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8-K/A - FORM 8-K/A - PharMerica CORPd8ka.htm
EX-99.3 - UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION - PharMerica CORPdex993.htm
EX-23.1 - CONSENT OF MOORE STEPHENS LOVELACE, P.A. - PharMerica CORPdex231.htm
EX-99.1 - AUDITED COMBINED FINANCIAL STATEMENTS OF INTEGRITY PHARMACY SERVICES, LLC - PharMerica CORPdex991.htm

Exhibit 99.2

INTEGRITY PHARMACY SERVICES, LLC

AND INTEGRITY MEDICAL SUPPLIES, LLC

COMBINED FINANCIAL STATEMENTS

Nine Months Ended September 30, 2009 and 2008

C O N T E N T S

 

 

 

     Page
Number

COMBINED FINANCIAL STATEMENTS

  

Combined Balance Sheets

   1

Combined Statements of Operations

   2

Combined Statements of Changes in Members’ Capital

   3

Combined Statements of Cash Flows

   4

Notes to Combined Financial Statements

   5


INTEGRITY PHARMACY SERVICES, LLC

AND INTEGRITY MEDICAL SUPPLIES, LLC

COMBINED BALANCE SHEETS

September 30, 2009 and December 31, 2008

(Unaudited)

 

ASSETS
     September 30,
2009
   December 31,
2008

CURRENT ASSETS

     

Cash

   $ 3,329,634    $ 1,252,189

Amounts held by revolving line-of-credit lender

     123,429      151,005

Accounts receivable, net of allowance for doubtful accounts of approximately $94,900 and $226,000, respectively

     6,275,091      6,309,927

Inventory

     2,910,438      2,396,755

Prepaid expenses

     60,435      27,687
             

TOTAL CURRENT ASSETS

     12,699,027      10,137,563

PROPERTY AND EQUIPMENT, NET

     1,597,960      1,574,270

DEFERRED FINANCING COSTS, NET

     18,000      27,000

DEPOSITS AND OTHER ASSETS

     102,112      85,665
             

TOTAL ASSETS

   $ 14,417,099    $ 11,824,498
             
LIABILITIES AND MEMBERS’ CAPITAL

CURRENT LIABILITIES

     

Accounts payable

   $ 3,828,793    $ 3,196,615

Accrued expenses

     658,470      655,684

Notes payable to members

     3,018,773      2,624,083
             

TOTAL CURRENT LIABILITIES

     7,506,036      6,476,382

COMMITMENTS AND CONTINGENCIES

     

MEMBERS’ CAPITAL

     6,911,063      5,348,116
             

TOTAL LIABILITIES AND MEMBERS’ CAPITAL

   $     14,417,099    $     11,824,498
             

The accompanying notes are an integral part of the combined financial statements.

 

- 1 -


INTEGRITY PHARMACY SERVICES, LLC

AND INTEGRITY MEDICAL SUPPLIES, LLC

COMBINED STATEMENTS OF OPERATIONS

Nine Months Ended September 30, 2009 and 2008

(Unaudited)

 

     2009    2008

PHARMACY AND MEDICAL SUPPLIES REVENUE

   $     41,438,607    $     35,233,395

COST OF SALES

     36,632,289      31,005,388
             

GROSS PROFIT

     4,806,318      4,228,007

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

     1,604,447      1,420,188

INTEREST EXPENSE

     338,924      295,479
             

TOTAL OPERATING EXPENSES

     1,943,371      1,715,667
             

NET INCOME

   $ 2,862,947    $ 2,512,340
             

The accompanying notes are an integral part of the combined financial statements.

 

- 2 -


INTEGRITY PHARMACY SERVICES, LLC

AND INTEGRITY MEDICAL SUPPLIES, LLC

COMBINED STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL

Nine Months Ended September 30, 2009

(Unaudited)

 

Members’ capital at December 31, 2008

   $ 5,348,116   

Net income for the year

     2,862,947   

Distribution to Members

     (1,300,000
        

Members’ capital at September 30, 2009

   $     6,911,063   
        

The accompanying notes are an integral part of the combined financial statements.

 

- 3 -


INTEGRITY PHARMACY SERVICES, LLC

AND INTEGRITY MEDICAL SUPPLIES, LLC

COMBINED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30, 2009 and 2008

(Unaudited)

 

     2009     2008  

CASH FLOWS PROVIDED BY OPERATING ACTIVITIES

    

Net income

   $ 2,862,947      $     2,512,340   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Provision for uncollectible accounts

     155,653        91,452   

Depreciation and amortization

     230,275        195,667   

Changes in operating assets and liabilities:

    

Amounts held by revolving line-of-credit lender

     27,576        25,800   

Accounts receivable

     (120,816     (2,186,871

Inventory

     (513,683     (511,768

Prepaid expenses

     (32,748     (16,048

Deposits and other assets

     (16,447     (38,618

Accounts payable and accrued expenses

     1,029,654        1,079,448   
                

NET CASH PROVIDED BY OPERATING ACTIVITIES

     3,622,411        1,151,402   

CASH FLOWS USED IN INVESTING ACTIVITIES

    

