UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-K
x
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the fiscal year ended June 30, 2009
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For
the transition period from ___________
Commission
file number: 000-20175
Nyer
Medical Group, Inc.
|
(Exact
Name of Registrant as Specified in Its
Charter)
|
FLORIDA
|
|
01-0469607
|
(State
or Other Jurisdiction of
Incorporation
or Organization)
|
|
(I.R.S.
Employer Identification
No.)
|
13 Water Street, Holliston,
MA
|
01746
|
(Address
of Principal Executive Offices)
|
(Zip
Code)
|
|
|
Registrant’s
telephone number, including area code:
|
(508)
429-8506
|
Securities
registered pursuant to Section 12(b) of the Act:
Title of each class
|
Name
of each exchange
on which registered
|
|
|
Common
Stock, Par Value $.0001
|
NASDAQ
Capital Market
|
Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes
¨
No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes
¨
No
x
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes
x
No
¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes
¨
No
¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definition of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act. (Check one):
Large
accelerated filer
¨
|
Accelerated
filer
¨
|
|
|
Non-accelerated
filer
¨
(Do
not check if a smaller reporting company)
|
Smaller
reporting company
x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
¨
No
x
The
aggregate market value of the voting and non-voting shares of the registrant
held by non-affiliates as of December 31, 2008, was $3,040,986 based on the
closing price on NASDAQ Capital Market on such date.
The
number of the registrant’s shares of common stock outstanding as of September
21, 2009: 3,978,199.
Documents
incorporated by reference: None
In this
annual report, the terms the “Company,” “Nyer,” “we,” “us,” or “our” refers to
Nyer Medical Group, Inc., unless the context indicates otherwise.
EXPLANATORY
NOTE
The
consolidated financial statements of the Company and its subsidiaries at and for
the fiscal year ended June 30, 2008, and related financial information have been
restated to correct errors in the accounting for direct costs associated with
the purchase of the minority interest in DAW, Inc., now a wholly owned
subsidiary of the Company, in February 2008. These costs were
expensed, rather than considered part of the cost of the acquisition in
accordance with generally accepted accounting principles
(“GAAP”). For further details on the nature of the corrections and
the related effects on the Company's previously issued consolidated financial
statements, see Note 3, Restatements of Consolidated Financial Statements,
included in Part II, Item 8, Financial Statements and Supplementary
Data. Restated balances have been identified with the notation
"restated" where appropriate. Throughout this Annual Report, the term
"as previously reported" will be used to refer to balances from the 2008
consolidated financial statements as reported prior to restatement for the
correction of these errors.
In
accordance with the relief granted to the Company by the staff of the Division
of Corporation Finance of the Securities and Exchange Commission (“SEC”), we are
filing this comprehensive Annual Report on Form 10-K for the year ended June 30,
2009, with expanded financial and other disclosures in lieu of filing a separate
amended Annual Report on Form 10-K for the year ended June 30, 2008, and
separate amended Quarterly Reports on Form 10-Q for the periods ended December
31, 2007, and March 31, 2008. This comprehensive report is being
filed to facilitate the dissemination of current financial and other information
to investors. The Company does not intend to file a separate amended
Annual Report on Form 10-K for the year ended June 30, 2008, or amended
Quarterly Reports on 10-Q for the periods ended December 31, 2007, or March 31,
2008, September 30, 2008, December 31, 2008, and March 31, 2009, to reflect
restated financial information. The financial information that has
been previously filed or otherwise reported for these periods is superseded by
the information in this Annual Report on Form 10-K, and the financial
statements and related financial information contained in those previously filed
reports should no longer be relied upon.
WARNING CONCERNING FORWARD
LOOKING STATEMENTS
This
Annual Report contains statements which constitute forward looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 and
other federal securities laws. Forward looking information includes
statements concerning pharmacy sales trends, prescription margins, the sale of
discontinued operations, and demographic trends as well as those that include or
are preceded by the words “expects,” “estimates,” “believes,” “plans,”
“anticipates,” or similar language.
Forward
looking statements may involve risks and uncertainties known or unknown to us
that could cause results to differ materially from management’s expectations as
projected in such forward-looking statements. These risks and
uncertainties are discussed in Item 1A below.
Other
risks may adversely impact us, as described more fully in this Annual Report
under “Item 1A. Risk Factors.”
You
should not place undue reliance upon forward looking statements.
Unless
otherwise required by applicable securities laws, we assume no obligation to
update our forward-looking statements to reflect subsequent events or
circumstances.
TABLE OF
CONTENTS
|
|
Page
|
PART
I
|
|
|
|
|
|
Item
1.
|
Business
|
5
|
|
|
|
Item
1A.
|
Risk
Factors
|
9
|
|
|
|
Item
l B.
|
Unresolved
Staff Comments
|
12
|
|
|
|
Item
2.
|
Properties
|
12
|
|
|
|
Item
3.
|
Legal
Proceedings
|
13
|
|
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
13
|
|
|
|
PART
II
|
|
|
|
|
|
Item
5.
|
Market
for Registrant’s Common Equity, Related Stockholder Matters, and Issuer
Purchases of Equity Securities
|
13
|
|
|
|
Item
6.
|
Selected
Financial Data
|
14
|
|
|
|
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
15
|
|
|
|
Item
7a.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
31
|
|
|
|
Item
8.
|
Financial
Statements and Supplementary Data
|
32
|
|
|
|
Item
9.
|
Changes
In and Disagreements with Accountants on Accounting and Financial
Disclosure
|
80
|
|
|
|
Item
9A (T).
|
Controls
and Procedures
|
80
|
|
|
|
Item
9B.
|
Other
Information
|
81
|
|
|
|
PART
III
|
|
|
|
|
|
Item
10.
|
Directors,
Executive Officers, and Corporate Governance
|
81
|
|
|
|
Item
11.
|
Executive
Compensation
|
84
|
|
|
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
89
|
|
|
|
Item
13.
|
Certain
Relationships and Related Transactions and Director
Independence
|
93
|
|
|
|
Item
14.
|
Principal
Accountant Fees and Services
|
93
|
|
|
|
PART
IV
|
|
|
|
|
|
Item
15.
|
Exhibits
and Financial Statement Schedules
|
95
|
|
|
|
Signatures
|
|
98
|
PART I
ITEM
1. Business
We were
incorporated in Florida on December 10, 1988. In August 1996, we
acquired 80% of D.A.W., Inc., (“DAW”) d/b/a Eaton Apothecary. In
February 2008, we acquired the remaining 20%. DAW owns and operates a
chain of retail pharmacies in the suburban Boston, Massachusetts, area and
provides comprehensive pharmacy management services to various not-for-profit
entities.
Retail Pharmacies Business
DAW’s
strategy is to seek out and capitalize on existing and developing niches within
the expanding market for prescription medications and pharmacy
services. Toward that end, DAW has established four distinct and
diverse operating platforms.
The first
platform is comprised of DAW’s original core retail stores. These
core stores are exclusively traditional neighborhood community pharmacies
ranging in size from 2,000 to 5,000 square feet. They are mostly
located in geographically favorable locations and are able to compete with
larger chain competitors by offering free delivery and providing superior
customer service. DAW operates 11 pharmacies consistent with this
platform.
The
second platform is a service platform whereby DAW leverages its infrastructure
and core competence of managing pharmacy operations. DAW partners
with health centers classified as Federally Qualified Health Centers (“FQHC”)
under Section 340B of the Public Health Services Act (“340B”) to provide
comprehensive pharmacy management services to pharmacies operating within the
health center. In addition to operating a pharmacy within an area of
very dense medical activity, it is only through these 340B pharmacies that
uninsured Massachusetts residents are able to obtain prescription
medications. DAW operates five pharmacies consistent with this
platform.
The third
platform is a hybrid platform whereby DAW augments its dispensing activity at
some of its community pharmacies through a contractual relationship with a FQHC
with insufficient critical mass to support a stand-alone pharmacy within the
health center. DAW maintains a separate inventory on behalf of the
FQHC for the purpose of dispensing medications to uninsured and other 340B
eligible patients. DAW operates seven pharmacies consistent with this
platform.
The
fourth platform is designed to service location insensitive
business. Location insensitive business is almost exclusively
delivery business and is comprised of specialized packaging for assisted living
communities and medication non-adherent patients. The locations are
located in lower rent non-prime industrial areas. As such, the
platform has lower operating costs. DAW operates two pharmacies
consistent with this platform.
DAW
continues to seek acquisition opportunities of profitable independent pharmacies
within contiguous markets whose owners are desirous of selling and entering
either semi-retirement or retirement. DAW is additionally seeking out
strategic health center partners to expand its pharmacy management services and
is simultaneously responding to inquiries from within this group to assume
management and operational responsibility for existing
pharmacies. DAW believes that it will maintain and expand upon its
position as the largest and most significant 340B pharmacy provider in
Massachusetts.
·
|
Customers
and Third Party Payers
|
During
the fiscal year 2009, approximately 89% of pharmacy revenues were to customers
with prescription health insurance coverage that provides payment for all or a
portion of a customer’s eligible prescription purchase. During the
fiscal year 2009, the top five of these third party payers accounted for
approximately 49% of total revenues, the largest of which represented 17% of
total revenues. During the same period, Medicaid agencies accounted
for approximately 9% of total revenues. Any significant loss of third
party payer business could have a material adverse effect on DAW’s business and
results of operations.
DAW’s
business is subject to various federal and state
regulations. Pursuant to the Omnibus Budget Reconciliation Act of
1990 and Massachusetts’s regulations, DAW’s pharmacists are required to offer
counseling without additional charge to their customers about medication,
dosage, delivery systems, common side effects, and other information deemed
significant by the pharmacists and may have a duty to warn customers regarding
any potential adverse effects of a prescription if the warning could reduce or
negate such effect.
The
Massachusetts’ Board of Registration in Pharmacy must license DAW’s pharmacies
and pharmacists. DAW’s pharmacies are also registered with the
Federal Drug Enforcement Administration (“DEA”) and are subject to DEA
regulations relative to operations, purchasing, storing, and dispensing of
controlled substances. Any violations of any applicable statute,
rule, or regulation could result in the suspension or revocation of
licenses.
DAW’s
pharmacies are subject to patient privacy and other obligations, including
corporate pharmacy and associate responsibility imposed by the Health Insurance
Portability and Accountability Act (“HIPAA”). As a covered entity,
DAW is required to implement privacy and data security standards and train its
associates on the permitted uses and disclosures of protected health
information. DAW is additionally required to safeguard against the
loss of protected, private health information. Failure to properly
adhere to these requirements could result in the imposition of civil as well as
criminal penalties.
By virtue
of its contracts with health centers and its participation in the 340B program,
DAW must additionally be familiar with, and operate according to, the
regulations of other regulatory bodies including the Department of Public
Health, the Massachusetts Health Safety Net Organization, and the Joint
Commission on Accreditation of Healthcare Organizations. DAW believes
that its knowledge within this confusing landscape makes it an attractive
partner and serves as a barrier to competition.
In recent
years, an increasing number of legislative proposals have been introduced or
proposed in Congress and in the Massachusetts state legislature that would
affect major changes in the healthcare system, either nationally or at the state
level. Although DAW believes it is well positioned to respond to
these developments, it cannot predict the outcome or effect of legislation
resulting from these reform efforts.
A
significant number of DAW’s pharmacies compete in markets also served by either
CVS Caremark Corporation or Walgreen Co. or both. These two chains
have greater financial resources and economies of scale than DAW but do not
offer services comparable to DAW.
Many of
the largest pharmacy benefit management companies (“PBMs”) have instituted
differential prescription co-payment structures for retail versus mail order
pharmacies whereby patients are offered lower co-payments if mail-order service
is utilized to obtain their chronic or maintenance medications. While
DAW has lost some of its customer base to mail order, its overall unit volume
continues to show a net prescription dispensing increase on a comparable monthly
basis. Furthermore, these mail order differentials have narrowed
recently moving the market toward a more level orientation.
Some
large mass merchant retailers such as Wal-Mart Stores, Inc., and Target Corp.
have instituted one-price prescription programs on select generic medications in
attempts to gain market share. None of these retailers operate stores
in immediate proximity to any of DAW’s pharmacies. Accordingly, DAW
does not believe it has lost market share to these programs.
DAW
purchases in excess of 90% of its pharmaceuticals from McKesson Corporation
(“McKesson”) pursuant to a Supply Agreement, which expires January 31,
2012. Under the terms of the agreement, DAW stores receive delivery
five days per week and receive volume discounts based upon aggregate average
monthly net purchase volume. DAW receives discounts on generic
pharmaceuticals based upon the volume of generic purchases as a percent of total
purchases. DAW purchases pharmaceuticals from generic pharmaceutical
distributors as well as other specialty vendors such as Hallmark Cards, Inc.,
and various distributors of durable medical equipment and surgical supplies on a
significantly lower scale. There are many wholesale competitors of
McKesson, each of whom would be capable of supplying DAW’s purchasing needs on
similar terms and on a comparable scale.
Discontinued
Operations
In
December 2008, we sold the inventory and prescription lists of our Topsfield,
Massachusetts, store (“Topsfield”); in September 2008, we sold certain assets
and liabilities of ADCO Surgical Supply, Inc., (“ADCO”), a wholly owned
subsidiary of the Company; and in June 2008, we sold ADCO South Medical
Supplies, Inc. (“ADCO South”), a wholly owned subsidiary of the
company. As such, Topsfield, ADCO, and ADCO South have been
classified as discontinued operations in our financial statements.
Purchase
of Minority Interest in DAW and Change of Control of the Company
In
February 2008, we completed the acquisition of the remaining 20% of the
outstanding common stock of DAW through a series of transactions (the
“Acquisition”). In consideration for the Acquisition, we paid and
issued the following: (1) a cash payment of $1,750,000 (which we borrowed from
DAW and which was funded by increased credit terms by DAW’s major supplier), (2)
2,000 shares of a newly created series of convertible Series 2 Class B Preferred
Stock (the “Series 2 Stock”) which are initially convertible into 218,000 shares
of our common stock, and have the same aggregate 4,000,000 voting rights as our
then existing Class A Preferred Stock (the “Class A Stock”) and Class B
Preferred Stock (the “Class B Stock”), (3) a promissory note in the aggregate
principal amount of $350,000, and (4) convertible promissory notes in the
aggregate principal amount of $1,500,000, convertible into our common stock at
an initial conversion price of $1.84 per share, subject to
adjustment. We also incurred $458,516 of transaction costs related to
this acquisition.
Also in
February 2008, we purchased from Mr. Samuel Nyer (“Mr. Nyer”), 2,000 shares of
Class A Stock and 1,000 shares of Class B Stock held by Mr. Nyer (which
represented all of the then issued and outstanding shares of such preferred
stock) in exchange for a promissory note in the amount of
$400,000. Further, the former minority shareholders of DAW (the
“Minority Shareholders”) purchased from Nyle International Corp. (“Nyle”), a
corporation controlled by Mr. Nyer, 597,826 shares of our common
stock.
As a
result of the Acquisition, the purchase by the Minority Shareholders from Nyle,
our repurchase of shares from Mr. Nyer, and the appointment of Mark and David
Dumouchel to fill director and officer vacancies, we experienced a change of
control with the Minority Shareholders owning an aggregate of approximately 58%
of the voting power of our outstanding common stock.
Employees
DAW has a
stable and experienced workforce consisting of 190 full-time and 170 part-time
employees. Of these, 69 are pharmacists licensed by the Board of
Registration in Pharmacy. None of our employees are employed pursuant
to a collective bargaining agreement.
Availability
of SEC Filings
We have
not filed amendments to any previously filed Annual Reports on Form 10-K or
Quarterly Reports on Form 10-Q for the periods affected by the restatement
described in Note 3 to the consolidated financial statements included in Part
II, Item 8 of this Annual Report on Form 10-K. The financial
information that has been previously filed or otherwise reported for these
periods is superseded by the information in this Annual Report on
Form 10-K, and the financial statements and related financial information
contained in previously filed reports should no longer be relied
upon.
All our
reports filed with the Securities and Exchange Commission (“SEC”) are available
free of charge via EDGAR through the SEC website at www.sec.gov. In
addition, the public may read and copy materials we filed with the SEC at the
SEC’s public reference room located at 100 F Street N.E., Washington, D.C.
20549. The public may obtain information on the operation of the
public reference room by calling 1-800-732-0330. We also provide
copies of our Forms 8-K, 10-K, 10-Q, Proxy Statement, and Annual Report at no
charge available through our website at www.nyermedicalgroup.com as soon as
reasonably practicable after filing electronically such material with the
SEC. Copies are also available, without charge, from Nyer Medical
Group, Inc., P.O. Box 6880, Holliston, MA 01746.
ITEM
1A. Risk Factors
The
following risk factors, among others, could affect our actual results of
operations and could cause our actual results to differ materially from those
expressed in forward-looking statements made by us. These
forward-looking statements are based on current expectations and we assume no
obligation to update this information. You should carefully consider
the risks described below and elsewhere in this Annual Report before making an
investment decision. Our business, financial condition or results of
operations could be materially adversely affected by any of these
risks. The trading prices of our common stock could decline due to
any of these risks, and you may lose all or part of your
investment. The following risk factors are not the only risk factors
facing our company. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also affect our
business.
Nyer
is reliant on current management for its success
DAW is a
niche business that relies on the unique qualifications of Nyer’s president and
chief executive officer as well as the management team of the
pharmacies. The healthcare landscape has become increasingly
intricate with the addition of government programs and regulations such as
Medicare Part D and the Medicare Modernization Act of
2003. Management’s knowledge of this landscape and its ability to
operate within it is critical to Nyer’s success. As Nyer continues to
grow, it may require the services of additional executives. The loss
of certain other key employees could have a material effect upon the business of
Nyer. At the present time, we have key-man term life insurance on the
lives of our president and chief executive officer and the management team of
the pharmacies.
Control
of Nyer is held by a few shareholders
Nyer’s
controlling shareholders are Michael and Lucille Curry, David Dumouchel, Mark
Dumouchel (President and Chief Executive Officer), Wayne Gunter, and Donato
Mazzola, all management of DAW. They each own 400 shares of Series 2
Stock which each has voting rights equal to 2,000 votes per share on any matter
put to a vote of the Common Stock (equivalent to 800,000 votes of common
stock). They also each own 119,565 shares of common stock, with the
exception of Mark Dumouchel who owns 119,566 shares of common stock and Donato
Mazzola who owns 119,965 shares of common stock.
These
holdings collectively represent approximately 58% of the outstanding voting
securities of Nyer. As a result, although they are not part of a
group nor subject to any voting agreements, if they vote the same way, they
would effectively control the voting power of Nyer. Accordingly, they
are in a position to elect a majority of Nyer’s directors and control the
policies and operations of Nyer. Accordingly, they are in a position to elect a
majority of Nyer’s directors and control the policies and operation of
Nyer.
Many
of our competitors have advantages over us
All
aspects of our business are subject to significant competition. Many
of our competitors generally have substantially greater financial resources and
other competitive advantages. Such greater resources and advantages
may reduce our chance for economic success.
Volatility
in the trading volume and ability to remain listed on NASDAQ may negatively
affect our stock price
Because
of the small volume of trading in our common stock, the market price of our
common stock can be affected by increases in trading volume. In
addition, our common stock is listed on the NASDAQ Capital Market or
NASDAQ. NASDAQ rules provide that if the market price of a share of
common stock is less than $1 for 30 consecutive trading days, it can be delisted
upon the happening of certain events. On September 15, 2009, NASDAQ
notified us that we were not in compliance with this rule and that our common
stock would be delisted if we did not regain compliance by March 15,
2010. If our common stock is delisted by NASDAQ, the market price of
the common stock may be negatively impacted.
The
exercise of our outstanding stock options could adversely affect our outstanding
common stock
Our stock
option plans are an important component of our compensation program for our
employees, directors and consultants. As of June 30, 2009, we have
outstanding options to purchase approximately 1,435,000 shares of common stock
with exercise prices ranging from $0.88 to $6.44 per share, which represents
approximately 27% of our outstanding common stock on a fully diluted
basis. As of June 30, 2009, we also have investors who hold warrants
to purchase 53,320 shares of common stock at an exercise price of $2.60 per
share which expire in April 2010. The existence of such rights to
acquire common stock at fixed prices may prove a hindrance to our efforts to
raise future funding by the sale of equity. The exercise of such
options or warrants will dilute the percentage ownership interest of our
existing stockholders and may dilute the value of their
ownership. The possible future sale of shares issuable on the
exercise of outstanding options could adversely affect the prevailing market
price for our common stock. Further, the holders of the outstanding
rights may exercise them at a time when we would otherwise be able to obtain
additional equity capital on terms more favorable to us.
Investors
should not expect dividends
Nyer
intends to retain future earnings, if any, to finance its growth.
Certain
risks are inherent with operating pharmacies; our liability insurance may not be
adequate to cover potential claims
Our
pharmacies are exposed to risks inherent in dispensing of prescription
medications. These include the potential for dispensing errors and
the providing of inadequate counseling or warning. Although we
maintain professional liability insurance, claims may result in significant
liability which may be beyond the limits of coverage. We can offer no
assurance that coverage limits under our insurance policies will be adequate to
protect against future claims, or that we will maintain adequate insurance on
acceptable terms in the future. Our results of operations, financial
condition or cash flows may adversely be affected if in the future our insurance
coverage proves to be inadequate.
Our
success may vary with regulation of and changes in the delivery of
healthcare
The
health care industry is subject to extensive government regulation, licensure
and operating procedures. Management cannot predict the impact that
present or future regulations may have on operations of DAW. DAW’s
pharmacists also may have a duty to warn customers regarding potential negative
effects of a prescription drug if the warning could reduce or negate these
effects. Additionally, DAW is subject to federal DEA and state
regulations relating to pharmacy operations, purchasing, storing and dispensing
of controlled substances. DAW is also subject to other federal
regulations such as HIPAA. Moreover, as consolidation among physician
provider groups, long-term care facilities and other alternate-site providers
continues and provider networks are created, purchasing decisions may shift to
individuals with whom DAW has not had prior selling
relationships. There can be no assurance that DAW will be able to
maintain its customer relationships in such circumstances or that such provider
consolidation will not result in reduced operating margins. Also,
national health care reform has been the subject of a number of legislative
initiatives by Congress. Due to uncertainties regarding the ultimate
features of health care reform initiatives and their enactment and
implementation, DAW cannot predict which, if any, of such reform proposals will
be adopted, when it may be adopted or what impact they may have on DAW or its
customers. The actual announcement of reform proposals and the
investment community’s reaction to such proposals, announcements by competitors
of their strategies to respond to reform initiatives and general industry
conditions could produce volatility in the trading and market price of Nyer’s
common stock.
We
are experiencing pricing pressures from health care providers and third party
payers
A
significant portion of the costs for prescription medication in the United
States is funded by government and private insurance programs, such as Medicare,
Medicaid and corporate health insurance plans. In recent years,
private third party reimbursement plans have developed increasingly
sophisticated methods of controlling prescription benefit costs through benefit
redesign and the exploration of more cost-effective
methods. Accordingly, there can be no assurance that reimbursement
for the dispensing of prescription medications will not be limited or reduced
and thereby adversely affect future sales by DAW. In addition, any
substantial delays in reimbursement, significant reduction in coverage or
payment rates from third party payers can have a material adverse effect on the
financial results of the pharmacies.
DAW
is dependent on relationships with vendors
DAW is
dependent on vendors to supply inventory. Currently, DAW relies on
its vendors to provide: (i) agreeable purchasing and delivery terms; (ii) sales
performance incentives; (iii) financial support of sales and marketing programs;
and (iv) promotional materials. There can be no assurance that DAW
will maintain good relations with its vendors. During the year ended
June 30, 2009, DAW had one vendor whose relationship accounts for over 90% of
our inventory purchases. DAW believes that, if necessary, it can
replace the vendor with no adverse cost effect; but DAW’s ability to maintain
good relations with vendors will affect the profitability of its
business.
DAW
is dependent on employees
DAW
depends on the continued service of, and on the ability to attract, motivate and
retain a sufficient number of pharmacists for our stores. Management
believes that DAW’s success is dependent, in part, on its continued ability to
attract and retain qualified and skilled pharmacists. Over the years,
a significant shortage of pharmacists has developed due to industry competition
as well as competition from other industries. This has resulted in
continued upward pressure on pharmacist compensation packages. There
can be no assurance that we will be able to attract, hire and retain sufficient
numbers of pharmacists necessary to continue to develop and grow its
business. The inability to attract and retain a sufficient number of
pharmacists could limit our ability to increase revenue and impact our ability
to deliver high levels of customer service.
We
may fail to maintain effective internal control in accordance with Section 404
of the Sarbanes-Oxley Act of 2002
The
Sarbanes-Oxley Act of 2002 imposes certain duties on us and our executives and
directors. Our efforts to comply with the requirements of the
Sarbanes-Oxley Act of 2002, and in particular with Section 404, have resulted in
increased general and administrative expenses and a diversion of management time
and attention, and we expect these efforts to require the continued commitment
of resources. If we fail to maintain the adequacy of our internal
controls, we may not be able to ensure that we can conclude on an ongoing basis
that we have effective internal control over financial
reporting. Although our management has determined that we had
effective internal control over financial reporting as of June 30, 2009, we may
identify material weaknesses or significant deficiencies in our future internal
control over financial reporting. In addition, our internal control
over financial reporting has not yet been audited by our independent registered
public accounting firm. Failure to maintain effective internal
control over financial reporting could result in investigation or sanctions by
regulatory authorities and could have a material adverse effect on our operating
results, investor confidence in our reported financial information, and the
market price of our common stock.
ITEM
1B. Unresolved Staff Comments
None.
ITEM
2. Properties
We have
non-cancelable leases for 20 pharmacies throughout the suburban Boston,
Massachusetts, area. Stores range in size from 325 to 5,100 square
feet and monthly lease payments range from $730 to $11,900. In
addition to minimum lease payments, which are set at competitive market rates,
certain leases require additional payments for reimbursement of taxes,
maintenance, and insurance. Most locations have renewable lease
options. Our executive and administrative offices are located
at 13 Water Street, Holliston, Massachusetts, where we lease 3,251 square
feet. We believe our current premises are adequate for our current
foreseeable needs.
In
addition, ADCO, currently classified as a discontinued operation, owned a 23,000
square foot facility in Bangor, Maine, which was sold on September 21,
2009.
ITEM
3. Legal Proceedings
In the
ordinary course of business, we may become involved in litigation incidental to
our business; however, we are not aware of any pending legal proceeding that
would have a material effect on operating results.
ITEM
4. Submission of Matters to a Vote of Security Holders
None.
PART II
ITEM
5. Market For Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
Market
and Stockholder Information
Our
shares of common stock are listed and traded on NASDAQ under the symbol
“NYER.”
The
continuation of quotations on NASDAQ is subject to certain
conditions. The failure to meet these conditions may prevent our
common stock from continuing to be quoted on NASDAQ and may have an adverse
effect on the market for our common stock. We have received
notice that we are not currently in compliance with NASDAQ’s minimum price
listing standard and that our common stock will be delisted if we do not regain
compliance by March 15, 2010. The high and low sales prices for our
common shares for the eight quarters ending June 30, 2009, are as
follows:
|
|
High
|
|
|
Low
|
|
Year ended June 30, 2009:
|
|
|
|
|
|
|
First
quarter ended September 30, 2008
|
|
$
|
1.49
|
|
|
$
|
1.11
|
|
Second
quarter ended December 31, 2008
|
|
$
|
1.22
|
|
|
$
|
0.52
|
|
Third
quarter ended March 31, 2009
|
|
$
|
1.11
|
|
|
$
|
0.76
|
|
Fourth
quarter ended June 30, 2009
|
|
$
|
1.14
|
|
|
$
|
0.77
|
|
|
|
|
|
|
|
|
|
|
Year ended June 30, 2008:
|
|
|
|
|
|
|
|
|
First
quarter ended September 30, 2007
|
|
$
|
2.08
|
|
|
$
|
1.75
|
|
Second
quarter ended December 31, 2007
|
|
$
|
1.82
|
|
|
$
|
0.99
|
|
Third
quarter ended March 31, 2008
|
|
$
|
1.70
|
|
|
$
|
1.06
|
|
Fourth
quarter ended June 30, 2008
|
|
$
|
1.65
|
|
|
$
|
1.13
|
|
Such
prices reflect inter-dealer prices and do not reflect retail mark-ups,
markdowns, or commissions. Our shares are traded sporadically, which
may affect the prices.
Holders
of Record
As of
September 21, 2009, there were approximately 46 holders of record of our shares
of common stock.
Dividends
Although
there are no restrictions on our ability to pay dividends, to date we have not
declared any cash dividends on any class of security nor do we anticipate doing
so in the foreseeable future.
Issuer
Purchases of Equity Securities
On May
12, 2003, we announced that our Board of Directors had authorized the repurchase
of up to 150,000 shares of our outstanding common stock from time-to-time in
open market transactions at prevailing market prices. There was no
expiration date established for this repurchase plan. As of the date
of this report, the plan has not been terminated, of which there remains 148,000
shares authorized for repurchase. There was no common stock
repurchased or sales of unregistered securities for the fourth quarter ended
June 30, 2009.
ITEM
6. Selected Financial Data.
This Item
is not required to be completed by smaller reporting companies.
ITEM
7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
The
following discussion should be read in conjunction with the audited consolidated
financial statements included in Item 8 of this Annual Report and the related
notes thereto included elsewhere in this Annual Report. This
discussion and analysis of our financial condition and results of operations
contains forward looking statements that involve risks and
uncertainties. We have based these forward looking statements on our
current expectations and projections of future events. Such
statements reflect our current views with respect to future events and are
subject to unknown risks, uncertainty, and other factors that may cause results
to differ materially from those contemplated in such forward looking
statements.
Overview
We
operate a chain of pharmacies and provide pharmacy management services to
various not-for-profit entities. The majority of DAW’s business
is conducted pursuant to contracts with pharmacy benefit management companies
and the Commonwealth of Massachusetts Medicaid Department, and each applies
consistent downward pressure on our margins.
The
current recessionary economic environment has not significantly adversely
affected the number of prescriptions dispensed at our pharmacies, as our
business is generally recession resistant. We continue to target
market niches not occupied by our larger competitors. While the
long-term outlook for prescription utilization is strong due in part to the
aging population and the continued development of innovative drugs that improve
the quality of life and control health care costs, the pharmacy industry is
highly competitive.
During
the fiscal year 2009 and 2008, our results also included discontinued operations
that consisted of the wholesale and retail sales of medical equipment and
supplies of ADCO, ADCO South, and the pharmacy revenues of our Topsfield
store.
Recent
Developments
In March 2009, we began operating
at the Dimock Community Health Center in Roxbury, Massachusetts, increasing our
number of locations with 340B affiliations to 14 and our total pharmacy
locations to 25.
In
December 2008, we sold the inventory and prescription lists of Topsfield to CVS
Pharmacy LLC (“CVS”). A gain of $507,000 was recognized on the
sale.
In
October 2008, we entered into a contract with the East Boston Neighborhood
Health Center to assume management of the Health Center’s pharmacy already in
operation. The pharmacy immediately became our highest volume
location in terms of prescriptions dispensed. As of December 31,
2008, we had successfully integrated the pharmacy dispensing software platform,
the robotic dispensing unit, the work-flow software, and the point of purchase
software. While the process was taxing on operational resources, we
believe the changes were necessary in order to maximize the long-term profit
potential of the pharmacy.
In
September 2008, we sold certain assets and liabilities of ADCO and a loss of
$193,260 was recognized on the sale. In connection with the
sale, we recorded a note receivable of $50,000. We and the buyer are
currently in dispute over certain assets and liabilities that were included in
the ADCO sale, and the note receivable has not been paid. As of June
30, 2009, we are unable to determine the final outcome of this dispute, but it
may result in an additional loss on the disposal of discontinued
operations.
In July
2008, we coordinated the relocation of the pharmacy that we manage for the
Boston Health Care for the Homeless Program (“BHCHP”) from the Barbara McInnis
House to BHCHP’s new, state of the art location within the Jean Yawkey Center
across from Boston Medical Center. At the new pharmacy, we began
dispensing patient prescriptions for patients visiting the new walk-in clinic in
addition to dispensing prescriptions for the program’s respite
patients.
