway 7, Ste. 100, St. Louis Park, MN 55416
(Former name or former address, if changed since last report.)
This amendment is being filed to revise Item 7 in the Registrant's current
report on Form 8-K filed March 11, 2002, to include the historical and pro
forma financial information required by paragraphs (a) and (b) of Item 7
which were omitted from the report as initially filed in accordance with
paragraph (a)(4) of Item 7.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
(1) The report of independent auditors, audited balance sheets, related
audited statements of income and retained earnings and cash
flows of Apex Therapeutic Care, Inc. as of and for the years ended
September 30, 2001 and 2000.
(2) The report of independent auditors, audited balance sheets, related
audited statements of income and retained earnings and cash
flows of Apex Therapeutic Care, Inc. as of and for the years ended
September 30, 2000 and 1999.
(3) The unaudited condensed statements of operations, unaudited
condensed balance sheets and unaudited condensed statements of cash
flows as of and for the quarters ended December 31, 2001 and 2000.
(b) Pro Forma Financial Information
The unaudited pro forma consolidated balance sheet and statement of
operations of Curative Health Services, Inc. and Subsidiaries as of
and for the year ended December 31, 2001.
(c) Exhibits
23.1 Consent of Martini, Iosue & Akpovi
APEX THERAPEUTIC CARE, INC.
FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED
SEPTEMBER 30, 2001 AND 2000
TABLE OF CONTENTS
Independent Auditors' Report
Balance Sheets
Statements of Income and Retained Earnings
Statements of Cash Flows
Notes to Financial Statements
3
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Apex Therapeutic Care, Inc.
Westlake Village, California
We have audited the accompanying balance sheets of Apex Therapeutic Care, Inc.
as of September 30, 2001 and 2000 and the related statements of income and
retained earnings and cash flows for the years then ended. These financial
statements are the responsibility of Apex Therapeutic Care, Inc.'s management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Apex Therapeutic Care, Inc. as
of September 30, 2001 and 2000 and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ Martini, Iosue & Akpovi
Encino, California
November 30, 2001
4
APEX THERAPEUTIC CARE, INC.
BALANCE SHEETS
SEPTEMBER 30, 2001 AND 2000
2001 2000
-------------------------
ASSETS
CURRENT ASSETS
Cash $ 757,244 $ 54,080
Accounts receivable (net of allowance for
doubtful accounts of $567,490 and $543,828) 11,794,313 11,073,189
Inventory 3,804,779 1,884,478
Other current assets 69,677 82,817
---------- ----------
TOTAL CURRENT ASSETS 16,426,013 13,094,564
---------- ----------
PROPERTY AND EQUIPMENT, NET 230,836 237,716
---------- ----------
OTHER ASSETS
Deposits 22,933 22,267
Deferred tax assets, net 581,342 377,864
Due from related party 39,638 -0-
Other assets, net 37,888 77,476
---------- ----------
TOTAL OTHER ASSETS 681,801 477,607
---------- ----------
TOTAL ASSETS $17,338,650 $ 13,809,887
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 6,122,670 $ 4,542,717
Income taxes payable 108,883 184,584
Current portion of notes payable 8,630 14,763
Due to related party -0- 32,454
Note payable - related party -0- 925,922
Dividends payable 500,000 -0-
---------- ----------
TOTAL CURRENT LIABILITIES 6,740,183 5,700,440
---------- ----------
LONG-TERM LIABILITIES
Deferred compensation 151,311 80,937
Line of credit -0- 1,499,456
Notes payable 52,282 89,268
---------- ----------
TOTAL LONG-TERM LIABILITIES 203,593 1,669,661
---------- ----------
TOTAL LIABILITIES 6,943,776 7,370,101
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, stated value, authorized 1,000,000
shares issued and outstanding 100,000 shares 210,000 210,000
Common stock - restricted, issued and outstanding
20,000 shares 395,626 56,518
Retained earnings 9,789,248 6,173,268
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 10,394,874 6,439,786
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $17,338,650 $13,809,887
========== ==========
The accompanying notes are an integral part of these financial statements.
5
APEX THERAPEUTIC CARE, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED SEPTEMBER 30, 2001 AND 2000
2001 2000
-----------------------------
NET SALES $54,536,664 $45,339,312
COST OF SALES 37,821,316 32,451,828
---------- ----------
GROSS PROFIT 16,715,348 12,887,484
OPERATING EXPENSES 9,558,269 8,552,586
---------- ----------
INCOME FROM OPERATIONS 7,157,079 4,334,898
---------- ----------
OTHER INCOME (EXPENSES)
Miscellaneous income 8,509 -0-
Interest income 3,030 -0-
Loss on disposal of assets (3,780) (19,263)
Miscellaneous expense -0- (23,987)
Interest expense (274,650) (583,346)
----------- ----------
NET OTHER EXPENSES (266,891) (626,596)
----------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES 6,890,188 3,708,302
PROVISION FOR INCOME TAXES 2,774,208 1,445,516
----------- ----------
NET INCOME 4,115,980 2,262,786
RETAINED EARNINGS
Beginning of year 6,173,268 3,910,482
Dividends (500,000) -0-
----------- -----------
End of year $ 9,789,248 $ 6,173,268
=========== ===========
The accompanying notes are an integral part of these financial statements.
