WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended Septemberquarterly period ended June 30, 2007
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:file number: 000-27945
DOUGHERTY’S PHARMACY, INC.
(Exact name of registrant as specified in its charter)
Delaware | 75-2900905 | |
(State or other jurisdiction | (I.R.S. Employer | |
| of incorporation or organization) | Identification No.) |
5924 ROYAL LANE SUITE 250 DALLAS, TEXAS 75230 (Address of principal executive offices) (Zip code) 972-250-0945 ( |
Indicate by check mark whether the registrantregistrant: (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.
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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesx
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. (as definedfiler, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act Rule 12b-2).LargeAct. (Check one)
| Large accelerated filero | Accelerated filero | |
Non-accelerated filero (Do not check if a smaller reporting company) | Smaller reporting companyx | |
| Emerging growth companyo |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.oAccelerated filer oNon-Accelerated filer x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Number of shares of Ascendant Solutions, Inc. common stock, outstanding.$0.0001 par value, of registrant outstanding at August 7, 2017: 22,476,821
| Page | ||
| PART I. | FINANCIAL INFORMATION | |
| 3 | ||
| 3 | ||
| 4 | ||
| 2 |
ASCENDANT SOLUTIONS, INC. | ||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
(000's omitted, except par value and share amounts) | ||||||||
September 30, | December 31, | |||||||
2007 | 2006 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
| Cash and cash equivalents | $ | 1,303 | $ | 2,686 | ||||
| Trade accounts receivable, net | 5,346 | 5,339 | ||||||
| Other receivables | 228 | 387 | ||||||
| Receivable from affiliates | 76 | 66 | ||||||
| Inventories, net | 3,333 | 2,832 | ||||||
| Prepaid expenses | 705 | 637 | ||||||
| Total current assets | 10,991 | 11,947 | ||||||
| Property and equipment, net | 985 | 1,019 | ||||||
| Goodwill | 7,299 | 7,299 | ||||||
| Other intangible assets | - | 95 | ||||||
| Equity method investments | 415 | 419 | ||||||
| Other assets | 254 | 260 | ||||||
Total assets | $ | 19,944 | $ | 21,039 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Accounts payable | $ | 2,333 | $ | 2,293 | ||||
| Accrued liabilities | 3,377 | 3,634 | ||||||
| Notes payable, current | 2,835 | 6,106 | ||||||
| Total current liabilities | 8,545 | 12,033 | ||||||
| Notes payable, long-term | 4,575 | 3,824 | ||||||
| Minority interests | 968 | 947 | ||||||
Total liabilities | 14,088 | 16,804 | ||||||
| Commitments and contingencies (Note 8) | ||||||||
| Stockholders' equity: | ||||||||
| Common stock, $0.0001 par value; 50,000,000 shares authorized; 22,752,308 and 22,508,170 shares issued and outstanding at September 30, 2007 and December 31, 2006, respectively | 2 | 2 | ||||||
| Additional paid-in capital | 60,313 | 60,176 | ||||||
| Deferred compensation | (85 | ) | (25 | ) | ||||
| Accumulated deficit | (54,374 | ) | (55,918 | ) | ||||
Total stockholders' equity | 5,856 | 4,235 | ||||||
Total liabilities and stockholders' equity | $ | 19,944 | $ | 21,039 | ||||
| See accompanying notes to the Condensed Consolidated Financial Statements | ||||||||
ASCENDANT SOLUTIONS, INC. | ||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
(000's omitted, except share and per share amounts) | ||||||||||||||||
(Unaudited) | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
(Restated) | (Restated) | |||||||||||||||
| Revenue: | ||||||||||||||||
| Healthcare | $ | 10,894 | $ | 10,313 | $ | 32,809 | $ | 30,273 | ||||||||
| Real estate advisory services | 4,244 | 1,971 | 11,171 | 8,504 | ||||||||||||
| 15,138 | 12,284 | 43,980 | 38,777 | |||||||||||||
| Cost of sales: | ||||||||||||||||
| Healthcare | 7,376 | 6,929 | 21,917 | 21,061 | ||||||||||||
| Real estate advisory services | 2,427 | 1,130 | 6,951 | 5,071 | ||||||||||||
| 9,803 | 8,059 | 28,868 | 26,132 | |||||||||||||
| Gross profit | 5,335 | 4,225 | 15,112 | 12,645 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling, general and administrative expenses | 4,251 | 3,739 | 12,602 | 11,835 | ||||||||||||
| Non-cash stock compensation | 11 | 33 | 21 | 51 | ||||||||||||
| Depreciation and amortization | 93 | 183 | 357 | 534 | ||||||||||||
| Total operating expenses | 4,355 | 3,955 | 12,980 | 12,420 | ||||||||||||
| Operating income | 980 | 270 | 2,132 | 225 | ||||||||||||
| Equity in earnings (losses) of equity method investees | 214 | (84 | ) | 75 | (300 | ) | ||||||||||
| Other income | 74 | 18 | 152 | 222 | ||||||||||||
| Interest expense, net | (184 | ) | (199 | ) | (519 | ) | (579 | ) | ||||||||
| Income (loss) before minority interest and income tax provision | 1,084 | 5 | 1,840 | (432 | ) | |||||||||||
| Minority interest | (11 | ) | - | (22 | ) | (31 | ) | |||||||||
| Income tax provision | (181 | ) | (13 | ) | (274 | ) | (98 | ) | ||||||||
| Income (loss) from continuing operations | 892 | (8 | ) | 1,544 | (561 | ) | ||||||||||
| Income (loss) from discontinued operations | - | - | - | 230 | ||||||||||||
| Net income (loss) | $ | 892 | $ | (8 | ) | $ | 1,544 | $ | (331 | ) | ||||||
| Basic net income (loss) per share | ||||||||||||||||
| Continuing operations | $ | 0.04 | * | $ | 0.07 | $ | (0.02 | ) | ||||||||