In July
2008, we opened a pharmacy in Dorchester, Massachusetts, as a mirror operation
to our Peabody, Massachusetts, location to manage dispensing for a different
geographical area. Significant “location insensitive” business was
transferred from our other Dorchester pharmacy to gain efficiencies in the
dispensing process. The new pharmacy increased dispensing capacity
for the rapidly growing assisted living and adherence packaging market
segment.
Summary of Financial Impacts
of Restatements
The
consolidated financial statements of Nyer and our subsidiaries at and for the
fiscal year ended June 30, 2008, and related financial information have been
restated to correct errors in the accounting for direct costs associated with
the purchase of the minority interest in DAW now a wholly owned subsidiary of
the Company in February 2008. These costs were expensed, rather than
considered part of the cost of the acquisition in accordance with Statement of
Financial Accounting Standard (“SFAS”) No. 141,
Business
Combinations
. In addition, our consolidated financial
statements reflect the presentation of the discontinued operations for ADCO,
ADCO South, and Topsfield as of and for the years ended June 30, 2009 and 2008,
and certain other classifications made to conform the fiscal year 2008
consolidated financial statements to the presentation of the fiscal year 2009
consolidated financial statements. For further details on the nature
of the corrections and reclassifications and the related effects on the
Company's previously issued consolidated financial statements, see Note 3,
Restatements of Consolidated Financial Statements, included in Part II,
Item 8, Financial Statements and Supplementary Data. Restated
balances have been identified with the notation "restated" where
appropriate. The remainder of this management’s discussion and
analysis is based on amounts as restated.
Comparison of the year ended
June 30, 2009, to the year ended June 30, 2008
Results of
Operations
Net
revenues
. We recognize revenue both from the sale of
prescription medications and other products as well as through dispensing fee
revenue derived through dispensing of prescriptions with inventory owned by
Federally Qualified Health centers (“FQHCs”) pursuant to pharmacy management
services contracts entered into between us and various FQHCs. The
following table sets forth for the periods indicated pharmacy and dispensing
fees revenues from continuing operations and changes between the specified
periods expressed as a percentage increase or decrease:
|
|
Year
ended June 30
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
2009
|
|
|
2008
|
|
|
$
|
|
|
%
|
|
Sales
|
|
$
|
68,907,483
|
|
|
$
|
65,394,219
|
|
|
$
|
3,513,264
|
|
|
|
5.4
|
%
|
Dispensing
fees
|
|
|
5,815,361
|
|
|
|
3,200,795
|
|
|
|
2,614,566
|
|
|
|
81.7
|
%
|
Total
net revenues
|
|
$
|
74,722,844
|
|
|
$
|
68,595,014
|
|
|
$
|
6,127,830
|
|
|
|
8.9
|
%
|
Total net
revenues increased $6,127,830 to $74,722,844 or 8.9% for fiscal year 2009, as
compared to $68,595,014 for fiscal year 2008. The primary reason for
the increase in revenues was due to the addition of five new locations in April,
July, and October 2008, and March 2009. We operated 25 locations as
of June 30, 2009, compared to 23 locations in the prior
year. Net revenues decreased 2% at stores open more than
one year due to our decision to transfer accounts representing approximately
$5,300,000 in net revenues to two of the newly opened pharmacies. The
transfer was done to group certain specialized accounts together in order to
achieve efficiencies in the dispensing process. If the effect of the
business transfer is taken into effect, comparable revenue increased
approximately 5% for fiscal year 2009.
The
pharmacy sales (revenues other than dispensing fees) increased $3,513,264 to
$68,907,483 or 5.4% for fiscal year 2009 as compared to $65,394,219 for fiscal
year 2008. Sales decreased 4% at stores open more than one year due
to our decision to transfer accounts representing approximately $4,500,000 in
fiscal 2009 to two of the newly opened pharmacies. If the effect of
the business transfers is in taken into account, comparable sales increased
approximately 3% for fiscal year 2009.
The total
number of prescriptions dispensed increased 34% for the fiscal year
2009. The number of prescriptions dispensed did not correlate to a
commensurate growth in revenue due to an increased number of generic medications
as a percentage of total number of prescriptions dispensed. Generic
medications typically have a lower selling price than brand name
medications. We attribute the increase in prescription dispensing to
greater drug utilization on the part of an aging population, an overall increase
in market share within certain communities, and an increased utilization of
pharmacy services by patients of FQHCs with whom the pharmacies have contracts
to provide services. The pharmacies manage two pharmacies owned by
FQHCs and additionally have contracts to provide pharmacy services to patients
of five other FQHCs. The pharmacies maintain a segregated inventory owned by the
FQHCs for the purpose of dispensing prescriptions to health center
patients.
Dispensing
fee revenue increased $2,614,566 to $5,815,361 or 81.7% for fiscal year 2009 as
compared to $3,200,795 for fiscal year 2008. This increase is
primarily attributable to our new pharmacy contract with the East Boston
Neighborhood Health Center in East Boston, as well as the expanded number and
increased demand for covered medications effectuated during the fiscal year by
the Massachusetts Health Safety Net Office, an increased number of prescription
benefit management contracts entered into by the FQHCs contracted with us, and
marketing initiatives targeting the patients of the FQHCs.
Cost of sales.
The
following table sets forth for the periods indicated cost of sales from
continuing operations and changes between the specified periods expressed as a
percentage increase or decrease:
|
|
Year ended June 30
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
2009
|
|
|
2008
|
|
|
$
|
|
|
%
|
|
Cost
of sales
|
|
$
|
54,560,932
|
|
|
$
|
51,019,594
|
|
|
$
|
3,541,338
|
|
|
|
6.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit
margin rate
|
|
|
20.8
|
%
|
|
|
22.0
|
%
|
|
|
|
|
|
|
(1.2
|
)%
|
Cost of
sales increased $3,541,338 to $54,560,932 or 6.9% for fiscal year 2009, as
compared to $51,019,594 for fiscal year 2008 due to increased sales and
declining insurance reimbursement rates. Cost of goods sold includes
the following: the cost of inventory sold during the period, net of
related vendor rebates, allowances and purchase discounts, costs incurred to
return merchandise to vendors, inventory shrinkage costs, and inbound freight
charges.
Gross profit
margins
. Pharmacy gross profit margins decreased by 1.2% to
20.8% for fiscal year 2009 as compared to 22.0% for fiscal year 2008 primarily
due to declining insurance reimbursement rates. Dispensing fee
revenue is excluded from the calculation as there is no correlating inventory
cost associated with the services provided.
Selling, general, and administrative
expenses
. The following table sets forth for the periods
indicated selling, general, and administrative expenses (“SG&A”) from
continuing operations and changes between the specified periods expressed as a
percentage increase or decrease:
|
|
Year ended June 30
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
2009
|
|
|
2008
|
|
|
$
|
|
|
%
|
|
|
|
|
|
|
(restated)
|
|
|
|
|
|
|
|
SG&A
expenses
|
|
$
|
19,815,584
|
|
|
$
|
16,775,376
|
|
|
$
|
3,040,208
|
|
|
|
18.1
|
%
|
SG&A
increased $3,040,208 to $19,815,584 or 18.1% for fiscal year 2009, as compared
to $16,775,376 for fiscal year 2008. The increase was primarily due
to increases in payroll costs of approximately $3,165,000, facility rent of
approximately $109,000, and equipment rent of approximately $146,000, partially
offset by a decrease in advertising expense of approximately
$402,000. The increases in payroll costs were primarily due to
$2,364,000 related to six newly opened locations plus $801,000 at stores open
more than one year and are predominately the result of market pressures on
salary and benefit packages for pharmacists. The additional
pharmacies also added approximately $197,000 in additional
overhead.
Other income (expense),
net.
The following table sets forth for the periods indicated
the breakdown of other income (expense):
|
|
Year ended June 30
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
2009
|
|
|
2008
|
|
|
$
|
|
|
%
|
|
Interest
expense
|
|
$
|
(185,247
|
)
|
|
$
|
(98,188
|
)
|
|
$
|
(87,059
|
)
|
|
|
88.7
|
%
|
Interest
income
|
|
|
11,104
|
|
|
|
11,631
|
|
|
|
(527
|
)
|
|
|
(4.5
|
)%
|
Other
income
|
|
|
18,112
|
|
|
|
25,977
|
|
|
|
(7,865
|
)
|
|
|
(30.3
|
)%
|
Total
other income (expense), net
|
|
$
|
(156,031
|
)
|
|
$
|
(60,580
|
)
|
|
$
|
(95,451
|
)
|
|
|
157.6
|
%
|
Total
other income (expense), net, increased $95,451 primarily due to the interest
expense on the related party notes issued in connection with the purchase of the
remaining 20% of DAW.
Income taxes
. We
recorded an income tax benefit from continuing operations of $182,087 for fiscal
year 2009 primarily due to the losses from operations, offset by changes in
deferred tax assets. In addition, for fiscal year 2009, we recorded
income tax benefit from discontinued operations of $2,394 and income tax expense
of $142,176 due to the disposal of the discontinued operations of ADCO and
Topsfield. We recorded income tax expense from continuing operations
of $12,132 for fiscal year 2008 primarily due to the income from operations and
changes in deferred taxes. We also recorded income tax expense from
discontinued operations of $93,407 and income tax benefit of $1,270 due to the
disposal of discontinued operations.
Discontinued
operations.
In December 2008, we sold the inventory and
prescription lists of Topsfield to CVS. In conjunction with this
sale, we also entered into a non-compete agreement with CVS, whereby we agreed
not to compete for three years within a 10-mile radius of the CVS store located
in Danvers, Massachusetts, excluding two currently operating Eaton Apothecary
pharmacies. A gain of $507,000 was recognized on the sale of
Topsfield.
In
September 2008, we sold certain assets and liabilities of ADCO, a medical and
surgical equipment and supplies company engaged in both the wholesale and retail
selling of medical equipment and surgical supplies throughout New England and
the internet. A loss on disposal of $193,260 was recognized on the
sale of ADCO’s certain assets and liabilities. In connection with
this sale, we received a $50,000 note receivable that was payable January 31,
2009. We and the buyer are currently in dispute over certain assets
and liabilities that were included in the ADCO sale, and the note
receivable has not been paid. We are unable to determine the final
outcome of this dispute, but it may result in an additional charge to the
disposal of discontinued operations.
We
retained ADCO’s building and land and its line of credit of $300,000, which has
been fully utilized. The buyer of ADCO’s assets had an option to
purchase the building and land that was not exercised and expired on January 31,
2009. On September 21, 2009, we sold the building to Dovesco,
LLC, an assignee of Doane, for $830,000 and recognized a gain on the sale of
$519,199. A portion of the proceeds from the sale was
used to pay the existing line of credit. No balance remains
outstanding against the line; and as of September 21, 2009, the line of credit
was terminated.
In June
2008, we sold ADCO South, a medical and surgical equipment and supplies company
engaged in the wholesale selling of medical equipment and surgical supplies
throughout Florida. We recognized a loss on the sale of
$5,112.
In
December 2007, we reevaluated the outstanding liabilities related to our fire
and police segment (discontinued in 2004) and concluded there were no remaining
liabilities. The liabilities were reversed and a $298,628 gain has
been reflected in discontinued operations.
Deemed dividend on redemption of
preferred stock
. In February 2008, we redeemed the then
outstanding Series A and B Preferred Stock for $400,000. The excess
over the carrying value of $3 was recorded as a deemed dividend and increased
the net loss applicable to common shareholders. For the year
ended June 30, 2008, this resulted in $399,997 being subtracted from net
earnings. Financial Accounting Standards Board (“FASB”) Emerging
Issue Task Force Topic D-42,
The Effect on the Calculation of
Earnings Per Share for the Redemption or Induced Conversion of Preferred
Stock
, provides among other things, that any excess of
(1) the fair value of the consideration transferred to the holders of
preferred stock redeemed over (2) the carrying amount of preferred stock,
should be subtracted from net earnings to determine net (loss) income available
to common shareholders in the calculation of earnings per share.
Comparison of the year ended
June 30, 2008, to the year ended June 30, 2007
Results of
Operations
Net
revenues
. The following table sets forth for the periods
indicated pharmacy and dispensing fees revenues from continuing operations and
changes between the specified periods expressed as a percentage increase or
decrease:
|
|
Year ended June 30
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
%
|
|
Sales
|
|
$
|
65,394,219
|
|
|
$
|
59,605,468
|
|
|
$
|
5,788,751
|
|
|
|
9.7
|
%
|
Dispensing
fees
|
|
|
3,200,795
|
|
|
|
2,335,674
|
|
|
|
865,121
|
|
|
|
37.0
|
%
|
Total
net revenues
|
|
$
|
68,595,014
|
|
|
$
|
61,941,142
|
|
|
$
|
6,653,872
|
|
|
|
10.7
|
%
|
Total
revenues increased $6,653,872 to $68,595,014 or 10.7% for fiscal year 2008, as
compared $61,941,142 for fiscal year 2007. The primary reason for the
increase in revenues was due to a 4.75% increase in the number of prescriptions
dispensed at stores open more than one year, the acquisition of a pharmacy in
July 2007, and the addition of three new pharmacies in April and December 2007,
and February 2008. Stores open more than one year experienced a 2.4%
growth in revenue. The growth in the number of prescriptions
dispensed did not correlate to a commensurate growth in revenue due to an
increased number of generic medications as a percentage of the total number of
prescriptions dispensed. Generic medications typically have a lower
selling price than brand name medications.
The
pharmacy sales (revenues other than dispensing fees) increased $5,788,751 to
$65,394,219 or 9.7% for fiscal year 2008 as compared to $59,605,468 for fiscal
year 2007. The increase was attributable to the acquired pharmacy,
the opening of three new pharmacies, and a 2.0% increase in sales at locations
open more than one year. The increase in prescription dispensing at
stores open more than one year can be attributed to greater drug utilization on
the part of an aging population, an overall increase in market share within
certain communities, and an increased utilization of pharmacy services by
patients of FQHCs with whom the pharmacies have contracts to provide
services. The pharmacies manage two pharmacies owned by FQHCs and
additionally have contracts to provide services. The pharmacies
manage two pharmacies owned by FQHCs and additionally have contracts to provide
pharmacy services to patients of five other FQHCs. The pharmacies
maintain a segregated inventory owned by the FQHCs for the purpose of dispensing
prescriptions to health center patients.
Dispensing
fee revenue increased $865,121 to $3,200,795 or 37.0% for fiscal year 2008 as
compared to $2,335,674 for fiscal year 2008. Two locations which
opened in February and April 2007, accounted for $513,013 of the
increase. The remainder of the increase can be attributed to an
expanded number of and increased demand for covered medications effectuated
during the fiscal year by the Massachusetts Health Safety Net Office, an
increased number of prescription benefit management contracts entered into by
the FQHCs contracted with DAW, and marketing initiatives targeting the patients
of the FQHCs.
Cost of sales.
The
following table sets forth for the periods indicated cost of sales from
continuing operations and changes between the specified periods expressed as a
percentage increase or decrease:
|
|
Year ended June 30
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
%
|
|
Cost
of sales
|
|
$
|
51,019,594
|
|
|
$
|
46,874,820
|
|
|
$
|
4,144,774
|
|
|
|
8.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit
margin rate
|
|
|
22.0
|
%
|
|
|
21.4
|
%
|
|
|
|
|
|
|
0.6
|
%
|
Cost of
sales increased $4,144,774 to $51,019,594 or 8.8% for fiscal year 2008, as
compared to $46,874,820 for fiscal year 2007 primarily due to increased
sales. Cost of goods sold includes the following: the cost
of inventory sold during the period, net of related vendor rebates, allowances
and purchase discounts, costs incurred to return merchandise to vendors,
inventory shrinkage costs, and inbound freight charges.
Gross profit
margins
. Pharmacy gross profit margins slightly increased to
22.0% for fiscal year 2008 as compared to 21.4% for fiscal year 2007 primarily
due to increased purchase volume discounts as well as increased dispensing of
generic medications which carry higher gross profit margins. Each
helped to offset lower insurance reimbursements. Dispensing fee
revenue is excluded from the calculation as there is no correlating inventory
cost associated with the services provided.
Selling, general, and administrative
expenses
. The following table sets forth for the periods
indicated SG&A from continuing operations and changes between the specified
periods expressed as a percentage increase or decrease:
|
|
Year ended June 30
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
%
|
|
|
|
(restated)
|
|
|
|
|
|
|
|
|
|
|
SG&A
expenses
|
|
$
|
16,775,376
|
|
|
$
|
14,030,223
|
|
|
$
|
2,745,153
|
|
|
|
19.6
|
%
|
SG&A
increased $2,745,155 to $16,775,378 or 19.6% for fiscal year 2008, as compared
to $114,030,223 for fiscal year 2007. The increase was primarily due
to increases in payroll costs of approximately $2,200,000, rent expense and
administrative expenses. Increased labor costs consisted of the
following: $1,000,000 of the increase occurred at stores open more
than one year and is predominately the result of market pressures on salary and
benefit packages for pharmacists. The balance of the increase in
payroll is attributable to the pharmacy acquired in July 2007, as well as the
four pharmacies opened between February 2007 and February 2008. The
additional pharmacies also added approximately $300,000 in additional
overhead.
Other income (expense),
net.
The following table sets forth for the periods indicated
the breakdown of other income (expense):
|
|
Year ended June 30
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
%
|
|
Interest
expense
|
|
$
|
(98,188
|
)
|
|
$
|
(25,769
|
)
|
|
$
|
(72,419
|
)
|
|
|
281.0
|
%
|
Interest
income
|
|
|
11,631
|
|
|
|
14,077
|
|
|
|
(2,446
|
)
|
|
|
(17.4
|
)%
|
Other
income
|
|
|
25,977
|
|
|
|
16,040
|
|
|
|
9,937
|
|
|
|
62.0
|
%
|
Total
other income (expense), net
|
|
$
|
(60,580
|
)
|
|
$
|
4,348
|
|
|
$
|
(64,928
|
)
|
|
|
(1493.3
|
)%
|
Total
other income (expense), net, increased $72,419 primarily due to the interest
expense on the related party notes issued in connection with purchase of the
remaining 20% of DAW.
Income taxes
. We
determined that in fiscal year 2009, we would be able to utilize a portion of
the tax benefits from intangible assets previously written-off for book purposes
and we most likely would not be able to utilize the benefit from the increase in
the Florida net operating loss. The net tax effect of these changes
is a decrease of $19,000 in the valuation allowance for fiscal year
2008.
Discontinued
operations.
In December 2008, we sold the
inventory and prescription lists of Topsfield to CVS. In conjunction
with this sale, we also entered into a non-compete agreement with CVS, whereby
we agreed not to compete for three years within a 10-mile radius of the CVS
store located in Danvers, Massachusetts, excluding two currently operating Eaton
Apothecary pharmacies. A gain of $507,000 was recognized on the sale
of Topsfield.
In
September 2008, we sold certain assets and liabilities of ADCO and recognized a
loss on disposal of $193,260.
In June
2008, we sold ADCO South and recognized a loss on the sale of
$5,118.
In
December 2007, we reevaluated the outstanding liabilities related to our fire
and police segment (discontinued in 2004) and concluded there were no remaining
liabilities. The liabilities were reversed and a $298,628 gain has
been reflected in discontinued operations.
Deemed dividend on redemption of
preferred stock
. In February 2008, we redeemed the then
outstanding Series A and B Preferred Stock for $400,000. The excess
over the carrying value of $3 was recorded as a deemed dividend and increased
the net loss applicable to common shareholders. For fiscal year
2008, this resulted in $399,997 being subtracted from net
earnings. FASB Emerging Issue Task Force Topic D-42,
The Effect on the Calculation of
Earnings Per Share for the Redemption or Induced Conversion of Preferred
Stock
, provides among other things, that any excess of (1) the fair
value of the consideration transferred to the holders of preferred stock
redeemed over (2) the carrying amount of preferred stock, should be
subtracted from net earnings to determine net income available to common
shareholders in the calculation of earnings per share.
Liquidity and Capital
Resources
As of
June 30, 2009, we had $62,752 of cash as compared to $140,688 at June 30, 2008,
as cash was used to fund current operations. Our primary source of
liquidity is cash provided by operations, and our principal uses of cash are
operating expenses, acquisitions, capital expenditures, and repayments of
debt.
Net cash used by operating activities
from continuing operations
. Net cash used by operating
activities from continuing operations was $549,931 for fiscal year 2009 and
consisted of our net loss of $256,076 adjusted for non-cash items of $600,053
(including depreciation of $539,398, and amortization, provision for losses in
accounts receivable, and stock-based compensation expenses of $136,575, offset
by a decrease deferred income taxes of $76,500) and net cash used from changes
in working capital of $893,908. The net cash used from changes in
working capital, net of effects of acquisitions and disposals, was principally
the result of an increase in inventories, accounts receivable, and prepaid
expenses and other current assets partially offset by an increase in accounts
payable. The increase in inventories was primarily the
result of new pharmacy locations and the increase in accounts receivable and
accounts payable was due to the increase in sales.
Net cash used in investing activities
from continuing operations.
Net cash used in investing
activities from continuing operations was $592,767 for fiscal year 2009 and
consisted of the purchase of equipment primarily due to the new pharmacy
locations, the purchase of three new delivery trucks to meet the requirements of
an increased delivery radius necessitated by one of our assisted living facility
contracts, and the upgrade of some of our existing information technology
equipment.
Net cash used in financing activities
from continuing operations.
Net cash used in financing
activities from continuing operations was $98,691 for fiscal year 2009 and
consisted of long-term debt repayments of $263,959 and principal payments on the
capital lease obligation of $15,024 partially offset by the proceeds from the
capital lease equipment financing of $180,292.
We
recognized a net operating loss of $282,142 for fiscal year
2009. Although it is our intention is to generate an operating profit
in the future, there can be no assurance that we will not generate a net
operating loss. We believe the cash provided from operations,
including favorable payment terms with our largest vendor and timely cash
receipts due from accounts receivable from third party payers, along with the
remaining proceeds from the sale of the ADCO building, will be adequate to fund
our operations for at least the next 12 months.
Contractual
Obligations
Asset security
interest
. DAW has an agreement with its major supplier to
purchase pharmaceuticals. This agreement terminates January 31,
2012. Payment for merchandise delivered is secured by a first primary
interest in all assets of DAW.
Line of Credit.
ADCO had a $300,000 line of credit (the “line”), which was
collateralized by the building and land owned by ADCO and guaranteed by
us. The interest rate for the line was 2% above the Wall Street
Journal Prime rate; and repayment of the line was in monthly payments of
interest only, with the principal being due at maturity, unless
renewed. The line was scheduled to expire on October 31,
2009. As of June 30, 2009, we had $300,000 of outstanding borrowings
on the line. The building that was used as collateral for the line of
credit was sold on September 21, 2009. A portion of the proceeds were
used to pay off the line, and it was terminated effective September 21,
2009.
Our
principal contractual obligations consist of operating leases, capital leases,
and long-term debt and are as follows at June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
years
|
|
|
|
|
|
|
Less
than
|
|
|
1
to 3
|
|
|
3
to 5
|
|
|
and
|
|
|
|
Total
|
|
|
one year
|
|
|
years
|
|
|
years
|
|
|
beyond
|
|
Operating
leases
|
|
$
|
5,763,352
|
|
|
$
|
1,779,462
|
|
|
$
|
2,645,476
|
|
|
$
|
768,564
|
|
|
$
|
569,850
|
|
Capital
leases
|
|
|
196,350
|
|
|
|
42,840
|
|
|
|
85,680
|
|
|
|
67,830
|
|
|
|
-
|
|
Long-term
debt
|
|
|
2,050,015
|
|
|
|
143,222
|
|
|
|
1,786,416
|
|
|
|
120,377
|
|
|
|
-
|
|
Total
contractual obligations
|
|
$
|
8,009,717
|
|
|
$
|
1,965,524
|
|
|
$
|
4,517,572
|
|
|
$
|
956,771
|
|
|
$
|
569,850
|
|
The
commitments under our operating leases consist of building and equipment
rents.
Purchase of minority interest in
DAW
. On February 4, 2008, in consideration for the
Acquisition, we paid and issued to the Minority Shareholders the following: (i)
a payment of $1,750,000 (which was funded by a promissory note in connection
with a certain loan from DAW (the “DAW Note”); (ii) 2,000 shares of Series 2
Stock, a newly-created series of convertible Class B Stock, which shares are
initially convertible into 218,000 shares of our common stock, based upon an
initial conversion price of $1.84 (which is subject to adjustment), and which
have 2,000 votes per share of Series 2 Stock (for an aggregate of 4,000,000
votes); (iii) the $350,000 promissory note (the “Purchase Note”); and (iv) the
$1,500,000 of convertible notes (the “Convertible Notes”), which are convertible
into an aggregate of approximately 815,217 shares of common stock, based upon an
initial conversion price of $1.84. We also incurred $458,516 of
transaction costs related to this acquisition.
On
February 4, 2008, we also purchased from Mr. Nyer 2,000 shares of our Class A
Stock and 1,000 shares of Class B Stock held by Mr. Nyer (the “Samuel Nyer
Purchase”), which represented all of the issued and outstanding shares of such
preferred stock, in exchange for a $400,000 promissory note (the “Nyer
Promissory Note”). In accordance with the terms of the Amended
Agreement, we cancelled the Class A Stock and the Class B Stock.
As a
result of the Acquisition, the issuance of the Series 2 Stock to the Minority
Shareholders, the Samuel Nyer Purchase (and subsequent cancellation of the Class
A Stock and the Class B Stock), and the appointment of certain Minority
Shareholders to fill director and officer vacancies, there has been a change of
our control with the Minority Shareholders owning approximately 58% of the
voting power of our outstanding common stock and certain Minority Shareholders
holding office as director and/or executive officer of us.
Terms of notes issued in connection
with purchase of minority interest in DAW.
The $350,000 Purchase Note
bears interest at the rate of 7% per annum and has a five-year
term. We will make 60 monthly payments of principal of $5,833.33 plus
interest under the Purchase Note. The Purchase Note was assigned to
Nyle on February 4, 2008, by the Minority Shareholders as consideration for
their purchase of our common stock that was owned by Nyle.
The
$1,500,000 Convertible Notes bear interest at the rate of 8% per annum and
mature on February 4, 2011. Interest on the Convertible Notes is paid
in arrears on the 15
th
day of
each month and on maturity, commencing on March 15, 2008. The
principal amount, with any interest owed and not yet paid, is due at
maturity.
Prior to
February 4, 2009, interest on the Convertible Notes may only be paid in
cash. After February 4, 2009, the holders of the Convertible Notes
have the option of having interest paid in cash or in shares of common stock
(based on the conversion rate then in effect, which is initially $1.84, but
subject to adjustment). If any amount of principal or other amounts
due under the Convertible Notes, other than interest, is not paid when due, we
will pay a late charge equal to 15% per annum on such amount from the date such
amount was due until it is paid in full.
On and
after February 4, 2009, the holders of the Convertible Notes may elect to
convert any portion of the outstanding and unpaid interest and principal of the
Convertible Notes into shares of common stock at a conversion price of $1.84 (as
appropriately adjusted for any stock split, stock dividend, stock combination,
spin-off, split-up, reclassification, recapitalization, combination of shares or
other similar transaction that proportionately decreases or increases the common
stock outstanding).
Subject
to exceptions, the conversion price of the Convertible Notes will also be
adjusted in the event that (i) we sell shares of common stock or a security
convertible or exchange into or exercisable for shares of common stock at a
price per share less than the conversion price then in effect, or (ii) there is
a stock split, stock dividend, reverse stock split or other subdivision of the
common stock.
After
February 4, 2009, we, at our option, may redeem a portion or the entire
outstanding principal of the Convertible Notes. Upon our notice to
redeem, the holders of the Convertible Notes may elect to convert their notes
prior to their receipt of the redemption payment from us. The
redemption price is 100% of the face amount of the Convertible Notes being
redeemed plus accrued and unpaid interest. The former minority
shareholders have indicated that they do not intend to redeem the Convertible
Notes until after July 1, 2010.
The DAW
Note bears interest at the applicable federal rate in effect on February 4,
2008, and we must repay it on or before February 4, 2013. In order to
have the funds available to finance the loan by DAW to us, DAW and its major
supplier agreed to amend the supplier’s payment terms by extending the time
period for which DAW has to pay the supplier’s invoices, which, as a result,
increased DAW’s available cash. The increased available cash
was used for the loan by DAW to us.
The
$400,000 Nyer Promissory Note bears interest at the rate of 7% per annum, has a
five-year term with 60 monthly payments of principal of $6,666.67 plus
interest.
Series 2 Class B Preferred
Stock.
At any time, the holders of the Series 2 Stock may
convert their shares into common stock upon our (i) consolidation with or merger
into any other person, or (ii) transfer of all or substantially all of its
properties or assets to any other person under any plan or arrangement
contemplating our dissolution. The holders of at least a majority of
the Series 2 Stock then outstanding may waive any of the conditions to mandatory
conversion and may convert their shares of Series 2 Stock at any time after
February 4, 2011.
On
February 4, 2011, or such later date as the following conditions are met in
their entirety, all of the shares of Series 2 Stock will be converted into
common stock: (i) no event of default has occurred and is continuing
beyond any applicable cure periods under the promissory notes issued by us to
any of the Minority Shareholders pursuant to the Amended Agreement and (ii) the
resale of common stock issuable upon conversion of the Series 2 Stock is covered
by an effective registration statement.
If we
issue or sell any shares of common stock by means of options, convertible
securities, or otherwise for a price per share (the “New Issuance Price”) less
than the Conversion Price then in effect, then immediately after such dilutive
issuance, the Conversion Price then in effect will be reduced to the New
Issuance Price. The adjustment to the Conversion Price made in regard
to an option or convertible security will be made at the time such option or
convertible security is issued (and not when such option or convertible security
is exercised or converted).
Critical Accounting
Policies
Our
discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with generally accepted accounting principles in the United States
(“GAAP”). The preparation of these financial statements requires us
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues, and expenses and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates,
including those related to revenue recognition, inventory shrinkage, impairment,
and income taxes. We base our estimates on historical experience,
current and anticipated business conditions, the condition of the financial
markets, and various other assumptions that are believed to be reasonable under
existing conditions. Actual results may differ from these
estimates.
We
believe that the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements:
Revenue
recognition.
For all pharmacy sales other than third party
pharmacy sales and those described below, we recognize revenue from the sale of
merchandise at the time of the sale. For third party pharmacy sales,
revenue is recognized at the time the prescription is dispensed. We
record third party revenues and related receivables net of provisions for
contractual and other adjustments.
We also
recognize revenues from transactions wherein the pharmacy dispenses
pharmaceuticals from its inventory provided to non-profit organizations through
certain governmental programs treating needy patients. We receive a
dispensing fee, a percentage of the cost of the medication, and the replacement
of the pharmaceutical. Replacement of the pharmaceuticals does not
result in revenue. The dispensing fee and the percentage of the
prescription cost are recorded as revenue. We recognize dispensing
fee revenue when we dispense prescriptions for non-profit agencies on a per
prescription basis and receive a dispensing fee for each prescription
dispensed. In one contract, we also receive a stipulated monthly
amount per patient.
Our
estimate of uncollectible amounts is based on our historical collection
experience and current economic and credit conditions.
Inventories.
Included
in our valuation of inventory are estimates of the losses related to shrinkage,
which occurs during periods between physical inventory counts. When
estimating these losses, we considered historical loss results at specific
locations as well as overall loss trends. Should actual shrink losses
differ from the estimates upon which our reserves were based, our operating
results will be impacted.
Impairment
. We
evaluate long-lived assets, excluding goodwill, for impairment when events or
changes in circumstances indicate that the assets may not be
recoverable. The impairment is measured by estimating the expected
future cash flow expected to be generated by the assets and comparing this
amount to the carrying value.
Goodwill
impairment.
In connection with the provisions of FASB
Statement of Financial Accounting Standards (“SFAS”) No. 142,
Goodwill and Other Intangible
Assets
, we perform an annual impairment test of goodwill. Our
tests during the fourth quarter of fiscal years 2009 and 2008 resulted in no
impairment being identified. However, the process of evaluating
goodwill for impairment involves the determination of the fair value of our
companies. Inherent in such fair value determinations are certain
judgments and estimates, including the interpretation of economic indicators and
market valuations and assumptions about our strategic plans. To the
extent that our strategic plans change or that economic and market conditions
worsen, it is possible that our conclusion regarding goodwill impairment could
change and result in a material effect on our financial position or results of
operations.