6
APEX THERAPEUTIC CARE, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 2001 AND 2000
2001 2000
--------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $4,115,980 $2,262,786
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for bad debts 23,662 395,000
Amortization and depreciation 119,587 108,160
Loss on disposal of assets 3,780 19,263
Deferred income tax benefit (203,478) (321,542)
Deferred compensation 70,374 184,968
Stock-based compensation 339,108 56,518
(Increase) decrease in assets:
Accounts receivable (744,786) 868,672
Inventory (1,920,301) (584,722)
Deposits (666) 1,075
Due from related party (39,638) -0-
Other assets, net 13,789 (62,336)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 1,579,953 (221,145)
Income taxes payable (75,701) (1,612,207)
Due to related party (32,454) -0-
----------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,249,209 1,094,490
----------- ----------
CASH USED BY INVESTING ACTIVITIES
Purchase of property and equipment (77,548) (163,895)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on note payable to related
party (925,922) (701,323)
Net increase (decrease) in line of credit (1,499,456) (415,028)
Principal payments on notes payable (43,119) -0-
Proceeds from sale of common stock -0- 200,000
----------- ----------
NET CASH USED BY FINANCING ACTIVITIES (2,468,497) (916,351)
----------- ----------
NET INCREASE IN CASH 703,164 14,244
CASH, BEGINNING OF YEAR 54,080 39,836
----------- ----------
CASH, END OF YEAR $ 757,244 $ 54,080
========== =========
The accompanying notes are an integral part of these financial statements.
7
APEX THERAPEUTIC CARE, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2001 AND 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Apex Therapeutic Care, Inc. (the "Company") is a wholesale distributor of
pharmaceutical products consisting primarily of antihemophilic factors and
other plasma derived therapeutic agents. The Company's sales are made to
pharmacies located in various states throughout the continental United
States.
Accounts Receivable
The allowance for doubtful accounts is based on management's evaluation of
outstanding accounts receivable at the end of the year given their prior
experience with third party insurance company receivables. Bad debt expense
for the years ended September 30, 2001 and 2000 was $345,455 and $817,564,
respectively.
Inventory
Inventory is stated at the lower of average cost (which approximates first
in, first out) or market. Inventory consists of finished goods.
Property and Equipment
Property and equipment are recorded at lower of cost or net realizable value.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets, which range from five to seven years.
Leasehold improvements are amortized over the shorter of the lease term or
the estimated useful life of the asset. Maintenance and repairs are charged
to expense as incurred.
Other Assets, Net
Other assets consist principally of deferred financing fees, organizational
costs and security deposits. The deferred financing fees are amortized
straight-line over the term of the financing facility. The organizational
costs are amortized straight-line over ten years. Accumulated amortization
for the deferred financing fees was $80,252 and $41,730 and accumulated
amortization for organizational costs was $1,457 and $1,041 at September 30,
2001 and 2000, respectively.
8
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amount
of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using the enacted rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results
could differ from those estimates.
Concentration of Credit Risk
As of September 30, 2001, the Company had an account with a bank which
exceeded the $100,000 federally insured limit.
Reclassifications
Certain income statement accounts reported on the financial statements for
September 30, 2000 have been reclassified to conform to the financial
statement reclassifications for September 30, 2001.
9
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at September 30:
2001 2000
----------- -----------
Computer hardware and software $174,139 $114,539
Office furniture and equipment 127,801 124,484
Leasehold improvements 54,306 52,606
Warehouse equipment 23,779 20,479
Convention equipment 5,893 1,785
--------- ---------
385,918 313,893
Less: Accumulated depreciation (155,082) (76,177)
--------- ---------
Property and equipment, net $230,836 $237,716
======= =======
NOTE 3 - LINE OF CREDIT
In August 1999, the Company entered into a credit facility with a lender that
permits the Company to borrow up to 80% of its eligible receivables. The credit
facility has a maximum borrowing limit of $6,500,000 and expires August 15,
2002. Interest on advances under the terms of this credit facility accrues at a
per annum rate of one percent (1%) in excess of the rate of interest announced
publicly by Citibank, N.A., from time to time as its "prime rate" (6.0% and 9.5%
at September 30, 2001 and 2000, respectively) and is payable monthly. The
Company must pay a quarterly fee equal to one-half of one percent (0.5%) on the
unused portion of the facility. Amounts owed to the bank under this credit
facility are secured by all assets of the Company. The balance outstanding at
September 30, 2001 and 2000, was $0 and $1,499,456, respectively.
NOTE 4 - STOCKHOLDERS' EQUITY
In November 1999, the Company sold 2,000 shares of common stock to an officer of
the Company for $200,000. Subsequently, the Board of Directors amended and
restated the Company's articles of incorporation to effect a ten-for-one split
of the Company's outstanding common stock. The split of the Company's stock was
effected in the form of a stock dividend. Pursuant to the amendment, the Company
is authorized to issue 1,000,000 shares of its common stock of which 100,000
shares were issued and outstanding as of September 30, 2001 and 2000.
10
NOTE 5 - STOCK APPRECIATION RIGHTS
In October 1999, the Company adopted a non-qualified Stock Appreciation Rights
Plan (SAR Plan), whereby selected key employees are granted performance unit
rights (SAR Units) which are rights to receive an amount based on the
appreciated value of the Company's common stock over an established base price.
SAR Units begin vesting on the date of grant and vest at 20% per year for five
years. The maximum number of SAR Units that may be granted under the plan is
10,000. The maximum term of the plan is ten years. On October 1, 1999, the
Company issued 6,750 SAR Units at a weighted average-base price of $0.125 per
unit. The date of grant for these units was deemed by the Company's Board of
Directors to be April 1, 1998.
During the year ended September 30, 2001, 250 SAR Units were exercised. Upon the
exercise of the SAR Units, the appreciated value was determined and paid to the
employee.
During the year ended September 30, 2000, 2,250 SAR Units were exercised. Upon
the exercise of the SAR Units, the appreciated value was determined and the
amounts were converted into Notes Payable with a term of 84 months. The notes
are subordinate to any amounts due under the Company's Line of Credit Agreement
and bear interest at 9% per annum.
The principal portion of these notes matures as follows during the years ending
September 30:
2002 $ 8,630
2003 9,439
2004 10,325
2005 11,293
2006 12,353
Thereafter 8,872
------
$60,912
During the year ended September 2000, an employee forfeited rights to 3,500 SAR
Units.