| Discontinued operations | - | - | - | 0.01 | ||||||||||||
| $ | 0.04 | * | $ | 0.07 | $ | (0.01 | ) | |||||||||
| Diluted net income (loss) per share | ||||||||||||||||
| Continuing operations | $ | 0.04 | * | $ | 0.07 | $ | (0.02 | ) | ||||||||
| Discontinued operations | - | - | - | 0.01 | ||||||||||||
| $ | 0.04 | * | $ | 0.07 | $ | (0.01 | ) | |||||||||
| *Less than $0.01 per share | ||||||||||||||||
| Average common shares outstanding, basic | 22,752,308 | 22,454,628 | 22,639,218 | 22,436,456 | ||||||||||||
| Average common shares outstanding, diluted | 23,024,533 | 22,454,628 | 22,855,238 | 22,436,456 | ||||||||||||
| See accompanying notes to the Condensed Consolidated Financial Statements. | ||||||||
ASCENDANT SOLUTIONS, INC. | ||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
(000's omitted) | ||||||||
(Unaudited) | ||||||||
Nine Months Ended September 30, | ||||||||
2007 | 2006 | |||||||
Operating Activities | Restated | |||||||
| Net income (loss) | $ | 1,544 | $ | (331 | ) | |||
| Adjustments to reconcile net income (loss) to net cash | ||||||||
| provided by (used in) operating activities: | ||||||||
| Provision for doubtful accounts | 266 | 397 | ||||||
| Depreciation and amortization | 357 | 534 | ||||||
| Deferred compensation amortization | 21 | 51 | ||||||
| Issuance of stock in lieu of directors fees | 56 | 32 | ||||||
| Non-cash equity in (income) losses of equity method investees | ||||||||
| Fairways Frisco, LP | 4 | 373 | ||||||
| Ampco Partners, Ltd. | (79 | ) | (73 | ) | ||||
| Income from early extinguishment of debt | - | (100 | ) | |||||
| Loss on sale of property and equipment | - | 7 | ||||||
| Minority interest | 22 | 31 | ||||||
| Discontinued operations | - | (230 | ) | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (273 | ) | 360 | |||||
| Inventories | (501 | ) | (11 | ) | ||||
| Prepaid expenses and other assets | 81 | (375 | ) | |||||
| Accounts payable | 40 | (91 | ) | |||||
| Accrued liabilities | (257 | ) | (547 | ) | ||||
| Net cash provided by continuing operations | 1,281 | 27 | ||||||
| Net cash provided by discontinued operations | - | 230 | ||||||
| Net cash provided by operating activities | 1,281 | 257 | ||||||
Investing Activities | ||||||||
| Distributions from limited partnerships | 37 | 85 | ||||||
| Proceeds from sale of property and equipment | - | 6 | ||||||
| Purchases of property and equipment | (223 | ) | (161 | ) | ||||
| Distributions to limited partners | - | (33 | ) | |||||
| Net cash used in investing activities | (186 | ) | (103 | ) | ||||
Financing Activities | ||||||||
| Proceeds from exercise of common stock options | - | 48 | ||||||
| Proceeds from sale of limited partnership interests | - | 230 | ||||||
| Payments on notes payable | (11,262 | ) | (2,360 | ) | ||||
| Proceeds from notes payable | 8,784 | 985 | ||||||
| Net cash used in financing activities | (2,478 | ) | (1,097 | ) | ||||
| Net decrease in cash and cash equivalents | (1,383 | ) | (943 | ) | ||||
| Cash and cash equivalents at beginning of year | 2,686 | 3,221 | ||||||
| Cash and cash equivalents at end of period | $ | 1,303 | $ | 2,278 | ||||
Supplemental Cash Flow Information | ||||||||
| Cash paid for income taxes | $ | 215 | $ | 137 | ||||
| Cash paid for interest on notes payable | $ | 530 | $ | 565 | ||||
Noncash financing activities: | ||||||||
| Partnership distributions applied to note payable | $ | 42 | $ | 38 | ||||
(000’s omitted, except par value and share amounts)
| June 30, | December 31, | |||||||
| 2017 | 2016 | |||||||
| (Unaudited) | (Audited) | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | 448 | $ | 58 | ||||
| Restricted cash | 303 | 303 | ||||||
| Trade accounts receivable, net | 1,749 | 1,901 | ||||||
| Other receivables | 313 | 113 | ||||||
| Receivable from affiliates | 11 | 12 | ||||||
| Inventories, net | 3,443 | 3,340 | ||||||
| Prepaid expenses | 209 | 286 | ||||||
| Total current assets | 6,476 | 6,013 | ||||||
| Long term receivable | 608 | – | ||||||
| Property and equipment, net | 1,168 | 1,386 | ||||||
| Intangible assets, net | 3,227 | 3,681 | ||||||
| Investments carried at cost | – | 1,295 | ||||||
| Deferred tax asset | 3,000 | 3,000 | ||||||
| Total assets | $ | 14,479 | $ | 15,375 | ||||
| LIABILITIES | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | 3,029 | $ | 2,643 | ||||
| Accrued liabilities | 369 | 293 | ||||||
| Notes payable, current portion | 783 | 1,129 | ||||||
| Total current liabilities | 4,181 | 4,065 | ||||||
| Notes payable, long-term portion | 7,053 | 7,607 | ||||||
| Total liabilities | 11,234 | 11,672 | ||||||
| STOCKHOLDERS' EQUITY | ||||||||
| Stockholders' equity: | ||||||||
| Preferred stock, $0.0001 par value; 7,500,000 shares authorized: none issued and outstanding | – | – | ||||||
| Common stock, $0.0001 par value; 50,000,000 shares authorized; 23,506,821 shares issued and 22,476,821 shares outstanding at June 30, 2017; 23,447,679 shares issued and 22,417,679 shares outstanding at December 31, 2016 | 2 | 2 | ||||||
| Additional paid-in capital | 60,159 | 60,144 | ||||||
| Accumulated deficit | (56,519 | ) | (56,046 | ) | ||||
| Treasury stock, at cost, 1,030,000 shares | (397 | ) | (397 | ) | ||||
| Total stockholders' equity | 3,245 | 3,703 | ||||||
| Total liabilities and stockholders' equity | $ | 14,479 | $ | 15,375 | ||||
See Notes to Condensed Consolidated Financial Statements
Dougherty’s Pharmacy, Inc.