On June
30, 2009, the carrying value of the Company’s net assets was $8,789,702; and the
market capitalization of the Company’s outstanding shares, assuming conversion
of outstanding preferred shares, was $3,231,073. The Company
calculated the estimated fair value of the Company as of June 30, 2009, as that
amount that would be received to sell the Company as a whole on that
date. It arrived at the estimated fair value by using the December
2008 selling price of the Company’s Topsfield store and other comparable
data. The Company has concluded that the Company’s fair value exceeds
its carrying value as of June 30, 2009, and that goodwill is not
impaired.
The
Company has concluded that the market value of the Company’s common stock as of
June 30, 2009, is not an indication of the Company’s market value due to the
fact that it is very thinly traded and that the implied fair value test is a
more accurate indication of whether or not there has been an impairment of
goodwill. Inherent in such fair value determinations are certain
judgment and estimates, including the interpretation of economic indicators and
market valuations and assumptions about the Company’s strategic
plans. To the extent that its strategic plans change or that economic
and market conditions worsen, it is possible that its conclusion regarding
goodwill impairment could change and result in a material effect on financial
position and results of operations of the Company.
Income taxes.
We
have significant deferred tax assets. We regularly review deferred
tax assets for recoverability considering our historical profitability,
projected taxable income, the expected timing of the reversals of existing
temporary differences, and tax planning strategies. We will establish
a valuation allowance against deferred tax assets when we determine that it is
more likely than not that some portion of our deferred tax assets will not be
realized. Changes in valuation allowances from period to period are
included in the tax provision in the period of change. Significant
judgment is required in making these assessments.
Recent Accounting
Pronouncements
In
June 2009, the FASB issued SFAS No. 168,
The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting
Principles
)
,
which establishes the
FASB Accounting Standards Codification as the single source of authoritative
GAAP. The Codification will supersede all existing non-SEC accounting
and reporting standards. As a result, upon adoption, all references to
accounting literature in our SEC filings will conform to the appropriate
reference within the Codification. This statement is effective for
financial statements issued for interim and annual periods ending after
September 15, 2009. We do not expect the adoption of this standard to
have an impact on our financial position or results of operations.
In April
2009, the FASB issued Staff Position No. FAS 107-1 and APB 28-1,
Interim Disclosures About Fair Value
of Financial Instruments,
(“FSP 107-1 and APB 28-1”), which amends FASB
SFAS No.107,
Disclosures about
Fair Value of Financial Instruments
, to require disclosures about fair
value of financial instruments for interim reporting periods of publicly traded
companies as well as in annual financial statements. This FSP also
amends APB Opinion No. 28,
Interim Financial Reporting
,
to require these disclosures in summarized financial information for interim
reporting periods. This FSP was effective for interim and annual periods ending
after June 15, 2009. The adoption of FSP FAS 107-1 and APB 28-1 did
not have a material impact on our consolidated financial
statements.
In June
2008, the FASB ratified Emerging Issues Task Force (“EITF”) Issue No. 07-5
(“EITF 07-5”),
Determining
Whether an Instrument (or an Embedded Feature) Is Indexed to an Entity's Own
Stock
. EITF 07-5 provides that an entity should use a two-step
approach to evaluate whether an equity-linked financial instrument (or embedded
feature) is indexed to its own stock, including evaluating the instrument's
contingent exercise and settlement provisions. EITF 07-5 is
effective for fiscal years beginning after December 15, 2008. The
consensus must be applied to outstanding instruments as of the beginning of the
fiscal year in which the consensus is adopted and should be treated as a
cumulative-effect adjustment to the opening balance of retained
earnings. Early adoption is not permitted. We are in the
process of evaluating the impacts, if any, of adopting this EITF.
In
April 2008, the FASB issued FSP FAS 142-3,
Determination of the Useful Life of
Intangible Assets
. FSP FAS 142-3 amends the factors that
should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under SFAS
No. 142,
Goodwill and
Other Intangible Assets
. The intent of this FSP is to improve
the consistency between the useful life of a recognized intangible asset under
SFAS 142 and the period of expected cash flows used to measure the fair value of
the asset under FSAS No. 141 (revised 2007),
Business Combinations
, and
other GAAP. This statement is effective for fiscal years beginning on
or after December 15, 2008, and interim periods within those
years. Early application is not permitted. We do not
expect the adoption of this standard to have an impact on our financial
position or results of operations.
In April
2008, the FASB issued FSP Accounting Principles Board 14-1 (“FSP APB 14-1”),
Accounting for Convertible
Debt Instruments That May be Settled in Cash upon Conversion (Including Partial
Settlement)
. FSP APB 14-1 requires the issuer of certain
convertible debt instruments that may be settled in cash (or other assets) on
conversion to separately account for the liability (debt) and equity (conversion
option) components of the instrument in a manner that reflects the issuer’s
nonconvertible debt borrowing rate. FSP APB 14-1 is effective for
fiscal years beginning after December 15, 2008, and on a retroactive
basis. We are evaluating the potential impact, if any, of the
adoption of FSP APB 14-1 on our consolidated results of operations and financial
condition.
In March
2008, the FASB issued SFAS No. 161,
Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB statement
No.
133 (SFAS No.
161).
SFAS
No. 161 requires enhanced disclosures regarding an entity’s derivative
instruments and related hedging activities. These enhanced disclosures
include information regarding how and why an entity uses derivative instruments;
how derivative instruments and related hedge items are accounted for under SFAS
No. 133,
Accounting for
Derivative Instruments and Hedging Activities,
and its related
interpretations; and how derivative instruments and related hedge items affect
an entity’s financial position, financial performance, and cash flows.
SFAS No. 161 is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008. The
adoption of SFAS No. 161 will not have a material impact on our
consolidated results of operations and financial condition.
In
December 2007, the FASB issued SFAS No. 141(R),
Business Combinations
, which
replaces SFAS No. 141,
Business
Combinations
. The statement retains the purchase method of
accounting for acquisitions but requires a number of changes, including changes
in the way assets and liabilities are recognized in the purchase
accounting. It also changes the recognition of assets acquired and
liabilities assumed arising from contingencies, requires the capitalization of
in-process research and development at fair value, and requires the expensing of
acquisition-related costs as incurred. SFAS No. 141(R) is effective for the
Company beginning July 1, 2009, and will apply prospectively to business
combinations completed on or after that date. We do not expect the
adoption of this standard to have an impact on our financial position or results
of operations.
In February 2007,
the FASB issued SFAS No. 159,
The
Fair Value Option for Financial Assets and Financial Liabilities
. SFAS 159
provides companies with an option to report selected financial assets and
liabilities at fair value. The standard’s objective is to reduce both
the complexity in accounting for financial
instruments and the volatility
in earnings caused by measuring related assets and liabilities
differently. SFAS 159 also establishes presentation and disclosure
requirements designed to facilitate comparisons between companies that choose
different measurement attributes for similar types of assets and
liabilities. We adopted SFAS 159 effective July 1, 2008, but have not
elected to measure any permissible items at fair value. As a result,
the adoption of this statement did not have a material impact on our
consolidated financial statements.
In
September 2006, the FASB issued SFAS No. 157,
Fair Value
Measurements.
This Statement defines fair value, establishes a
framework for measuring fair value in accordance with GAAP, and expands
disclosures about fair value measurements. The definition of fair value
retains the exchange price notion in earlier definitions of fair value.
This Statement clarifies that the exchange price is the price in an
orderly transaction between market participants to sell the asset or transfer
the liability in the market in which the reporting entity would transact for the
asset or liability, that is, the principal or most advantageous market for the
asset or liability. Emphasis is placed on fair value being a market-based
measurement, not an entity-specific measurement; and therefore, a fair value
measurement should be determined based on the assumptions that market
participants would use in pricing the asset or liability. As a basis for
considering these market participant assumptions, a fair value hierarchy has
been established to distinguish between (1) market participant assumptions
developed based on market data obtained from sources independent of the
reporting entity (observable inputs) and (2) the reporting entity’s own
assumptions about market participant assumptions developed based on the best
information available in the circumstances (unobservable inputs). In
February 2008, the FASB issued a Staff Position which delays the effective date
of SFAS No. 157 for non-financial assets and non-financial liabilities,
except for items that are recognized or disclosed at fair value in the financial
statements on a recurring basis, to fiscal years beginning after
November 15, 2008. We adopted this statement, except for items
covered by the Staff Position, as of July 1, 2008; and the adoption did not
have a material impact on our consolidated results of operations and financial
condition.
ITEM
7A. Quantitative and Qualitative Disclosures About Market
Risk
This Item
is not required to be completed by smaller reporting companies.
ITEM
8. Financial Statements and Supplementary Data
NYER
MEDICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
Table of
Contents
Reports
of Independent Registered Public Accounting Firms
|
33
|
|
|
Consolidated
Financial Statements:
|
|
|
|
Consolidated
Balance Sheets as of June 30, 2009 and June 30, 2008
|
35
|
|
|
Consolidated
Statements of Operations for the years ended June 30, 2009 and
2008
|
36
|
|
|
Consolidated
Statements of Changes in Shareholders’ Equity for the years ended June 30,
2009 and 2008
|
37
|
|
|
Consolidated
Statements of Cash Flows for the years ended June 30, 2009 and
2008
|
38
|
|
|
Notes
to Consolidated Financial Statements
|
39
|
|
|
Schedule
II Valuation and Qualifying Accounts and Reserves
|
79
|
Report
of Independent Registered Public Accounting Firm
To the
Board of Directors
Nyer
Medical Group, Inc.
We have
audited the accompanying consolidated balance sheet of Nyer Medical Group, Inc.
and subsidiaries as of June 30, 2009, and the related consolidated statements of
operations, shareholders' equity, and cash flow for the year then
ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Nyer Medical Group, Inc. and
subsidiaries as of June 30, 2009, and the results of their operations and their
cash flows for the year then ended in conformity with U.S. generally
accepted accounting principles. Also, in our opinion, the related
financial statement schedule listed under Item 15(a)(2) for the year ended June
30, 2009, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Wolf
& Company, P.C.
Boston,
Massachusetts
September
28, 2009
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Directors
Nyer
Medical Group, Inc.
We have
audited the accompanying consolidated balance sheet of Nyer Medical Group, Inc.
and subsidiaries (the “Company”) as of June 30, 2008 and the related
consolidated statements of operations, changes in shareholders’ equity and cash
flows for the year ended June 30, 2008. These consolidated financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated 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 provide a reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of the Company, as of June 30,
2008 and the results of its operations and its cash flows for the year ended
June 30, 2008, in conformity with accounting principles generally accepted in
the United States.
As
discussed in Note 3 to the consolidated financial statements, the consolidated
balance sheet as of June 30, 2008 and the related consolidated statement of
operations, changes in shareholder’s equity and cash flows have been restated to
correct a misstatement.
Our audit
referred to above includes the audit of the financial statement schedule listed
under Item 15(a) (2) of the Form 10-K report of Nyer Medical Group, Inc. for the
year ended June 30, 2008. In our opinion, the financial
statement schedule presents fairly, in all material respects, in relation to the
financial statements taken as a whole, the information required to be stated
therein.
/s/
Sweeney, Matz & Co.
Pompano
Beach, Florida
September
16, 2008, except for Note 3 which is dated September 25, 2009
PART
I—Financial Information
Item
1. Financial Statements
NYER
MEDICAL GROUP, INC.
Consolidated
Balance Sheets
|
|
June
30
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(restated)
|
|
Assets
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
|
|
$
|
62,752
|
|
|
$
|
140,688
|
|
Accounts
receivable, net of allowance for doubtful accounts of $18,200 at June 30,
2009, and $24,552 at June 30, 2008
|
|
|
5,348,256
|
|
|
|
4,445,265
|
|
Inventories,
net
|
|
|
6,966,107
|
|
|
|
6,976,703
|
|
Prepaid
expenses and other current assets
|
|
|
979,226
|
|
|
|
664,849
|
|
Current
portion of deferred tax assets
|
|
|
361,300
|
|
|
|
194,000
|
|
Assets
to be disposed of from discontinued operations
|
|
|
219,476
|
|
|
|
1,428,027
|
|
Total
current assets
|
|
|
13,937,117
|
|
|
|
13,849,532
|
|
Property
and equipment, net
|
|
|
1,393,844
|
|
|
|
1,341,055
|
|
Goodwill
|
|
|
2,593,616
|
|
|
|
2,611,616
|
|
Other
intangible assets, net
|
|
|
625,959
|
|
|
|
725,118
|
|
Long-term
portion of deferred tax assets
|
|
|
353,200
|
|
|
|
444,000
|
|
Other
assets
|
|
|
36,067
|
|
|
|
36,068
|
|
Total
assets
|
|
$
|
18,939,803
|
|
|
$
|
19,007,389
|
|
Liabilities
and shareholders' equity
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Current
portion of long-term debt and lease financing obligations
|
|
$
|
106,058
|
|
|
$
|
183,958
|
|
Current
portion of long-term debt due related parties
|
|
|
80,004
|
|
|
|
80,004
|
|
Accounts
payable
|
|
|
6,495,687
|
|
|
|
5,726,821
|
|
Accrued
expenses and other current liabilities
|
|
|
1,128,376
|
|
|
|
1,215,433
|
|
Liabilities
to be disposed of from discontinued operations
|
|
|
310,771
|
|
|
|
922,051
|
|
Total
current liabilities
|
|
|
8,120,896
|
|
|
|
8,128,267
|
|
Long-term
debt and lease financing obligations, net of current
portion
|
|
|
315,876
|
|
|
|
256,667
|
|
Long-term
debt, net of current portion, due related parties
|
|
|
1,713,329
|
|
|
|
1,793,329
|
|
Total
liabilities
|
|
|
10,150,101
|
|
|
|
10,178,263
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
|
Preferred
stock, Class A, $0.001 par value, 5,000 shares; none
outstanding
|
|
|
-
|
|
|
|
-
|
|
Preferred
stock, Class B, $0.001 par value, 2,500,000 shares
authorized;
|
|
|
|
|
|
|
|
|
2,500
shares designated Series 1 Class B; none outstanding
|
|
|
-
|
|
|
|
-
|
|
2,000
shares designated convertible Series 2 Class B; 2,000 shares issued and
outstanding at June 30, 2009 and 2008
|
|
|
400,000
|
|
|
|
400,000
|
|
Common
stock, $0.0001 par value, 25,000,000 shares authorized; 3,978,199 shares
issued and outstanding at June 30, 2009 and 2008
|
|
|
398
|
|
|
|
398
|
|
Additional
paid-in capital
|
|
|
17,824,763
|
|
|
|
17,770,328
|
|
Accumulated
deficit
|
|
|
(9,435,459
|
)
|
|
|
(9,341,600
|
)
|
Total
shareholders' equity
|
|
|
8,789,702
|
|
|
|
8,829,126
|
|
Total
liabilities and shareholders' equity
|
|
$
|
18,939,803
|
|
|
$
|
19,007,389
|
|
See
accompanying notes to consolidated financial statements.
NYER
MEDICAL GROUP, INC.
Consolidated
Statements of Operations
|
|
Year
ended June 30
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(restated)
|
|
Net
revenues:
|
|
|
|
|
|
|
Sales
|
|
$
|
68,907,483
|
|
|
$
|
65,394,219
|
|
Dispensing
fees
|
|
|
5,815,361
|
|
|
|
3,200,795
|
|
Total
net revenues
|
|
|
74,722,844
|
|
|
|
68,595,014
|
|
Cost
and expenses:
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
54,560,932
|
|
|
|
51,019,594
|
|
Selling,
general, and administrative expenses
|
|
|
19,815,584
|
|
|
|
16,775,376
|
|
Depreciation
and amortization
|
|
|
628,470
|
|
|
|
545,378
|
|
Total
costs and expenses
|
|
|
75,004,986
|
|
|
|
68,340,348
|
|
(Loss)
income from operations
|
|
|
(282,142
|
)
|
|
|
254,666
|
|
Other
income (expense), net:
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(185,247
|
)
|
|
|
(98,188
|
)
|
Interest
income
|
|
|
11,104
|
|
|
|
11,631
|
|
Other
income
|
|
|
18,112
|
|
|
|
25,977
|
|
Total
other income (expense), net
|
|
|
(156,031
|
)
|
|
|
(60,580
|
)
|
(Loss)
income from continuing operations before provision for income taxes and
minority interest
|
|
|
(438,173
|
)
|
|
|
194,086
|
|
(Benefit)
provision for income taxes
|
|
|
(182,097
|
)
|
|
|
12,132
|
|
Minority
interest expense, net of income taxes
|
|
|
-
|
|
|
|
(37,039
|
)
|
(Loss)
income from continuing operations
|
|
|
(256,076
|
)
|
|
|
144,915
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
Gain
(loss) from discontinued operations, net of ($2,394) and
$93,407, income tax (benefit), for 2009 and 2008,
respectively
|
|
|
(9,347
|
)
|
|
|
149,458
|
|
Gain
(loss) on disposal, net of $142,176 and ($1,270) income taxes (benefit)
for 2009 and 2008, respectively
|
|
|
171,564
|
|
|
|
(3,848
|
)
|
Net
gain from discontinued operations
|
|
|
162,217
|
|
|
|
145,610
|
|
Net
(loss) income
|
|
|
(93,859
|
)
|
|
|
290,525
|
|
Deemed
dividend on redemption of preferred stock
|
|
|
-
|
|
|
|
(399,997
|
)
|
Net
loss attributable to common shareholders
|
|
$
|
(93,859
|
)
|
|
$
|
(109,472
|
)
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share:
|
|
|
|
|
|
|
|
|
Loss
per share, continuing operations, net of deemed dividend on redemption of
preferred stock
|
|
$
|
(0.06
|
)
|
|
$
|
(0.06
|
)
|
Earnings
per share, discontinued operations
|
|
|
0.04
|
|
|
|
0.03
|
|
Loss
per share attributable to common shareholders
|
|
$
|
(0.02
|
)
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
Shares
used in computing loss per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
3,978,199
|
|
|
|
3,978,199
|
|
Diluted
|
|
|
3,978,199
|
|
|
|
3,978,199
|
|
See
accompanying notes to consolidated financial statements.
NYER
MEDICAL GROUP, INC.
Consolidated
Statements of Changes in Shareholders' Equity
|
|
Class
A
|
|
|
Series
1, Class B
|
|
|
Series
2, Class B
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
|
Preferred
Stock
|
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Shareholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at June 30, 2007
|
|
|
2,000
|
|
|
$
|
2
|
|
|
|
1,000
|
|
|
$
|
1
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
3,978,199
|
|
|
$
|
398
|
|
|
$
|
18,096,037
|
|
|
$
|
(9,632,125
|
)
|
|
$
|
8,464,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
74,288
|
|
|
|
-
|
|
|
|
74,288
|
|
Redemption
of preferred stock and deemed dividend
|
|
|
(2,000
|
)
|
|
|
(2
|
)
|
|
|
(1,000
|
)
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(399,997
|
)
|
|
|
-
|
|
|
|
(400,000
|
)
|
Issurance
of Series 2, Class B, preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,000
|
|
|
|
400,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
400,000
|
|
Net
income, restated
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
290,525
|
|
|
|
290,525
|
|
Balance
at June 30, 2008, restated
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,000
|
|
|
|
400,000
|
|
|
|
3,978,199
|
|
|
|
398
|
|
|
|
17,770,328
|
|
|
|
(9,341,600
|
)
|
|
|
8,829,126
|
|
Stock-based
compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
54,435
|
|
|
|
-
|
|
|
|
54,435
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(93,859
|
)
|
|
|
(93,859
|
)
|
Balance
at June 30, 2009
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
2,000
|
|
|
$
|
400,000
|
|
|
|
3,978,199
|
|
|
$
|
398
|
|
|
$
|
17,824,763
|
|
|
$
|
(9,435,459
|
)
|
|
$
|
8,789,702
|
|
See
accompanying notes to consolidated financial statements.
NYER
MEDICAL GROUP, INC. AND SUBSIDIARIES
Consolidated
Statements of Cash Flows
|
|
Year
ended June 30
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(restated)
|
|
Operating
activities:
|
|
|
|
|
|
|
Net
(loss) income
|
|
$
|
(93,859
|
)
|
|
$
|
290,525
|
|
Gain
from discontinued operations
|
|
|
(162,217
|
)
|
|
|
(145,610
|
)
|
(Loss)
income from continuing operations
|
|
|
(256,076
|
)
|
|
|
144,915
|
|
Adjustments
to reconcile (loss) income from continuing operations to cash
(used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
539,978
|
|
|
|
420,888
|
|
Amortization
|
|
|
88,492
|
|
|
|
124,490
|
|
Recovery
of losses in accounts receivable
|
|
|
(6,352
|
)
|
|
|
-
|
|
Stock-based
compensation expense
|
|
|
54,435
|
|
|
|
74,288
|
|
Deferred
income taxes
|
|
|
(76,500
|
)
|
|
|
(182,000
|
)
|
Minority
interest
|
|
|
-
|
|
|
|
37,039
|
|
Changes
in operating assets and liabilities, net of effects of acqusitions and
disposals:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(896,639
|
)
|
|
|
(403,526
|
)
|
Inventories
|
|
|
(415,764
|
)
|
|
|
(813,154
|
)
|
Prepaid
expenses and other current assets
|
|
|
(314,376
|
)
|
|
|
283,947
|
|
Accounts
payable
|
|
|
768,866
|
|
|
|
2,380,755
|
|
Accrued
expenses and other current liabililties
|
|
|
(87,057
|
)
|
|
|
151,850
|
|
Cash
(used in) provided by operating activities, continuing
operations
|
|
|
(600,993
|
)
|
|
|
2,219,492
|
|
Cash
provided by operating activities, discontinued operations
|
|
|
281,155
|
|
|
|
92,826
|
|
Cash
(used in) provided by operating activities
|
|
|
(319,838
|
)
|
|
|
2,312,318
|
|
|
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
|
|
Acquisition
of 20% of subsidiary
|
|
|
-
|
|
|
|
(2,208,516
|
)
|
Acquisition
of pharmacy, net of cash
|
|
|
-
|
|
|
|
(552,115
|
)
|
Purchase
of property and equipment
|
|
|
(592,767
|
)
|
|
|
(488,230
|
)
|
Other
|
|
|
-
|
|
|
|
(6,101
|
)
|
Cash
used in investing activities, continuing operations
|
|
|
(592,767
|
)
|
|
|
(3,254,962
|
)
|
Cash
provided by (used in) investing activities, discontinued
operations
|
|
|
933,360
|
|
|
|
(596
|
)
|
Cash
provided by (used in) investing activities
|
|
|
340,593
|
|
|
|
(3,255,558
|
)
|
|
|
|
|
|
|
|
|
|
Financing
activities:
|
|
|
|
|
|
|
|
|
Proceeds
from capital lease financing
|
|
|
180,292
|
|
|
|
-
|
|
Principal
payments on capital lease obligations
|
|
|
(15,024
|
)
|
|
|
-
|
|
Payments
on long-term debt
|
|
|
(263,959
|
)
|
|
|
(226,749
|
)
|
Cash
used in financing activities, continuing operations
|
|
|
(98,691
|
)
|
|
|
(226,749
|
)
|
Cash
provided by financing activities, discontinued operations
|
|
|
-
|
|
|
|
175,000
|
|
Cash
used in financing activities
|
|
|
(98,691
|
)
|
|
|
(51,749
|
)
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash
|
|
|
(77,936
|
)
|
|
|
(994,989
|
)
|
Cash
at beginning of period
|
|
|
140,688
|
|
|
|
1,135,677
|
|
Cash
at end of period
|
|
$
|
62,752
|
|
|
$
|
140,688
|
|
See
accompanying notes to consolidated financial statements.
NYER
MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Restatement
The
consolidated financial statements of Nyer Medical Group, Inc., (the “Company” or
“Nyer”) as of and for the fiscal year ended June 30, 2008, and related financial
information have been restated to correct errors in the application of generally
accepted accounting principles (“GAAP”). The nature of the
corrections and the related effects on the Company's previously issued
consolidated financial statements are described in Note 3, Restatements of
Consolidated Financial Statements. Restated balances have been
identified with the notation “restated" where appropriate. Throughout
these notes, the term "as previously reported" will be used to refer to balances
from the 2008 consolidated financial statements as reported prior to restatement
for the correction of these errors.
The
Company is the parent company of DAW, Inc. (“DAW”), a wholly owned
subsidiary. DAW owns and operates a chain of retail pharmacies in the
suburban Boston, Massachusetts, area and also provides comprehensive pharmacy
management services to various not-for-profit
entities.
2.
|
Summary of significant
accounting policies
|
Principles
of consolidation
The consolidated financial statements
include the accounts of the Company and its majority owned and controlled
subsidiaries, DAW, ADCO (discontinued 2009), ADCO South (sold in 2008), and
Anton Investments and Conway Associates, Inc. (“fire and police segment”)
(discontinued in 2004). All intercompany accounts and transactions
have been eliminated in consolidation.
Use
of estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America (“GAAP”) requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and to disclose contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
Inventories
Inventories
are stated at the lower of cost or fair value. The Company used the
last-in, first-out method (“LIFO”) of accounting for all of its
inventories.
Property,
plant and equipment
Property
and equipment are recorded at cost and depreciated over the estimated useful
live of the related assets using the straight-line method as
follows:
Asset Category
|
|
Useful life
|
Fixtures
and equipment
|
|
2
to 10 years
|
Transportation
equipment
|
|
3
to 5 years
|
Leasehold
improvements
|
|
the
shorter of its useful life or remaining non-cancelable lease
term
|
Capital
lease assets are recorded at the lesser of the present value of minimum lease
payments or fair value and amortized over the estimated useful life of the
related property.
Goodwill
and other intangible assets
Goodwill
represents the amount of consideration paid in connection with business
acquisitions in excess of the fair value of assets acquired and liabilities
assumed. In accordance with SFAS No. 142,
Goodwill and Other Intangible
Asset
s
, the
Company evaluates the balance of the carrying value of goodwill based on a
single reporting unit annually during the fourth quarter and more frequently if
certain indicators are present or changes in circumstances suggest that
impairment may exist.
The first
step of its goodwill impairment test, used to identify potential impairment,
compares the fair value of our reporting unit with its carrying amount,
including goodwill. If the fair value of its reporting unit exceeds
its carrying amount, the goodwill of the reporting unit is considered not
impaired, and the second step of the impairment test, used to measure the amount
of the impairment loss, is unnecessary. If the carrying amount of its
reporting unit exceeds its fair value, the second step of the goodwill
impairment test is performed to measure the amount of impairment loss, if
any.
The
second step of the goodwill impairment test, used to measure the amount of
impairment loss, compares the implied fair value of the reporting unit goodwill
as of the date of the impairment review with the carrying amount of that
goodwill. The implied fair value of goodwill is determined on the
same basis as the amount of goodwill recognized in connection with a business
combination. Specifically, the fair value of a reporting unit is
allocated to all of the assets and liabilities (including any unrecognized
intangible assets) as if the reporting unit had been acquired in a business
combination as of the date of the impairment review and as if the fair value of
the reporting unit was the price paid to acquire the reporting
unit. The excess of the fair value of a reporting unit over the
amounts assigned to its assets and liabilities is the implied fair value of
goodwill. If the carrying amount of the reporting unit goodwill
exceeds the implied fair value of that goodwill, an impairment loss is
recognized in an amount equal to that excess.
On June
30, 2009, the carrying value of the Company’s net assets was $8,789,702; and the
market capitalization of the Company’s outstanding shares, assuming conversion
of outstanding preferred shares, was $3,231,073. The Company
calculated the estimated fair value of the Company as of June 30, 2009, as that
amount that would be received to sell the Company as a whole on that
date. It arrived at the estimated fair value by using the December
2008 selling price of the Company’s Topsfield store and other comparable sales
data. The Company has concluded that the Company’s fair value exceeds
its carrying value as of June 30, 2009, and that goodwill is not
impaired.
The
Company has concluded that the market value of the Company’s common stock as of
June 30, 2009, is not an indication of the Company’s market value due to the
fact that it is very thinly traded and that the implied fair value test is a
more accurate indication of whether or not there has been an impairment of
goodwill. Inherent in such fair value determinations are certain
judgment and estimates, including the interpretation of economic indicators and
market valuations and assumptions about the Company’s strategic
plans. To the extent that its strategic plans change or that economic
and market conditions worsen, it is possible that its conclusion regarding
goodwill impairment could change and result in a material effect on financial
position and results of operations of the Company. The Company has
determined that no goodwill impairment charges were required for the years ended
June 30, 2009, and June 30, 2008.
Other
Intangible Assets
Other
intangible assets consist primarily of prescription lists acquired in connection
with business acquisitions and are amortized on a straight-line basis over their
estimated useful lives, ranging from 4 to 15 years.
Impairment
of long-lived assets
Long-lived
assets held and used are reviewed for impairment when events or circumstances
indicate the carrying amount may not be recoverable. If the sum of
the expected undiscounted cash flows is less than the carrying value of the
related assets or group of assets, a loss is recognized for the difference
between the fair value and the carrying value of the related asset or group of
assets. No impairments were recognized in fiscal years 2009 and
2008.
Fair
value of financial instruments
The
carrying values of accounts receivable, accounts payables, and debt approximate
their fair values. The carrying values and estimated fair values for
long-term debt, based upon comparison to market rates of similar financial
instruments, were approximately the same.
Revenue
recognition
For all
pharmacy sales other than third-party pharmacy sales and those described below,
the Company recognizes revenue from the sale of merchandise at the time of the
sale. For third party pharmacy sales, revenue is recognized at the
time the prescription is dispensed. The Company records third party
revenues and related receivables net of provisions for contractual and other
adjustments.
The
Company also recognizes sales from transactions wherein the pharmacy dispenses
pharmaceuticals from the inventory provided to non-profit organizations through
certain governmental programs that treat needy patients. The Company
receives a dispensing fee, a percentage of the costs of the medication, and the
replacement of the pharmaceuticals. The replacement of the
pharmaceuticals does not result in revenue. The dispensing fee and
the percentage of the prescription cost are recorded as sales. The
Company recognizes dispensing fee revenue when it dispenses prescriptions for
non-profit agencies on a per prescription basis and receives a dispensing fee
for each prescription dispensed. In one contract, the Company also
receives a stipulated monthly amount per patient, which is recorded monthly when
earned.
The
Company’s estimates of uncollectible accounts receivable are based on its
historical collection experience and current economic and credit
conditions.
Cost
of goods sold
Cost of
goods sold includes the following: The cost of inventory sold during
the period net of related vendor rebates, allowances and purchase discounts,
costs incurred to return merchandise to vendors, inventory shrinkage costs, and
inbound freight charges.
Vendor
Rebates and Allowances
Rebates
and allowances received from vendors relate to either purchasing and
merchandising or promoting a product and are recorded as a reduction of cost of
goods sold as the product is sold. Purchasing and merchandising
rebates and allowances include vendor programs such as purchase discounts,
volume purchase allowances, and price reduction allowances.
Delivery
costs
The cost
of delivery to customers by the Company is classified as selling, general, and
administrative expenses. The cost of delivery expense was $1,114,688
and $982,800 for fiscal year 2009 and 2008, respectively.
Advertising
Advertising
costs are expensed as incurred. Advertising expenses, net of
reimbursements, were $155,525 and $548,851 for fiscal year 2009 and 2008,
respectively.
New
store openings
Costs
incurred prior to opening of a new location and costs associated with remodeling
a location are charged against earnings as incurred as general and
administrative expenses.
Income
taxes
The
Company accounts for income taxes using the asset and liability
method. Under this method, deferred tax assets and liabilities are
recognized based upon the estimated future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured pursuant to tax laws using rates expected to apply
to taxable income in the years that those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rate is recognized in income in the period that
includes the rate change enactment date. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts more
likely than not to be realized.
The
Company adopted the provisions of Financial Accounting Standards Board (“FASB”)
Interpretation No. 48 (“FIN No. 48”),
Accounting for Uncertainty in Income
Taxes—an Interpretation of FASB Statement No. 109
,
effective July 1,
2007. FIN No. 48 provides guidance regarding the recognition,
measurement, presentation, and disclosure in the financial statements of tax
positions taken or expected to be taken on a tax return. FIN 48 also
provides guidance related to the recognition, de-recognition, or change in
measurement of a tax position as a result of new tax positions, changes in
management’s judgment about the level of uncertainty of existing tax positions,
expiration of open income tax returns due to the statutes of limitation, status
of examinations, and litigation and legislative activity. The initial adoption
of FIN 48 had no impact on the Company’s financial statements; and the Company
has no material uncertain tax positions as of June 30, 2009. Future
interest and penalties related to unrecognized tax benefits, if any, will be
reported as income tax expense in the Company’s consolidated statements of
operations.