Acquisition of property and equipment

     (244,966     (378,786
                

NET CASH USED IN OPERATING ACTIVITIES

     (244,966     (378,786

CASH FLOWS USED IN FINANCING ACTIVITIES

    

Net change in line of credit

     -          (930,444

Distribution to members

     (1,300,000     -     
                

NET CASH USED IN FINANCING ACTIVITIES

     (1,300,000     (930,444
                

NET INCREASE IN CASH

     2,077,445        (157,828

CASH - BEGINNING OF PERIOD

     1,252,189        593,856   
                

CASH - END OF PERIOD

   $     3,329,634      $ 436,028   
                

The accompanying notes are an integral part of the combined financial statements.

 

- 4 -


INTEGRITY PHARMACY SERVICES, LLC

AND INTEGRITY MEDICAL SUPPLIES, LLC

NOTES TO COMBINED FINANCIAL STATEMENTS

Nine Months Ended September 30, 2009 and 2008

 

NOTE 1 - NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of the Business and Basis of Presentation

Integrity Pharmacy Services, LLC (“IPS”) and Integrity Medical Supplies, LLC (“IMS”) (collectively, “Integrity”) were organized in August 2004 to provide long-term care facilities with a full range of pharmacy services, including dispensing, pharmacist and nurse consulting, infusion and enteral therapy, medication therapy management, and medical record production. Integrity has locations in Florida, Pennsylvania and Massachusetts.

The accounts of IPS and IMS are presented on a combined basis based on common ownership and management. All significant intercompany accounts and transactions have been eliminated in the combination.

Inventory

Inventory is stated at the lower of cost or market on a first-in, first-out basis. Physical inventory counts are taken on a regular basis in each distribution center and is the primary procedure used to validate the recorded inventory balances.

Property and Equipment

Property and equipment and improvements to leased premises are depreciated using the straight-line method over the estimated useful lives or, when applicable, the term of the lease, whichever is shorter. Estimated useful lives generally range from 10 to 40 years for building improvements and leasehold improvements and 3 to 10 years for fixtures and equipment. Repair and maintenance costs are charged directly to expense as incurred. Major renewals or replacements that substantially extend the useful life of an asset are capitalized and depreciated.

 

- 5 -


INTEGRITY PHARMACY SERVICES, LLC

AND INTEGRITY MEDICAL SUPPLIES, LLC

NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)

Nine Months Ended September 30, 2009 and 2008

 

NOTE 1 - NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Deferred Financing Costs

Costs related to obtaining the revolving line of credit (see Note 3) have been deferred and are being systematically amortized over the term of the related revolving line-of-credit agreement. Amortization expense approximated $9,000 and $17,800 for the nine months ended September 30, 2009 and 2008, respectively. Deferred financing costs of approximately $114,400 at September 30, 2009 and December 31, 2008 are presented in the combined balance sheets, net of accumulated amortization of approximately $96,400 and $87,400, respectively.

Revenue Recognition

Integrity has agreements with third-party payors that provide for payments at contracted prices. Pharmacy and medical supplies revenue is reported at the estimated net realizable amounts due from customers or third-party payors. Revenue is recognized at the time pharmaceuticals or medical supplies are delivered to patients. Approximately 89% and 93% of Integrity’s revenues during the nine months ended September 30, 2009 and 2008, respectively, were generated from institutional facilities that were commonly controlled by a single management company.

Income Taxes

IPS and IMS were both organized as limited liability companies treated as pass-through entities for income tax reporting purposes. Accordingly, the individual members of the LLC’s include their respective share of taxable income or losses in their individual income tax returns. As a result, no provision for income taxes has been included in these combined financial statements.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts and disclosures reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

 

- 6 -


INTEGRITY PHARMACY SERVICES, LLC

AND INTEGRITY MEDICAL SUPPLIES, LLC

NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)

Nine Months Ended September 30, 2009 and 2008

 

NOTE 2 - PROPERTY AND EQUIPMENT

Property and equipment consists of the following at September 30, 2009 and December 31, 2008:

 

     September 30,
2009
    December 31,
2008
 

Equipment

   $ 1,399,160      $ 1,529,558   

Computer software

     547,923        172,560   

Leasehold improvements

     327,679        327,679   
                
     2,274,762        2,029,797   

Less accumulated depreciation and amortization

     (676,802     (455,527
                

Property and equipment, net

   $ 1,597,960      $ 1,574,270   
                

Depreciation and amortization of property and equipment during the nine months ended September 30, 2009 and 2008, amounted to approximately $221,000 and $178,000, respectively.

NOTE 3 - REVOLVING LINE OF CREDIT

During 2005, Integrity entered into a revolving line-of-credit agreement (the “Line”) with a lender. In November 2008, the Line was amended to decrease the upper limit of the Line from $4,000,000 to $2,000,000. The maturity date is December 2010. The Line provides, among other things, that Integrity may borrow up to the higher of a percentage of eligible receivables (as defined in the Line) or $2,000,000, interest at a variable rate approximating 7.25% as of September 30, 2009 and December 31, 2008, with interest paid on a monthly basis. Borrowings under the Line are collateralized by substantially all of Integrity’s assets.