Consolidated Statements of Operations
(000’s omitted, except share and per share amounts)
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Revenue | $ | 10,211 | $ | 10,998 | $ | 20,266 | $ | 21,814 | ||||||||
| Cost of sales | 7,448 | 8,163 | 14,716 | 16,057 | ||||||||||||
| Gross profit | 2,763 | 2,835 | 5,550 | 5,757 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Selling, general and administrative expenses | 2,624 | 2,692 | 5,188 | 5,447 | ||||||||||||
| Non-cash stock compensation | 3 | 4 | 15 | 10 | ||||||||||||
| Depreciation and amortization | 254 | 267 | 520 | 528 | ||||||||||||
| Total operating expenses | 2,881 | 2,963 | 5,723 | 5,985 | ||||||||||||
| Operating loss | (118 | ) | (128 | ) | (173 | ) | (228 | ) | ||||||||
| Other income | – | 40 | – | 40 | ||||||||||||
| Interest expense | (100 | ) | (111 | ) | (202 | ) | (217 | ) | ||||||||
| Loss on disposal of assets | (75 | ) | (114 | ) | (75 | ) | (114 | ) | ||||||||
| Loss before provision for income tax | (293 | ) | (313 | ) | (450 | ) | (519 | ) | ||||||||
| Income tax provision | (12 | ) | (10 | ) | (23 | ) | (20 | ) | ||||||||
| Net loss | $ | (305 | ) | $ | (323 | ) | $ | (473 | ) | $ | (539 | ) | ||||
| Basic and diluted net loss per share attributable to common stockholders | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.02 | ) | ||||
| Weighted-average number of shares - Basic and diluted | 22,455,471 | 22,126,281 | 22,436,615 | 22,111,519 | ||||||||||||
See Notes to Consolidated Financial Statements
| 4 |
Dougherty’s Pharmacy, Inc.
Consolidated Statements of Cash Flows
(000’s omitted)
(Unaudited)
| Six Months Ended June 30, | ||||||||
| 2017 | 2016 | |||||||
| Operating Activities | ||||||||
| Net loss | $ | (473 | ) | $ | (539 | ) | ||
| Items not requiring (providing) cash | ||||||||
| Loss from disposal of assets | 75 | 114 | ||||||
| Provision for doubtful accounts | – | 28 | ||||||
| Depreciation and amortization | 520 | 528 | ||||||
| Stock-based compensation | 15 | 10 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 87 | (233 | ) | |||||
| Inventories | (140 | ) | (174 | ) | ||||
| Prepaid expenses and other assets | (56 | ) | 112 | |||||
| Accounts payable | 367 | 1,084 | ||||||
| Accrued liabilities | 77 | 28 | ||||||
| Net cash provided by operating activities | 472 | 958 | ||||||
| Investing Activities | ||||||||
| Purchases of property and equipment | (73 | ) | (461 | ) | ||||
| Cash proceeds from disposition of pharmacy | 274 | – | ||||||
| Cash received upon disposition of investment | 617 | – | ||||||
| Net provided by (used in) investing activities | 818 | (461 | ) | |||||
| Financing Activities | ||||||||
| Payments on notes payable | (10,326 | ) | (14,267 | ) | ||||
| Proceeds from notes payable | 9,426 | 13,750 | ||||||
| Net cash used in financing activities | (900 | ) | (517 | ) | ||||
| Net increase (decrease) increase in cash | 390 | (20 | ) | |||||
| Cash, beginning of period | 361 | 371 | ||||||
| Cash, end of period | $ | 751 | $ | 351 | ||||
| Supplemental Cash Flow Information | ||||||||
| Cash paid for income taxes | $ | 40 | $ | 42 | ||||
| Cash paid for interest | $ | 191 | $ | 205 | ||||
| Reconciliation of Cash to the Consolidated Balance Sheets | ||||||||
| Cash | $ | 448 | $ | 49 | ||||
| Restricted cash | 303 | 302 | ||||||
| Total cash | $ | 751 | $ | 351 | ||||
See Notes to Consolidated Financial Statements
| 5 |
Dougherty’s Pharmacy, Inc.
Notes to Consolidated Financial Statements
1. Organization and Significant Accounting Policies
Description of Business
Dougherty’s Pharmacy, Inc. (“Dougherty’s” or the “Company”) is a value oriented investment firm focused on successfully acquiring, managing and growing community based pharmacies in the Southwest Region.
A summary of the Company’s investments at June 30, 2017, is shown in the table below:
| Date | Entity | Transaction Description | % Ownership | |
| March 2004 | Dougherty’s Holdings, Inc. and subsidiaries (“DHI” or the “Borrowers”) | Acquisition of retail pharmacy | 100% | |
| September 2010 | ASDS of Orange County, Inc. (“ASDS”) | Holding company for Investment in CRESA Partners of Orange County, L.P. (“CPOC”) | 100% |
On February 7, 2017, CRESA Partners of Orange County, L.P., an affiliate of Cresa Partners-West, Inc. was acquired by Savills Studley, Inc. liquidating the partnership interest in its entirety held by ASDS of Orange County, Inc. As of December 31, 2016, the estimated value of this investment was recorded at $1,295,000, which represents the estimated future cash payments for this transaction. The unaudited condensedCompany has received payments of $617,000 and recorded $70,000 included in short term other receivables with the remainder as a long term receivable due in three increments over 49 months, contingent on certain milestones expected to be achieved.
On May 6, 2017, the Company sold its pharmacy in Humble, Texas, acquired in September 2014, and received total cash proceeds of $274,000 related to this transaction. The revenues and earnings of the pharmacy are not significant to the consolidated financial statements included herein reflecttaken as a whole.
Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Dougherty’s and all adjustments, consisting onlysubsidiaries for which the Company has a controlling financial interest. All intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited consolidated financial statements of normal recurring adjustments, whichthe Company and its wholly owned subsidiaries have been prepared by the Company, in accordance with accounting principles generally accepted in the opinionUnited States (“GAAP”) for interim financial information and are presented in accordance with the requirements of management are necessary to fairly state Ascendant Solutions, Inc.’s (“Ascendant Solutions” or the “Company”)Form 10-Q and Rule 10-01 of Regulation S-X, and have not been audited. Accordingly, these unaudited consolidated financial position, consolidated resultsstatements do not include all of operationsthe information and consolidated cash flowsnotes required by GAAP for the periods presented. These condensed consolidatedcomplete financial statements and should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2016 included in the Company’s Form 10-K10. In the opinion of management, the interim unaudited consolidated financial statements included herein contain all adjustments, including normal recurring adjustments, considered necessary to present fairly the Company’s financial position, the results of operations and cash flows for the year ended December 31, 2006 as filed withperiods presented. Due to seasonality, the Securities and Exchange Commission. The consolidated results of operations for the quarterthree and six months ended SeptemberJune 30, 20072017, are not necessarily indicative of the results to be expected for any subsequent quarter orfuture interim period for the entire fiscal year ending December 31, 2007. The December 31, 2006 consolidated balance sheet was derived from audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. Terms not otherwise defined herein shall have the meaning given to them in the Company’s Form 10-K for the year ended December 31, 2006 as filed with the Securities and Exchange Commission.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of AmericaGAAP requires management to make estimates and assumptions that affect the reported condensed consolidatedamounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and accompanying notes, including allowance for doubtful accountsthe reported amounts of revenues and inventory reserves.expenses during the reporting period. Actual results could differ from those estimates.
| 6 |
Dougherty’s Pharmacy, Inc.
Notes to Consolidated Financial Statements
1. Organization and Significant Accounting Policies (Continued)
Concentration of Credit Risk
The Company’s credit risk relates primarily to its trade accounts receivables and its receivables from affiliates, along with cash deposits maintained at financial institutions in excess of federally insured limits on interest bearing accounts. Management performs continuing evaluations of debtors’ financial condition and maintains an allowance for uncollectible accounts as determined necessary.
Accounts Receivable
Receivables recorded in the financial statements represent investmentsvalid claims against debtors for services rendered or other charges arising on or before the balance sheet date. Management makes estimates of the collectability of accounts receivable. Specifically, management analyzes accounts receivable and historical bad debts, customer credit-worthiness, current economic trends, and changes in limited partnerships accountedcustomer payment terms and collections trends when evaluating the adequacy of the allowance for doubtful accounts. Any change in the assumptions used in analyzing accounts receivable may result in additional allowances for doubtful accounts being recognized in the periods in which the change in assumptions occurs.
At June 30, 2017 and 2016, 100% of the trade accounts receivable is from retail pharmacy operations.
Inventories
Inventories consist of health care product finished goods held for resale, valued at the lower of cost using the equityfirst-in, first-out method of accounting for investments, and none represent investments in publicly traded companies. The equity method is used as the Company does not have a majority interest and does not have significant influence over the operations of the respective companies.or market. The Company also uses the equity methodmaintains an estimated reserve against inventory for investments in real estate limited partnerships where it owns more than 3% to 5% of the limited partnership interests. Accordingly, the Company records its proportionate share of the income or losses generated by equity method investees in the condensed consolidated statements of operations. If the Company receives distributionsexcess, slow-moving, and obsolete inventory as well as inventory for which carrying value is in excess of its equity in earnings, they are recorded as a reductionnet realizable value.
Long-Lived Assets
The Company evaluates the recoverability of the carrying value of its investment.
Revenue Recognition
Revenues generated by the retail pharmacy operations are reported at the estimated net realizable amounts expected to be received from individuals, third-party payors, institutional healthcarehealth care providers and others. The Company recognizes revenue from the sale of pharmaceutical products and retail merchandise as transactions occur and product is delivered to the customer. Revenue from product sales is recognized at the point of sale and service revenue is recognized at the time services are provided.
Sales and similar taxes collected from clients are excluded from revenues. The obligation is primarily from brokerage commissionsincluded in accounts payable until the taxes are remitted to the appropriate taxing authorities.
All revenues earned during the three and six months ended June 30, 2017 and 2016, were earned from project leasingthe retail pharmacy business.
Cost of Sales
Cost of sales includes the purchase price of goods sold, prescription packaging, compounded prescription direct labor, inventory obsolescence, freight costs, cash discounts and tenant representation transactions. Brokerage commission revenuevendor rebates. Rebates or refunds received by the Company from its suppliers are considered as an adjustment of the prices of the supplier’s products purchased by the Company.
| 7 |
Dougherty’s Pharmacy, Inc.
Notes to Consolidated Financial Statements
Income Taxes
The Company accounts for income taxes in accordance with income tax accounting guidance (ASC 740, Income Taxes). The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is generally recorded upon executionbased on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.
Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more-likely-than-not that some portion or all of a lease contract, unless additional activities are required to earn the commission pursuant to a specific brokerage commission agreement. Participation interests in rental incomedeferred tax asset will not be realized.
Tax positions are recognized overif it is more-likely-than-not, based on the lifetechnical merits, that the tax position will be realized or sustained upon examination. The term more-likely-than-not means a likelihood of more than 50%; the terms examined and upon examination also include resolution of the lease. Other revenuerelated appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is recognizedinitially and subsequently measured as the following consulting services are provided: facilitylargest amount of tax benefit that has a greater than 50% likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold consider the facts, circumstances and site acquisitioninformation available at the reporting date and disposition, lease management, design, construction and development consulting, move coordination and strategic real estate advisory services. Participation interests in rental income are recognized over the life of the lease.
Earnings per Share
Basic and diluted net income (loss)earnings per share is computed based on theby dividing net income (loss) applicable to common stockholders dividedloss by the weighted average number of shares of common stock outstanding during each period. The number of dilutive shares resulting from assumed conversion of stock options and warrants are determined by using the treasury stock method. See Note 4 for more information regarding the calculation of net income (loss) per share.
September 30, | December 31, | |||||||
2007 | 2006 | |||||||
(Unaudited) | ||||||||
Healthcare: | ||||||||
| Trade accounts receivable | $ | 3,912,000 | $ | 3,268,000 | ||||
| Less - allowance for doubtful accounts | (379,000 | ) | (318,000 | ) | ||||
| 3,533,000 | 2,950,000 | |||||||
Real Estate Advisory Services: | ||||||||
| Trade accounts receivable | 1,813,000 | 2,389,000 | ||||||
| Less - allowance for doubtful accounts | - | - | ||||||
| 1,813,000 | 2,389,000 | |||||||
| $ | 5,346,000 | $ | 5,339,000 | |||||
Accounting Pronouncements Not Yet Adopted
ASU No. 2016-02, Leases (Topic 842)
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) ("ASU 2016-02"). ASU 2016-02 requires the lessee to recognize assets and liabilities for leases with lease terms of more than twelve months. For leases with a term of twelve months or less, the Company is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. Further, the lease requires a finance lease to recognize both an interest expense and an amortization of the associated expense. Operating leases generally recognize the associated expense on a straight line basis. ASU 2016-02 requires the Company to adopt the standard using a modified retrospective approach and becomes effective on January 1, 2019. The numberCompany is currently evaluating the impact that ASU 2016-02 will have on its financial position, results of potentially dilutive stock optionsoperations and warrants excludedcash flows.