Earnings
(loss) per share
The
calculation of basic earnings (loss) per share is computed by dividing income
(loss) available to common shareholders by the weighted-average number of common
shares outstanding for the period. Diluted earnings per share
considers the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that shared in the earnings of the
entity.
The
calculation of weighted average diluted shares includes additional shares
related to the Convertible Notes when the average market price is above the
current conversion price. The number of additional shares that will
be included in the weighted average diluted shares is equal to the number of
shares that would be issued upon the settlement of the $1,500,000 of convertible
notes (the “Convertible Notes”) assuming the settlement occurred at the end of
the reporting period.
The
dilutive effect of the Series 2 Class B Preferred Stock (the “Series 2 Stock”)
is reflected in diluted earnings per share by application of the “if-converted”
method in accordance with SFAS No. 128. The weighted average common stock
equivalents related to the Series 2 Stock is excluded from diluted weighted
average shares of common stock when the impact on diluted earnings per share is
anti-dilutive.
FASB
Emerging Issue Task Force Topic D-42,
The Effect on the Calculation of
Earnings Per Share for the Redemption or Induced Conversion of Preferred
Stock
, provides among other things, that any excess of (1) the fair
value of the consideration transferred to the holders of preferred stock
redeemed over (2) the carrying amount of preferred stock, should be
subtracted from net earnings to determine net income available to common
stockholders in the calculation of earnings per share. For the year
ended June 30, 2008, this resulted in $399,997 being subtracted from net
earnings.
Stock-based
compensation
The
Company accounts for stock-based payments at the fair value on the date of grant
and recognizes compensation expense over the requisite service period of the
award on a straight-line basis. Fair value is determined on the date
of grant using a Black-Scholes valuation model.
Segment
and enterprise-wide disclosures
SFAS
No. 131,
Disclosures
about Segments of an Enterprise and Related Information
, establishes
standards for reporting information regarding operating segments in annual
financial statements. Operating segments are identified as components of an
enterprise about which separate, discrete financial information is available for
evaluation by the chief operating decision-maker in making decisions on how to
allocate resources and assess performance. The Company views its operations and
manages its business as one operating segment. No discrete operating
information other than revenues is prepared by the Company.
Recent
Accounting Pronouncements
In
June 2009, the FASB issued SFAS No. 168,
The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting
Principles,
which establishes the FASB Accounting Standards
Codification as the single source of authoritative GAAP. The Codification will
supersede all existing non-SEC accounting and reporting standards. As a
result, upon adoption, all references to accounting literature in our SEC
filings will conform to the appropriate reference within the Codification. This
statement is effective for financial statements issued for interim and annual
periods ending after September 15, 2009. The Company is required to
adopt SFAS No. 168 on September 30, 2009, and it does not expect the adoption of
this standard to have an impact on its financial position or results of
operations.
In April
2009, the FASB issued Staff Position No. FAS 107-1 and APB 28-1,
Interim Disclosures About Fair Value
of Financial Instruments,
(“FSP 107-1 and APB 28-1”), which amends FASB
SFAS No.107,
Disclosures about
Fair Value of Financial Instruments
, to require disclosures about fair
value of financial instruments for interim reporting periods of publicly traded
companies as well as in annual financial statements. This FSP also
amends APB Opinion No. 28,
Interim Financial Reporting
,
to require these disclosures in summarized financial information for interim
reporting periods. This FSP was effective for interim and annual periods ending
after June 15, 2009. The adoption of FSP FAS 107-1 and APB 28-1 did
not have a material impact on the Company’s consolidated financial
statements.
In June
2008, the FASB ratified Emerging Issues Task Force (“EITF”) Issue No. 07-5
(“EITF 07-5”),
Determining
Whether an Instrument (or an Embedded Feature) Is Indexed to an Entity's Own
Stock
. EITF 07-5 provides that an entity should use a two-step
approach to evaluate whether an equity-linked financial instrument (or embedded
feature) is indexed to its own stock, including evaluating the instrument's
contingent exercise and settlement provisions. EITF 07-5 is effective for
fiscal years beginning after December 15, 2008. The consensus must be
applied to outstanding instruments as of the beginning of the fiscal year in
which the consensus is adopted and should be treated as a cumulative-effect
adjustment to the opening balance of retained earnings. Early
adoption is not permitted. The Company is in the process of
evaluating the impacts, if any, of adopting this EITF.
In
April 2008, the FASB issued FASB Staff Position Financial Accounting
Standard 142-3 (“FSP FAS 142-3”),
Determination of the Useful Life of
Intangible Assets
. FSP FAS 142-3 amends the factors that
should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under SFAS
No. 142,
Goodwill and
Other Intangible Assets
. The intent of this FSP is to improve
the consistency between the useful life of a recognized intangible asset under
SFAS No. 142 and the period of expected cash flows used to measure the fair
value of the asset under SFAS No. 141 (revised 2007),
Business Combinations
, and
other GAAP. This statement is effective for fiscal years beginning on
or after December 15, 2008, and interim periods within those
years. Early application is not permitted. The Company
does not expect the adoption of this standard to have a material impact on its
consolidated results of operations and financial condition.
In April
2008, the FASB issued FSP Accounting Principles Board 14-1 (“FSP APB 14-1”),
Accounting for Convertible
Debt Instruments That May be Settled in Cash upon Conversion (Including Partial
Settlement)
. FSP APB 14-1 requires the issuer of certain
convertible debt instruments that may be settled in cash (or other assets) on
conversion to separately account for the liability (debt) and equity (conversion
option) components of the instrument in a manner that reflects the issuer’s
nonconvertible debt borrowing rate. FSP APB 14-1 is effective for
fiscal years beginning after December 15, 2008, and on a retroactive
basis. The Company is evaluating the potential impact, if any, of the
adoption of FSP APB 14-1 on its consolidated results of operations and financial
condition.
In March
2008, the FASB issued SFAS No. 161,
Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB statement No. 133
(SFAS No. 161).
SFAS No. 161 requires enhanced
disclosures regarding an entity’s derivative instruments and related hedging
activities. These enhanced disclosures include information regarding how
and why an entity uses derivative instruments; how derivative instruments and
related hedge items are accounted for under SFAS No. 133,
Accounting for Derivative
Instruments and Hedging Activities,
and its related interpretations;
and how derivative instruments and related hedge items affect an entity’s
financial position, financial performance, and cash flows. SFAS
No. 161 is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008. The adoption of
SFAS No. 161 will not have a material impact on the Company’s consolidated
results of operations and financial condition.
In
December 2007, the FASB issued SFAS No. 141(R),
Business Combinations
, which
replaces SFAS No. 141,
Business
Combinations
. The statement retains the purchase method of
accounting for acquisitions but requires a number of changes, including changes
in the way assets and liabilities are recognized in the purchase
accounting. It also changes the recognition of assets acquired and
liabilities assumed arising from contingencies, requires the capitalization of
in-process research and development at fair value, and requires the expensing of
acquisition-related costs as incurred. SFAS No. 141(R) is effective for the
Company beginning July 1, 2009, and will apply prospectively to business
combinations completed on or after that date. The Company does not
expect the adoption of this standard to have a material impact on the Company’s
consolidated results of operations and financial condition.
In February 2007, the FASB
issued SFAS No. 159,
The
Fair Value Option for Financial Assets and Financial Liabilities
. SFAS 159
provides companies with an option to report selected financial assets and
liabilities at fair value. The standard’s objective is to reduce both
the complexity in accounting for financial
instruments and the volatility
in earnings caused by measuring related assets and liabilities
differently. SFAS 159 also establishes presentation and disclosure
requirements designed to facilitate comparisons between companies that choose
different measurement attributes for similar types of assets and
liabilities. The Company adopted SFAS 159 effective July 1, 2008, but
has not elected to measure any permissible items at fair value. As a
result, the adoption of this statement did not have a material impact on its
consolidated financial statements.
In
September 2006, the FASB issued SFAS No. 157,
Fair Value
Measurements.
This Statement defines fair value, establishes a
framework for measuring fair value in accordance with GAAP, and expands
disclosures about fair value measurements. The definition of fair value
retains the exchange price notion in earlier definitions of fair value.
This Statement clarifies that the exchange price is the price in an
orderly transaction between market participants to sell the asset or transfer
the liability in the market in which the reporting entity would transact for the
asset or liability, that is, the principal or most advantageous market for the
asset or liability. Emphasis is placed on fair value being a market-based
measurement, not an entity-specific measurement; and therefore, a fair value
measurement should be determined based on the assumptions that market
participants would use in pricing the asset or liability. As a basis for
considering these market participant assumptions, a fair value hierarchy has
been established to distinguish between (1) market participant assumptions
developed based on market data obtained from sources independent of the
reporting entity (observable inputs) and (2) the reporting entity’s own
assumptions about market participant assumptions developed based on the best
information available in the circumstances (unobservable inputs). In
February 2008, the FASB issued a Staff Position which delays the effective date
of SFAS No. 157 for non-financial assets and non-financial liabilities,
except for items that are recognized or disclosed at fair value in the financial
statements on a recurring basis, to fiscal years beginning after
November 15, 2008. The Company adopted this statement, except
for items covered by the Staff Position, as of July 1, 2008; and the
adoption did not have a material impact on its consolidated results of
operations and financial condition.
Reclassifications
Prior
year information is reclassified whenever necessary to conform to the current
year’s presentation.
3.
Restatements of consolidated
financial statements
The
Company has restated its consolidated balance sheet at June 30, 2008, and the
consolidated statements of operations, changes in stockholders' equity, and cash
flows for the year then ended. The impact of the restatement
adjustment on the Company’s previously reported consolidated net loss of $3,523
for fiscal year 2008 was an increase in net income of $294,048 resulting in
restated net income of $290,525 for fiscal year 2008.
The
Company determined that direct costs associated with the acquisition of the
remaining 20% of the outstanding common stock of DAW in February 2008 were
expensed rather than considered part of the cost of the acquisition in
accordance with SFAS No. 141,
Business
Combinations
. The purchase price allocation was corrected
accordingly. The following table reflects the impact of the revised
purchase price allocation on the consolidated statement of operations for the
periods indicated:
|
|
Quarter ended
|
|
|
Year ended
|
|
|
|
December
31,
|
|
|
March
31,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
Decrease
in operating costs
|
|
$
|
316,430
|
|
|
$
|
142,086
|
|
|
$
|
458,516
|
|
Increase
in tax provision
|
|
|
113,502
|
|
|
|
50,966
|
|
|
|
164,468
|
|
Increase
in net income
|
|
|
202,928
|
|
|
|
91,120
|
|
|
|
294,048
|
|
Net
loss previously reported
|
|
|
(98,023
|
)
|
|
|
(215,895
|
)
|
|
|
(3,523
|
)
|
Net
income, as restated
|
|
$
|
104,905
|
|
|
$
|
(124,775
|
)
|
|
$
|
290,525
|
|
The 2008 financial
statements have also been adjusted to reflect reclassifications for discontinued
operations and certain other reclassifications required to conform to the 2009
presentation.
The Company’s Topsfield store has been
reflected as discontinued operations in the restated consolidated financial
statements for fiscal year 2008. See Note 11, Discontinued
operations, for further information. Reclassifications included the
following: On the balance sheet, (a) vendor rebates receivable was
reclassified from accounts receivable trade to prepaid expenses and other
current assets and (b) security deposits from prepaid expenses and other current
assets to other assets. On the income statement, the LIFO charge was
reclassified from selling, general, and administrative expense to cost of
sales.
The
following table presents the impact of the restatement adjustment on the
Company's previously reported consolidated balance sheet at June 30, 2008,
and also presents the
discontinued operations and the reclassifications made to the restated
consolidated financial statements for fiscal year 2008 to conform to the fiscal
year 2009 presentation
. As a result of the adjustments,
goodwill increased $458,516, income taxes payable increased $164,468, and
accumulated deficit decreased by $294,048. These balance sheet
corrections are included in the adjustments columns below:
|
|
Consolidated
Balance Sheet
|
|
|
|
June 30, 2008
|
|
|
|
As
Previously
|
|
|
Discontinued
|
|
|
|
|
|
Restatement
|
|
|
|
|
|
|
Reported
|
|
|
Operations
(1)
|
|
|
Reclasses
(2)
|
|
|
Adjustments
(3)
|
|
|
Restated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
140,688
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
140,688
|
|
Accounts
receivable, net
|
|
|
4,963,542
|
|
|
|
(125,821
|
)
|
|
|
(392,456
|
)
|
|
|
-
|
|
|
|
4,445,265
|
|
Inventories,
net
|
|
|
7,405,315
|
|
|
|
(428,612
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
6,976,703
|
|
Prepaid
expenses and other current assets
|
|
|
308,461
|
|
|
|
-
|
|
|
|
356,388
|
|
|
|
-
|
|
|
|
664,849
|
|
Refundable
income taxes
|
|
|
36,000
|
|
|
|
-
|
|
|
|
(36,000
|
)
|
|
|
-
|
|
|
|
-
|
|
Current
portion of deferred tax assets
|
|
|
194,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
194,000
|
|
Assets
to be disposed of, discontinued operations
|
|
|
803,594
|
|
|
|
624,433
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,428,027
|
|
Total
current assets
|
|
|
13,851,600
|
|
|
|
70,000
|
|
|
|
(72,068
|
)
|
|
|
-
|
|
|
|
13,849,532
|
|
Property
and equipment, net
|
|
|
1,341,055
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,341,055
|
|
Goodwill
|
|
|
2,153,100
|
|
|
|
-
|
|
|
|
-
|
|
|
|
458,516
|
|
|
|
2,611,616
|
|
Other
intangible assets, net
|
|
|
725,118
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
725,118
|
|
Long-term
portion of deferred tax assets
|
|
|
444,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
444,000
|
|
Long-term
portion of deferred tax assets,
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
discontinued
operations
|
|
|
70,000
|
|
|
|
(70,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other
assets
|
|
|
-
|
|
|
|
-
|
|
|
|
36,068
|
|
|
|
-
|
|
|
|
36,068
|
|
Total
assets
|
|
$
|
18,584,873
|
|
|
$
|
-
|
|
|
$
|
(36,000
|
)
|
|
$
|
458,516
|
|
|
$
|
19,007,389
|
|
Liabilities
and shareholders' equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
portion of long-term debt and lease financing obligations
|
|
$
|
183,958
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
183,958
|
|
Current
portion of long-term debt, related parties
|
|
|
230,000
|
|
|
|
-
|
|
|
|
(149,996
|
)
|
|
|
-
|
|
|
|
80,004
|
|
Accounts
payable
|
|
|
5,871,081
|
|
|
|
(144,260
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
5,726,821
|
|
Accrued
payroll and related taxes
|
|
|
615,483
|
|
|
|
-
|
|
|
|
(615,483
|
)
|
|
|
-
|
|
|
|
-
|
|
Accrued
expenses and other current liabilities
|
|
|
442,802
|
|
|
|
(7,274
|
)
|
|
|
615,438
|
|
|
|
164,468
|
|
|
|
1,215,434
|
|
Income
taxes payable
|
|
|
35,955
|
|
|
|
-
|
|
|
|
(35,955
|
)
|
|
|
-
|
|
|
|
-
|
|
Liabilities
to be disposed of, discontinued operations
|
|
|
770,516
|
|
|
|
151,535
|
|
|
|
-
|
|
|
|
-
|
|
|
|
922,051
|
|
Total
current liabilities
|
|
|
8,149,795
|
|
|
|
-
|
|
|
|
(185,996
|
)
|
|
|
164,468
|
|
|
|
8,128,267
|
|
Long-term
debt and lease financing obligations, net of current
portion
|
|
|
256,667
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
256,667
|
|
Long-term
debt, net of current portion, related parties
|
|
|
1,643,333
|
|
|
|
-
|
|
|
|
149,996
|
|
|
|
-
|
|
|
|
1,793,329
|
|
Total
liabilities
|
|
|
10,049,795
|
|
|
|
-
|
|
|
|
(36,000
|
)
|
|
|
164,468
|
|
|
|
10,178,263
|
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock
|
|
|
400,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
400,000
|
|
Common
stock
|
|
|
398
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
398
|
|
Additional
paid-in capital
|
|
|
17,770,328
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17,770,328
|
|
Accumulated
deficit
|
|
|
(9,635,648
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
294,048
|
|
|
|
(9,341,600
|
)
|
Total
shareholders' equity
|
|
|
8,535,078
|
|
|
|
-
|
|
|
|
-
|
|
|
|
294,048
|
|
|
|
8,829,126
|
|
Total
liabilities and shareholders' equity
|
|
$
|
18,584,873
|
|
|
$
|
-
|
|
|
$
|
(36,000
|
)
|
|
$
|
458,516
|
|
|
$
|
19,007,389
|
|
|
(1)
|
Topsfield
has been reclassified as discontinued operations in the Company’s
financial statements. See Note 11, Discontinued operations, for
further information.
|
|
(2)
|
Vendor rebates receivable of
$392,456 was reclassified from accounts receivable trade to prepaid
expenses and other current assets and security deposits of $36,068 were
reclassified from prepaid expenses and other current assets to other
assets in order to conform to the presentation in the June 30, 2009,
consolidated balance sheet; and refundable income taxes of $36,000 were
reclassified to accrued federal income taxes due to the additional taxes
due as a result of the restatement
error.
|
|
(3)
|
The
impact of the restatement adjustment on the Company’s previously reported
consolidated balance sheet as of June 30, 2008, was goodwill
increased $458,516,
income taxes payable increased $164,468, and accumulated deficit decreased
by $294,048.
|
The
following table presents the impact of the restatement adjustments on the
Company's previously reported consolidated statement of operations for fiscal
year 2008 and also presents the discontinued operations and the other
reclassifications made to conform to the fiscal year 2009
presentation:
|
|
Consolidated
Statement of Operations
|
|
|
|
Year ended June 30, 2008
|
|
|
|
As
Previously
|
|
|
Discontinued
|
|
|
|
|
|
Restatement
|
|
|
|
|
|
|
Reported
|
|
|
Operations
(1)
|
|
|
Reclasses
(2)
|
|
|
Adjustments
(3)
|
|
|
Restated
|
|
Net
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
68,039,194
|
|
|
$
|
(2,644,975
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
65,394,219
|
|
Dispensing
fees
|
|
|
3,200,795
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,200,795
|
|
Total
net revenues
|
|
|
71,239,989
|
|
|
|
(2,644,975
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
68,595,014
|
|
Cost
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
53,024,106
|
|
|
|
(2,182,201
|
)
|
|
|
177,689
|
|
|
|
-
|
|
|
|
51,019,594
|
|
Selling,
general, and administrative expenses
|
|
|
17,771,045
|
|
|
|
(359,464
|
)
|
|
|
(177,689
|
)
|
|
|
(458,516
|
)
|
|
|
16,775,376
|
|
Depreciation
and amortization
|
|
|
546,044
|
|
|
|
(666
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
545,378
|
|
Total
costs and expenses
|
|
|
71,341,195
|
|
|
|
(2,542,331
|
)
|
|
|
-
|
|
|
|
(458,516
|
)
|
|
|
68,340,348
|
|
(Loss)
income from operations
|
|
|
(101,206
|
)
|
|
|
(102,644
|
)
|
|
|
-
|
|
|
|
458,516
|
|
|
|
254,666
|
|
Other
income (expense), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(98,188
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(98,188
|
)
|
Interest
income
|
|
|
11,631
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,631
|
|
Other
income
|
|
|
25,977
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,977
|
|
Total
other income (expense), net
|
|
|
(60,580
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(60,580
|
)
|
(Loss)
income from continuing operations before provision for income taxes and
minority interest
|
|
|
(161,786
|
)
|
|
|
(102,644
|
)
|
|
|
-
|
|
|
|
458,516
|
|
|
|
194,086
|
|
(Benefit)
provision for income taxes
|
|
|
(108,200
|
)
|
|
|
(44,136
|
)
|
|
|
-
|
|
|
|
164,468
|
|
|
|
12,132
|
|
Minority
interest expense, net
|
|
|
(37,039
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(37,039
|
)
|
(Loss)
income from continuing operations
|
|
|
(90,625
|
)
|
|
|
(58,508
|
)
|
|
|
-
|
|
|
|
294,048
|
|
|
|
144,915
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
from discontinued operations, net
(1)
|
|
|
90,950
|
|
|
|
58,508
|
|
|
|
-
|
|
|
|
-
|
|
|
|
149,458
|
|
Loss
on disposal, net
(1)
|
|
|
(3,848
|
)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,848
|
)
|
Net
gain from discontinued operations
|
|
|
87,102
|
|
|
|
58,508
|
|
|
|
-
|
|
|
|
-
|
|
|
|
145,610
|
|
Net
(loss) income
|
|
|
(3,523
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
294,048
|
|
|
|
290,525
|
|
Deemed
dividend on redemption of preferred stock
|
|
|
(399,997
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(399,997
|
)
|
Net
loss attributable to common
|
|
$
|
(403,520
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
294,048
|
|
|
$
|
(109,472
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per share, continuing operations, net of deemed dividend on redemption of
preferred stock
|
|
$
|
(0.12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.06
|
)
|
Earnings
per share, discontinued operations
|
|
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.03
|
|
Loss
per share attributable to common
|
|
$
|
(0.10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.03
|
)
|
Shares
used in computing loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
3,978,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,978,199
|
|
Diluted
|
|
|
3,978,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,978,199
|
|
|
(1)
|
Topsfield
has been reclassified as discontinued operations in the Company’s
financial statements. See Note 11, Discontinued operations, for
further information.
|
|
(2)
|
The
LIFO charge has been reclassified from selling, general, and
administrative expenses to cost of sales in order to conform to the
presentation in the fiscal year 2009 consolidated statement of
operations.
|
|
(3)
|
The
impact of the restatement adjustment on the Company’s previously reported
consolidated net loss of $3,523 for fiscal year 2008 was a decrease in
selling, general, and administrative expenses of $458,516, an increase in
the provision for income taxes of $164,468, and an increase in net income
of $294,048. Net loss per share attributable to common
shareholders as previously stated was $0.10 per share and as restated is
$0.03 per share.
|
The following table
presents the impact of the restatement adjustments on the Company's previously
reported consolidated statement of cash flows at June 30, 2008,
and also
presents the discontinued operations and the reclassifications made to conform
to the fiscal year 2008 consolidated financial statements to the presentation in
the fiscal year 2009 consolidated financial statements
:
|
|
Consolidated
Statement of Cash Flows
|
|
|
|
Year ended June 30, 2008
|
|
|
|
As
Previously
|
|
|
Discontinued
|
|
|
Restatement
|
|
|
|
|
|
|
Reported
|
|
|
Operations
(1)
|
|
|
Adjustments
(2)
|
|
|
Restated
|
|
Operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
$
|
(3,523
|
)
|
|
$
|
-
|
|
|
$
|
294,048
|
|
|
$
|
290,525
|
|
Gain
from discontinued operations
|
|
|
-
|
|
|
|
(145,610
|
)
|
|
|
-
|
|
|
|
(145,610
|
)
|
(Loss)
income from continuing operations
|
|
|
(3,523
|
)
|
|
|
(145,610
|
)
|
|
|
294,048
|
|
|
|
144,915
|
|
Adjustments
to reconcile (loss) income from continuing operations to cash (used in)
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
420,888
|
|
|
|
-
|
|
|
|
-
|
|
|
|
420,888
|
|
Amortization
|
|
|
125,156
|
|
|
|
(666
|
)
|
|
|
-
|
|
|
|
124,490
|
|
Stock-based
compensation expense
|
|
|
74,288
|
|
|
|
-
|
|
|
|
-
|
|
|
|
74,288
|
|
Deferred
income taxes
|
|
|
(188,000
|
)
|
|
|
6,000
|
|
|
|
-
|
|
|
|
(182,000
|
)
|
Minority
interest
|
|
|
37,039
|
|
|
|
-
|
|
|
|
-
|
|
|
|
37,039
|
|
Changes
in operating assets and liabilities, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(129,479
|
)
|
|
|
(274,047
|
)
|
|
|
-
|
|
|
|
(403,526
|
)
|
Inventories
|
|
|
(856,132
|
)
|
|
|
42,978
|
|
|
|
-
|
|
|
|
(813,154
|
)
|
Prepaid
expenses and other current assets
|
|
|
(16,780
|
)
|
|
|
300,727
|
|
|
|
-
|
|
|
|
283,947
|
|
Accounts
payable
|
|
|
2,362,355
|
|
|
|
18,400
|
|
|
|
-
|
|
|
|
2,380,755
|
|
Accrued
expenses and other current liabililties
|
|
|
22,174
|
|
|
|
(34,792
|
)
|
|
|
164,468
|
|
|
|
151,850
|
|
Cash
(used in) provided by operating activities, continuing
operations
|
|
|
1,847,986
|
|
|
|
(87,010
|
)
|
|
|
458,516
|
|
|
|
2,219,492
|
|
Cash
provided by operating activities, discontinued
|
|
|
(285
|
)
|
|
|
93,111
|
|
|
|
-
|
|
|
|
92,826
|
|
Cash
provided by operating activities
|
|
|
1,847,701
|
|
|
|
6,101
|
|
|
|
458,516
|
|
|
|
2,312,318
|
|
Investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of 20% of subsidiary
|
|
|
(1,750,000
|
)
|
|
|
-
|
|
|
|
(458,516
|
)
|
|
|
(2,208,516
|
)
|
Acquisition
of pharmacy, net of cash
|
|
|
(552,115
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(552,115
|
)
|
Purchase
of property and equipment
|
|
|
(488,230
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(488,230
|
)
|
Other
|
|
|
-
|
|
|
|
(6,101
|
)
|
|
|
-
|
|
|
|
(6,101
|
)
|
Cash
used in investing activities, continuing operations
|
|
|
(2,790,345
|
)
|
|
|
(6,101
|
)
|
|
|
(458,516
|
)
|
|
|
(3,254,962
|
)
|
Cash
used in investing activities, discontinued
|
|
|
(596
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(596
|
)
|
Cash
used in investing activities
|
|
|
(2,790,941
|
)
|
|
|
(6,101
|
)
|
|
|
(458,516
|
)
|
|
|
(3,255,558
|
)
|
Financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments
on long-term debt
|
|
|
(226,749
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(226,749
|
)
|
Cash
used in financing activities, continuing operations
|
|
|
(226,749
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(226,749
|
)
|
Cash
provided by financing activities, discontinued
|
|
|
175,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
175,000
|
|
Cash
used in financing activities
|
|
|
(51,749
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(51,749
|
)
|
Net
decrease in cash
|
|
|
(994,989
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(994,989
|
)
|
Cash
at beginning of period
|
|
|
1,135,677
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,135,677
|
|
Cash
at end of period
|
|
$
|
140,688
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
140,688
|
|
|
(1)
|
Topsfield
has been reclassified as discontinued operations in the Company’s
financial statements. See Note 11, Discontinued operations, for
further information.
|
|
(2)
|
The impact of the restatement
adjustment on the Company’s previously reported consolidated cash flows
for the year ended June 30, 2008, was cash provided by operating
activities from continuing operations increased $458,516 due to an
increase in net income from continuing operations of $294,048 and an
increase in accrued expenses and other current liabilities of
$164,468. Cash used in investing activities from continuing
operations increased
$458,516.
|
The
following tables present the impact of the restatement adjustments described
above on the Company's previously reported consolidated balance sheet as of
December 31, 2007, the consolidated statements of operations for the three and
six months ended December 31, 2007, and consolidated statement of cash flows for
the six months ended December 31, 2007. They also present the
discontinued operations and the reclassifications made to conform the fiscal
year 2008 consolidated financial statements to the presentation in the fiscal
year 2009 consolidated financial statements:
|
|
Consolidated
Balance Sheet
|
|
|
|
December 31, 2007
|
|
|
|
As
Previously
|
|
|
Discontinued
|
|
|
|
|
|
Restatement
|
|
|
|
|
|
|
Reported
|
|
|
Operations
(1)
|
|
|
Reclasses
(2)
|
|
|
Adjustments
(3)
|
|
|
Restated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
2,022,703
|
|
|
$
|
(359,055
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,663,648
|
|
Accounts
receivable, net
|
|
|
5,079,348
|
|
|
|
(99,747
|
)
|
|
|
(477,063
|
)
|
|
|
-
|
|
|
|
4,502,538
|
|
Inventories,
net
|
|
|
7,577,049
|
|
|
|
(426,786
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
7,150,263
|
|
Prepaid
expenses and other current assets
|
|
|
162,145
|
|
|
|
(2,080
|
)
|
|
|
440,995
|
|
|
|
-
|
|
|
|
601,060
|
|
Refundable
income taxes
|
|
|
119,695
|
|
|
|
-
|
|
|
|
(119,695
|
)
|
|
|
-
|
|
|
|
-
|
|
Current
portion of deferred tax assets
|
|
|
169,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
169,000
|
|
Assets
to be disposed of, discontinued operations
|
|
|
-
|
|
|
|
1,109,117
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,109,117
|
|
Total
current assets
|
|
|
15,129,940
|
|
|
|
221,449
|
|
|
|
(155,763
|
)
|
|
|
-
|
|
|
|
15,195,626
|
|
Property
and equipment, net
|
|
|
1,409,474
|
|
|
|
(134,986
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,274,488
|
|
Goodwill
|
|
|
104,463
|
|
|
|
(86,463
|
)
|
|
|
-
|
|
|
|
316,430
|
|
|
|
334,430
|
|
Other
intangible assets, net
|
|
|
781,696
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
781,696
|
|
Long-term
portion of deferred tax assets
|
|
|
431,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
431,000
|
|
Other
assets
|
|
|
-
|
|
|
|
-
|
|
|
|
36,068
|
|
|
|
-
|
|
|
|
36,068
|
|
Total
assets
|
|
$
|
17,856,573
|
|
|
$
|
-
|
|
|
$
|
(119,695
|
)
|
|
$
|
316,430
|
|
|
$
|
18,053,308
|
|
Liabilities
and shareholders' equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Line
of credit
|
|
$
|
265,000
|
|
|
$
|
(265,000
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Current
portion of long-term debt
|
|
|
152,750
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
152,750
|
|
Accounts
payable
|
|
|
6,328,565
|
|
|
|
(722,394
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
5,606,171
|
|
Accrued
payroll and related taxes
|
|
|
474,964
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
474,964
|
|
Accrued
expenses and other current liabilities
|
|
|
367,024
|
|
|
|
(61,590
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
305,434
|
|
Income
taxes payable
|
|
|
-
|
|
|
|
-
|
|
|
|
(119,695
|
)
|
|
|
113,502
|
|
|
|
(6,193
|
)
|
Liabilities
to be disposed of, discontinued operations
|
|
|
-
|
|
|
|
1,048,984
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,048,984
|
|
Total
current liabilities
|
|
|
7,588,303
|
|
|
|
-
|
|
|
|
(119,695
|
)
|
|
|
113,502
|
|
|
|
7,582,110
|
|
Long-term
debt, net of current portion
|
|
|
45,584
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
45,584
|
|
Total
liabilities
|
|
|
7,633,887
|
|
|
|
-
|
|
|
|
(119,695
|
)
|
|
|
113,502
|
|
|
|
7,627,694
|
|
Minority
interest
|
|
|
1,865,995
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,865,995
|
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
Common
stock
|
|
|
398
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
398
|
|
Additional
paid-in capital
|
|
|
18,121,227
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18,121,227
|
|
Accumulated
deficit
|
|
|
(9,764,937
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
202,928
|
|
|
|
(9,562,009
|
)
|
Total
shareholders' equity
|
|
|
8,356,691
|
|
|
|
-
|
|
|
|
-
|
|
|
|
202,928
|
|
|
|
8,559,619
|
|
Total
liabilities and shareholders' equity
|
|
$
|
17,856,573
|
|
|
$
|
-
|
|
|
$
|
(119,695
|
)
|
|
$
|
316,430
|
|
|
$
|
18,053,308
|
|
|
(1)
|
Topsfield,
ADCO, and ADCO South have been reclassified as discontinued operations in
the Company’s financial statements. See Note 11, Discontinued
operations, for further
information.