Outstanding SAR Units at September 30, 2001 and 2000 were 750 and 1,000,
respectively. Deferred compensation expense related to the outstanding units
during the years ended September 30, 2001 and 2000 were $70,374 and $184,968,
respectively.
11
NOTE 6 - PROVISION FOR INCOME TAXES
The provision (benefit) for income taxes for the years ended September 30, 2001
and 2000 consists of the following:
2001 2000
----------------------------
Current $2,977,686 $1,767,058
Deferred (203,478) (321,542)
---------- ----------
$2,774,208 $1,445,516
========= =========
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities at September 30, 2001 and 2000 are
presented below:
Deferred tax assets:
2001 2000
----------------------------
Accounts receivable principally due
to allowance for doubtful accounts $243,113 $232,976
Inventory 10,359 6,075
Accrued stockholder bonus -0- 32,130
Accrued commissions 86,712 31,172
Accrued vacation 23,235 185
Deferred compensation 64,822 64,416
Stock-based compensation 169,486 24,212
------- --------
Total deferred tax assets 597,727 391,166
Deferred tax liabilities -
property and equipment, principally due
to differences in depreciation (16,385) (13,302)
-------- -------
Deferred tax assets, net $581,342 $377,864
12
NOTE 6 - PROVISION FOR INCOME TAXES (continued)
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversals of deferred tax liabilities, projected future taxable
income, and tax planning strategies in making this assessment. Based upon the
level of historical taxable income and projections for future taxable income
over the periods which the deferred tax assets are deductible, management
believes it is more likely than not the Company will realize the benefits of
these deductible differences. Accordingly, no valuation allowance has been
recorded at September 30, 2001 and 2000.
NOTE 7 - RELATED PARTY TRANSACTIONS
Two stockholders who own a combined 50% of the outstanding stock of the Company
(including restricted stock) also own 100% of the outstanding stock of ActSys
Medical, Inc. The Company has obtained direct financing from this related entity
to finance its growth. The Company also sells pharmaceutical products to this
entity, purchases pharmaceutical products from this entity and shares certain
corporate expenses including wages and insurance.
In November 1999, the Company converted the amount due to this related entity
into a term loan agreement that required monthly payments of $76,701 through
November 2001. In August 2000, the term loan was converted into a new loan to
expedite the payment terms. This loan required monthly payments of $119,901 and
was paid off during the year ended September 30, 2001.
During the year ended September 30, 2001, the Company also sold pharmaceutical
products to another entity related through common ownership and management. The
Company also subleases office space to this related entity.
13
NOTE 7 - RELATED PARTY TRANSACTIONS (continued)
The following table summarizes the transactions between the Company and these
related entities and the outstanding amounts due to and from these entities at
September 2001 and 2000:
2001 2000
-----------------------------
For the years ended September 30:
Sales $6,640,958 $6,643,586
Rental income $ 7,164 $ -0-
Purchases $1,152,324 $1,227,096
Management fees paid, net $ 137,752 $ 249,156
Interest expense $ 33,289 $ 133,547
As of September 30:
Accounts receivable $ 204,385 $ -0-
Due from related party $ 39,638 $ -0-
Accounts payable $ 45,978 $ -0-
Due to related party $ -0- $ 32,454
Note payable - related party $ -0- $ 925,922
NOTE 8 - EMPLOYEE BENEFIT PLAN
The Company adopted a 401(k) plan on January 1, 2001. All employees of the
Company are eligible to participate in a qualified 401(k) Plan. In general,
employees may contribute up to 15% of their eligible compensation to the Plan.
The Company makes discretionary matching contributions which are determined
annually. The Company's contribution to the Plan during the year ended September
30, 2001 was $55,097.
14
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases office and warehouse facilities under noncancelable
operating leases which expire over the next year. These leases generally
contain renewal options for periods ranging from one to three years.
The Company subleases a portion of its facilities to an entity related
through common ownership and management. This sublease is $597 per month and
is subleased on a month-to-month basis.
Future minimum lease payments are $92,268 for the year ending September 30,
2002.
Rental expense for noncancelable operating leases during the fiscal years
ended September 30, 2001 and 2000 was $104,548 and $104,330, respectively.
Employment Agreement/Restricted Stock
On August 1, 2000, the Company executed an employment agreement with one of
its officers. The agreement calls for a minimum salary of $100,000 per year
through the expiration of the agreement on July 31, 2005. Additionally, on
August 1, 2000, the Company issued 20,000 shares of its restricted common
stock to the officer as an inducement for the officer to enter into and
perform under the terms of the employment agreement.
The value of the 20,000 shares of restricted common stock issued on August 1,
2000 was determined to be $1,695,549. The value of the stock will be
recognized as compensation ratably over the term of the employment agreement.
Accordingly, the Company recognized compensation and restricted common stock
of $339,108 and $56,518 for the years ended September 30, 2001 and 2000,
respectively.
Financial Guarantee
The Company has a continuing guarantee of a $4,000,000 credit facility of a
related entity. It is reasonably possible that the Company would be required
to make payments under its guarantee. The Company monitors the financial
performance of this entity on a monthly basis. No amount has been accrued for
the Company's obligations under its guarantee arrangement.
15
NOTE 10 - BUSINESS AND CREDIT CONCENTRATIONS
The Company's operations may be adversely impacted by future federal and state
healthcare budget cuts, as a significant portion of the Company's revenue is
dependent on certain governmental healthcare programs.
The Company estimates an allowance for doubtful accounts based on the credit
worthiness of its customers as well as general economic conditions.
Consequently, an adverse change in those factors may affect the Company's
estimate of its bad debts.
At September 30, 2001, $11,365,265 or 90% of the Company's total accounts
receivable were due from five customers. Revenues from sales to these customers
were approximately 94% of the Company's net sales for the year ended September
30, 2001.
At September 30, 2000, $5,141,914 or 44% of the Company's total trade accounts
receivable were due from one customer. Revenues from sales to this customer were
approximately 31% of the Company's net sales for the year ended September 30,
2000.