Accounting Standards Update ("ASU") No. 2014-09 "Revenue from Contracts with Customers (Topic 606)”
In August 2015, the computationFASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606), an update to ASU 2014-09. This ASU amends ASU 2014-09 to defer the effective date by one year for annual reporting periods beginning after December 15, 2017. Subsequently, the threeFASB has also issued accounting standards updates which clarify the guidance. This ASU removes inconsistencies, complexities and nine monthallows transparency and comparability of revenue transactions across entities, industries, jurisdictions and capital markets by providing a single comprehensive principles-based model with additional disclosures regarding uncertainties. The principles-based revenue recognition model has a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Early adoption is permitted for annual reporting periods ended September 30, 2006 was approximately 308,785 and 430,699.beginning after December 15, 2016. In transition, the ASU may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company is evaluating the effect of adopting this new accounting guidance including the transition method.
| 8 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
(Restated) | (Restated) | |||||||||||||||
| Income (loss) from continuing operations, net of taxes | $ | 892,000 | $ | (8,000 | ) | $ | 1,544,000 | $ | (561,000 | ) | ||||||
| Income from discontinued operations, net of taxes | - | - | - | 230,000 | ||||||||||||
| Net income (loss) | $ | 892,000 | $ | (8,000 | ) | $ | 1,544,000 | $ | (331,000 | ) | ||||||
| Weighted average common shares outstanding-Basic | 22,752,308 | 22,454,628 | 22,639,218 | 22,436,456 | ||||||||||||
| Effect of dilutive stock options and warrants | 272,225 | - | 216,020 | - | ||||||||||||
| Weighted average common shares outstanding-Diluted | 23,024,533 | 22,454,628 | 22,855,238 | 22,436,456 | ||||||||||||
| Basic earnings per share from: | ||||||||||||||||
| Continuing operations | $ | 0.04 | * | $ | 0.07 | $ | (0.02 | ) | ||||||||
| Discontinued operations | - | - | - | 0.01 | ||||||||||||
| Basic net income (loss) per share | 0.04 | * | 0.07 | (0.01 | ) | |||||||||||
| Diluted earnings per share from: | ||||||||||||||||
| Continuing operations | $ | 0.04 | * | $ | 0.07 | $ | (0.02 | ) | ||||||||
| Discontinued operations | - | - | - | 0.01 | ||||||||||||
| Diluted net income (loss) per share | 0.04 | * | 0.07 | (0.01 | ) | |||||||||||
| *Less than $0.01 per share | ||||||||||||||||
Dougherty’s Pharmacy, Inc.
Notes to Condensed Consolidated Financial Statements
2. Notes Payable
Notes payable consist of the following:
| June 30, 2017 | December 31, 2016 | |||||||
| (Unaudited) | (Audited) | |||||||
| First National Bank of Omaha Credit Facility and Promissory Note secured by certain retail pharmacy assets | ||||||||
| Revolving line of credit in the principal amount of $4,750,000, interest at LIBOR plus 3.25% (4.31% at June 30, 2017) | $ | 3,970,000 | $ | 4,179,000 | ||||
| Term note in the principal amount of $150,000 with interest payable at LIBOR plus 3.25% (4.31% at June 30, 2017) per annum payable in monthly installments of $10,000 plus all accrued and unpaid interest due. Paid in full February 8, 2017. | – | 100,000 | ||||||
| Cardinal Health Term Notes, secured by certain retail pharmacy assets | ||||||||
| Term note in the principal amount of $1,500,000 with interest payable at prime plus 2.75 (7.0% at June 30, 2017) per annum payable in monthly installments of $17,861 plus interest, a final payment of $446,533 plus all accrued and unpaid interest due in full on February 20, 2017. Refinanced March 31, 2017. | – | 447,000 | ||||||
| Term note in the principal amount of $432,859 at fixed interest rate of 8.11% per annum payable in 36 monthly installments of $13,641. Final payment plus accrued and unpaid interest due in full on April 10, 2020. | 402,000 | – | ||||||
| Term note in the principal amount of $1,827,850 with interest payable at prime plus 2.6% (6.85% at June 30, 2017) per annum payable in monthly installments of $15,232 plus interest, a final payment of $929,157 plus all accrued and unpaid interest due in full on July 10, 2020. | 1,462,000 | 1,553,000 | ||||||
| Term note in the principal amount of $1,241,350 with interest payable at prime plus 2.6% (6.85% at June 30, 2017) per annum payable in monthly installments of $10,344 plus interest, a final payment of $638,850 plus all accrued and unpaid interest due in full on January 10, 2020. | 931,000 | 993,000 | ||||||
| Term note in the principal amount of $744,100 with interest payable at prime plus 2.38% (6.63% at June 30, 2017) per annum payable in monthly installments of $6,200 plus interest, a final payment of $378,251 plus all accrued and unpaid interest due in full on August 10, 2020. | 607,000 | 645,000 | ||||||
| Term note in the principal amount of $305,350 with interest payable at prime plus 2.4% (6.65% at June 30, 2017) per annum payable in monthly installments of $2,545 plus interest, a final payment of $155,220 plus all accrued and unpaid interest due in full on August 10, 2019. | 216,000 | 231,000 | ||||||
| Term note in the principal amount of $168,350 with interest payable at prime plus 2.6% (6.85% at June 30, 2017) per annum payable in monthly installments of $2,004 plus interest, a final payment of $50,356 plus all accrued and unpaid interest due in full on September 10, 2019. | – | 112,000 | ||||||
| Acquisition Notes Payable , unsecured | ||||||||
| Notes payable to sellers of acquired pharmacies with varying monthly payments with interest at 5.5% due through September 2018. | 203,000 | 309,000 | ||||||
| Insurance notes payable, secured by the respective insurance policies | ||||||||
| Notes payable for the Company’s insurance policy premiums with varying monthly payments due through September 2017. Interest rates vary up to 3.68% | 45,000 | 167,000 | ||||||
| 7,836,000 | 8,736,000 | |||||||
| Less current portion | (783,000 | ) | (1,129,000 | ) | ||||
| $ | 7,053,000 | $ | 7,607,000 | |||||
| 9 |
Ownership % | September 30, | December 31, | ||||||||||
At 9/30/07 | 2007 | 2006 | ||||||||||
(Unaudited) | ||||||||||||
| Ampco Partners, Ltd. | 10 | % | $ | 194,000 | $ | 194,000 | ||||||
| Fairways Frisco, LP | 5.80 | % | 221,000 | 225,000 | ||||||||
| $ | 415,000 | $ | 419,000 | |||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| Ampco Partners, Ltd. | $ | 15,000 | $ | 5,000 | $ | 79,000 | $ | 73,000 | ||||||||
| Fairways Frisco, L.P. | 199,000 | (89,000 | ) | (4,000 | ) | (373,000 | ) | |||||||||
| $ | 214,000 | $ | (84,000 | ) | $ | 75,000 | $ | (300,000 | ) | |||||||
September 30, | December 31, | |||||||
2007 | 2006 | |||||||
(Unaudited) | ||||||||
| Total assets | $ | 14,736,000 | $ | 58,061,000 | ||||
| Notes payable | 10,962,000 | 55,568,000 | ||||||
| Total partners' capital | 2,464,000 | 1,695,000 | ||||||
| Total liabilities and partnership capital | 14,736,000 | 61,837,000 | ||||||
Dougherty’s Pharmacy, Inc.