|
|
(2)
|
Vendor
rebates receivable of $477,063 was reclassified from accounts receivable
trade to prepaid expenses and other current assets and security deposits
of $36,068 were reclassified from prepaid expenses and other current
assets to other assets in order to conform to the presentation in the June
30, 2009, consolidated balance sheet; and refundable income taxes of
$119,695 was reclassified to accrued federal income taxes due to the
additional taxes due as a result of the restatement
error.
|
|
(3)
|
The
impact of the restatement adjustment on the Company’s previously reported
consolidated balance sheet as of December 31, 2007, was
goodwill
increased $316,430,
income taxes payable increased $113,502, and accumulated deficit decreased
by $202,928.
|
|
|
Consolidated Statement of Operations
|
|
|
|
Three months ended December 31, 2007
|
|
|
|
As Previously
|
|
|
Discontinued
|
|
|
|
|
|
Restatement
|
|
|
|
|
|
|
Reported
|
|
|
Operations
(1)
|
|
|
Reclasses
(2)
|
|
|
Adjustments
(3)
|
|
|
Restated
|
|
Net
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
18,145,792
|
|
|
$
|
(1,776,410
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
16,369,382
|
|
Dispensing
fees
|
|
|
759,300
|
|
|
|
17,528
|
|
|
|
-
|
|
|
|
-
|
|
|
|
776,828
|
|
Total
net revenues
|
|
|
18,905,092
|
|
|
|
(1,758,882
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
17,146,210
|
|
Cost
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
14,121,112
|
|
|
|
(1,463,745
|
)
|
|
|
87,192
|
|
|
|
-
|
|
|
|
12,744,559
|
|
Selling,
general, and administrative expenses
|
|
|
5,056,979
|
|
|
|
(369,516
|
)
|
|
|
(87,192
|
)
|
|
|
(316,430
|
)
|
|
|
4,283,841
|
|
Depreciation
and amortization
|
|
|
146,887
|
|
|
|
(12,052
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
134,835
|
|
Total
costs and expenses
|
|
|
19,324,978
|
|
|
|
(1,845,313
|
)
|
|
|
-
|
|
|
|
(316,430
|
)
|
|
|
17,163,235
|
|
(Loss)
income from operations
|
|
|
(419,886
|
)
|
|
|
86,431
|
|
|
|
-
|
|
|
|
316,430
|
|
|
|
(17,025
|
)
|
Other
income (expense), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(8,715
|
)
|
|
|
193
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(8,522
|
)
|
Interest
income
|
|
|
4,725
|
|
|
|
(723
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
4,002
|
|
Other
income
|
|
|
32,898
|
|
|
|
(17,528
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
15,370
|
|
Total
other income (expense), net
|
|
|
28,908
|
|
|
|
(18,058
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
10,850
|
|
(Loss)
income from continuing operations before provision for income taxes and
minority interest
|
|
|
(390,978
|
)
|
|
|
68,373
|
|
|
|
-
|
|
|
|
316,430
|
|
|
|
(6,175
|
)
|
(Benefit)
provision for income taxes
|
|
|
(120,580
|
)
|
|
|
22,850
|
|
|
|
-
|
|
|
|
113,502
|
|
|
|
15,772
|
|
Minority
interest expense, net of income taxes
|
|
|
(10,253
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(10,253
|
)
|
(Loss)
income from continuing operations
|
|
|
(280,651
|
)
|
|
|
45,523
|
|
|
|
-
|
|
|
|
202,928
|
|
|
|
(32,200
|
)
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
from discontinued operations, net (1)
|
|
|
-
|
|
|
|
(45,523
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(45,523
|
)
|
Gain
on disposal, net (1)
|
|
|
182,628
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
182,628
|
|
Net
gain from discontinued operations
|
|
|
182,628
|
|
|
|
(45,523
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
137,105
|
|
Net
(loss) income
|
|
$
|
(98,023
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
202,928
|
|
|
$
|
104,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per share, continuing operations
|
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.01
|
)
|
Earnings
per share, discontinued operations
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.04
|
|
Basic
earnings (loss) per share
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.03
|
|
Diluted
earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per share, continuing operations
|
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.01
|
)
|
Earnings
per share, discontinued operations
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.03
|
|
Diluted
earnings (loss) per share
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
used in computing earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
3,978,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,978,199
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
shares
|
|
|
3,978,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,978,199
|
|
Common
stock equivalents, stock options
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,000
|
|
Diluted
shares
|
|
|
3,978,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,990,199
|
|
|
(1)
|
Topsfield,
ADCO, and ADCO South have been reclassified as discontinued operations in
the Company’s financial statements. See Note 11, Discontinued
operations, for further
information.
|
|
(2)
|
The
LIFO charge has been reclassified from selling, general, and
administrative expenses to cost of sales in order to conform to the
presentation in the fiscal year 2009 consolidated statement of
operations.
|
|
(3)
|
The
impact of the restatement adjustment on the Company’s previously reported
consolidated net loss of $98,023 for the three months ended December 31,
2007, was a decrease in selling, general, and administrative expenses of
$316,430, an increase in the provision for income taxes of $113,502, and
an increase in net income of $202,928. Net loss per share as
previously stated was $0.02 per share and as restated is $0.03 per
share.
|
|
|
Consolidated Statement of Operations
|
|
|
|
Six months ended December 31, 2007
|
|
|
|
As Previously
|
|
|
Discontinued
|
|
|
|
|
|
Restatement
|
|
|
|
|
|
|
Reported
|
|
|
Operations
(1)
|
|
|
Reclasses
(2)
|
|
|
Adjustments
(3)
|
|
|
Restated
|
|
Net
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
35,527,538
|
|
|
$
|
(3,602,036
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
31,925,502
|
|
Dispensing
fees
|
|
|
1,462,703
|
|
|
|
-
|
|
|
|
35,057
|
|
|
|
-
|
|
|
|
1,497,760
|
|
Total
net revenues
|
|
|
36,990,241
|
|
|
|
(3,602,036
|
)
|
|
|
35,057
|
|
|
|
-
|
|
|
|
33,423,262
|
|
Cost
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
27,777,998
|
|
|
|
(2,835,795
|
)
|
|
|
112,192
|
|
|
|
-
|
|
|
|
25,054,395
|
|
Selling,
general, and administrative expenses
|
|
|
9,333,553
|
|
|
|
(795,461
|
)
|
|
|
(112,192
|
)
|
|
|
(316,430
|
)
|
|
|
8,109,470
|
|
Depreciation
and amortization
|
|
|
297,769
|
|
|
|
(25,143
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
272,626
|
|
Total
costs and expenses
|
|
|
37,409,320
|
|
|
|
(3,656,399
|
)
|
|
|
-
|
|
|
|
(316,430
|
)
|
|
|
33,436,491
|
|
(Loss)
income from operations
|
|
|
(419,079
|
)
|
|
|
54,363
|
|
|
|
35,057
|
|
|
|
316,430
|
|
|
|
(13,229
|
)
|
Other
income (expense), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(16,120
|
)
|
|
|
193
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(15,927
|
)
|
Interest
income
|
|
|
8,695
|
|
|
|
(1,860
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
6,835
|
|
Other
income
|
|
|
51,948
|
|
|
|
-
|
|
|
|
(35,057
|
)
|
|
|
-
|
|
|
|
16,891
|
|
Total
other income (expense), net
|
|
|
44,523
|
|
|
|
(1,667
|
)
|
|
|
(35,057
|
)
|
|
|
-
|
|
|
|
7,799
|
|
(Loss)
income from continuing operations before provision for income taxes and
minority interest
|
|
|
(374,556
|
)
|
|
|
52,696
|
|
|
|
-
|
|
|
|
316,430
|
|
|
|
(5,430
|
)
|
(Benefit)
provision for income taxes
|
|
|
(97,250
|
)
|
|
|
13,053
|
|
|
|
-
|
|
|
|
113,502
|
|
|
|
29,305
|
|
Minority
interest expense, net of income taxes
|
|
|
(38,134
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(38,134
|
)
|
(Loss)
income from continuing operations
|
|
|
(315,440
|
)
|
|
|
39,643
|
|
|
|
-
|
|
|
|
202,928
|
|
|
|
(72,869
|
)
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
from discontinued operations, net (1)
|
|
|
-
|
|
|
|
(39,643
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(39,643
|
)
|
Gain on
disposal, net of tax (1)
|
|
|
182,628
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
182,628
|
|
Net
gain from discontinued operations
|
|
|
182,628
|
|
|
|
(39,643
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
142,985
|
|
Net
(loss) income
|
|
$
|
(132,812
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
202,928
|
|
|
$
|
70,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per share, continuing operations
|
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.02
|
)
|
Earnings
per share, discontinued operations
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.04
|
|
Basic
loss per share
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per share, continuing operations
|
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.02
|
)
|
Earnings per
share, discontinued operations
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.04
|
|
Diluted
earnings (loss) per share:
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
used in computing earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
3,978,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,978,199
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
shares
|
|
|
3,978,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,978,199
|
|
Common
stock equivalents, stock options
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,000
|
|
Diluted
shares
|
|
|
3,978,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,984,199
|
|
|
(1)
|
Topsfield,
ADCO, and ADCO South have been reclassified as discontinued operations in
the Company’s financial statements. See Note 11, Discontinued
operations, for further
information.
|
|
(2)
|
The
LIFO charge has been reclassified from selling, general, and
administrative expenses to cost of sales in order to conform to the
presentation in the fiscal year 2009 consolidated statement of
operations.
|
|
(3)
|
The
impact of the restatement adjustment on the Company’s previously reported
consolidated net loss of $132,812 for six months ended December 31, 2007,
was a decrease in selling, general, and administrative expenses of
$316,430, an increase in the provision for income taxes of $113,502, and
an increase in net income of $202,928. Net loss per share as
previously stated was $0.03 per share and as restated is net earnings per
share $0.02 per share.
|
|
|
Consolidated Statement of Cash Flows
|
|
|
|
Six months ended December 31, 2007
|
|
|
|
As Previously
|
|
|
Discontinued
|
|
|
Restatement
|
|
|
|
|
|
|
Reported
|
|
|
Operations
(1)
|
|
|
Adjustments
(2)
|
|
|
Restated
|
|
Operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
$
|
(132,812
|
)
|
|
$
|
-
|
|
|
$
|
202,928
|
|
|
$
|
70,116
|
|
(Gain)
loss from discontinued operations
|
|
|
(182,628
|
)
|
|
|
39,643
|
|
|
|
-
|
|
|
|
(142,985
|
)
|
(Loss)
income from continuing operations
|
|
|
(315,440
|
)
|
|
|
39,643
|
|
|
|
202,928
|
|
|
|
(72,869
|
)
|
Adjustments
to reconcile (loss) income from continuing operations to cash (used in)
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
229,191
|
|
|
|
(25,143
|
)
|
|
|
-
|
|
|
|
204,048
|
|
Amortization
|
|
|
68,578
|
|
|
|
-
|
|
|
|
-
|
|
|
|
68,578
|
|
Stock-based
compensation expense
|
|
|
25,190
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,190
|
|
Deferred
income taxes
|
|
|
(7,000
|
)
|
|
|
(137,000
|
)
|
|
|
-
|
|
|
|
(144,000
|
)
|
Minority
interest
|
|
|
38,134
|
|
|
|
-
|
|
|
|
-
|
|
|
|
38,134
|
|
Changes
in operating assets and liabilities, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
101,345
|
|
|
|
(562,144
|
)
|
|
|
-
|
|
|
|
(460,799
|
)
|
Inventories
|
|
|
(494,345
|
)
|
|
|
(492,419
|
)
|
|
|
-
|
|
|
|
(986,764
|
)
|
Prepaid
expenses and other current assets
|
|
|
98,066
|
|
|
|
165,672
|
|
|
|
-
|
|
|
|
263,738
|
|
Refundable
income taxes
|
|
|
(35,695
|
)
|
|
|
119,695
|
|
|
|
-
|
|
|
|
84,000
|
|
Accounts
payable
|
|
|
2,291,072
|
|
|
|
(30,967
|
)
|
|
|
-
|
|
|
|
2,260,105
|
|
Accrued
payroll and related taxes
|
|
|
(276,948
|
)
|
|
|
5,784
|
|
|
|
-
|
|
|
|
(271,164
|
)
|
Accrued
expenses and other current liabililties
|
|
|
21,827
|
|
|
|
33,596
|
|
|
|
-
|
|
|
|
55,423
|
|
Income
tax payable
|
|
|
(67,445
|
)
|
|
|
(119,695
|
)
|
|
|
113,502
|
|
|
|
(73,638
|
)
|
Cash
(used in) provided by operating activities, continuing
operations
|
|
|
1,676,530
|
|
|
|
(1,002,978
|
)
|
|
|
316,430
|
|
|
|
989,982
|
|
Cash
provided by operating activities, discontinued
|
|
|
-
|
|
|
|
594,976
|
|
|
|
-
|
|
|
|
594,976
|
|
Cash
provided by operating activities
|
|
|
1,676,530
|
|
|
|
(408,002
|
)
|
|
|
316,430
|
|
|
|
1,584,958
|
|
Investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of 20% of subsidiary
|
|
|
-
|
|
|
|
-
|
|
|
|
(316,430
|
)
|
|
|
(316,430
|
)
|
Acquisition
of pharmacy, net of cash
|
|
|
(552,115
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(552,115
|
)
|
Purchase
of property and equipment
|
|
|
(321,420
|
)
|
|
|
92,050
|
|
|
|
-
|
|
|
|
(229,370
|
)
|
Other
|
|
|
-
|
|
|
|
(6,103
|
)
|
|
|
-
|
|
|
|
(6,103
|
)
|
Cash
used in investing activities, continuing operations
|
|
|
(873,535
|
)
|
|
|
85,947
|
|
|
|
(316,430
|
)
|
|
|
(1,104,018
|
)
|
Cash
used in investing activities, discontinued
|
|
|
-
|
|
|
|
(596
|
)
|
|
|
-
|
|
|
|
(596
|
)
|
Cash
used in investing activities
|
|
|
(873,535
|
)
|
|
|
85,351
|
|
|
|
(316,430
|
)
|
|
|
(1,104,614
|
)
|
Financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from line of credit
|
|
|
140,000
|
|
|
|
(140,000
|
)
|
|
|
-
|
|
|
|
-
|
|
Payments
on long-term debt
|
|
|
(92,373
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(92,373
|
)
|
Cash
used in financing activities, continuing operations
|
|
|
47,627
|
|
|
|
(140,000
|
)
|
|
|
-
|
|
|
|
(92,373
|
)
|
Cash
provided by financing activities, discontinued
|
|
|
-
|
|
|
|
140,000
|
|
|
|
-
|
|
|
|
140,000
|
|
Cash
used in financing activities
|
|
|
47,627
|
|
|
|
-
|
|
|
|
-
|
|
|
|
47,627
|
|
Net
decrease in cash
|
|
|
850,622
|
|
|
|
(322,651
|
)
|
|
|
-
|
|
|
|
527,971
|
|
Cash
at beginning of period
|
|
|
1,172,081
|
|
|
|
(36,404
|
)
|
|
|
-
|
|
|
|
1,135,677
|
|
Cash
at end of period
|
|
$
|
2,022,703
|
|
|
$
|
(359,055
|
)
|
|
$
|
-
|
|
|
$
|
1,663,648
|
|
|
(1)
|
Topsfield,
ADCO, and ADCO South have been reclassified as discontinued operations in
the Company’s financial statements. See Note 11, Discontinued
operations, for further
information.
|
|
(2)
|
The
impact of the restatement adjustment on the Company’s previously reported
consolidated cash flows for the six months ended December 31, 2007, was
cash provided by operating activities from continuing operations increased
$316,430 due to an increase in net income from continuing operations of
$202,928 and a increase in accrued expenses and other current liabilities
of $113,502. Cash used in investing activities from continuing
operations increased
$316,430.
|
The
following tables present the impact of the restatement adjustments described
above on the Company's previously reported consolidated balance sheet as of
March 31, 2008, the consolidated statements of operations for the three and nine
months ended March 31, 2008, and the consolidated statement of cash flows for
the nine months ended March 31, 2008. It also presents the
discontinued operations and the reclassifications made to conform the fiscal
year 2008 consolidated financial statements to the presentation in the fiscal
year 2009 consolidated financial statements:
|
|
Consolidated Balance Sheet
|
|
|
|
March 31, 2008
|
|
|
|
As Previously
|
|
|
Discontinued
|
|
|
|
|
|
Restatement
|
|
|
|
|
|
|
Reported
|
|
|
Operations
(1)
|
|
|
Reclasses
(2)
|
|
|
Adjustments
(3)
|
|
|
Restated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
458,232
|
|
|
$
|
(2,716
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
455,516
|
|
Accounts
receivable, net
|
|
|
4,804,545
|
|
|
|
(443,395
|
)
|
|
|
(463,540
|
)
|
|
|
-
|
|
|
|
3,897,610
|
|
Inventories,
net
|
|
|
7,259,928
|
|
|
|
(410,941
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
6,848,987
|
|
Prepaid
expenses and other current assets
|
|
|
171,104
|
|
|
|
(14,898
|
)
|
|
|
427,472
|
|
|
|
-
|
|
|
|
583,678
|
|
Refundable
income taxes
|
|
|
139,000
|
|
|
|
-
|
|
|
|
(139,000
|
)
|
|
|
-
|
|
|
|
-
|
|
Current
portion of deferred tax assets
|
|
|
265,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
265,000
|
|
Assets
to be disposed of, discontinued operations
|
|
|
-
|
|
|
|
1,084,447
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,084,447
|
|
Total
current assets
|
|
|
13,097,809
|
|
|
|
212,497
|
|
|
|
(175,068
|
)
|
|
|
-
|
|
|
|
13,135,238
|
|
Property
and equipment, net
|
|
|
1,450,043
|
|
|
|
(126,034
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,324,009
|
|
Goodwill
|
|
|
2,239,563
|
|
|
|
(86,463
|
)
|
|
|
-
|
|
|
|
458,516
|
|
|
|
2,611,616
|
|
Other
intangible assets, net
|
|
|
747,406
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
747,406
|
|
Long-term
portion of deferred tax assets
|
|
|
448,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
448,000
|
|
Other
assets
|
|
|
-
|
|
|
|
-
|
|
|
|
36,068
|
|
|
|
-
|
|
|
|
36,068
|
|
Total
assets
|
|
$
|
17,982,821
|
|
|
$
|
-
|
|
|
$
|
(139,000
|
)
|
|
$
|
458,516
|
|
|
$
|
18,302,337
|
|
Liabilities
and shareholders' equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Line
of credit
|
|
$
|
300,000
|
|
|
$
|
(300,000
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Current
portion of long-term debt
|
|
|
210,750
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
210,750
|
|
Current
portion of long-term debt, related parties
|
|
|
1,580,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,580,000
|
|
Accounts
payable
|
|
|
5,936,758
|
|
|
|
(730,002
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
5,206,756
|
|
Accrued
payroll and related taxes
|
|
|
480,165
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
480,165
|
|
Accrued
expenses and other current liabilities
|
|
|
633,930
|
|
|
|
(73,671
|
)
|
|
|
-
|
|
|
|
|
|
|
|
560,259
|
|
Income
taxes payable
|
|
|
69,533
|
|
|
|
-
|
|
|
|
(139,000
|
)
|
|
|
164,468
|
|
|
|
95,001
|
|
Liabilities
to be disposed of, discontinued operations
|
|
|
-
|
|
|
|
1,103,673
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,103,673
|
|
Total
current liabilities
|
|
|
9,211,136
|
|
|
|
-
|
|
|
|
(139,000
|
)
|
|
|
164,468
|
|
|
|
9,236,604
|
|
Long-term
debt, net of current portion
|
|
|
285,563
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
285,563
|
|
Long-term
debt, net of current, due related parties
|
|
|
313,333
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
313,333
|
|
Total
liabilities
|
|
|
9,810,032
|
|
|
|
-
|
|
|
|
(139,000
|
)
|
|
|
164,468
|
|
|
|
9,835,500
|
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock
|
|
|
400,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
400,000
|
|
Common
stock
|
|
|
398
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
398
|
|
Additional
paid-in capital
|
|
|
17,753,223
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17,753,223
|
|
Accumulated
deficit
|
|
|
(9,980,832
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
294,048
|
|
|
|
(9,686,784
|
)
|
Total
shareholders' equity
|
|
|
8,172,789
|
|
|
|
-
|
|
|
|
-
|
|
|
|
294,048
|
|
|
|
8,466,837
|
|
Total
liabilities and shareholders' equity
|
|
$
|
17,982,821
|
|
|
$
|
-
|
|
|
$
|
(139,000
|
)
|
|
$
|
458,516
|
|
|
$
|
18,302,337
|
|
|
(1)
|
Topsfield,
ADCO, and ADCO South have been reclassified as discontinued operations in
the Company’s financial statements. See Note 11, Discontinued
operations, for further
information.
|
|
(2)
|
Vendor
rebates receivable of $463,540 was reclassified from accounts receivable
trade to prepaid expenses and other current assets and security deposits
of $36,068 were reclassified from prepaid expenses and other current
assets to other assets in order to conform to the presentation in the June
30, 2009, consolidated balance sheet; and refundable income taxes of
$139,000 were reclassified to accrued federal income taxes due to the
additional taxes due as a result of the restatement
error.
|
|
(3)
|
The
impact of the restatement adjustment on the Company’s previously reported
consolidated balance sheet as of March 31, 2008, was goodwill
increased $458,516,
income taxes payable increased $164,468, and accumulated deficit decreased
by $294,048.
|
|
|
Consolidated Statement of Operations
|
|
|
|
Three months ended March 31, 2008
|
|
|
|
As Previously
|
|
|
Discontinued
|
|
|
|
|
|
Restatement
|
|
|
|
|
|
|
Reported
|
|
|
Operations
(1)
|
|
|
Reclasses
(2)
|
|
|
Adjustments
(3)
|
|
|
Restated
|
|
Net
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
18,098,491
|
|
|
$
|
(1,628,763
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
16,469,728
|
|
Dispensing
fees
|
|
|
825,380
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
825,380
|
|
Total
net revenues
|
|
|
18,923,871
|
|
|
|
(1,628,763
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
17,295,108
|
|
Cost
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
14,114,180
|
|
|
|
(1,119,823
|
)
|
|
|
(60,000
|
)
|
|
|
-
|
|
|
|
12,934,357
|
|
Selling,
general, and administrative expenses
|
|
|
4,936,086
|
|
|
|
(510,117
|
)
|
|
|
60,000
|
|
|
|
(142,086
|
)
|
|
|
4,343,883
|
|
Depreciation
and amortization
|
|
|
149,472
|
|
|
|
(9,284
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
140,188
|
|
Total
costs and expenses
|
|
|
19,199,738
|
|
|
|
(1,639,224
|
)
|
|
|
-
|
|
|
|
(142,086
|
)
|
|
|
17,418,428
|
|
(Loss)
income from operations
|
|
|
(275,867
|
)
|
|
|
10,461
|
|
|
|
-
|
|
|
|
142,086
|
|
|
|
(123,320
|
)
|
Other
income (expense), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(36,469
|
)
|
|
|
258
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(36,211
|
)
|
Interest
income
|
|
|
2,653
|
|
|
|
(913
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,740
|
|
Other
income
|
|
|
2,566
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,566
|
|
Total
other income (expense), net
|
|
|
(31,250
|
)
|
|
|
(655
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(31,905
|
)
|
(Loss)
income from continuing operations before provision for income taxes and
minority interest
|
|
|
(307,117
|
)
|
|
|
9,806
|
|
|
|
-
|
|
|
|
142,086
|
|
|
|
(155,225
|
)
|
(Benefit)
provision for income taxes
|
|
|
(90,127
|
)
|
|
|
972
|
|
|
|
-
|
|
|
|
50,966
|
|
|
|
(38,189
|
)
|
Minority
interest expense, net of income taxes
|
|
|
1,095
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,095
|
|
(Loss)
income from continuing operations
|
|
|
(215,895
|
)
|
|
|
8,834
|
|
|
|
-
|
|
|
|
91,120
|
|
|
|
(115,941
|
)
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
from discontinued operations, net (1)
|
|
|
-
|
|
|
|
(8,834
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(8,834
|
)
|
Gain
of disposal of discontinued operations, net (1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net
gain from discontinued operations
|
|
|
-
|
|
|
|
(8,834
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(8,834
|
)
|
Net
(loss) income
|
|
|
(215,895
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
91,120
|
|
|
|
(124,775
|
)
|
Deemed
dividend on redemption of preferred stock
|
|
|
(399,997
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(399,997
|
)
|
Net
loss attributable to common shareholders
|
|
$
|
(615,892
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
91,120
|
|
|
$
|
(524,772
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per share, continuing operations, net of deemed dividend on redemption of
preferred stock
|
|
$
|
(0.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.13
|
)
|
Earnings
(loss) per share, discontinued operations
|
|
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.00
|
|
Loss
per share attributable to common shareholders
|
|
$
|
(0.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
used in computing loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
3,978,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,978,199
|
|
Diluted
|
|
|
3,978,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,978,199
|
|
|
(1)
|
Topsfield,
ADCO, and ADCO South have been reclassified as discontinued operations in
the Company’s financial statements. See Note 11, Discontinued
operations, for further
information.
|
|
(2)
|
The
LIFO charge has been reclassified from selling, general, and
administrative expenses to cost of sales in order to conform to the
presentation in the fiscal year 2009 consolidated statement of
operations.
|
|
(3)
|
The
impact of the restatement adjustment on the Company’s previously reported
consolidated net loss of $215,895 for the three months ended March 31,
2008, was a decrease in selling, general, and administrative expenses of
$142,086, an increase in the provision for income taxes of $50,966, and an
increase in net income of $91,120. Net loss per share
attributable to common shareholders as previously stated was $0.16 per
share and as restated is $0.13 per
share.
|
|
|
Consolidated Statement of Operations
|
|
|
|
Nine months ended March 31, 2008
|
|
|
|
As Previously
|
|
|
Discontinued
|
|
|
|
|
|
Restatement
|
|
|
|
|
|
|
Reported
|
|
|
Operations
(1)
|
|
|
Reclasses
(2)
|
|
|
Adjustments
(3)
|
|
|
Restated
|
|
Net
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
53,626,029
|
|
|
$
|
(5,230,799
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
48,395,230
|
|
Dispensing
fees
|
|
|
2,323,140
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,323,140
|
|
Total
net revenues
|
|
|
55,949,169
|
|
|
|
(5,230,799
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
50,718,370
|
|
Cost
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
41,892,178
|
|
|
|
(3,731,234
|
)
|
|
|
(172,192
|
)
|
|
|
|
|
|
|
37,988,752
|
|
Selling,
general, and administrative expenses
|
|
|
14,269,639
|
|
|
|
(1,529,963
|
)
|
|
|
172,192
|
|
|
|
(458,516
|
)
|
|
|
12,453,352
|
|
Depreciation
and amortization
|
|
|
447,241
|
|
|
|
(34,427
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
412,814
|
|
Total
costs and expenses
|
|
|
56,609,058
|
|
|
|
(5,295,624
|
)
|
|
|
-
|
|
|
|
(458,516
|
)
|
|
|
50,854,918
|
|
(Loss)
income from operations
|
|
|
(659,889
|
)
|
|
|
64,825
|
|
|
|
-
|
|
|
|
458,516
|
|
|
|
(136,548
|
)
|
Other
income (expense), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(52,589
|
)
|
|
|
451
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(52,138
|
)
|
Interest
income
|
|
|
11,348
|
|
|
|
(2,773
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
8,575
|
|
Other
income
|
|
|
19,457
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,457
|
|
Total
other income (expense), net
|
|
|
(21,784
|
)
|
|
|
(2,322
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(24,106
|
)
|
(Loss)
income from continuing operations before provision for income taxes and
minority interest
|
|
|
(681,673
|
)
|
|
|
62,503
|
|
|
|
-
|
|
|
|
458,516
|
|
|
|
(160,654
|
)
|
(Benefit)
provision for income taxes
|
|
|
(187,377
|
)
|
|
|
14,025
|
|
|
|
-
|
|
|
|
164,468
|
|
|
|
(8,884
|
)
|
Minority
interest expense, net of income taxes
|
|
|
(37,039
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(37,039
|
)
|
(Loss)
income from continuing operations
|
|
|
(531,335
|
)
|
|
|
48,478
|
|
|
|
-
|
|
|
|
294,048
|
|
|
|
(188,809
|
)
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
(loss) from discontinued operations, net
|
|
|
-
|
|
|
|
(48,477
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(48,477
|
)
|
Gain
of disposal of discontinued operations, net
|
|
|
182,628
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
182,628
|
|
Net
gain from discontinued operations
|
|
|
182,628
|
|
|
|
(48,477
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
134,151
|
|
Net
(loss) income
|
|
|
(348,707
|
)
|
|
|
1
|
|
|
|
-
|
|
|
|
294,048
|
|
|
|
(54,658
|
)
|
Deemed
dividend on redemption of preferred stock
|
|
|
(399,997
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(399,997
|
)
|
Net
loss attributable to common shareholders
|
|
$
|
(748,704
|
)
|
|
$
|
1
|
|
|
$
|
-
|
|
|
$
|
294,048
|
|
|
$
|
(454,655
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per share, continuing operations, net of deemed dividend on redemption of
preferred stock
|
|
$
|
(0.24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.15
|
)
|
Earnings
(loss) per share, discontinued operations
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.04
|
|
Loss
per share attributable to common shareholders
|
|
$
|
(0.19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
used in computing loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
3,978,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,978,199
|
|
Diluted
|
|
|
3,978,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,978,199
|
|
|
(1)
|
Topsfield,
ADCO, and ADCO South have been reclassified as discontinued operations in
the Company’s financial statements. See Note 11, Discontinued
operations, for further
information.
|
|
(2)
|
The
LIFO charge has been reclassified from selling, general, and
administrative expenses to cost of sales in order to conform to the
presentation in the fiscal year 2009 consolidated statement of
operations.
|
|
(3)
|
The
impact of the restatement adjustment on the Company’s previously reported
consolidated net loss of $748,704 for the nine months ended March 31,
2008, was a decrease in selling, general, and administrative expenses of
$458,516, an increase in the provision for income taxes of $164,468, and
an increase in net income of $294,048. Net loss per share
attributable to common shareholders as previously stated was $0.19 per
share and as restated is net loss per share $0.11 per
share.
|
|
|
Consolidated
Statement of Cash Flows
|
|
|
|
Nine months ended March 31,
2008
|
|
|
|
As Previously
|
|
|
Discontinued
|
|
|
Restatement
|
|
|
|
|
|
|
Reported
|
|
|
Operations
(1)
|
|
|
Adjustments
(2)
|
|
|
Restated
|
|
Operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
$
|
(531,335
|
)
|
|
$
|
182,628
|
|
|
$
|
294,048
|
|
|
$
|
(54,659
|
)
|
Gain
from discontinued operations
|
|
|
-
|
|
|
|
(134,151
|
)
|
|
|
-
|
|
|
|
(134,151
|
)
|
(Loss)
income from continuing operations
|
|
|
(531,335
|
)
|
|
|
48,477
|
|
|
|
294,048
|
|
|
|
(188,810
|
)
|
Adjustments
to reconcile (loss) income from continuing operations to cash (used in)
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
344,373
|
|
|
|
(34,094
|
)
|
|
|
-
|
|
|
|
310,279
|
|
Amortization
|
|
|
102,868
|
|
|
|
(333
|
)
|
|
|
-
|
|
|
|
102,535
|
|
Stock-based
compensation expense
|
|
|
57,183
|
|
|
|
-
|
|
|
|
-
|
|
|
|
57,183
|
|
Deferred
income taxes
|
|
|
(120,000
|
)
|
|
|
(42,900
|
)
|
|
|
-
|
|
|
|
(162,900
|
)
|
Minority
interest
|
|
|
37,039
|
|
|
|
-
|
|
|
|
-
|
|
|
|
37,039
|
|
Changes
in operating assets and liabilities, net of effects of acqusitions and
disposals:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
376,148
|
|
|
|
(232,019
|
)
|
|
|
-
|
|
|
|
144,129
|
|
Inventories
|
|
|
(177,224
|
)
|
|
|
(508,214
|
)
|
|
|
-
|
|
|
|
(685,438
|
)
|
Prepaid
expenses and other current assets
|
|
|
89,107
|
|
|
|
192,013
|
|
|
|
-
|
|
|
|
281,120
|
|
Refundable
income taxes
|
|
|
(55,000
|
)
|
|
|
139,000
|
|
|
|
-
|
|
|
|
84,000
|
|
Accounts
payable
|
|
|
1,899,265
|
|
|
|
(38,575
|
)
|
|
|
-
|
|
|
|
1,860,690
|
|
Accrued
payroll and related taxes
|
|
|
(271,747
|
)
|
|
|
9,743
|
|
|
|
-
|
|
|
|
(262,004
|
)
|
Accrued
expenses and other current liabililties
|
|
|
288,731
|
|
|
|
17,558
|
|
|
|
-
|
|
|
|
306,289
|
|
Income
taxes payable
|
|
|
2,088
|
|
|
|
(139,000
|
)
|
|
|
164,468
|
|
|
|
27,556
|
|
Cash
(used in) provided by operating activities, continuing
operations
|
|
|
2,041,496
|
|
|
|
(588,344
|
)
|
|
|
458,516
|
|
|
|
1,911,668
|
|
Cash
provided by operating activities, discontinued operations
|
|
|
-
|
|
|
|
512,135
|
|
|
|
-
|
|
|
|
512,135
|
|
Cash
(used in) provided by operating activities
|
|
|
2,041,496
|
|
|
|
(76,209
|
)
|
|
|
458,516
|
|
|
|
2,423,803
|
|
Investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of 20% of subsidiary
|
|
|
(1,750,000
|
)
|
|
|
-
|
|
|
|
(458,516
|
)
|
|
|
(2,208,516
|
)
|
Acquisition
of pharmacy, net of cash
|
|
|
(552,115
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(552,115
|
)
|
Purchase
of property and equipment
|
|
|
(361,170
|
)
|
|
|
595
|
|
|
|
-
|
|
|
|
(360,575
|
)
|
Other
|
|
|
-
|
|
|
|
(6,103
|
)
|
|
|
-
|
|
|
|
(6,103
|
)
|
Cash
used in investing activities, continuing operations
|
|
|
(2,663,285
|
)
|
|
|
(5,508
|
)
|
|
|
(458,516
|
)
|
|
|
(3,127,309
|
)
|
Cash
provided by (used in) investing activities, discontinued
operations
|
|
|
-
|
|
|
|
(595
|
)
|
|
|
-
|
|
|
|
(595
|
)
|
Cash
provided by (used in) investing activities
|
|
|
(2,663,285
|
)
|
|
|
(6,103
|
)
|
|
|
(458,516
|
)
|
|
|
(3,127,904
|
)
|
Financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from line of credit
|
|
|
175,000
|
|
|
|
(175,000
|
)
|
|
|
-
|
|
|
|
-
|
|
Payments
on long-term debt
|
|
|
(151,060
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(151,060
|
)
|
Cash
used in financing activities, continuing operations
|
|
|
23,940
|
|
|
|
(175,000
|
)
|
|
|
-
|
|
|
|
(151,060
|
)
|
Cash
provided by financing activities, discontinued operations
|
|
|
(116,000
|
)
|
|
|
291,000
|
|
|
|
-
|
|
|
|
175,000
|
|
Cash
used in financing activities
|
|
|
(92,060
|
)
|
|
|
116,000
|
|
|
|
-
|
|
|
|
23,940
|
|
Net
decrease in cash
|
|
|
(713,849
|
)
|
|
|
33,688
|
|
|
|
-
|
|
|
|
(680,161
|
)
|
Cash
at beginning of period
|
|
|
1,172,081
|
|
|
|
(36,404
|
)
|
|
|
-
|
|
|
|
1,135,677
|
|
Cash
at end of period
|
|
$
|
458,232
|
|
|
$
|
(2,716
|
)
|
|
$
|
-
|
|
|
$
|
455,516
|
|
|
(1)
|
Topsfield,
ADCO, and ADCO South have been reclassified as discontinued operations in
the Company’s financial statements. See Note 11, Discontinued
operations, for further
information.
|
|
(2)
|
The impact of the restatement
adjustment on the Company’s previously reported consolidated cash flows
for the nine months ended March 31, 2008, was cash provided by operating
activities from continuing operations increased $458,516 due to an
increase in net income from continuing operations of $294,048 and a
increase in accrued expenses and other current liabilities of
$164,468. Cash used in investing activities from continuing
operations increased
$458,516.
|
The
impact of the restatement adjustments on the consolidated balance sheet as of
September 30, 2008, December 31, 2008, and March 31, 2009, were as
follows: goodwill increased $458,516, income taxes payable increased
$164,468, and accumulated deficit decreased by $294,048. In addition,
refundable income taxes as of September 30, 2008, and December 31, 2008, of
$62,824 were reclassified to accrued federal income taxes due to the additional
taxes due as a result of the restatement error.