Two of the Company's suppliers accounted for approximately 68% of total
purchases during the year ended September 30, 2001.
Three of the Company's suppliers accounted for approximately 73% of total
purchases during the year ended September 30, 2000.
NOTE 11 - DISCLOSURE FOR THE STATEMENT OF CASH FLOWS
Additional Disclosures
Cash paid during the years ended September 30, 2001 and 2000 for:
2001 2000
------------ ------------
Income taxes $3,053,672 $3,396,745
========= =========
Interest $ 274,650 $ 583,346
========= =========
16
NOTE 11 - DISCLOSURE FOR THE STATEMENT OF CASH FLOWS (continued)
Non Cash Investing and Financing Transactions
During the year ended September 30, 2001, the Company's Board of Directors
declared dividends of $500,000 to be accrued and distributed according to the
stockholders' ownership percentages. The accrued dividends increased
dividends payable and decreased retained earnings.
During the year ended September 30, 2000, the Company received property and
equipment at a net book value of $26,891 from a related entity and increased
the amount due to this entity for the same amount.
During the year ended September 30, 2000, the Company converted $1,670,525 of
the amount due to a related entity to a note payable.
17
APEX THERAPEUTIC CARE, INC.
FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED
SEPTEMBER 30, 2000 AND 1999
TABLE OF CONTENTS
Independent Auditors' Report
Balance Sheets
Statements of Income and Retained Earnings
Statements of Cash Flows
Notes to Financial Statements
18
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Apex Therapeutic Care, Inc.
Westlake Village, California
We have audited the accompanying balance sheets of Apex Therapeutic Care, Inc.
as of September 30, 2000 and 1999 and the related statements of income and
retained earnings and cash flows for the years then ended. These financial
statements are the responsibility of Apex Therapeutic Care, Inc.'s management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Apex Therapeutic Care, Inc. as
of September 30, 2000 and 1999 and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ Martini, Iosue & Akpovi
Encino, California
November 2, 2000
19
APEX THERAPEUTIC CARE, INC.
BALANCE SHEETS
SEPTEMBER 30, 2000 AND 1999
ASSETS
2000 1999
------------------------
CURRENT ASSETS
Cash $ 54,080 $ 39,836
Accounts receivable (net of allowance for doubtful
accounts of $543,828 and $148,828) 11,073,189 12,336,861
Inventory 1,884,478 1,299,756
Other current assets 82,817 21,000
---------- ----------
TOTAL CURRENT ASSETS 13,094,564 13,697,453
---------- ----------
PROPERTY AND EQUIPMENT, NET 237,716 135,414
---------- ----------
OTHER ASSETS
Deposits 22,267 23,342
Deferred tax assets, net 377,864 56,322
Other assets 77,476 115,896
---------- ----------
TOTAL OTHER ASSETS 477,607 195,560
---------- ----------
TOTAL ASSETS $13,809,887 $14,028,427
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 4,542,717 $ 4,763,862
Income taxes payable 184,584 1,796,791
Current portion of notes payable 14,763 -0-
Due to affiliate 32,454 1,632,808
Note payable - affiliate 925,922 -0-
---------- ----------
TOTAL CURRENT LIABILITIES 5,700,440 8,193,461
---------- ----------
OTHER LIABILITIES
Deferred compensation 80,937 -0-
Line of credit 1,499,456 1,914,484
Notes payable 89,268 -0-
---------- ----------
TOTAL OTHER LIABILITIES 1,669,661 1,914,484
---------- ----------
TOTAL LIABILITIES 7,370,101 10,107,945
---------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, stated value, authorized 1,000,000 shares,
issued and outstanding 100,000 shares 210,000 10,000
Common stock - restricted, issued and outstanding
20,000 shares 56,518 -0-
Retained earnings 6,173,268 3,910,482
---------- -----------
TOTAL STOCKHOLDERS' EQUITY 6,439,786 3,920,482
---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $13,809,887 $14,028,427
========== ==========
The accompanying notes are an integral part of these financial statements
20
APEX THERAPEUTIC CARE, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999
2000 1999
---------------------------
NET SALES $45,339,312 $35,218,635
COST OF SALES 32,451,828 24,072,162
---------- ----------
GROSS PROFIT 12,887,484 11,146,473
OPERATING EXPENSES 8,552,586 5,287,697
----------- ----------
INCOME FROM OPERATIONS 4,334,898 5,858,776
----------- ----------
OTHER INCOME (EXPENSES)
Miscellaneous income -0- 20,843
Loss on disposal of assets (19,263) -0-
Miscellaneous expense (23,987) -0-
Interest expense (583,346) (305,838)
----------- -----------
NET OTHER EXPENSES (626,596) (284,995)
----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES 3,708,302 5,573,781
PROVISION FOR INCOME TAXES 1,445,516 2,171,093
----------- ----------
NET INCOME 2,262,786 3,402,688
RETAINED EARNINGS
Beginning of year 3,910,482 507,794
---------- ---------
End of year $ 6,173,268 $ 3,910,482
========== ==========
The accompanying notes are an integral part of these financial statements
21
APEX THERAPEUTIC CARE, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999
2000 1999
--------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $2,262,786 $ 3,402,688
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Provision for bad debts 395,000 56,728
Amortization and depreciation 108,160 15,607
Loss on disposal of assets 19,263 -0-
Deferred income tax benefit (321,542) (16,041)
Deferred compensation 184,968 -0-
Stock-based compensation 56,518 -0-
(Increase) decrease in assets:
Accounts receivable 868,672 (10,643,972)
Inventory (584,722) (623,014)
Deposits 1,075 (23,342)
Other assets (62,336) (126,567)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (221,145) 2,484,667
Income taxes payable (1,612,207) 1,482,864
--------- ---------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES 1,094,490 ( 3,990,382)
--------- ---------
CASH USED BY INVESTING ACTIVITIES
Purchase of property and equipment (163,895) (147,186)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in loans from affiliate (701,323) 2,242,272
Net increase (decrease) in line of credit (415,028) 1,914,484
Proceeds from sale of common stock 200,000 -0-
--------- ---------
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES (916,351) 4,156,756
--------- ---------
NET INCREASE IN CASH 14,244 19,188
CASH, BEGINNING OF YEAR 39,836 20,648
--------- ---------
CASH, END OF YEAR $ 54,080 $ 39,836
========= =========
The accompanying notes are an integral part of these financial statements
22
APEX THERAPEUTIC CARE, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Apex Therapeutic Care, Inc. (the "Company") is a wholesale distributor of
pharmaceutical products consisting primarily of antihemophilic factors and
other plasma derived therapeutic agents. The Company's sales are made to
pharmacies located in various states throughout the continental United
States.