Notes to Condensed Consolidated Financial Statements
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| Total revenue | $ | 603,000 | $ | 770,000 | $ | 2,121,000 | $ | 1,972,000 | ||||||||
| Operating expenses | 1,680,000 | 1,825,000 | 4,854,000 | 4,897,000 | ||||||||||||
| Interest expense | 1,273,000 | 599,000 | 2,644,000 | 2,075,000 | ||||||||||||
| Minority interest | - | 650,000 | 370,000 | 1,521,000 | ||||||||||||
| Gain on sale of assets | 5,776,000 | - | 5,776,000 | - | ||||||||||||
| Net gain (loss) | $ | 3,426,000 | $ | (1,004,000 | ) | $ | 769,000 | $ | (3,479,000 | ) | ||||||
September 30, | December 31, | |||||||
2007 | 2006 | |||||||
(Unaudited) | ||||||||
| Prepaid insurance | $ | 71,000 | $ | 179,000 | ||||
| Deferred tenant representation costs | 374,000 | 364,000 | ||||||
| Prepaid marketing costs | 20,000 | 13,000 | ||||||
| Other prepaid expenses | 240,000 | 81,000 | ||||||
| $ | 705,000 | $ | 637,000 | |||||
2. Notes Payable
| Notes payable consist of the following: | September 30, | December 31, | ||||||
2007 | 2006 | |||||||
(Unaudited) | ||||||||
Amegy Bank National Association Credit Facility, secured by certain healthcare assets | ||||||||
| Term note in the principal amount of $2,200,000, interest at Amegy Bank National Association prime plus 0.25% (8.00% at September 30, 2007) payable monthly in installments of $45,833 plus interest, all outstanding principal plus all accrued and unpaid interest is due in full in February 2011. | $ | 1,879,000 | $ | - | ||||
| Revolving line of credit in the principal amount of $2,250,000, interest at Amegy Bank National Association prime (7.75% at September 30, 2007) interest payable monthly, principal due in full in February 2009. | 1,504,000 | - | ||||||
| Advance Loan in the principal amount of $250,000, interest at Amegy Bank National Association prime plus 0.25% (8.00% at September 30, 2007) interest only payable monthly until September 20, 2008, thereafter, principal and interest due monthly, all outstanding principal plus all accrued and unpaid interest is due in full in August 2012. | - | - | ||||||
Bank of Texas Credit Facility, secured by substantially all healthcare assets | ||||||||
| Term note A in the principal amount of $1,000,000, interest at 6% per annum payable monthly, principal due in full in March 2007. Paid in full in February 2007. | - | 659,000 | ||||||
| Term note B in the principal amount of $4,000,000, interest at 6% per annum, principal and interest payable in monthly installments of $44,408 over 35 months with a balloon payment of principal due in March 2007. Paid in full in February 2007. | - | 3,140,000 | ||||||
| Term note C in the principal amount of $529,539, interest at 6% per annum, principal and interest payable in monthly installments of $5,579 over 35 months with a balloon payment of principal due in March 2007. Paid in full in February 2007. | - | 416,000 | ||||||
AmerisourceBergen Drug Corporation, unsecured note payable | ||||||||
| Unsecured note in the principal amount of $750,000, interest at 6% per annum, principal and interest payable in monthly installments of $6,329 over 59 months with a balloon payment of principal of $576,000 due in March 2009. | 630,000 | 658,000 | ||||||
Presidential HealthCredit, secured by Park InfusionCare trade receivables | ||||||||
| Revolving line of credit in the principal amount of $1,000,000, interest at Presidential HealthCredit prime rate plus 2% but not less than 10.25% per annum (10.25% at September 30, 2007) interest payable monthly, principal due in full in April 2010 and secured by accounts receivable and related general intangibles of Park InfusionCare. | 514,000 | - | ||||||
Insurance premium finance notes payable | ||||||||
| Term note payable in the principal amount of $218,264, payable in 9 equal installments of $24,888 through January 2008, interest payable at the fixed rate of 6.25%, secured by DHI's property and casualty insurance policies. | 74,000 | - | ||||||
CPOC term note payable to First Republic Bank | ||||||||
| Term note in the principal amount of $5.3 million, due June 1, 2009, interest at Bank of America prime rate minus 0.25% (7.50% at September 30, 2007) payable monthly, principal of $300,000 payable quarterly with a balloon payment of $1,700,000 due on June 1, 2009 and secured by the assets of CPOC. | 2,300,000 | 4,400,000 | ||||||
Capital lease obligations, secured by office equipment | 106,000 | 129,000 | ||||||
Demand note payable to affiliate | ||||||||