The restatement
adjustments did not have an impact on the consolidated statement of operations
or the consolidated statement of cash flows for fiscal year 2009. The
following table reflects the restated consolidated balance sheet for the periods
impacted in fiscal 2009:
|
|
Consolidated Balance Sheets
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
|
(restated)
|
|
|
(restated)
|
|
|
(restated)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
407,707
|
|
|
$
|
474,874
|
|
|
$
|
42,317
|
|
Accounts
receivable, net
|
|
|
5,082,956
|
|
|
|
5,592,505
|
|
|
|
5,268,027
|
|
Inventories,
net
|
|
|
7,757,827
|
|
|
|
7,305,770
|
|
|
|
7,416,931
|
|
Prepaid
expenses and other current assets
|
|
|
218,235
|
|
|
|
127,507
|
|
|
|
171,122
|
|
Current
portion of deferred tax assets
|
|
|
199,000
|
|
|
|
199,000
|
|
|
|
195,000
|
|
Assets
to be disposed of, discontinued operations
|
|
|
263,607
|
|
|
|
380,363
|
|
|
|
221,001
|
|
Total
current assets
|
|
|
13,929,332
|
|
|
|
14,080,019
|
|
|
|
13,314,398
|
|
Property
and equipment, net
|
|
|
1,379,457
|
|
|
|
1,351,436
|
|
|
|
1,374,398
|
|
Goodwill
|
|
|
2,611,616
|
|
|
|
2,611,616
|
|
|
|
2,611,616
|
|
Other
intangible assets, net
|
|
|
702,229
|
|
|
|
669,872
|
|
|
|
647,915
|
|
Long-term
portion of deferred tax assets
|
|
|
379,000
|
|
|
|
379,000
|
|
|
|
406,000
|
|
Long-term
portion of deferred tax assets, discontinued operations
|
|
|
70,000
|
|
|
|
70,000
|
|
|
|
-
|
|
Total
assets
|
|
$
|
19,071,634
|
|
|
$
|
19,161,943
|
|
|
$
|
18,354,327
|
|
Liabilities
and shareholders' equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
portion of long-term debt and lease financing obligations
|
|
$
|
149,771
|
|
|
$
|
115,583
|
|
|
$
|
81,396
|
|
Current
portion of long-term debt, related parties
|
|
|
230,000
|
|
|
|
230,000
|
|
|
|
80,004
|
|
Accounts
payable
|
|
|
6,514,130
|
|
|
|
6,363,309
|
|
|
|
6,144,766
|
|
Accrued
payroll and related taxes
|
|
|
668,867
|
|
|
|
627,261
|
|
|
|
674,928
|
|
Accrued
expenses and other current liabilities
|
|
|
352,968
|
|
|
|
240,243
|
|
|
|
142,007
|
|
Income
taxes payable
|
|
|
139,824
|
|
|
|
292,498
|
|
|
|
164,468
|
|
Liabilities
to be disposed of, discontinued operations
|
|
|
312,852
|
|
|
|
381,530
|
|
|
|
309,414
|
|
Total
current liabilities
|
|
|
8,368,412
|
|
|
|
8,250,424
|
|
|
|
7,596,983
|
|
Long-term
debt and lease financing obligations, net of current
portion
|
|
|
239,167
|
|
|
|
221,667
|
|
|
|
204,167
|
|
Long-term
debt, net of current portion, related parties
|
|
|
1,623,333
|
|
|
|
1,603,333
|
|
|
|
1,733,329
|
|
Total
liabilities
|
|
|
10,230,912
|
|
|
|
10,075,424
|
|
|
|
9,534,479
|
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock
|
|
|
400,000
|
|
|
|
400,000
|
|
|
|
400,000
|
|
Common
stock
|
|
|
398
|
|
|
|
398
|
|
|
|
398
|
|
Additional
paid-in capital
|
|
|
17,792,362
|
|
|
|
17,813,450
|
|
|
|
17,821,572
|
|
Accumulated
deficit
|
|
|
(9,352,038
|
)
|
|
|
(9,127,329
|
)
|
|
|
(9,402,122
|
)
|
Total
shareholders' equity
|
|
|
8,840,722
|
|
|
|
9,086,519
|
|
|
|
8,819,848
|
|
Total
liabilities and shareholders' equity
|
|
$
|
19,071,634
|
|
|
$
|
19,161,943
|
|
|
$
|
18,354,327
|
|
4.
Change in control and
purchase of 20% of subsidiary
In
February 2008, the Company completed its acquisition of the remaining 20% of the
outstanding common stock of its pharmacies’ subsidiary, DAW through a series of
transactions (the “Acquisition”). In consideration for the
Acquisition, the Company paid and issued the following: (i) a cash payment of
$1,750,000, (ii) 2,000 shares of a newly created Series 2 Class B Convertible
Preferred Stock that would initially be convertible into 218,000 shares of the
Company’s common stock. The conversion rate of the shares would be
adjusted, if at the time of the conversion, the Company has issued additional
shares of common stock below $1.84 per share. The shares have the
same aggregate 4,000,000 voting rights as the Company’s then existing Class A
Preferred Stock (the “Class A Stock”) and Class B Preferred Stock (the “Class B
Stock”), (iii) promissory notes in the aggregate principal amount of $350,000,
and (iv) convertible promissory notes in the aggregate principal amount of
$1,500,000 which would be convertible into common stock of the Company at an
initial conversion price of $1.84 per share, subject to adjustment (collectively
(i) through (iv), the “Consideration”). The Company also incurred
transactions costs of $458,516.
The
following table summarizes the final purchase accounting based on the fair value
of the assets acquired and the carrying value of the minority interest at the
date of the acquisition:
|
|
Allocation of
|
|
|
|
Purchase Price
|
|
Purchase
price allocation:
|
|
|
|
Goodwill
|
|
$
|
2,593,616
|
|
Minority
interest
|
|
|
1,864,900
|
|
Total
purchase price
|
|
$
|
4,458,516
|
|
The
Company entered into a registration rights agreement with the Minority
Shareholders (i.e., Messrs. Mark Dumouchel, David Dumouchel, Wayne Gunter,
Donato Mazzola, and Ms. Lucille Curry). The Company entered into an
amendment with Karen Wright to amend Ms. Wright’s employment agreement to
reflect her resignation as President and Vice President of Operations of the
Company. Ms. Wright was reappointed as Vice President of Finance,
Treasurer and Secretary. Messrs. Mark and David Dumouchel were
elected to the Company’s Board of Directors; Mr. Mark Dumouchel was appointed
President and Chief Executive Officer; and three-year employment agreements were
entered into with DAW and each of Messrs. Mark Dumouchel, David Dumouchel, Wayne
Gunter, Donato Mazzola, and Michael Curry. Certain of the Minority
Shareholders purchased from Nyle International Corp. (“Nyle”) 597,826 shares of
the Company’s common stock (the “Nyle Purchase”) for $1.84 per
share. Prior to the Acquisition, Mr. Nyer, through his ownership of
the Class A Stock and the Class B Stock, which carried 4,000,000 votes in the
aggregate, controlled a majority of the Company’s voting
securities.
In
February 2008, the Company purchased from Samuel Nyer (Mr. Nyer), 2,000 shares
of the Company’s Class A Stock and 1,000 shares of the Company’s Class B Stock
held by Mr. Nyer (which represented all of the then issued and outstanding
shares of such preferred stock) in exchange for a promissory note in the amount
of $400,000 (the “Samuel Nyer Purchase”).
As a
result of the Acquisition including the issuance of the newly issued Series 2
Preferred Stock to the minority shareholders of DAW (the “Minority
Shareholders”), the Nyle Purchase, the Samuel Nyer Purchase and the appointment
of Mark and David Dumouchel to fill director and officer vacancies, there has
been a change of control of the Company with the former Minority Shareholders
owning approximately 57.6% of the voting power of the Company’s outstanding
common stock.
5.
Inventories
Inventories
consisted of the following at June 30:
|
|
June 30
|
|
|
|
2009
|
|
|
2008
|
|
Pharmacies
|
|
$
|
8,371,689
|
|
|
$
|
8,260,293
|
|
LIFO
reserves
|
|
|
(1,405,582
|
)
|
|
|
(1,283,590
|
)
|
Inventory,
net
|
|
$
|
6,966,107
|
|
|
$
|
6,976,703
|
|
The
pharmacies use the LIFO method of accounting for their
inventories. At June 30, 2009 and 2008, inventories were $1,405,582
and $1,283,590, respectively, lower than the amounts that would have been
reported using the first-in, first-out (“FIFO”) method. The LIFO
charge was $121,992 and $177,689 for the year ended June 30, 2009 and 2008,
respectively.
In July
2006, DAW executed an agreement with its major supplier to purchase
pharmaceuticals and amended such agreement in February 2008. This
amended agreement extended the termination date from January 2009 to January 31,
2012, and allowed for a two-week rolling extension of payment
terms. Payment for merchandise delivered is secured by a first
priority interest in all of DAW’S assets of approximately $17
million. DAW has committed to maintain a $200,000 store monthly
purchase average from this supplier. If the relationship with this
supplier was disrupted, management believes it has other competitive suppliers
who could fulfill their inventory needs at no additional expense.
6.
Prepaid expenses and other
current assets
Prepaid
expenses and other current assets consisted of the following:
|
|
June 30
|
|
|
|
2009
|
|
|
2008
|
|
Vendor
rebates receivable
|
|
$
|
906,372
|
|
|
$
|
392,456
|
|
Prepaid
other
|
|
|
72,854
|
|
|
|
272,393
|
|
Total
prepaid expenses and other current assets
|
|
$
|
979,226
|
|
|
$
|
664,849
|
|
7.
Property, plant, and
equipment
The
following is a summary of property, plant, and equipment, including capital
lease assets:
|
|
June 30
|
|
|
|
2009
|
|
|
2008
|
|
Fixtures
and equipment
|
|
$
|
2,135,639
|
|
|
$
|
1,682,475
|
|
Transportation
equipment
|
|
|
343,117
|
|
|
|
273,991
|
|
Leasehold
improvements
|
|
|
1,788,058
|
|
|
|
1,754,921
|
|
|
|
|
4,266,814
|
|
|
|
3,711,387
|
|
Accumulated
depreciation
|
|
|
(2,872,970
|
)
|
|
|
(2,370,332
|
)
|
|
|
$
|
1,393,844
|
|
|
$
|
1,341,055
|
|
Depreciation
expense, which included amortization of assets recorded under capital leases,
was $539,978 and $420,888 for fiscal year 2009 and 2008,
respectively.
8.
Goodwill and other
intangible assets
The
following is a summary of the changes in the carrying amount of
goodwill:
|
|
June 30
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(restated)
|
|
Balance,
beginning of year
|
|
$
|
2,611,616
|
|
|
$
|
18,000
|
|
Goodwill
recorded on acquisition
|
|
|
-
|
|
|
|
2,593,616
|
|
Goodwill
written off on disposition of discontinued
operations
|
|
|
(18,000
|
)
|
|
|
-
|
|
|
|
$
|
2,593,616
|
|
|
$
|
2,611,616
|
|
The
following is a summary of other intangible assets, which consist of prescription
lists:
June 30, 2009
|
|
|
June 30, 2008
|
|
Gross
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
$
|
1,011,555
|
|
|
$
|
(385,596
|
)
|
|
$
|
625,959
|
|
|
$
|
1,371,555
|
|
|
$
|
(646,437
|
)
|
|
$
|
725,118
|
|
Amortization
expense of other intangible assets was $88,492 and $124,490 for fiscal year 2009
and 2008, respectively.
Based on
the balance of other intangible assets at June 30, 2009, the annual amortization
expense for each of the succeeding five years is estimated to be as
follows:
|
|
Amortization
|
|
Year
|
|
Amount
|
|
2010
|
|
|
87,822
|
|
2011
|
|
|
87,822
|
|
2012
|
|
|
85,716
|
|
2013
|
|
|
81,156
|
|
2014
|
|
|
81,156
|
|
Thereafter
|
|
|
202,287
|
|
Total
|
|
$
|
625,959
|
|
9.
Notes payable and other
related party transactions
Notes
payable
The
following is a summary on notes payable:
|
|
June 30
|
|
|
|
2009
|
|
|
2008
|
|
Related
parties:
|
|
|
|
|
|
|
Convertible
notes
|
|
$
|
1,500,000
|
|
|
$
|
1,500,000
|
|
Note
payable, shareholder
|
|
|
293,333
|
|
|
|
373,333
|
|
|
|
|
1,793,333
|
|
|
|
1,873,333
|
|
Less
current portion of debt due related parties
|
|
|
80,004
|
|
|
|
80,004
|
|
Long-term
portion of debt due related parties
|
|
$
|
1,713,329
|
|
|
$
|
1,793,329
|
|
|
|
|
|
|
|
|
|
|
Other
debt:
|
|
|
|
|
|
|
|
|
Note
payable, former shareholder
|
|
$
|
256,668
|
|
|
$
|
326,667
|
|
Obligations
under capital leases
|
|
|
165,266
|
|
|
|
-
|
|
Note
payable, pharmacy acquisition
|
|
|
-
|
|
|
|
113,958
|
|
|
|
|
421,934
|
|
|
|
440,625
|
|
Less
current portion of debt
|
|
|
106,058
|
|
|
|
183,958
|
|
Long-term
portion of debt
|
|
$
|
315,876
|
|
|
$
|
256,667
|
|
At June
30, 2009, the following were the maturities of debt:
Year
|
|
Maturities
|
|
2010
|
|
$
|
186,062
|
|
2011
|
|
|
1,686,048
|
|
2012
|
|
|
186,048
|
|
2013
|
|
|
136,048
|
|
2014
|
|
|
21,061
|
|
|
|
$
|
2,215,267
|
|
In
February 2008, Convertible Notes were issued to the former Minority
Shareholders, in the aggregate amount of $1,500,000. The Convertible
Notes bear interest at the rate of 8% per annum, and are due on February 4,
2011. After February 4, 2009 (the first anniversary of the
transaction), any of the former Minority Shareholders can convert all or any
portion of their allocable payment of such notes into shares of the Company’s
common stock at an initial conversion price of $1.84 per share. They
can also redeem for cash. The former minority shareholders have
indicated that they do not intend to redeem the Convertible Notes until after
July 1, 2010.
In
February 2008, an unsecured a promissory note, maturing in February 2013, was
issued to Mr. Nyer in the amount of $400,000 for the purchase of the Company’s
2,000 shares of Class A Stock and 1,000 shares of Class B Stock. The
note is payable in equal monthly installments of $6,667 plus interest on the
unpaid balance at 7%.
In
February 2008, an unsecured promissory note, maturing in February 2013, was
issued to the former Minority Shareholders in the amount of
$350,000. The note is payable in equal monthly installments of $5,833
plus 7% interest on the unpaid balance. The note was assigned to Nyle
on February 4, 2008, by the Minority Shareholders as consideration for their
purchase of common stock of the Company owned by Nyle.
The
Company also had a note payable for an acquisition of a pharmacy, collateralized
by pharmacy inventory, payable in equal monthly installments of $4,000 plus
interest on the unpaid balance at 5%. The note matured and was paid
in full in April 2008.
In
addition, the Company had a note payable for an acquisition of a pharmacy,
payable in equal monthly installments of $11,396 plus interest on the unpaid
balance at 6%. The note matured and was paid in full in March
2009.
The
Company’s discontinued operations, ADCO Surgical Supply, Inc., (“ADCO”) had a
line of credit (“line”), which was secured by land and a building owned by ADCO
(not sold with the rest of ADCO’s assets) and guaranteed by the
Company. Repayment of the line was in monthly payments of interest
only, with the principal being due at maturity, unless
renewed. Prior to the maturity date, ADCO would have had to
repay the amounts outstanding under the line upon the demand of the
Bank. The interest rate was two percentage points over the
Wall Street Journal
Prime
Rate. As of June 30, 2009, borrowings outstanding against the line
were $300,000 and were included in the liabilities to be disposed of from
discontinued operations on the Company’s balance sheet. The building
that was used as collateral for the line of credit was sold on September 21,
2009. A portion of the proceeds from the sale were used to pay off
the line, and the line was terminated as of September 21,
2009.
Other related party
transactions
The
Company leases a drug store facility owned by the mother of the Company’s
president, chief executive officer, and director and another
director. The Company paid $81,500 for fiscal year 2009 and
2008. The lease expires July 31, 2011.
10.
Accrued expenses and
other current liabilities
Accrued
expenses and other current liabilities consisted of the following:
|
|
June 30
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(restated)
|
|
Accrued
salaries and wages
|
|
$
|
732,989
|
|
|
$
|
608,208
|
|
Accrued
income taxes
|
|
|
198,139
|
|
|
|
164,423
|
|
Accrued
other
|
|
|
197,248
|
|
|
|
442,802
|
|
Total
accrued expenses and other current liabilities
|
|
$
|
1,128,376
|
|
|
$
|
1,215,433
|
|
11.
Discontinued
operations
In December 2008, the Company sold the
inventory and prescription lists of its Topsfield pharmacy to CVS Pharmacy
L.L.C. (“CVS”). In conjunction with this sale, the Company also
entered into a non-compete agreement with CVS, whereby it has agreed not to
compete for three years within a 10-mile radius of the CVS store located in
Danvers, Massachusetts, excluding two currently operating Eaton Apothecary
pharmacies. A gain of $507,000 was recognized on the sale of
Topsfield.
In
September 2008, the Company sold certain assets and liabilities of ADCO, a
medical and surgical equipment and supplies company engaged in both the
wholesale and retail selling of medical equipment and surgical supplies
throughout New England and the internet. A loss on disposal of
$193,260 was recognized on the sale of ADCO’s certain assets and
liabilities. The Company retained ADCO’s building and land and its
line of credit of $300,000, which has been fully utilized. The buyer
of ADCO’s assets had an option to purchase the building and land that was not
exercised and expired on January 31, 2009. In connection with
this sale, the Company received a $50,000 note receivable that was payable
January 31, 2009. The Company and the buyer are currently in dispute
over certain assets and liabilities that were included in the ADCO
sale, and the note receivable has not been paid. The Company is
unable to determine the final outcome of this dispute, but it may result in an
additional charge to the disposal of discontinued operations.
During
the fiscal year ended June 30, 2008, the Company operated ADCO South, a medical
and surgical equipment and supplies company engaged in the wholesale selling of
medical equipment and surgical supplies throughout Florida. In June
2008, the Company sold ADCO South and recognized a loss on the sale of
$3,848.
In
December 2007, the Company reevaluated the outstanding liabilities related to
its fire and police segment (discontinued in 2004) and concluded there were no
remaining liabilities. The liabilities were reversed and a $298,628
gain has been reflected in loss of discontinued operations.
The
following is a summary of the assets and liabilities for discontinued
operations:
|
|
June 30
|
|
|
|
2009
|
|
|
2008
|
|
Cash
|
|
$
|
2,275
|
|
|
$
|
33,293
|
|
Accounts
receivable, net
|
|
|
-
|
|
|
|
323,681
|
|
Inventories
|
|
|
-
|
|
|
|
707,820
|
|
Prepaid
expenses and other current assets
|
|
|
-
|
|
|
|
12,828
|
|
Property
and equipment, net
|
|
|
112,001
|
|
|
|
120,942
|
|
Current
portion of deferred tax assets
|
|
|
105,200
|
|
|
|
73,000
|
|
Goodwill
|
|
|
-
|
|
|
|
86,463
|
|
Long-term
portion of deferred tax assets
|
|
|
-
|
|
|
|
70,000
|
|
Total
assets
|
|
$
|
219,476
|
|
|
$
|
1,428,027
|
|
|
|
|
|
|
|
|
|
|
Line
of credit
|
|
$
|
300,000
|
|
|
$
|
300,000
|
|
Accounts
payable
|
|
|
-
|
|
|
|
566,833
|
|
Accrued
payroll and related taxes
|
|
|
-
|
|
|
|
28,187
|
|
Accrued
expenses and other liabilities
|
|
|
10,771
|
|
|
|
27,031
|
|
Total
current liabilities
|
|
$
|
310,771
|
|
|
$
|
922,051
|
|
A summary
of revenues and pre-tax operating results from the discontinued operations for
fiscal year 2009 and 2008 is as follows:
|
|
Year ended June 30
|
|
|
|
2009
|
|
|
2008
|
|
Sales
|
|
$
|
1,664,872
|
|
|
$
|
6,636,572
|
|
Pre-tax
(loss) income from discontinued operations
|
|
|
(11,741
|
)
|
|
|
242,865
|
|
12.
Employee benefit
plan
The
Company has a deferred salary arrangement under Section 401(k) (“Employee Plan”)
of the Internal Revenue Code. Participants may elect to contribute up
to 20% of their eligible compensation, as defined. Also, the Company
will make certain matching contributions. The Company’s matching
contributions to the Employee Plan were $287,744 and $242,520 for fiscal years
2009 and 2008, respectively.
13.
Income
taxes
The
provision for income taxes from continuing operations consists of the
following:
|
|
Year ended June 30
|
|
|
|
2009
|
|
|
2008
|
|
Current
tax expense (benefit):
|
|
|
|
|
(restated)
|
|
Federal
|
|
$
|
(69,781
|
)
|
|
$
|
182,021
|
|
State
|
|
|
(24,555
|
)
|
|
|
52,311
|
|
|
|
|
(94,336
|
)
|
|
|
234,332
|
|
Deferred
tax expense (benefit):
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(76,615
|
)
|
|
|
(210,700
|
)
|
State
|
|
|
(11,146
|
)
|
|
|
(11,500
|
)
|
|
|
|
(87,761
|
)
|
|
|
(222,200
|
)
|
Total
income tax expense (benefit)
|
|
$
|
(182,097
|
)
|
|
$
|
12,132
|
|
A
reconciliation of the statutory federal income tax rate and the effective income
tax rate for continuing operations is as follows:
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(restated)
|
|
Federal
statutory rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
State
income taxes, net of federal benefit
|
|
|
(6.1
|
)%
|
|
|
17.8
|
%
|
Permanent
differences
|
|
|
(4.8
|
)%
|
|
|
0.0
|
%
|
Other
|
|
|
18.5
|
%
|
|
|
(45.5
|
)%
|
|
|
|
41.6
|
%
|
|
|
6.3
|
%
|
The tax
effect of temporary differences that gave rise to significant components of
deferred tax assets consists of the following:
|
|
2009
|
|
|
2008
|
|
Continuing
operations:
|
|
|
|
|
(restated)
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
Depreciation
|
|
$
|
214,500
|
|
|
$
|
241,000
|
|
Intangible
assets
|
|
|
133,900
|
|
|
|
145,000
|
|
Inventory
|
|
|
127,700
|
|
|
|
109,000
|
|
Accounts
receivable
|
|
|
7,300
|
|
|
|
10,000
|
|
Stock-based
compensation
|
|
|
76,000
|
|
|
|
58,000
|
|
Net
operating losses
|
|
|
108,300
|
|
|
|
-
|
|
Other
|
|
|
46,800
|
|
|
|
75,000
|
|
Total
deferred tax assets, continuing operations
|
|
|
714,500
|
|
|
|
638,000
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
105,200
|
|
|
$
|
101,000
|
|
Intangible
assets
|
|
|
-
|
|
|
|
55,000
|
|
Inventory
|
|
|
-
|
|
|
|
56,000
|
|
Accounts
receivable
|
|
|
-
|
|
|
|
13,000
|
|
Net
operating losses
|
|
|
37,800
|
|
|
|
37,000
|
|
Other
|
|
|
-
|
|
|
|
3,000
|
|
Total
gross deferred taxes
|
|
|
143,000
|
|
|
|
265,000
|
|
Valuation
allowance
|
|
|
(37,800
|
)
|
|
|
(122,000
|
)
|
Total
deferred tax assets, discontinued operations
|
|
|
105,200
|
|
|
|
143,000
|
|
Total
deferred taxes
|
|
$
|
819,700
|
|
|
$
|
781,000
|
|
Property,
plant and equipment and intangibles are generally depreciated or amortized for
longer periods for tax purposes than for financial reporting purposes, thereby
creating deferred tax assets. It is more likely than not that our
deferred asset tax balances will be recovered from reversal of the timing
differences and utilization of net operating loss
carrybacks. In fiscal year 2009, the Company utilized the
tax benefits from intangible assets previously written-off for book purposes,
and the valuation allowance was reduced by $84,200. The valuation
allowance includes certain state tax net operating losses that may not be
realizable.
We file a
consolidated U.S. federal income tax return as well as income tax returns in
various states. The following years are open for examination by
either the federal or state tax authorities: fiscal years ended June
30, 2009, 2008, 2007, and 2006.
14.
Shareholders’
equity
Class A preferred
stock
Total
authorized shares are 5,000, par value $.001; no shares are
outstanding. Each share has voting rights equal to 1,000 shares of
common stock.
Class B preferred
stock
Total
authorized shares are 2,500,000, par value $.001; 2,500 shares have been
designated as Series 1 Class B Preferred Stock of which none are
outstanding. Each share has voting rights equal to 2,000 shares of
common stock.
Series 2 Class B Preferred
Stock
In
February 2008, 2,000 shares of Series 2 Stock, a newly-created series of
convertible preferred stock of the Company were issued to the former Minority
Shareholders. Each share has voting rights equal to 2,000 shares of
common stock for an aggregate of 4,000,000 votes. The shares are
initially convertible into 218,000 shares of the Company’s common stock, based
upon an initial conversion price of $1.84, which is subject to adjustment (“the
“Conversion Price”).
At any
time, the holders of the Series 2 Stock may convert their shares into common
stock upon the Company’s (i) consolidation with or merger into any other person
or (ii) transfer of all or substantially all of its properties or assets to any
other person under any plan or arrangement contemplating the dissolution of the
Company subject to certain conditions described below, which may be waived by
the holders of at least a majority of the Series 2 Stock then
outstanding.
On
February 4, 2011, or such later date as the following conditions are met in
their entirety, all of the shares of Series 2 Stock will be converted into
common stock: (i) no event of default has occurred and is continuing
beyond any applicable cure periods under the promissory notes issued by the
Company to any of the former Minority Shareholders and (ii) the resale of common
stock issuable upon conversion of the Series 2 Stock is covered by an effective
registration statement.
Subject
to certain exceptions, if the Company issues or sells any shares of common stock
by means of options, convertible securities, or otherwise for a price per share
(the “New Issuance Price”) less than the Conversion Price then in effect, then
immediately after such dilutive issuance, the Conversion Price then in effect
will be reduced to the New Issuance Price. The adjustment to the
Conversion Price made in regard to an option or convertible security will be
made at the time such option or convertible security is issued (and not when
such option or convertible security is exercised or converted). The
Conversion Price is also subject to additional anti-dilution adjustments in the
event of stock splits, dividends, recapitalization, and other
events. In the event of certain mergers, asset sales or
reorganization, the holders of the Series 2 Stock will be entitled to receive
the securities and property they would have received for the shares of common
stock that should have been issued to such holders had they fully converted
their shares of Series 2 Stock prior to such event.
15.
Warrants and stock options
plans
The
Company has two stock option plans under which employees, consultants, and
directors have been granted options to purchase shares of the Company’s common
stock. The 1993 Stock Option Plan (the “1993 Plan”) was amended in
fiscal year 2003 to, among other things, (a) cease grants under such plan upon
the effectiveness of the 2002 Stock Option Plan of the Company (the “2002 Plan”)
and (b) increase the maximum aggregate number of shares available for award
under such plan to 1,000,000. The maximum aggregate number of shares
of common stock available for award under the 2002 Plan is 3,000,000, and is
subject to adjustment as set forth therein. Under the 2002 Plan, automatic
options vest semi-annually to all directors and certain officers and expire 10
years from the date of grant. Except with respect to certain
incentive stock options (“ISOs”), options under the 1993 Plan expire 10 years
from the date of grant. Under the 1993 Plan, except for ISOs and
non-qualified options, which are not non-discretionary options (as such term is
used in the 1993 Plan), the exercise price for options is the fair market value
of the common stock of the Company at the date of grant, as such fair market
value is determined under the 1993 Plan. Under the 2002 Plan, except
for certain ISOs and certain non-qualified options, the exercise price is not to
be less than the Market Price (as defined in the 2002 Plan) of the common stock
of the Company on the date of the grant.