The Line contains certain financial and performance covenants, including, but not limited to, minimum earnings before interest, taxes, depreciation and amortization, and net leverage and interest coverage ratios. Integrity was in compliance with the Line’s covenants at September 30, 2009.

At September 30, 2009 and December 31, 2008, there were no borrowings under the Line. Additionally, amounts held by the lender were approximately $123,400 and $151,000 at September 30 2009 and December 31, 2008, respectively. Cash paid for interest on borrowings under the Line during the nine months ended September 30, 2008 and 2009, amounted to approximately $163,600 and $25,600, respectively.

 

- 7 -


INTEGRITY PHARMACY SERVICES, LLC

AND INTEGRITY MEDICAL SUPPLIES, LLC

NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)

Nine Months Ended September 30, 2009 and 2008

 

NOTE 4 - NOTES PAYABLE TO MEMBERS

During 2005, Integrity borrowed $1,800,000 from its members pursuant to a series of subordinated demand notes (the “Member Notes”). The Member Notes, which are subordinated to the Line agreement (see Note 3), are unsecured and provide for the accrual of interest at 15% per annum and may not be repaid unless Integrity has excess cash flow (as defined in the Line agreement). Total interest incurred on the Member Notes for the nine months ended September 30, 2009 and 2008 amounted to approximately $338,700 and $295,500, respectively.

In January 2008, the Member Notes were amended to extend the maturity date until December 31, 2009 and add the accrued and unpaid interest of approximately $342,000 to the outstanding balance due on the Member Notes.

NOTE 5 - COMMITMENTS AND CONTINGENCIES

Lease Commitments

Integrity leases operating facilities and certain equipment under operating leases which expire at various dates through 2016. Aggregate monthly payments on these leases are approximately $43,000. Rent expense charged to operations in the nine months ended September 30, 2009 and 2008 was approximately $431,900 and $354,700, respectively. Future minimum payments under these operating lease agreements for each of the next five calendar years and thereafter are as follows:

 

Year Ending
December 31,

   Amount

    2009

   $ 614,200

    2010

     608,100

    2011

     506,800

    2012

     314,400

    2013

     233,700

Thereafter

     450,700
      
   $ 2,727,900
      

 

- 8 -


INTEGRITY PHARMACY SERVICES, LLC

AND INTEGRITY MEDICAL SUPPLIES, LLC

NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)

Nine Months Ended September 30, 2009 and 2008

 

NOTE 5 - COMMITMENTS AND CONTINGENCIES (Continued)

Credit Risk

Financial instruments, which potentially subject Integrity to concentrations of credit risk, consist principally of cash deposited in financial institutions in excess of federally insured limits and accounts receivable. Management believes that the taxing authority of the governmental entities funding the Medicaid and Medicare programs mitigates the concentration of credit risk with respect to those accounts receivable.

Insurance and Legal Matters

Integrity maintains professional liability insurance on a claims-made basis. Management is not aware of any asserted or unasserted claims, or incidents that are considered probable to result in future claims. As a result, these combined financial statements do not include a provision or liability related to incurred but unreported claims. While management is unaware of any claims or probable claims from incidents that would result in uninsured losses, the potential for such losses exists, and losses in excess of insurance coverage limits could possibly result in a material adverse effect on Integrity’s financial position.

Medicare and Medicaid Programs and Healthcare Reform

During the nine months ended September 30, 2009 and 2008, approximately 54.7% and 57.0%, of Integrity’s revenue resulted from reimbursement from the Medicaid and Medicare programs, respectively. Laws and regulations governing these programs are complex and are subject to interpretation. Integrity believes that it is in compliance with all applicable laws and regulations and is not aware of any pending or threatened investigations involving allegations of potential wrongdoing. While no such regulatory inquiries have been made, compliance with such laws and regulations can be subject to future governmental review and interpretation, as well as significant regulatory action, including fines, penalties, and exclusion from the Medicare and Medicaid programs.

Governmental funding for healthcare programs is subject to statutory and regulatory changes, administrative rulings, interpretations of policy, intermediary determina-tions, and governmental funding restrictions, all of which may materially affect program reimbursement to healthcare facilities. Changes in the reimbursement policies of the Medicaid and Medicare programs, as a result of legislative and regulatory actions, could adversely affect Integrity’s revenues.

 

- 9 -


INTEGRITY PHARMACY SERVICES, LLC

AND INTEGRITY MEDICAL SUPPLIES, LLC

NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)

Nine Months Ended September 30, 2009 and 2008

 

NOTE 6 - SUBSEQUENT EVENT

On December 31, 2009, Integrity was acquired by PharMerica Corporation. The entire membership interest of Integrity was acquired for $38,000,000 million in cash plus $3,300,000 million to pay off the outstanding Member Notes.

 

- 10 -