| Demand note payable to Ampco Partners, Ltd., interest at Bank of Texas prime rate plus 4.00% (11.75% at September 30, 2007), secured by the Company's distributions from and partnership interest in Ampco Partners, Ltd., principal and accrued interest due on demand. | 397,000 | 440,000 | ||||||
Comerica Bank term note payable | ||||||||
| Term note payable in the principal amount of $30,000, payable in 36 equal installments of $928 through April 2008, interest payable at the fixed rate of 7.00%, secured by all property and equipment of Ascendant Solutions, Inc. | 6,000 | 14,000 | ||||||
Insurance premium finance notes payable | ||||||||
| Term note payable in the principal amount of $82,875, payable in 9 equal installments of $9,450 through August 2007, interest payable at the fixed rate of 6.25%, secured by the Company's directors and officers insurance policies. Paid in full in August 2007. | - | 74,000 | ||||||
| 7,410,000 | 9,930,000 | |||||||
| Less current portion | (2,835,000 | ) | (6,106,000 | ) | ||||
| $ | 4,575,000 | $ | 3,824,000 | |||||
Future maturities of notes payable for the 12 months ended Septemberat June 30, 2017 are as follows:
| 2008 | $ | 2,835,000 | ||
| 2009 | 3,771,000 | |||
| 2010 | 575,000 | |||
| 2011 | 229,000 | |||
| Thereafter | - | |||
| $ | 7,410,000 |
| 2017 | $ | 783,000 | ||||
| 2018 | 4,652,000 | |||||
| 2019 | 2,017,000 | |||||
| 2020 | 384,000 | |||||
| $ | 7,836,000 | |||||
The revolving line of credit (the “Amegy(“the Revolver”) and a $2,200,000 term loan (the “Term Loan”). Substantially all ofwith the proceeds from the Revolver and the Term Loan were used to retire the outstanding balance owed toFirst National Bank of Texas, N.A. under an existing credit facility. The Term Loan and Omaha (“the Amegy Revolver are being guaranteed by the Company, DHI, Medicine Man, LP, Dougherty’s LP Holdings, Inc., Medicine Man GP, LLC, Alvin Medicine Man GP, LLC, Angleton Medicine Man GP, LLC and Santa Fe Medicine Man GP, LLC.
The Company refinanced the Cardinal Health Term Note due February 20, 2017 to a term noteof 36 months at 8.11% fixed rate interest.
3. Stock and revolving lineShare-Based Compensation
Restricted Share Unit Incentive Plan
On November 13, 2013, the Board of credit are subjectDirectors approved and adopted the Restricted Share Unit (“RSU”) Incentive Plan. Under the plan the Company can award RSUs to certain financial covenants includingemployees and non-employee directors and consultants pursuant to restricted stock agreements contingent upon continuous service. Under the restricted stock agreements, the restricted shares will vest annually over a minimum ratio of earnings before interest, taxes, depreciationfour-year period and amortization to debt service and a limitwill be payable in stock, valued at the fair market value on annual capital expenditures. the grant date.
As of SeptemberJune 30, 2007, CPOC was in compliance with these financial covenants. The Term Note is being guaranteed by CPOC. The term note and2017, the revolver are also being personally guaranteed, subject to certain limits, by certain officers and minority limited partners of CPOC. The Company is not paying any compensation to the individuals providing these guaranties.
| Year of Issuance: | Number of Shares | Fair Value at Date of Grant | Shares Vested | Non-Vested | Cancelled | |||||||||||||||||
| 2013 | 120,000 | $ | 26,400 | 90,000 | 25,000 | 5,000 | ||||||||||||||||
| 2014 | 122,100 | $ | 30,946 | 86,300 | 25,650 | 10,150 | ||||||||||||||||
| 2015 | 150,000 | $ | 39,000 | 70,000 | 65,000 | 15,000 | ||||||||||||||||
| 2016 | – | – | – | – | – | |||||||||||||||||
| 2017 | 563,000 | $ | 118,230 | – | 543,000 | 20,000 | ||||||||||||||||
| 955,100 | $ | 214,576 | 246,300 | 658,650 | 50,150 | |||||||||||||||||
| 10 |
Dougherty’s Pharmacy, Inc.
Notes to and including 85% of the net value of eligible receivables minus certain reserves.
4. Commitments and Contingencies
Operating Leases
The Company and its subsidiaries lease itsleases their pharmacy, real estate advisory servicescorporate offices and certain pharmacy equipment under non-cancelable operating lease agreements. Certain leases contain renewal options and provide that the Company pay taxes, insurance, maintenance and other operating expenses. Total rent expense for operating leasesEffective January 1, 2017, the Company extended the lease for the three months ended September 30, 2007flagship pharmacy located at the intersection of Preston and 2006 was approximately $402,000 and $386,000, respectively. Total rent expense for operating leases for the nine months ended September 30, 2007 and 2006 was approximately $1,103,000 and $1,089,000, respectively.