The
Company granted 24,000 and 104,000 stock options in fiscal year 2009 and 2008,
respectively. The Company determines the fair value of stock
options issued on the date of grant using a Black-Scholes valuation
model. The following assumptions were used for options granted in
fiscal years 2009 and 2008:
|
|
2009
|
|
|
2008
|
|
Expected
stock price volatility
|
|
|
89
|
%
|
|
|
91
|
%
|
Expected
dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Risk-free
interest rate
|
|
|
1.9
|
%
|
|
|
3.6
|
%
|
Expected
option life
|
|
5
years
|
|
|
5
years
|
|
Weighted-average
fair value of options granted
|
|
$
|
0.61
|
|
|
$
|
0.95
|
|
Expected
volatility is based on historical volatilities of the Company’s common stock;
the expected option life represents the weighted-average period of time that
options granted are expected to be outstanding giving consideration to vesting
schedules and our historical exercise patterns; and the risk-free interest rate
is based on the U.S. Treasury yield curve in effect at the time of grant for
periods corresponding with the expected life of the option.
The
Company recorded stock-based compensation expense of $54,435 and $74,288 for
fiscal year 2009 and 2008, respectively. Unrecognized compensation
cost to be recognized in the future for stock option grants is $25,484 at June
30, 2009. These costs are expected to be recognized over a weighted
average period of 1.8 years. There were no options exercised in
either 2009 or 2008, and there was no income tax benefit from stock options
exercised for fiscal years 2009 and 2008.
The
following is a summary of stock option activity:
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Weighted Average
|
|
|
Aggregage
|
|
|
Remaining
|
|
|
|
|
|
|
Exercise Price
|
|
|
Intrinsic
|
|
|
Contractual
|
|
|
|
Shares
|
|
|
Per Share
|
|
|
Value (a)
|
|
|
Life (in years)
|
|
Outstanding
at June 30, 2008
|
|
|
1,488,000
|
|
|
$
|
3.54
|
|
|
$
|
-
|
|
|
|
|
Granted
|
|
|
24,000
|
|
|
$
|
0.88
|
|
|
|
-
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
|
Canceled
|
|
|
(77,000
|
)
|
|
$
|
1.87
|
|
|
|
-
|
|
|
|
|
Outstanding
at June 30, 2009
|
|
|
1,435,000
|
|
|
$
|
3.57
|
|
|
|
-
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at June 30, 2009
|
|
|
1,379,000
|
|
|
$
|
3.67
|
|
|
|
-
|
|
|
|
1.6
|
|
(a) The
aggregate intrinsic value represents the difference between the exercise price
and $0.77, the closing price of the Company’s stock on June 30,
2009. None of the options outstanding at June 30, 2009, were in
the money.
In April
2005, the Company granted to investors warrants to purchase 53,320 common shares
over a five-year period at an exercise price of $2.60 per
share. The exercise price of the warrants is subject to
adjustment for standard anti-dilution relating to stock splits, combinations and
the like, and for subsequent equity sales at a price less than the exercise
price of the warrants. None of these have been exercised as of
June 30, 2009. The warrants will expire April 15,
2010. In addition, The Company had 150,000 stock options that
were granted in 1999 to a third party in connection with consulting services
that were not exercised and expired in January 2009.
16.
Earnings per
share
Net loss
per share is based on the following:
|
|
Year ended June 30
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(restated)
|
|
Numerator
for basic and diluted earnings per common share
calculation:
|
|
|
|
|
|
|
(Loss)
income from continuing operations
|
|
$
|
(256,076
|
)
|
|
$
|
144,915
|
|
Deemed
dividend on redemption of preferred stock applicable to common
shareholders
|
|
|
-
|
|
|
|
(399,997
|
)
|
Loss
from continuing operations, net of deemed dividend on redemption of
preferred stock
|
|
|
(256,076
|
)
|
|
|
(255,082
|
)
|
Income
from discontinued operations, net of income tax
|
|
|
162,217
|
|
|
|
145,610
|
|
Net
loss
|
|
$
|
(93,859
|
)
|
|
$
|
(109,472
|
)
|
|
|
|
|
|
|
|
|
|
Denominator
for basic and diluted earnings per common share
calculation:
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
3,978,199
|
|
|
|
3,978,199
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share:
|
|
|
|
|
|
|
|
|
Loss
per share, continuing operations, net of deemed dividend on redemption of
preferred stock
|
|
$
|
(0.06
|
)
|
|
$
|
(0.06
|
)
|
Earnings
per share, discontinued operations
|
|
|
0.04
|
|
|
|
0.03
|
|
Loss
per share attributable to common shareholders
|
|
$
|
(0.02
|
)
|
|
$
|
(0.03
|
)
|
In
February 2008, the Company redeemed the Series A Stock and Series B Stock for a
promissory note of $400,000. The excess over the carry value of $3
was recorded as a deemed dividend and increased the net loss to arrive at the
net loss applicable to common stockholders.
Due to
their anti-dilutive effect, the following potential common shares have been
excluded from the computation of diluted loss per share at June 30:
|
|
June 30
|
|
|
|
2009
|
|
|
2008
|
|
Stock
options
|
|
|
1,435,000
|
|
|
|
1,638,000
|
|
Warrants
|
|
|
53,320
|
|
|
|
53,320
|
|
Convertible
notes
|
|
|
815,217
|
|
|
|
815,217
|
|
Convertible
preferred stock
|
|
|
218,000
|
|
|
|
218,000
|
|
|
|
|
2,521,537
|
|
|
|
2,724,537
|
|
17.
Significant
concentrations
The
Company’s pharmacy sales were primarily to customers with a prescription benefit
as part of a health insurance plan. Health insurance plans typically
contract with a Pharmacy Benefit Management Company (“PBM”) that in turn
negotiates reimbursement rates with networks of pharmacies for customer’s
eligible prescription purchases. Any significant loss of PBM business
would have a material adverse effect on the Company’s business and results of
operations. During fiscal years 2009 and 2008, the top five PBMs
accounted for approximately 49% and 51%, respectively, of the Company’s total
sales. Two PBMs accounted for more than 10% of our overall revenues
for the year. One represented 17% of total sales in both fiscal years
2009 and 2008 and the other represented 13% and 11% of total sales in fiscal
year 2009 and 2008, respectively.
During
fiscal year 2009, the pharmacies purchased inventory from a single supplier,
amounting to $50.4 million or 91% of total inventory purchased, under a new
contract expiring January 31, 2012 (See Note 5). During fiscal year
2008, the pharmacies purchased $49.4 million of inventory, or 92% of total
inventory, from a single supplier. With limited exceptions, the
pharmacies have contracted to purchase substantially all of their pharmaceutical
products from this supplier. If the relationship with this supplier
was disrupted, management believes it has at least three competitive suppliers
who could fulfill their inventory needs at no additional
expense.
18.
Supplemental cash flow
information
|
|
Year ended June 30
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(restated)
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
185,605
|
|
|
$
|
91,972
|
|
Cash
(received) paid for (tax refunds) income taxes
|
|
$
|
(20,120
|
)
|
|
$
|
130,892
|
|
|
|
|
|
|
|
|
|
|
Supplemental
schedule of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Acquisition
of pharmacy is summarized as follows:
|
|
|
|
|
|
|
|
|
Inventory
|
|
$
|
-
|
|
|
$
|
(252,115
|
)
|
Property
and equipment
|
|
|
-
|
|
|
|
(19,945
|
)
|
Prescription
lists
|
|
|
-
|
|
|
|
(280,055
|
)
|
Cash
paid for acquisition
|
|
$
|
-
|
|
|
$
|
(552,115
|
)
|
|
|
|
|
|
|
|
|
|
Reversal
of discontinued operations accounts payable, accrued expenses, and other
liabilities
|
|
$
|
-
|
|
|
$
|
298,628
|
|
|
|
|
|
|
|
|
|
|
The
purchase of 20% of subsidiary, D.A.W. in February 2008 is summarized as
follows:
|
|
|
|
|
|
|
|
|
Purchase
price allocation:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
-
|
|
|
$
|
2,593,616
|
|
Minority
interest
|
|
|
-
|
|
|
|
1,864,900
|
|
Total
purchase price
|
|
$
|
-
|
|
|
$
|
4,458,516
|
|
|
|
|
|
|
|
|
|
|
Consideration
for the acquisition:
|
|
|
|
|
|
|
|
|
Preferred
stock, Series 2 Class B
|
|
$
|
-
|
|
|
$
|
400,000
|
|
Convertible
notes
|
|
|
-
|
|
|
|
1,500,000
|
|
Note
payable
|
|
|
-
|
|
|
|
350,000
|
|
Cash,
including transaction costs of $458,516
|
|
|
-
|
|
|
|
2,208,516
|
|
Total
consideration
|
|
$
|
-
|
|
|
$
|
4,458,516
|
|
19.
Commitments and
contingencies
Lease
commitments
The
Company rents office and store space with varying lease expiration dates through
November 2017 that are accounted for as operating leases. Fourteen of
the locations have renewable lease options, certain of which involve rent
increases. In addition, we lease capital equipment under both
operating and capital leases. Assets held under capital leases
amounted to $180,292, with accumulated amortization of $7,512, at June 30,
2009. There were no assets held under capital leases at June 30,
2008. Lease expense was $1,856,957 and $1,661,588 for fiscal
year 2009 and 2008, respectively.
At June
30, 2009, the minimum rental commitments for all non-cancelable leases with
initial or remaining lease terms of more than one year were as
follows:
|
|
Capital
|
|
|
Operating
|
|
Year
|
|
Lease
|
|
|
Lease
|
|
2010
|
|
$
|
42,840
|
|
|
$
|
1,563,057
|
|
2011
|
|
|
42,840
|
|
|
|
1,522,188
|
|
2012
|
|
|
42,840
|
|
|
|
1,123,288
|
|
2013
|
|
|
42,840
|
|
|
|
564,180
|
|
2014
|
|
|
24,990
|
|
|
|
204,384
|
|
Thereafter
|
|
|
-
|
|
|
|
569,850
|
|
Total
minimum lease payments
|
|
|
196,350
|
|
|
$
|
5,546,947
|
|
Amount
representing interest
|
|
|
(31,084
|
)
|
|
|
|
|
Present
value of minimum lease payments
|
|
$
|
165,266
|
|
|
|
|
|
Legal
proceedings
The
Company and the buyer of ADCO are currently in dispute over certain assets and
liabilities that were included in the ADCO sale. The Company is
unable to determine the final outcome of this dispute, but it may result in an
additional charge to the disposal of discontinued operations.
In the
ordinary course of business, the Company may become involved in litigation
incidental to its business; however, management is not aware of any pending
legal proceeding that would have a material effect on operating
results.
20.
Subsequent
Events
Management
has evaluated subsequent events through September 28, 2009, which is the date
the financial statements were issued. On September 21, 2009, ADCO sold its
building in Bangor, Maine, to Dovesco, LLC, for $830,000 and a gain of $668,199
was recognized on the sale. A portion of the proceeds were used
to pay off the line of credit that had been secured by the building, and the
line was terminated effective September 21, 2009.
21.
Selected quarterly data,
(unaudited)
Selected
unaudited quarterly consolidated financial information is presented in the
tables below. The quarters ended December 31, 2007, and March 31,
2008, have been restated for the adjustments described in Note 3 of Notes
to Consolidated Financial Statements
and also to reflect the
discontinued operations and the reclassifications made to conform to the fiscal
year 2008 consolidated financial statements to the presentation in the fiscal
year 2009 consolidated financial statements
.
2009
|
|
First Quarter
|
|
|
Second Quarter
|
|
|
Third Quarter
|
|
|
Fourth Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
net revenues
|
|
$
|
17,624,508
|
|
|
$
|
18,986,769
|
|
|
$
|
18,599,485
|
|
|
$
|
19,512,082
|
|
Gross
profit
|
|
|
4,650,468
|
|
|
|
4,996,065
|
|
|
|
5,114,304
|
|
|
|
5,401,075
|
|
Income
(loss) from continuing operations
|
|
|
41,168
|
|
|
|
(52,540
|
)
|
|
|
(208,679
|
)
|
|
|
(36,025
|
)
|
Income
(loss) from discontinued operations
|
|
|
(51,606
|
)
|
|
|
277,249
|
|
|
|
(66,113
|
)
|
|
|
2,687
|
|
Net
(loss) income
|
|
|
(10,438
|
)
|
|
|
224,709
|
|
|
|
(274,792
|
)
|
|
|
(33,338
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
0.01
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.01
|
)
|
Discontinued
operations
|
|
|
(0.02
|
)
|
|
|
0.07
|
|
|
|
(0.02
|
)
|
|
|
0.00
|
|
Net
earnings (loss) per share
|
|
$
|
(0.01
|
)
|
|
$
|
0.06
|
|
|
$
|
(0.07
|
)
|
|
$
|
(0.01
|
)
|
2008
|
|
First Quarter
|
|
|
Second Quarter
|
|
|
Third Quarter
|
|
|
Fourth Quarter
|
|
|
|
|
|
|
(restated)
|
|
|
(restated)
|
|
|
|
|
Total
net revenues
|
|
$
|
16,277,052
|
|
|
$
|
17,146,210
|
|
|
$
|
17,295,108
|
|
|
$
|
17,876,644
|
|
Gross
profit
|
|
|
3,967,216
|
|
|
|
4,401,651
|
|
|
|
4,360,751
|
|
|
|
4,845,802
|
|
Income
(loss) from continuing operations
|
|
|
(40,670
|
)
|
|
|
(32,200
|
)
|
|
|
(115,941
|
)
|
|
|
333,726
|
|
Income
(loss) from discontinued operations
|
|
|
5,881
|
|
|
|
137,105
|
|
|
|
(8,834
|
)
|
|
|
11,458
|
|
Deemed
dividend on redemption of preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
(399,997
|
)
|
|
|
-
|
|
Net
income (loss) attributable to common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shareholders
|
|
|
(34,789
|
)
|
|
|
104,905
|
|
|
|
(524,772
|
)
|
|
|
345,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
0.08
|
|
Discontinued
operations
|
|
|
0.00
|
|
|
|
0.04
|
|
|
|
(0.00
|
)
|
|
|
0.01
|
|
Net
earnings (loss) per share attributable to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
shareholders
|
|
$
|
(0.01
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.13
|
)
|
|
$
|
0.09
|
|
NYER
MEDICAL GROUP, INC.
SCHEDULE
II – VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
|
|
|
|
|
Additions
|
|
|
|
|
|
Deductions
|
|
|
|
|
|
|
|
|
|
Charged
|
|
|
Additions
|
|
|
for
|
|
|
|
|
|
|
Balance at
|
|
|
to Costs
|
|
|
Charged
|
|
|
Payments
|
|
|
Balance
at
|
|
|
|
Beginning
|
|
|
and
|
|
|
to
Other
|
|
|
or
|
|
|
End
of
|
|
|
|
of Year
|
|
|
Expenses
|
|
|
Accounts
|
|
|
Write-offs
|
|
|
Year
|
|
Year
ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
$
|
24,552
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(6,352
|
)
|
|
$
|
18,200
|
|
Allowance
for doubtful accounts, discontinued operations
|
|
$
|
43,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(43,000
|
)
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for inventory obsolescence, discontinued operations
|
|
$
|
100,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(100,000
|
)
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
$
|
33,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(8,448
|
)
|
|
$
|
24,552
|
|
Allowance
for doubtful accounts, discontinued operations
|
|
$
|
52,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(9,000
|
)
|
|
$
|
43,000
|
|
Allowance
for inventory obsolescence, discontinued operations
|
|
$
|
142,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(42,000
|
)
|
|
$
|
100,000
|
|
ITEM
9. Changes In and Disagreements With Accountants On Accounting
and Financial Disclosure.
There
were no disagreements with the Company’s accountants.
ITEM
9A (T). Controls and Procedures.
Evaluation
of Disclosure Controls and Procedures.
We
maintain a system of disclosure controls and procedures that are designed for
the purposes of ensuring that information required to be disclosed in our SEC
reports is recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms, and that such information is accumulated
and communicated to our management, including our Chief Executive Officer and
Chief Financial Officer as appropriate to allow timely decisions regarding
required disclosures.
As of the
end of the period covered by this report, we carried out an evaluation, under
the supervision and with the participation of our Chief Executive Officer and
Chief Financial Officer, of the effectiveness of our disclosure controls and
procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”). Based on that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures are effective.
Changes
in Internal Control Over Financial Reporting.
There has
been no change in our internal control over financial reporting during the
quarter ended June 30, 2009, that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
Impact of
Restatements
.
On
September 2, 2009, the Audit Committee of our Board of Directors concluded that
our financial statements and related audit reports thereon for the year ended
June 30, 2008, in our
Annual
Report on Form 10-K for the year ended June 30, 2008, and the interim financial
statements for the quarters ended December 31, 2007, March 31, 2008, September
30, 2008, December 30, 2008, and March 31, 2009, in our Quarterly Reports on
Form 10-Q for the quarters ended December 31, 2007, March 31, 2008, September
30, 2008, December 31, 2008, and March 31, 2009, should no longer be relied upon
due to errors in our accounting for transaction costs associated with the
purchase of the minority interest in DAW in February 2008. Management
had discovered these errors during its preparation of our financial statements
for the year ended June 30, 2009. Despite these errors in the
application of generally accepted accounting principles, management did not
identify any material weaknesses in our internal control over financial
reporting for year 2008. In particular, management concluded that although a
restatement was necessary, our underlying processes nonetheless provided
reasonable
assurance
regarding the reliability of our financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles.
Management
Report on Assessment of Internal Control Over Financial Reporting
We are
responsible for establishing and maintaining adequate internal control over
financial reporting. Our internal control system is designed to
provide reasonable assurance to our management and board of directors regarding
the preparation and fair presentation of published financial
statements. All internal control systems, no matter how well
designed, have inherent limitations. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation.
Our
management assessed the effectiveness of our internal control over financial
reporting as of June 30, 2009. In making this assessment, it used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission in
Internal Control
Integrated Framework
. Based on our assessment, we believe
that, as of June 30, 2009, our internal control over financial reporting is
effective.
This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by our
registered public accounting firm pursuant to temporary rules of the SEC that
permit us to provide only management’s report in this annual
report.
ITEM
9B. Other Information.
None.
PART III
ITEM
10. Directors, Executive Officers and Corporate
Governance
Our
present directors and executive officers, their ages and positions held
as of September
28, 2009, are as follows:
Name
|
|
Age
|
|
Position
|
|
|
|
|
|
Mark
Dumouchel
|
|
49
|
|
CEO,
President, Director and President of DAW
|
|
|
|
|
|
David
Dumouchel
|
|
48
|
|
Vice
President of DAW and Director
|
|
|
|
|
|
Michael
Curry
|
|
52
|
|
Vice
President of DAW
|
|
|
|
|
|
Wayne
Gunter
|
|
57
|
|
Vice
President of DAW
|
|
|
|
|
|
Robert
Landis
|
|
50
|
|
Director
|
|
|
|
|
|
Donato
Mazzola
|
|
50
|
|
Vice
President of DAW
|
|
|
|
|
|
James
Schweiger
|
|
74
|
|
Director
|
|
|
|
|
|
Gerald
Weston
|
|
67
|
|
Director
|
|
|
|
|
|
Sandra
M. Zimmerman
|
|
58
|
|
CFO
|
Messrs.
David Dumouchel and Mark Dumouchel, who are brothers are directors and also
serve as officers of DAW. The three remaining directors, Messrs.
Robert Landis, James Schweiger, and Gerald Weston qualify as independent under
NASDAQ rules. Other than as stockholders and serving as directors on
Board of Director committees, none of Messrs. Landis, Schweiger, or Weston has
any relationship with us. Mr. Curry is the brother-in-law to Messrs.
David Dumouchel and Mark Dumouchel.
Our Board
of Directors is divided into three classes of directors. Messrs.
Landis’ and Mark Dumouchel’s terms expire in 2011, Messrs. Schweiger’s and
Weston’s terms expire in 2012, and Mr. David Dumouchel’s term expires in
2010. There are no vacancies. In each case, a director
whose term expires will remain in office until his successor is elected and
qualified (assuming he does not otherwise resign or retire or is not otherwise
removed).
Mark Dumouchel
has been our
Chief Executive Officer and President and a Class B director since February
2008. He was one of our directors from 2004 to 2005. He
has been president and director of DAW since 1990. He is a registered
pharmacist in the State of Massachusetts and has over 32 years experience
working in and running pharmacies. Mr. Dumouchel serves as a director
of Northeast Pharmacy Services Corporation. He received his Bachelors
of Science degree in Pharmacy from Massachusetts College in 1982 and his Masters
of Business Administration from Babson College in 1984.
David Dumouchel
has been one
of our Class A directors since February 2008. He was one of our
directors from 1996 to 2000. Mr. Dumouchel has been a director of DAW
since August 1996. Additionally, Mr. Dumouchel has been a Vice
President of DAW since 1988. Mr. Dumouchel is a registered pharmacist
in the State of Massachusetts. Mr. Dumouchel received his Bachelors
of Science degree in Pharmacy from Purdue University in 1983, and his Masters of
Business Administration from Amos Tuck School at Dartmouth College in
1986.
Michael Curry
has been a Vice
President and Secretary of DAW since 1995. Mr. Curry is a registered
pharmacist in the state of Massachusetts. He has been a manager of
various pharmacies since 1980. Mr. Curry received his Bachelors of
Science degree in Pharmacy from the Massachusetts College of Pharmacy in
1980.
Wayne Gunter
has been a Vice
President of DAW since 1995. Mr. Gunter is a registered pharmacist in
the State of Massachusetts. Mr. Gunter has managed and operated pharmacies for
32 years. Mr. Gunter is a former treasurer of the Massachusetts Pharmacist
Association and currently sits on the board at Stoneham Savings
Bank. Mr. Gunter received his Bachelors of Science degree in Pharmacy
from the Massachusetts College of Pharmacy in 1975.
Robert J. Landis
has been one
of our Class B directors since December 2004. Mr. Landis is also a
member of our Audit Committee and Chairman of our Compensation
Committee. Mr. Landis has been the chief accounting officer of
Comprehensive Care Corporation since March 2009. From July 1998 to
March 2009, he was the chief financial officer and treasurer of Comprehensive
Care Corporation. Mr. Landis also serves on the board of
directors and on the audit committee of Global Axcess
Corporation. Mr. Landis served as treasurer of Maxicare Health
Plans, Inc., from November 1988 to
July 1998. Mr. Landis is a Certified Public
Accountant. He received a Bachelors of Science in Business
Administration from the University of Southern California in 1981 and a Masters
of Business Administration from California State University at Northridge in
1990.
Donato Mazzola
has been a Vice
President of DAW since 1995. Mr. Mazzola is a registered pharmacist
in the state of Massachusetts. He currently serves as an area
pharmacy manager. Mr. Mazzola has served as chairman of the trustees
for the Lodge of Elks Newton since 2004. He received his Bachelors of
Science degree in Pharmacy from the Massachusetts College of Pharmacy in
1981.
James J. Schweiger
has been
one of our Class C directors since January 2002. Mr. Schweiger is
also Chairman of our Audit Committee and Chairman of our Stock Option Committee
and a member of our Compensation Committee. Since 1986, Mr. Schweiger
has been the president and chief executive officer of James J. Schweiger
Financial Consultants, located in Orlando, Florida. From 1978 to
1986, Mr. Schweiger was an area managing partner in the firm of KPMG Main
Hurdman in charge of the Ft. Lauderdale/Miami office, Northeastern Regional
Managing Partner, and later served as the Southern Area
Director. From 1980 to 1985 he served on their Policy Board and
Management Committee. He was previously a board member of AICPA on
accounting for real estate transactions. From 1989 to 1992, Mr.
Schweiger served as treasurer and director on the EASE Foundation board of
directors (a charitable foundation in Davie Florida). Mr. Schweiger graduated
from Duquesne University, Pittsburgh, Pennsylvania, in 1961 with a Bachelors of
Science degree in Business Administration.
Gerald Weston
has been one of
our Class C directors since December 2004. Mr. Weston is also a
member of our Audit Committee, Compensation Committee, and Stock Option
Committee. Mr. Weston is a Certified Public Accountant and is an
owner of the accounting firm, Gerald Weston Accounting, where he has worked
since 1985. From 1982 to 1985, Mr. Weston was an audit manager in the
firm Kern, DeWenter, Viere, CPA’s in St. Cloud, Minnesota. Prior to
1982, he had various positions and served in the United States Air
Force. Mr. Weston received a Bachelors of Science degree in
Accounting from St. Cloud State University, St. Cloud, Minnesota, in
1979.
Sandra M. Zimmerman
has been
our chief financial officer since February 2009. Ms. Zimmerman has
her own financial consulting business where she has provided financial
management services to various companies since 1997. From 1988 to
1997 Ms. Zimmerman worked in various financial management roles for Digital
Equipment Corporation. From 1984 to 1988, she was the director
of corporate accounting at Computervision. Prior to that time, she
held financial management roles at Lexidata and Data Printer. From
1978 to 1982, she worked in public accounting for Coopers &
Lybrand. Ms. Zimmerman received a Bachelors of Science Degree in
Accounting from Bentley University, Waltham, Massachusetts, in 1978 and is a
certified public accountant.
·
|
Section
16(a) Beneficial Ownership Reporting
Compliance
|
Section
16(a) of the Exchange Act requires our executive officers and directors, and
persons who own more than 10% of a registered class of our equity securities to
file reports of ownership and changes in ownership with the
SEC. These persons are also required by SEC regulation to furnish us
with copies of all Section 16(a) forms they file. Based solely on our review of
such forms or written representations from reporting persons, we believe that
during fiscal year ended June 30, 2008, our executive officers and directors and
other reporting persons filed on a timely basis all of the reports required by
Section 16(a).
·
|
Audit
Committee; Audit Committee Financial
Experts
|
We have a
separately designated standing Audit Committee established in accordance with
Section 3(a) (58) (A) of the Exchange Act and NASDAQ requirements. The Members
of the Audit Committee are Messrs. James Schweiger, Chairman, Robert Landis, and
Gerald Weston.
The Board
of Directors has determined that although more than one member of the Audit
Committee may qualify as an “audit committee financial expert” under Item 407
(d) (5) of Regulation S-K, based on his experience described above, Mr.
Schweiger, the Audit Committee Chairman, is designated Audit Committee financial
expert. All of the members of the Audit Committee, including Mr. Schweiger, are
considered “independent” under applicable NASDAQ rules.
We have
adopted a code of ethics that applies to our principal executive officer,
principal financial officer, principal accounting officer and controller, as
well as all other employees and the directors. The code of ethics,
which we call our Code of Conduct and Ethics Policy, is filed as an exhibit to
this annual report. If we make any substantive amendments to, or
grants a waiver (including an implicit waiver) from, a provision of our code of
ethics that applies to our principal executive officer, principal financial
officer, principal accounting officer or controller, and that relates to any
element of the code of ethics definition enumerated in Item 406(b) of Regulation
S-K, we will disclose the nature of such amendment or waiver in a current report
on Form 8-K.
ITEM
11. Executive Compensation
SEC rules
require disclosure regarding executive compensation for anyone serving as our
principal executive officer during the last fiscal year and the two most highly
compensated executive officers, other than the principal executive officer, who
were serving as executive officers at the end of the last completed fiscal
year. For fiscal year 2009, the following individuals are referred to
as our “named executive officers” throughout this annual report: (a) Mark
Dumouchel; (b) David Dumouchel; and (c) Wayne Gunter.
The
following table shows compensation earned by our named executive officers during
the fiscal year 2009 and 2008:
Summary Compensation Table
|
|
|
|
|
|
|
|
|
|
Non-equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
All
|
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
|
Plan
|
|
|
other
|
|
|
|
|
Name
and
|
|
|
|
|
|
|
Awards
|
|
|
Compensation
|
|
|
Compensation
|
|
|
Total
|
|
Principal
Position
|
|
Year
|
|
Salary
($)
|
|
|
($)
(1)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
Mark
Dumouchel
|
|
2009
|
|
$
|
175,000
|
|
|
$
|
9,460
|
|
|
$
|
24,304
|
|
|
$
|
19,476
|
(2)
|
|
$
|
228,240
|
|
President
and
|
|
2008
|
|
|
158,405
|
(2)
|
|
|
7,680
|
|
|
|
18,111
|
|
|
|
16,118
|
(2)
|
|
|
200,314
|
|
Chief
Executive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
President
of DAW
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Dumouchel
|
|
2009
|
|
|
150,000
|
|
|
|
9,460
|
|
|
|
8,263
|
|
|
|
17,813
|
(3)
|
|
|
185,536
|
|
Vice
President of DAW
|
|
2008
|
|
|
148,789
|
(3)
|
|
|
7,689
|
|
|
|
18,111
|
|
|
|
15,794
|
(3)
|
|
|
190,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wayne
Gunter
|
|
2009
|
|
|
150,000
|
|
|
|
5,676
|
|
|
|
4,010
|
|
|
|
21,191
|
(4)
|
|
|
180,877
|
|
Vice
President of DAW
|
|
2008
|
|
|
148,789
|
(4)
|
|
|
5,760
|
|
|
|
18,111
|
|
|
|
16,334
|
(4)
|
|
|
188,994
|
|
(1) The option awards are for serving on our
Board of Directors, serving as one of our Officers, and pursuant to employment
agreements of executive officers of DAW. The values in the table reflect the
dollar amount recognized for financial statement reporting purposes in
accordance with SFAS 123(R),
Share-based
Payment
, during fiscal years 2009 and 2008, using the Black-Scholes
option pricing model, which incorporates various assumptions about volatility,
expected dividend yield, expected life, and applicable interest rates, as
detailed in Note 15 to our audited consolidated financial statements for the
fiscal year ended June 30, 2009, included in Item 8 in this Annual Report.
(2) For fiscal year 2009, Mr. Mark Dumouchel’s
other compensation includes $7,725 matching contributions from our 401(k) plan,
a vehicle allowance of $6,732, and officer’s life insurance of $5,019. For
fiscal year 2008, Mr. Dumouchel’s salary was $149,588 until February 4, 2008,
when his salary was increased to $175,000 pursuant to a new employment
agreement. For fiscal year 2008 Mr. Dumouchel’s other compensation includes
$8,018 in matching contributions from our 401(k) plan, a vehicle allowance of
$6,700, and officer’s life insurance of $1,400.
(3) For fiscal year 2009, Mr. David Dumouchel’s
other compensation includes $6,724 matching contributions from our 401(k) plan,
a vehicle allowance of $7,204, and officer’s life insurance of $3,885. For
fiscal year 2008, Mr. Dumouchel’s salary was $143,788 until February 4, 2008,
when his salary was increased to $150,000 pursuant to a new employment
agreement. For fiscal year 2008 Mr. Dumouchel’s other compensation includes
$7,634 in matching contributions from our 401(k) plan, a vehicle allowance of
$7,130, and officer’s life insurance of $1,030.
(4) For fiscal year 2009, Mr. Wayne Gunter’s
other compensation includes $6,724 matching contributions from our 401(k) plan,
a vehicle allowance of $7,717, and officer’s life insurance of $6,750. For
fiscal year 2008, Mr. Gunter’s salary was $143,788 until February 4, 2008, when
his salary was increased to $150,000 pursuant to a new employment agreement. Mr.
Gunter’s other compensation includes $7,634 in matching contributions from our
401(k) plan, a vehicle allowance of $7,180, and officer’s life insurance of
$1,520.
2009
Executive Compensation Components
·
|
Executive
Employment Agreements; Arrangements
|
Effective
February 4, 2008, Mr. Mark Dumouchel entered into a new three-year employment
agreement which may be renewed upon agreement of the
parties. Pursuant to his employment agreement, Mr. Mark Dumouchel
will be employed as our Chief Executive Officer and President of DAW and will
receive a base salary of $175,000 per year of which we will pay him $43,750 and
DAW will pay him $131,250. The salary shall be increased on each
anniversary date of the employment agreement in an amount equal to the
percentage change over the past 12 months in the average hourly rate paid to
pharmacists employed by DAW. Pursuant to his employment agreement,
DAW will also pay Mr. Mark Dumouchel an annual lump sum payment equal to five
percent of the total amount royalties and licensing fees collected by DAW during
the prior fiscal year (the “Franchise Payment”).