Accounts Receivable
The allowance for doubtful accounts is based on management's evaluation of
outstanding accounts receivable at the end of the year given their prior
experience with third party insurance company receivables. Bad debt expense
for the years ended September 30, 2000 and September 30, 1999 was $817,564
and $119,558, respectively.
Inventory
Inventory is stated at the lower of average cost (which approximates first
in, first out) or market. Inventory consists of finished goods.
Property and Equipment
Property and equipment are recorded at lower of cost or net realizable value.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets, which range from five to seven years.
Leasehold improvements are amortized over the shorter of the lease term or
the estimated useful life of the asset. Maintenance and repairs are charged
to expense as incurred.
Other Assets
Other assets consist principally of deferred financing fees, organizational
costs and security deposits. The deferred financing fees are amortized
straight-line over the term of the financing facility. The organizational
costs are amortized straight-line over ten years. Accumulated amortization
for the deferred financing fees was $41,730 and $3,210 and accumulated
amortization for organizational costs was $1,041 and $625 at September 30,
2000 and September 30, 1999, respectively.
23
APEX THERAPEUTIC CARE, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amount
of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using the enacted rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results
could differ from those estimates.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at September 30:
2000 1999
-----------------------
Office furniture and equipment $124,484 $ 52,637
Computer hardware and software 114,539 88,446
Leasehold improvements 52,606 -0-
Warehouse equipment 20,479 5,076
Convention equipment 1,785 1,027
-------- --------
313,893 147,186
Less: Accumulated depreciation (76,177) (11,772)
-------- --------
Property and equipment, net $237,716 $135,414
======= =======
24
APEX THERAPEUTIC CARE, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 3 - LINE OF CREDIT
In August 1999, the Company entered into a credit facility with a lender that
permits the Company to borrow up to 80% of its eligible receivables. The credit
facility has a maximum borrowing limit of $6,500,000 and expires August 15,
2002. Interest on advances under the terms of this credit facility accrues at a
per annum rate of one percent (1%) in excess of the rate of interest announced
publicly by Citibank, N.A., from time to time as its "prime rate" (9.50% at
September 30, 2000) and is payable monthly. The Company must pay a quarterly fee
equal to one-half of one percent (0.5%) on the unused portion of the facility.
Amounts owed to the bank under this credit facility are secured by all assets of
the Company. The credit facility requires the Company to comply with certain
working capital financial covenants. At September 30, 2000, the Company was in
compliance with or received waivers for such covenants.
Prior to August 1999, the Company had a credit line agreement with a bank with a
maximum borrowing limit of $1,500,000. Interest on advances under the terms of
this line of credit agreement accrued at the bank's prime rate. The balance
outstanding was paid off with proceeds from the new credit facility and the
agreement was terminated.
NOTE 4 - STOCKHOLDERS' EQUITY
In November 1999, the Company sold 2,000 shares of common stock to an officer of
the Company for $200,000. Subsequently, the Board of Directors amended and
restated the Company's articles of incorporation to effect a ten-for-one split
of the Company's outstanding common stock. The split of the Company's stock was
effected in the form of a stock dividend. Pursuant to the amendment, the Company
is authorized to issue 1,000,000 shares of its common stock of which 100,000
shares were issued and outstanding as of September 30, 2000 (also see Note 8).
NOTE 5 - STOCK APPRECIATION RIGHTS
In October 1999, the Company adopted a non-qualified Stock Appreciation Rights
Plan (SAR Plan), whereby selected key employees are granted performance unit
rights (SAR Units) which are rights to receive an amount based on the
appreciated value of the Company's common stock over an established base price.
SAR Units begin vesting on the date of grant and vest at 20% per year for five
years. The maximum number of SAR Units that may be granted under the plan is
25
APEX THERAPEUTIC CARE, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 5 - STOCK APPRECIATION RIGHTS (continued)
10,000. The maximum term of the plan is ten years. On October 1, 1999, the
Company issued 6,750 SAR Units at a weighted average-base price of $0.125 per
unit. The date of grant for these units was deemed by the Company's Board of
Directors to be April 1, 1998. During the fiscal year ended September 30, 2000,
2,250 SAR Units were exercised. Upon the exercise of the SAR Units, the
appreciated value was determined and the amounts were converted into Notes
Payable with a term of 84 months. The notes are subordinate to any amounts due
under the Company's Line of Credit and Agreement and bear interest at 9% per
annum.
The principal portion of these notes matures as follows during the years ending
September 30:
2001 $ 14,763
2002 12,571
2003 13,750
2004 15,040
2005 16,451
Thereafter 31,456
--------
$104,031
In September 2000, an employee forfeited rights to 3,500 SAR Units.
At September 30, 2000, 1,000 SAR Units remain outstanding. As of September 30,
2000, the Company accrued deferred compensation related to these outstanding
units of $80,937.