Effective
February 4, 2008, Messrs. David Dumouchel and Wayne Gunter each entered into a
new three-year employment agreement with DAW which may be renewed upon agreement
of the parties, as a pharmacy manager at annual base salary of
$150,000. The annual base salary will be adjusted each anniversary
date of the employment agreement in an amount equal to the percentage change
over the past 12 months in the average hourly rate paid to pharmacists employed
by DAW.
Under
their employment agreements, Messrs. Mark and David Dumouchel and Wayne Gunter
will each be entitled to (a) medical, dental, disability, and life insurance
coverage consistent with DAW’s policies and plans in existence on the date of
the signing of their respective employment agreements and (b) additional term
life insurance coverage in the amount of $1,000,000 with beneficiaries designed
by each such officer.
Under the
employment agreements, DAW will establish a bonus pool (the “DAW Bonus Pool”),
which will be equal to a percentage of income (before deductions for income
taxes and management fees paid to us). The percentage of income paid
into the DAW Bonus Pool is as follows: (i) ten percent (10%) of income between
$450,000 and $900,000; (ii) fifteen percent (15%) of income between $900,001 and
$1,350,000; and (iii) twenty percent (20%) of income in excess of
$1,350,000. Fifty percent (50%) of the DAW Bonus Pool will be used
for bonuses to be paid to the officers under their respective employment
agreements as follows: (i) Mr. Mark Dumouchel will receive seventeen percent
(17%), and (ii) Messrs. David Dumouchel and Wayne Gunter will share the
remaining thirty-three percent (33%) in equal lots with two other executive
officers (8.25% each).
Under the
employment agreements, we granted to each of the officers non-qualified options
to purchase 12,000 shares of common stock at an exercise price equal to the
Market Price (as defined in our 2002 Plan) on the date of grant, which was $1.49
on February 4, 2008. Under the Plan, the Market Price on any day is,
in the sole discretion of the stock option committee administering the Plan,
either (x) the average of the high and low reported consolidated trading sales
prices, or if no such sale is made on such day, the average of the closing bid
and asked prices reported on the consolidated trading listing for such day or
(y) the closing price reported on the consolidated trading listing for such
day. Our Stock Option Committee determined the Market Price based
upon the closing price. The options granted under the employment
agreements became exercisable in their entirety on February 4,
2009.
Pursuant
to the employment agreements, each of the officers will be entitled to a cash
severance payment in the event that we or DAW terminate the particular agreement
without Cause (as defined in the employment agreement) or the employment
agreement is terminated by the officer for Good Reason (as defined in the
employment agreement) which severance will be equal to the total of (i) one year
of base salary at the salary rate then in effect to the extent allocable as to
DAW and us, as the case may be, but not to exceed the aggregate base salary then
in effect; (ii) the last annual bonus paid to the officer (or, in the event that
the termination occurs before any bonus has been paid, the annualized bonus for
the year in which the termination occurs); and (iii) in the case of Mr. Mark
Dumouchel only, the last Franchise Payment paid to Mr. Mark Dumouchel (or, in
the event that the termination occurs before any Franchise Payment has been
paid, the annualized Franchise Payment for the year in which the termination
occurs). Additionally, in the event of any termination under an employment
agreement, the officer will be entitled to COBRA continuation coverage for six
months after any such termination. The executives each would be entitled to
unused vacation time.
Under the
employment agreements, each of the officers is subject to non-compete and
non-solicitation provisions and a non-disclosure provision. The
non-compete and non-solicitation provisions survive for six months after the
termination of the employment agreements and the non-disclosure provision has no
termination date.
·
|
Non-Equity
Incentive Payments and Bonuses
|
The
non-equity incentive payments of Messrs. Mark and David Dumouchel and Wayne
Gunter are determined based on the formulas in their employment agreements as
described above. Income for purposes of the DAW Bonus Pool is
calculated before income taxes and the management fees paid to us by
DAW.
The named
executive officers may also receive a bonus as may be determined from time to
time by our Board of Directors in its sole discretion, which bonus would be
based upon specific achievement within the year in which such compensation would
be provided. No discretionary bonuses were paid to any named
executive officer for the year ended June 30, 2009 or 2008.
We have
two stock option plans under which employees, consultants, and directors may be
granted options to purchase shares of our common stock. During the
year ended June 30, 2009, each of Messrs. Schweiger and Weston received options
to acquire 12,000 shares of our common stock for their service as our
directors. Those options are exercisable at $0.88 per share and vest
in six equal installments on each of June 30, 2009, December 31, 2009, June 30,
2010, December 31, 2010, June 30, 2011, and December 31, 2011.
We do not
have any severance agreements with our named executive officers other than those
described above pursuant to the employment agreements with each such
officer.
We
sponsored 401(k) plan is a deferred salary arrangement under Section 401(k) of
the Internal Revenue Code for eligible employees. Participants may elect to
contribute up to 20 percent of their eligible compensation, as
defined. We match at the rate of 100 percent of the first 5 percent
and 50 percent of the next 2 percent.
Outstanding
Equity Awards at Fiscal Year End:
The
following table shows information of all outstanding equity awards held by our
named executive officers at June 30, 2009:
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
securities
|
|
|
securities
|
|
|
|
|
|
|
|
underlying
|
|
|
underlying
|
|
|
|
|
|
|
|
unexercised
|
|
|
unexercised
|
|
|
Option
|
|
Options
|
|
|
options (#)
|
|
|
options (#)
|
|
|
exercise
|
|
expiration
|
Name
|
|
exercisable
|
|
|
unexercisable
|
|
|
price
($)
|
|
date
|
Mark
Dumouchel
|
|
|
4,000
|
|
|
|
-
|
|
|
$
|
2.44
|
|
03/21/14
|
|
|
|
2,000
|
|
|
|
-
|
|
|
$
|
2.91
|
|
03/29/15
|
|
|
|
18,000
|
|
|
|
6,000
|
(1)
|
|
$
|
1.49
|
|
02/03/18
|
|
|
|
24,000
|
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Dumouchel
|
|
|
18,000
|
|
|
|
2,000
|
(2)
|
|
$
|
1.49
|
|
02/03/18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wayne
Gunter
|
|
|
12,000
|
|
|
|
-
|
|
|
$
|
1.49
|
|
02/03/18
|
1) These
options are exercisable for 2,000 shares on each of 12/31/09, 06/30/10 and
12/31/10.
2) These
options are exercisable on 12/31/09.
Director
Compensation*
The
following table shows information regarding compensation paid to directors who
are not named executive officers for fiscal year 2009:
|
|
Fees Earned
|
|
|
|
|
|
|
|
|
|
or Paid in
|
|
|
Option
|
|
|
|
|
Name
|
|
Cash
|
|
|
Awards (1)
|
|
|
Total
|
|
Robert
J. Landis
|
|
$
|
6,600
|
|
|
$
|
3,784
|
|
|
$
|
10,384
|
|
James
J. Schweiger
|
|
$
|
7,800
|
|
|
$
|
7,314
|
|
|
$
|
15,114
|
|
Gerald
Weston
|
|
$
|
6,600
|
|
|
$
|
7,314
|
|
|
`
|
|
*Compensation
paid to Messrs. David Dumouchel and Mark Dumouchel, who are current directors,
is included in the Summary Compensation Table above and, accordingly is not
included in this table.
(1) The
value in the table reflects the dollar amount recognized for financial statement
reporting purposes in accordance with SFAS 123(R),
Share-based
Payments
. The options were granted in accordance with our
Stock Option Plan with the fair value calculated using the Black-Scholes option
pricing model, which incorporates various assumptions including expected
volatility, expected life of the options and applicable interest rates as
detailed in Note 15 to our audited financial statements for the fiscal year
ended June 30, 2009, included in Item 8 in this annual report.
Our
non-employee directors receive (a) $600 each per telephone meeting of the Board
of Directors or of a committee of the Board of Directors and (b) $1,000 each per
in-person meeting of the Board of Directors or in-person meeting of a committee
of the Board of Directors, with each Chairman receiving an additional 50% of the
sum which he is to receive under (a) and (b) above with respect to each
meeting. With the exception of these amounts, we do not intend to
compensate non-employee directors for serving as directors except to reimburse
them for expenses incurred in connection with their service as directors and to
issue automatic grants of non-qualified stock options pursuant to the 2002
Plan. Directors who are employees receive no cash compensation for
serving as directors; however, they are reimbursed for out-of-pocket expenses
incurred in connection with their service as directors and are issued stock
options. Pursuant to the 2002 Plan, our directors receive automatic
grants of options for 4,000 shares of our common stock for each year served as a
director, with 2,000 of such options vesting semi-annually each June 30th and
December 31st, provided that the optionee is still serving as a director, as
applicable, on such date.
ITEM
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
Beneficial
Ownership
The
following table sets forth the number of shares of our voting stock that is
beneficially owned as of September 21, 2009, by (i) owners of more than 5% of
our voting stock, (ii) each director and named executive officer, identified in
Item 11 of this annual report, and (iii) all our executive officers and
directors as a group:
|
|
Amount and
|
|
|
|
|
|
|
nature of
(1)
|
|
|
Percentage
|
|
Name and address
|
|
beneficial
|
|
|
of Voting
|
|
of beneficial owner
|
|
ownership
|
|
|
Power (%)
(3)
|
|
Samuel
Nyer
|
|
|
1,320,774
|
(2)
|
|
|
14.4
|
%
|
698
Essex Street
|
|
|
|
|
|
|
|
|
Bangor,
ME 04401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
and Lucille Curry
|
|
|
931,565
|
(3)
|
|
|
10.1
|
%
|
13
Water Street
|
|
|
|
|
|
|
|
|
Holliston,
MA 01746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Dumouchel
|
|
|
937,565
|
(4)
|
|
|
10.2
|
%
|
13
Water Street
|
|
|
|
|
|
|
|
|
Holliston,
MA 01746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark
Dumouchel
|
|
|
943,566
|
(5)
|
|
|
10.3
|
%
|
13
Water Street
|
|
|
|
|
|
|
|
|
Holliston,
MA 01746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wayne
Gunter
|
|
|
931,565
|
(6)
|
|
|
10.1
|
%
|
13
Water Street
|
|
|
|
|
|
|
|
|
Holliston,
MA 01746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donato
Mazzola
|
|
|
937,565
|
(7)
|
|
|
10.2
|
%
|
13
Water Street
|
|
|
|
|
|
|
|
|
Holliston,
MA 01746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
J. Landis
|
|
|
18,000
|
(8)
|
|
|
0.2
|
%
|
13
Water Street
|
|
|
|
|
|
|
|
|
Holliston,
MA 01746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James
J. Schweiger
|
|
|
38,000
|
(9)
|
|
|
0.4
|
%
|
13
Water Street
|
|
|
|
|
|
|
|
|
Holliston,
MA 01746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gerald
Weston
|
|
|
18,000
|
(10)
|
|
|
0.2
|
%
|
13
Water Street
|
|
|
|
|
|
|
|
|
Holliston,
MA 01746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
our directors and executive
|
|
|
|
|
|
|
|
|
officers
as a group (8 persons)
|
|
|
4,755,826
|
(3,4,5,6,7,8,9,10)
|
|
|
51.8
|
%
|
1. Beneficial
ownership has been determined in accordance with Rule 13d-3 under the Exchange
Act, and includes any options and warrants which vest within 60 days of
September 21, 2009, i.e., by November 20, 2009. Unless otherwise
noted, we believe that all persons named in the table have sole voting and
investment power with respect to all voting securities beneficially owned by
them.
2. Includes
272,774 shares of common stock (of which 183,174 shares are held by an affiliate
of Mr. Nyer), 548,000 shares of common stock underlying options granted to Mr.
Nyer pursuant to the 1993 Plan and the 2002 Plan. Also includes
500,000 vested non-qualified options granted pursuant to Mr. Nyer’s 1999
employment agreement, as amended. All of Mr. Nyer’s 1,048,000 granted stock
options are vested and currently exercisable.
3. Includes
400 shares of Series 2 Stock, which carry the right to 2,000 votes per share on
any matter put to a vote of the common stock (equivalent to an aggregate of
800,000 votes of common stock), 119,565 shares of common stock, and 12,000
shares on common stock underlying options pursuant to the Plans. The
Curry’s are married to one another and thus beneficially own, with the shared
power to vote and shared power to dispose of, these securities. Does
not include 163,043 shares of common stock issuable upon conversion of
convertible promissory notes that Ms. Curry does not intend to convert until
after June 30, 2010.
4. Includes
400 shares of Series 2 Stock which carry the right to 2,000 votes per share on
any matter put to a vote of the common stock (equivalent to an aggregate of
800,000 votes of common stock), 119,565 shares of common stock, and 18,000
shares of common stock underlying options pursuant to the Plans. Does
not include 163,043 shares of common stock issuable upon conversion of
convertible promissory notes that Mr. Dumouchel does not intend to convert until
after June 30, 2010.
5. Includes
400 shares of Series 2 Stock which carry the right to 2,000 votes per share on
any matter put to a vote of the common stock (equivalent to an aggregate of
800,000 votes of common stock); 119,566 shares of common stock, and 24,000
shares of common stock underlying options pursuant to the Plans. Does
not include 163,043 shares of common stock issuable upon conversion of
convertible promissory notes that Mr. Dumouchel does not intend to convert until
after June 30, 2010.
6. Includes
400 shares of Series 2 Stock which carry the right to 2,000 votes per share on
any matter put to a vote of the common stock (equivalent to an aggregate of
800,000 votes of common stock), 119,565 shares of common stock, and 12,000
shares of common stock underlying options pursuant to the Plans. Does
not include 163,043 shares of common stock issuable upon conversion of
convertible promissory notes that Mr. Gunter does not intend to convert until
after June 30, 2010.
7. Includes
400 shares of Series 2 Stock which carry the right to 2,000 votes per share on
any matter put to a vote of the common stock (equivalent to an aggregate of
800,000 votes of common stock), 119,965 shares of common stock, and 18,000
shares of common stock underlying options pursuant to the Plans. Does
not include 163,043 shares of common stock issuable upon conversion of
convertible promissory notes that Mr. Mazola does not intend to convert until
after June 30, 2010.
8. Consists
of 18,000 shares of common stock underlying vested options granted pursuant to
the Plans.
9. Consists
of 38,000 shares of common stock underlying vested options granted pursuant to
the Plans.
10. Consists
of 18,000 shares of common stock underlying vested options granted pursuant to
the Plans.
Change
of Control
There are
no arrangements, known to us, including any pledge by any person of our
securities, the operation of which may at a subsequent date result in a change
in our control.
Securities
Authorized for Issuance Under Equity Compensation Plans
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
Number of securities
|
|
|
|
|
|
remaining available for
|
|
|
|
to be issued upon
|
|
|
Weighted average
|
|
|
future issuance under
|
|
|
|
exercise of
|
|
|
exercise of
|
|
|
equity compensation
|
|
|
|
outstanding options,
|
|
|
outstanding options,
|
|
|
plans (excluding securities
|
|
Plan
Category
|
|
warrants,
and rights
|
|
|
warrants, and rights
|
|
|
reflected
in first column)
|
|
Equity compensation
plans approved by security holders
(1)
|
|
|
935,000
|
|
|
$
|
2.04
|
|
|
|
2,305,000
|
|
Equity compensation
plans not approved by security holders
(2)
|
|
|
553,320
|
|
|
$
|
6.08
|
|
|
|
-
|
|
Total
|
|
|
1,488,320
|
|
|
$
|
3.54
|
|
|
|
2,305,000
|
|
(1)
Represents stock options granted under the Company’s 1993 Plan and 2002
Plan.
(2)
Represents:
·
|
Non-qualifed
stock options to purchase 500,000 shares our common stock at an exercise
price of $6.437 per share, granted under the Employment Agreement dated as
of October 25, 1999, between us and Mr. Samuel Nyer, our former president,
as amended by the Stock Option Agreement, dated as of December 6, 2002,
between the parties to the original document (collectively, the
“Employment Agreement of Samuel Nyer”). All of which are
currently vested. As of the date hereof, none of the options
have been exercised. The options expire in December
2012;
|
·
|
Warrants
issued under the Common Stock Purchase Warrant, dated April 15, 2005, by
us in favor of Around the Clock Partners, LP, (the “Around the Clock
Warrants”) to purchase 36,791 shares of our common stock at an exercise
price of $2.60; and
|
Warrants
issued under the Common Stock Purchase Warrant, dated April 15, 2005, by us in
favor of High Yield Orange, Inc., (the “High Yield Orange Warrants,” together
with the Around the Clock Warrants, collectively the “Third Party Warrants”), to
purchase 16,529 shares of our common stock at an exercise price of $2.60 per
share. The exercise price of the third party warrants are subject to
adjustment for standard anti-dilution relating to stock splits, combinations and
the like, and for subsequent equity sales at a price less than the exercise
price of the Third Party Warrants. As of the date hereof, none of
these warrants have been exercised.
ITEM
13. Certain Relationships and Related Transactions, and Director
Independence.
Transactions
with Related Persons.
Except as
set forth below, we did not have transactions with related persons during fiscal
year ended June 30, 2009, nor any currently proposed transactions with related
persons exceeding the amounts set forth in Item 404(d)(1) of Regulation
S-K.
In
February 2008, Convertible Notes were issued to the former Minority
Shareholders, in the aggregate amount of $1,500,000. The Convertible
Notes bear interest at the rate of 8% per annum, and are due on February 4,
2011. After February 4, 2009 (the first anniversary of the
transaction), any of the former Minority Shareholders can convert all or any
portion of their allocable payment of such notes into shares of the Company’s
common stock at an initial conversion price of $1.84 per share. They
can also redeem for cash. The former minority shareholders have
indicated that they do not intend to redeem the Convertible Notes until after
July 1, 2010. We paid $120,000 in interest on the Convertible Notes
for the former Minority Shareholders in fiscal year 2009.
In February 2008, an unsecured a promissory note, maturing in
February 2013, was issued to Mr. Nyer in the amount of $400,000 for the purchase
of the Company
’
s 2,000 shares of
Class A Stock and 1,000 shares of Class B Stock. The note is payable in equal
monthly installments of $6,667 plus interest on the unpaid balance at 7%. We
paid $23,567 in interest on the promissory note to Mr. Nyer in fiscal year
2009.
Director
Independence
Applying
the definition of independence provided under all applicable NASDAQ rules, each
of Robert Landis, James Schweiger and Gerald Weston are independent members of
our Board of Directors. Such persons, who serve as the members of our
Audit Committee, would also be independent for purposes of the Audit Committee
rules of NASDAQ. The following persons who are directors are not
independent under NASDAQ rules for the following reasons: (a) Mark Dumouchel is
one of our executive officers and an executive officer of DAW and (b) David
Dumouchel is an executive officer of DAW.
ITEM
14. Principal Accountant Fees and Services
Our Audit Committee appointed Sweeney,
Gates & Co. as our independent registered public accounting firm for our
fiscal years 2008 and 2009. Effective March 17, 2009, our Audit
Committee elected to replace Sweeney, Gates & Co. with Wolf & Company,
P.C., as our independent registered public accounting firm. The fees
for services provided by Sweeney, Gates & Co. to us for fiscal year 2008 and
provided by Sweeney, Gates & Co. and Wolf & Company, P.C., for fiscal
year 2009 were as follows:
|
|
2009
|
|
|
|
|
|
|
Wolf &
|
|
|
Sweeney,
|
|
|
|
|
|
|
|
|
|
Company, P.C.
|
|
|
Gates & Co.
|
|
|
Total
|
|
|
2008
|
|
Audit
Fees (1)
|
|
$
|
90,000
|
|
|
$
|
20,611
|
|
|
$
|
110,611
|
|
|
$
|
143,145
|
|
Audit
Related Fees (2)
|
|
|
15,000
|
|
|
|
1,200
|
|
|
|
16,200
|
|
|
|
3,550
|
|
Tax
Fees (3)
|
|
|
-
|
|
|
|
29,589
|
|
|
|
29,589
|
|
|
|
21,789
|
|
Subtotal
|
|
|
105,000
|
|
|
|
51,400
|
|
|
|
156,400
|
|
|
|
168,484
|
|
All
Other Fees (4)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
Fees
|
|
$
|
105,000
|
|
|
$
|
51,400
|
|
|
$
|
156,400
|
|
|
$
|
168,484
|
|
(1) Audit
Fees include professional services rendered for the audits of our annual
financial statements and for review of the financial statements included in our
quarterly reports on Form 10-Q for fiscal years 2009 and 2008.
(2) Audit
Related Fees include professional services rendered for services that are
reasonably related to the performance of the audit and reviews of our financial
statements. Such services in fiscal year 2009 for Wolf & Company
related to the resolution of financial reporting matters related to the
restatements of the 2008 financial statements and for Sweeney Gates & Co.
for attendance at an audit committee meeting and in fiscal year 2008 for
research of accounting treatments.
(3) Tax
Fees include professional services rendered for tax compliance work, tax
planning, and tax advice.
(4)
Neither Sweeney, Gates & Co. nor Wolf & Company, P.C., provided us or
our subsidiaries with any other services during the fiscal years 2008 and
2009.
The
charter of the Audit Committee requires that the Committee review and
pre-approve all audit, review or attest engagements of, and non-audit services
to be provided by, the independent registered public accounting firm (other than
with respect to the de minimis exception permitted by the Sarbanes-Oxley Act of
2002 and the SEC rules promulgated thereunder). The Audit Committee
pre-approved all audit services and permitted non-audit services rendered by
Sweeney, Gates & Co. and Wolf & Co., P.C., in fiscal years 2008 and
2009. The pre-approval duty may be delegated to one or more
designated members of the Audit Committee, with any such pre-approval reported
to the Committee at its next regularly scheduled meeting. Any such
designated member(s) of the Committee shall also have the authority to approve
non-audit services already commenced by the independent registered public
accounting firm if (i) the aggregate amount of all such services provided
constitutes no more than 5% of the total amount of revenues paid by us to the
independent registered public accounting firm during the fiscal year in which
the services are provided, (ii) such services were not recognized by us at the
time of the engagement to be non-audit services, and (iii) such services are
promptly brought to the attention of the Committee and approved by such
designated member(s) prior to the completion of the audit.
PART IV
ITEM 15. Exhibits and
Financial Statement Schedules
.
(a)
|
Financial
Statements and Exhibits
|
(1)
FINANCIAL STATEMENTS
The
following consolidated financial statements are included herein:
Reports
of Independent Registered Public Accounting Firms
|
33
|
|
|
Consolidated
Balance Sheets as of June 30, 2009 and 2008
|
35
|
Consolidated
Statements of Operations for the years ended June 30, 2009 and
2008
|
36
|
Consolidated
Statements of Changes in Shareholders' Equity for the years
ended June 30, 2009 and 2008
|
37
|
Consolidated
Statements of Cash Flows for the years ended June 30, 2009 and
2008
|
38
|
Notes
to Consolidated Financial Statements
|
39
|
(2)
FINANCIAL STATEMENT SCHEDULES
Schedule
II, Valuation and Qualifying Accounts and Reserves.
Such
schedule should be read in conjunction with the consolidated financial
statements. All other schedules are omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
(3)
EXHIBITS
3.1
|
Composite
copy of Articles of Incorporation of the Company. (
Incorporated by reference to
the Company’s Annual Report on Form 10-K filed October 10,
2008.
)
|
3.2
|
Composite
copy of Bylaws of the Company. (
Incorporated by reference to
the Company’s Annual Report on Form 10-K filed October 10,
2008.
)
|
4.1
|
Form
of Common Stock Purchase Warrant, dated April 15, 2005, by the Company in
favor of Around the Clock Partners, LP. (
Incorporated by reference to
the Company’s Current Report on Form 8-K
filed
April 18,
2005.)
|
4.2
|
Form
of Common Stock Purchase Warrant, dated April 15, 2005, by the Company in
favor of High Yield Orange, Inc. (
Incorporated by reference to
the Company’s Current Report on Form 8-K filed April 18,
2005.)
|
4.3
|
Registration
Rights Agreement, dated as of April 15, 2005, by and between the Company
and the Purchasers thereto with attached schedules. (
Incorporated by reference to
the Company’s Current Report on Form 8-K filed April 18,
2005.)
|
10.1
|
1993
Stock Option Plan. (
Incorporated by reference to
the Company’s Annual Report on Form 10-KSB filed April 15, 1996.
)
*
|
10.2
|
Amendment
to 1993 Stock Option Plan.
(Incorporated by reference to
the Company’s Annual Report on Form 10-K filed October 15, 2002.)
*
|
10.3
|
Second
Amendment to 1993 Stock Option Plan.
(Incorporated by reference to
the Company’s Annual Report on Form 10-K filed October 15, 2002.)
*
|
10.4
|
Third
Amendment to 1993 Stock Option Plan.
(Incorporated by reference to
the Company’s Annual Report on Form 10-K filed September 29, 2003.)
*
|
10.5
|
2002
Stock Option Plan.
(Incorporated by reference to
the Company’s Annual Report on Form 10-K filed September 29, 2003.)
*
|
10.6
|
Representative
Form of 2002 Stock Option Plan Agreement. (
Incorporated by reference to
the Company’s Annual Report on Form 10-K filed October 10, 2008.
)
*
|
10.7
|
Stock
Option Agreement, effective as of December 6, 2002, between the Company
and Mr. Samuel Nyer.
(Incorporated by reference to
the Company’s Annual Report on Form 10-K filed September 29, 2003.)
*
|
10.8
|
Supply
Agreement, dated July 1, 2006, between McKesson Corporation and D.A.W.,
Inc.
(Incorporated by
reference to the Company’s Current Report on Form 8-K filed November 14,
2006.)
(Confidential treatment has been granted with respect to
certain portions of this exhibit. Omitted portions have been filed
separately with the Securities and Exchange
Commission.)
|
10.9
|
First
Amendment to Supply Agreement, dated February 3, 2008, between McKesson
Corporation and D.A.W., Inc.
(Incorporated by reference to
the Company’s Quarterly Report on Form 10-Q filed May 20, 2008.)
(Confidential treatment has been granted with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.)
|
10.10
|
First
Amended and Restated Agreement, dated as of December 20, 2007, by and
among the Company, D.A.W., Inc, certain stockholders of D.A.W., Inc. and a
stockholder of F.M.T.
(Incorporated by reference to
the Company’s Current Report on Form 8-K filed December 17,
2007.)
|
10.11
|
Preferred
Stock Purchase and Sale Agreement, dated as of December 20, 2007, by and
among the Company, D.A.W., Inc. and the sellers named therein.
(Incorporated by reference to
the Company’s Current Report on Form 8-K filed December 17,
2007.)
|
10.12
|
Purchase
Agreement among ADCO Surgical Supply, Inc., ADCO South Medical Supplies,
Inc. and Anand Patel entered into on September 25, 2008. (
Incorporated by reference to
the Company’s Current Report on Form 8-K filed on October 1,
2008.)
|
10.13
|
Asset
Purchase and Sale Agreement, dated December 9, 2008, between D.A.W., Inc.,
and CVS Pharmacy LLC.
(Incorporated by reference to
the Company’s Current Report on Form 8-K filed on December 15,
2008.)
|
10.14
|
Form
of Stockholder Guaranty by Nyer Medical Group, Inc., to CVS Pharmacy LLC.
(Incorporated by
reference to the Company’s Current Report on Form 8-K filed on December
15, 2008.)
|
10.15
|
Contract
for Sale of Real Estate dated August 7, 2009 by and between ADCO Surgical
Supply, Inc. and GH Doane Inc.
(Incorporated by reference to
the Company’s Current Report on Form 8-K filed August 11,
2009.)
|
10.16
|
Employment
Agreement, dated as of February 4, 2008, by and among the Company, D.A.W.,
Inc. and Mark Dumouchel.
(Incorporated by reference to
the Company’s Current Report on Form 8-K filed February 15, 2008.)
*
|
10.17
|
Amendment
to Employment Agreement, effective as of February 4, 2008, by and among
the Company, D.A.W., Inc. and Mark Dumouchel.
(Incorporated by reference to
the Company’s Quarterly Report on Form 10-Q filed May 20, 2008.)
*
|
10.18
|
Employment
Agreement, dated as of February 4, 2008, by and among the Company, D.A.W.,
Inc. and David Dumouchel.
(Incorporated by reference to
the Company’s Current Report on Form 8-K filed February 15, 2008.)
*
|
10.19
|
Employment
Agreement, dated as of February 4, 2008, by and among the Company, D.A.W.,
Inc. and Wayne Gunter.
(Incorporated by reference to
the Company’s Current Report on Form 8-K filed February 15, 2008.)
*
|
10.20
|
Employment
Agreement, dated as of February 4, 2008, by and among the Company, D.A.W.,
Inc. and Donato Mazzola.
(Incorporated by reference to
the Company’s Current Report on Form 8-K filed February 15, 2008.)
*
|
10.21
|
Employment
Agreement, dated as of February 4, 2008, by and among the Company, D.A.W.,
Inc. and Michael Curry.
(Incorporated by reference to
the Company’s Current Report on Form 8-K filed February 15, 2008.)
*
|
10.22
|
Negotiable
Promissory Note, dated February 4, 2008, made by the Company in favor of
each of Mark Dumouchel, David Dumouchel, Wayne Gunter, Donato Mazzola and
Lucille Curry.
(Incorporated by reference to
the Company’s Current Report on Form 8-K filed February 15,
2008.)
|
10.23
|
Negotiable
Promissory Note, dated February 4, 2008, made by the Company in favor of
Samuel Nyer.
(Incorporated by reference to
the Company’s Current Report on Form 8-K filed February 15,
2008.)
|
10.24
|
Representative
Convertible Promissory Note. (
Incorporated by reference to
the Company’s Annual Report on Form 10-K filed October 10,
2008.
)
|
10.25
|
Summary
of Director Compensation.*, **
|
14.1
|
The
Company’s Code of Conduct and Ethics Policy.
(Incorporated by reference to
the Company’s Annual Report on Form 10-K filed October 18,
2004.)
|
21.1
|
Subsidiaries
of the Company. (
Incorporated by reference to
the Company’s Annual Report on Form 10-K filed October 10,
2008.
)
|
23.1
|
Consent
of Sweeney, Gates and Co. **
|
23.2
|
Consent
of Wolf & Company, P.C. **
|
31.1
|
Rule 13a-14(a) Certification
of Chief Executive Officer.
**
|
31.2
|
Rule 13a-14(a) Certification
of Chief Financial Officer.
**
|
32.1
|
Section 1350
Certification of Chief Executive Officer. ***
|
32.2
|
Section
1350 Certifications of Chief Financial Officer.
***
|
*
|
This
exhibit includes a management contract, compensatory plan or arrangement
required to be noted herein.
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on September 28, 2009.
NYER
MEDICAL GROUP, INC.
|
|
By:
|
/s/ Mark A. Dumouchel
|
|
Mark
A. Dumouchel
|
|
President
and Chief Executive
Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant, in the
capacities and on the dates indicated.
|
|
|
|
|
|
|
|
|
|
/s/ Mark A. Dumouchel
|
|
|
|
|
Mark
A. Dumouchel
|
|
President
and Chief Executive Officer, Director
|
|
September
28, 2009
|
|
|
(principal
executive officer)
|
|
|
/s/ Sandra M. Zimmerman
|
|
|
|
|
Sandra
M. Zimmerman
|
|
Chief
Financial Officer
(principal
financial officer and principal
accounting
officer)
|
|
September
28, 2009
|
/s/ David Dumouchel
|
|
|
|
|
David
Dumouchel
|
|
Director
|
|
September
28, 2009
|
|
|
|
|
|
/s/ Robert J. Landis
|
|
|
|
|
Robert
J. Landis
|
|
Director
|
|
September
28, 2009
|
|
|
|
|
|
/s/ James Schweiger
|
|
|
|
|
James
Schweiger
|
|
Director
|
|
September
28, 2009
|
|
|
|
|
|
/s/ Gerald Weston
|
|
|
|
|
Gerald
Weston
|
|
Director
|
|
September
28, 2009
|
Nyer Medical (NASDAQ:NYER)
Gráfica de Acción Histórica
De May 2024 a Jun 2024
Nyer Medical (NASDAQ:NYER)
Gráfica de Acción Histórica
De Jun 2023 a Jun 2024