NOTE 6 - PROVISION FOR INCOME TAXES
The provision (benefit) for income taxes for the years ended September 30, 2000
and 1999 consists of the following:
2000 1999
----------------------------
Current $1,767,058 $2,187,134
Deferred (321,542) (16,041)
---------- -----------
$1,445,516 $2,171,093
========== ==========
26
APEX THERAPEUTIC CARE, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 6 - PROVISION FOR INCOME TAXES (continued)
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities at September 30, 2000 and 1999 are
presented below:
Deferred tax assets:
2000 1999
----------------------------
Accounts receivable principally due
to allowance for doubtful accounts $232,976 $ 63,758
Inventory 6,075 3,759
Accrued stockholder bonus 32,130 -0-
Accrued commissions 31,172 -0-
Accrued vacation 185 -0-
Deferred compensation 64,416 -0-
Stock-based compensation 24,212 -0-
-------- --------
Total deferred tax assets 391,166 67,517
Deferred tax liabilities - property and
equipment, principally due to differences
in depreciation (13,302) (11,195)
-------- --------
Deferred tax assets, net $377,864 $ 56,322
======== ========
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversals of deferred tax liabilities, projected future taxable
income, and tax planning strategies in making this assessment. Based upon the
level of historical taxable income and projections for future taxable income
over the periods which the deferred tax assets are deductible, management
believes it is more likely than not the Company will realize the benefits of
these deductible differences. Accordingly, no valuation allowance has been
recorded at September 30, 2000 and 1999.
27
APEX THERAPEUTIC CARE, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 7 - RELATED PARTY TRANSACTIONS
Two stockholders who own a combined 50% of the outstanding stock of the Company
(including restricted stock) also own 100% of the outstanding stock of ActSys
Medical, Inc. (the "affiliate"). The Company has obtained direct financing from
the affiliate to finance its growth. The Company also sells pharmaceutical
products to the affiliate, purchases pharmaceutical products from the affiliate
and shares certain corporate expenses including wages and insurance.
In November 1999, the Company converted the amount due to its affiliate into a
term loan agreement that required monthly payments of $76,701 through November
2001. In August 2000, the term loan was converted into a new loan to expedite
the payment terms. The new loan requires monthly payments of $119,901 through
May 2001. The term loan bears interest at a rate of 9.50%.
The following table summarizes the transactions between the Company and its
affiliate and the outstanding amounts due to the affiliate at September 2000 and
1999:
2000 1999
-----------------------------
For the years ended September 30:
Sales $6,643,586 $4,375,037
Purchases $1,227,096 $2,653,116
Management fees paid, net $ 249,156 $ 529,836
Interest expense $ 133,547 $ 179,139
As of September 30:
Due to affiliate $ 32,454 $1,632,808
Note payable - affiliate $ 925,922 $ -0-
28
APEX THERAPEUTIC CARE, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases office and warehouse facilities under noncancelable
operating leases which expire over the next two years. These leases generally
contain renewal options for periods ranging from one to three years.
Future minimum lease payments are $111,806 and $7,200 for the years ended
September 30, 2001 and 2002, respectively.
Rental expense for operating leases during the fiscal years ended September
30, 2000 and 1999 was $104,330 and $23,178, respectively.
Employment Agreement/Restricted Stock
On August 1, 2000, the Company executed an employment agreement with one of
its officers. The agreement calls for a minimum salary of $100,000 per year
through the expiration of the agreement on July 31, 2005. Additionally, on
August 1, 2000, the Company issued 20,000 shares of its restricted common
stock to the officer as an inducement for the officer to enter into and
perform under the terms of the employment agreement.
The value of the 20,000 shares of restricted common stock issued on August 1,
2000 was determined to be $1,695,549. The value of the stock will be
recognized as compensation ratably over the term of the employment agreement.
Accordingly, the Company recognized compensation and restricted common stock
of $56,618 for the year ended September 30, 2000.
Legal Proceedings
The Company is a defendant in a lawsuit that alleges the Company obtained
customers by using information stolen by a former employee of a competitor.
The Company's counsel has indicated that an out of court settlement will most
likely be reached and has estimated the settlement to range between $75,000
and $150,000. Accordingly, the Company has accrued $75,000 as of September
30, 2000.
Financial Guarantee
In August 1999, the Company issued a continuing guarantee of a $3,500,000
credit facility of an affiliated Company. It is reasonably possible that the
Company would be required to make payments under its guarantee. The Company
monitors the financial performance of the affiliated Company on a monthly
basis. No amount has been accrued for the Company's obligations under its
guarantee arrangement.
29
APEX THERAPEUTIC CARE, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 9 - BUSINESS AND CREDIT CONCENTRATIONS
The Company's operations may be adversely impacted by future federal and state
healthcare budget cuts, as a significant portion of the Company's revenue is
dependent on certain governmental healthcare programs.
At September 30, 2000, $5,141,914 or 44% of the Company's total trade accounts
receivable were due from one customer. Revenues from sales to this customer were
approximately 31% of the Company's net sales for the year ended September 30,
2000.
At September 30, 1999, $7,051,429 or 54% of the Company's total trade accounts
receivable were due from one customer. Revenues from sales to this customer were
approximately 51% of the Company's net sales for the year ended September 30,
1999.
The Company estimates an allowance for doubtful accounts based on the credit
worthiness of its customers as well as general economic conditions.
Consequently, an adverse change in those factors may affect the Company's
estimate of its bad debts.
Three of the Company's suppliers accounted for approximately 73% of total
purchases during the year ended September 30, 2000.
NOTE 10 - DISCLOSURE FOR THE STATEMENT OF CASH FLOWS
Additional Disclosures
Cash paid during the years ended September 30, 2000 and 1999 for:
2000 1999
-------------------------
Income taxes $3,396,745 $774,237
========= =======
Interest $ 583,346 $118,560
========== =======
Non Cash Investing and Financing Transactions
During the year ended September 30, 2000, the Company received property and
equipment at a net book value of $26,891 from its affiliate and increased the
amount due to its affiliate for the same amount.
During the year ended September 30, 2000, the Company converted $1,670,525 of
the amount due to its affiliate to a note payable.
30
APEX THERAPEUTIC CARE, INC.
UNAUDITED CONDENSED FINANCIAL STATEMENTS
AS OF AND FOR THE QUARTER ENDED
DECEMBER 31, 2001 AND 2000
TABLE OF CONTENTS
Condensed Statements of Operations
Condensed Balance Sheets
Condensed Statements of Cash Flows
Notes to Condensed Financial Statements
31
APEX THERAPEUTIC CARE, INC.
CONDENSED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
Three Months Ended
December 31,
2001 2000
---------------------
Revenues $ 13,262 $ 11,621
Costs and operating expenses:
Cost of sales and services 9,265 7,937
Selling, general and 2,576 1,715
administrative ------ -----
Total costs and operating expenses 11,841 9,652
------ -----
Income from operations 1,421 1,969
Interest income 3 -
----- -----
Income before taxes 1,424 1,969
Income taxes 633 890
----- -----
Net income $ 791 $ 1,079
===== =====
32
APEX THERAPEUTIC CARE, INC.
CONDENSED BALANCE SHEETS
(In thousands)
(Unaudited)
December 31, September 30,
2001 2001
---- ----
ASSETS
Cash and cash equivalents $ 11 $ 757
Accounts receivable, net 12,157 11,794
Inventory 5,010 3,805
Prepaid and other current assets 75 70
-- --
Total current assets 17,253 16,426
Property and equipment, net 225 231
Other assets 635 682
-- ---
Total assets $18,113 $17,339
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 6,635 $ 6,240
Dividend payable 500 500
--- ---
Total current liabilities 7,135 6,740
Long term liability 210 204
Stockholders' equity
Common stock 690 606
Retained earnings 10,078 9,789
------ -----
Total stockholders' equity 10,768 10,395
Total liabilities and stockholders' $18,113 $17,339
equity ======= =======
33
APEX THERAPEUTIC CARE, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three months ended December 31,
2001 2000
--------------------------------
OPERATING ACTIVITIES
Net income $ 791 $ 1,079
Adjustments to reconcile net income to net cash
(used in) provided by operating activities
Depreciation and amortization 32 28
Gain from early extinguishment of debt - (8)
Changes in operating assets and liabilities (2,308) (437)
------- -----
NET CASH USED IN PROVIDED BY OPERATING ACTIVITIES (1,485) 662
INVESTING ACTIVITIES
Purchase of property and equipment (17) (14)
---- ----
NET CASH USED IN INVESTING ACTIVITIES (17) (14)
FINANCING ACTIVITIES
Borrowing (Repayments) on line of credit and notes 755 (338)
payable
Loan from affiliate - (340)
- -----
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 755 (678)
--- -----
DECREASE IN CASH AND CASH EQUIVALENTS (747) (30)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 757 54
--- --
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11 $ 24
==== ====
34
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The condensed financial statements are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of the financial
position and operating results for the interim periods. The condensed financial
statements should be read in conjunction with the financial statements for the
year ended September 30, 2001 and notes thereto. The results of operations for
the three months ended December 31, 2001 are not necessarily indicative of the
results to be expected for the entire fiscal year ending September 30, 2002.
Note 2. Subsequent events
On February 28, 2002 Apex Therapeutic Care, Inc. was sold to Curative Health
Services, Inc. for $60 million. The sale proceeds consisted of $19 million
in cash, $5 million in a seller's note and $36 million (1,806,000 shares) of
Curative Health Services, Inc. stock.
35
CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 2001
TABLE OF CONTENTS
Pro Forma Condensed Consolidated Balance Sheet
Pro Forma Condensed Consolidated Statement of Operations
Notes to Pro Forma Condensed Consolidated Financial Statements
36
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial statements
give pro forma effect to the completion of the purchase by Curative Health
Services, Inc. of all of the outstanding shares of stock of Apex Therapeutic
Care, Inc. for the year ended December 31, 2001. The pro forma financial
statements reflect the December 31, 2001 audited balance sheet and statement of
operations of Curative Health Services, Inc. and Subsidiaries and the September
30, 2001 audited balance sheet and statement of income of Apex Therapeutic
Care, Inc. The pro forma condensed consolidated financial statements include
certain estimates and adjustments, as set forth in the notes to the unaudited
condensed consolidated financial statements, and are presented for illustrative
purposes only. The pro forma information presented is not necessarily
indicative of the results to be expected in the future for Curative Health
Services, Inc. and Subsidiaries.
37
CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS-UNAUDITED
AS OF DECEMBER 31, 2001
Curative
Health Apex
Services, Therapeutic Consolidating Pro Forma
Inc. and Care, Inc. Adjustments Balance Sheet
Subsidiaries
------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 12,264 $ 757 $ (4,121)(1),(2) $ 8,900
Accounts receivable 13,139 11,794 24,933
Inventory 4,547 3,805 8,352
Deferred tax assets 6,265 - 6,265
Prepaid & other current assets 745 70 - 815
--------- --------- ---------- ----------
Total current assets 36,960 16,426 (4,121) 49,265
Property and equipment, net 3,795 231 4,026
Goodwill and intangibles, net 34,787 - 49,605(1) 84,392
Other assets 1,385 682 2,036(1) 4,103
--------- --------- ---------- ----------
Total assets $ 76,927 $ 17,339 $ 47,520 $ 141,786
========= ========= ========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
Accounts payable $ 9,249 $ 6,123 $ $ 15,372
Accrued expenses and income taxes 25,186 109 25,079
Bank loan - 8 (8)(1) -
Dividends payable - 500 - 500
--------- --------- ---------- ----------
Total current liabilities 34,435 6,740 (8) 38,886
Long term obligations 6,000 204 5,000 (1) 11,204
Commitments and contingencies
Stockholders' equity
Preferred stock, $.01 par value per
share, 10,000,000 shares
authorized, none issued -
Preferred stock, Series A Junior
Participating, par value $.01 per share,
500,000 shares authorized, none issued -
Common stock, $.01 par value per share; 75 606 (577)(1) 104
Additional paid in capital 34,019 52,894 (1),(2) 86,913
Retained earnings 2,398 9,789 (9,789)(1) 2,614
--------- --------- ---------- ----------
Total stockholders' equity 36,492 $ 10,395 $ 42,528 $ 89,631
--------- --------- ---------- ----------
Total liabilities and $ 76,927 $ 17,339 $ 47,520 $ 141,786
stockholders' equity ========= ========= ========== ==========
38
CURATIVE HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS-UNAUDITED
FOR THE YEAR ENDED DECEMBER 31, 2001
Curative Consolidated
Health Apex Consolidating pro forma
Services, Therapeutic Adjustments statement of
Inc. and Care, Inc. operations
Subsidiaries
----------------------------------------------------------------------------------------------
Revenues:
Services $ 44,862 $ - $ $ 44,862
Products 36,776 54,536 (6,675)(4) 86,063
---------- ----------- ---------- ----------
Total revenues 81,638 54,536 (6,675) 130,925
Cost of services 25,887 - 25,887
Cost of product sales 29,779 37,821 (6,429)(4) 62,253
Selling, general and 51,466 9,553 - 64,286
administrative ---------- ----------- ---------- ----------
Total cost and operating 107,132 47,374 (6,429) 154,426
expense ---------- ----------- ---------- ==========
(Loss) income from operations (25,494) 7,162 (246) (18,578)
Interest expense - 275 220 (5) 495
Interest income 816 3 90 (5) 909
Net (loss) income before taxes (24,678) 6,890 (376) (18,164)
Income tax (benefit) provision (2,473) 2,774 (154) (3) 147
---------- ---------- ---------- ----------
Net (loss) income $ (22,205) $ 4,116 $ (222) $ (18,311)
========== ========== ========= ==========
Net (loss) income per share, $ (3.09) $ (1.82)
basic ========== ==========
Net (loss) income per share, $ (3.09) $ (1.82)
diluted ========== ==========
Weighted average shares, basic 7,193 120 10,058 (6)
===== === ======
Weighted average shares, 7,193 120 10,058 (6)
diluted ===== === ======
39
On February 28, 2002 Apex Therapeutic Care, Inc. was sold to Curative Health
Services, Inc. for $60 million. The sale proceeds consisted of $19 million
in cash, $5 million in a seller's note and $36 million (1,806,000 shares) of
Curative Health Services, Inc. stock.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Details of the pro forma adjustments relating to the acquisition of Apex
Therapeutic Care, Inc. follow.
1) To record the effect of the stock purchase of Apex Therapeutic Care, Inc. on
cash balances, equity accounts, long term debt and the repayment of the
outstanding debt of Apex Therapeutic Care, Inc. Also reflects a loan of
$2.036 million made to a former shareholder at closing. The purchase price
allocation and amounts allocated to goodwill and other intangibles are
preliminary and are subject to finalization of valuation.
2) To record the effect of the $16.9 million private placement stock offering on
cash and equity accounts. The proceeds from the private placement were
utilized for the purchase of Apex Therapeutic Care, Inc. and working capital
needs.
3) To record additional tax benefit.
4) To eliminate affiliate sales, cost of sales and profit not anticipated to
occur post acquisition.
5) Record interest expense on $5.0 million sellers' note recorded
as part of Apex Therapeutic Care, Inc. purchase and interest income on $2.036
million loan given to former shareholder.
6)Total of 2.865 million shares added to reflect shares used for purchase of
Apex Therapeutic Care, Inc. stock (1.806 million) and the issuance of the
private placement shares (1.059 million).
40
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
CURATIVE HEALTH SERVICES, INC.
Date: May 3, 2002 By /s/ Thomas Axmacher
---------------------------
Thomas Axmacher
Chief Financial Officer
Exhibit 23-1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-3 No. 333-83342) and related Prospectus of Curative Health
Services, Inc. pertaining to the registration of 1,059,000 shares of its
common stock, in the Registration Statement (Form S-8 No. 333-73376)
pertaining to Curative Health Services, Inc. 2001 Broad-Based Stock
Incentive Plan and Non-Qualified Stock Option Agreements for David Lawson,
Steven Michurski, and Beth Oliver, in the Registration Statement (Form
S-8 No. 333-60854) pertaining to Curative Health Services, Inc.
Non-Employee Director Stock Option Plan, as amended, in the
Registration Statement (Form S-8 No. 333-60852) pertaining to Curative Health
Services, Inc. 2000 Stock Incentive Plan in the Registration
Statement (Form S-8 No. 333-65751) pertaining to the Curative Health
Services, Inc. and subsidiaries 1991 Stock Option Plan, as amended, in the
Registration Statement (Form S-8 No. 333-65753) pertaining to Curative
Health Services, Inc. Non-Employee Director Stock Option Plan, as
amended, in the Registration Statement (Form S-8 No. 33-19370)
pertaining to the Curative Health Services, Inc. and subsidiaries
Director Share Purchase Program and in the Registration Statement (Form S-8
No. 33-85188) pertaining to the Curative Health Services, Inc. and
subsidiaries Employee 401(k) Savings Plan of our report dated November 2,
2000 with respect to the consolidated financial statements of Apex
Therapeutic Care, Inc. as of and for the years ended September 30, 2000 and
1999, and of our report dated November 30, 2001 with respect to the
consolidated financial statements of Apex Therapeutic Care, Inc. as of and
for the years ended September 30, 2001 and 2000 included in Amendment No. 1
to the Current Report (Form 8-K) of Curative Health Services, Inc.
originally filed on March 11, 2002.
/s/ Martini, Iosue & Akpovi
Encino, California
May 3 , 2002