Minimum lease payments under all non-cancelable operating leaseslease agreements for the twelve months ending Septemberended June 30, 2017 are as follows:
Years ending September 30, | ||||
| 2007 | $ | 1,246,000 | ||
| 2008 | 1,200,000 | |||
| 2009 | 1,098,000 | |||
| 2010 | 443,000 | |||
| 2011 | 351,000 | |||
| Thereafter | 1,790,000 | |||
| $ | 6,128,000 | |||
Number of | ||||||||||||
Year of Issuance: | Shares | Shares Vested | Non-Vested | |||||||||
| 2002 | 435,000 | 435,000 | - | |||||||||
| 2003 | - | - | - | |||||||||
| 2004 | 67,500 | 67,500 | - | |||||||||
| 2005 | 47,500 | 44,723 | 2,777 | |||||||||
| 2006 | 127,270 | 119,978 | 7,292 | |||||||||
| 2007 | 244,138 | 132,471 | 111,667 | |||||||||
| 921,408 | 799,672 | 121,736 | ||||||||||
Weighted | ||||||||
Number of | Average Exercise | |||||||
Options | Price | |||||||
| Outstanding, December 31, 2006 | 460,000 | $ | 0.24 | |||||
| Granted in 2007 | - | - | ||||||
| Exercised in 2007 | - | - | ||||||
| Canceled in 2007 | - | - | ||||||
| Outstanding, September 30, 2007 | 460,000 | 0.24 | ||||||
Options Outstanding | Options Exercisable | |||||||||
Weighted | ||||||||||
Avg. | ||||||||||
Remaining | Weighted | |||||||||
Contractual | Avg. Exercise | Intrinsic | ||||||||
Exercise Price | # Outstanding | Life (Yrs) | # Exercisable | Price | Value | |||||
| $0.24 | 460,000 | 4.46 | 460,000 | $0.24 | $ 170,200 | |||||
| 2017 | $ | 760,000 | ||||
| 2018 | 782,000 | |||||
| 2019 | 800,000 | |||||
| 2020 | 678,000 | |||||
| 2021 | 671,000 | |||||
| Thereafter | 4,191,000 | |||||
| $ | 7,882,000 | |||||
Legal Proceedings
The Company is organized in three segments: (i) healthcare, (ii) real estate advisory services and (iii) corporate and other businesses. The healthcare segment consists of the operations of DHI and the real estate advisory services segment consists of the operations of the CRESA Partners of Orange County LP and CRESA Capital Markets Group LP. Key measures used by the Company’s management to evaluate business segment performance include revenue, cost of sales, gross profit and investment income.
Three Months Ended September 30, | ||||||||||||||||
Healthcare | Real Estate Services | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
(Restated) | ||||||||||||||||
| Revenue | $ | 10,894,000 | $ | 10,313,000 | $ | 4,244,000 | $ | 1,971,000 | ||||||||
| Cost of sales | 7,376,000 | 6,929,000 | 2,427,000 | 1,130,000 | ||||||||||||
| Gross profit | 3,518,000 | 3,384,000 | 1,817,000 | 841,000 | ||||||||||||
| Other income | 6,000 | (1,000 | ) | - | - | |||||||||||
| Equity in income (losses) of equity method investees | - | - | - | - | ||||||||||||
| Discontinued operations | - | - | - | - | ||||||||||||
| Net income (loss) | $ | (11,000 | ) | $ | 330,000 | $ | 994,000 | $ | 47,000 | |||||||
Three Months Ended September 30, | ||||||||||||||||
Corporate & Other | Consolidated | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
(Restated) | ||||||||||||||||
| Revenue | $ | - | $ | - | $ | 15,138,000 | $ | 12,284,000 | ||||||||
| Cost of sales | - | - | 9,803,000 | 8,059,000 | ||||||||||||
| Gross profit | - | - | 5,335,000 | 4,225,000 | ||||||||||||
| Other income | 68,000 | 19,000 | 74,000 | 18,000 | ||||||||||||
| Equity in income (losses) of equity method investees | 214,000 | (84,000 | ) | 214,000 | (84,000 | ) | ||||||||||
| Discontinued operations | - | - | - | - | ||||||||||||
| Net income (loss) | $ | (91,000 | ) | $ | (385,000 | ) | $ | 892,000 | $ | (8,000 | ) | |||||
Nine Months Ended September 30, | ||||||||||||||||
Healthcare | Real Estate Services | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
(Restated) | ||||||||||||||||
| Revenue | $ | 32,809,000 | $ | 30,273,000 | $ | 11,171,000 | $ | 8,504,000 | ||||||||
| Cost of sales | 21,917,000 | 21,061,000 | 6,951,000 | 5,071,000 | ||||||||||||
| Gross profit | 10,892,000 | 9,212,000 | 4,220,000 | 3,433,000 | ||||||||||||
| Other income | 83,000 | 90,000 | - | 100,000 | ||||||||||||
| Equity in income (losses) of equity method investees | - | - | - | - | ||||||||||||
| Discontinued operations | - | 230,000 | - | - | ||||||||||||
| Net income (loss) | $ | 908,000 | $ | 89,000 | $ | 1,705,000 | $ | 758,000 | ||||||||
Nine Months Ended September 30, | ||||||||||||||||
Corporate & Other | Consolidated | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
(Restated) | ||||||||||||||||
| Revenue | $ | - | $ | - | $ | 43,980,000 | $ | 38,777,000 | ||||||||
| Cost of sales | - | - | 28,868,000 | 26,132,000 | ||||||||||||
| Gross profit | - | - | 15,112,000 | 12,645,000 | ||||||||||||
| Other income | 69,000 | 32,000 | 152,000 | 222,000 | ||||||||||||
| Equity in income (losses) of equity method investees | 75,000 | (300,000 | ) | 75,000 | (300,000 | ) | ||||||||||
| Discontinued operations | - | - | - | 230,000 | ||||||||||||
| Net income (loss) | $ | (1,069,000 | ) | $ | (1,178,000 | ) | $ | 1,544,000 | $ | (331,000 | ) | |||||
September 30, 2007 and December 31, 2006 | ||||||||||||||||
Healthcare | Real Estate Services | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
| Total assets | $ | 8,054,000 | $ | 7,483,000 | $ | 11,323,000 | $ | 12,363,000 | ||||||||
Corporate and Other | Consolidated | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
| Total assets | $ | 567,000 | $ | 1,193,000 | $ | 19,944,000 | $ | 21,039,000 | ||||||||
5. Related Party Transactions
During the three and six months ended June 30, 2017 and 2016, the Company paid fees to its directors of $14,000 and $28,000 respectively for their roles as members of the Board of Directors and its related committees; fees paid to the Company’s Chairman totaled $30,000 and $60,000 for management and other services provided.
6. Subsequent Events
On July 1, 2017, the Company obtained an extension of the Revolver, discussed in Note 2, through September 1, 2017. On August 9, 2017, the Company obtained an additional term for the Revolver in the amount of $4,450,000 effective September 1, 2017, and then effective February 1, 2018, in the amount of $4,000,000. Outstanding advances under the Revolver will bear interest at LIBOR plus 3.25% (4.49% at August 9 2017). Accrued and unpaid interest on the Revolver is due monthly beginning on September 1, 2017. All outstanding principal under the Revolver plus all accrued and unpaid interest thereon is due and payable in full on August 1, 2018. The Revolver is secured by certain retail pharmacy assets, specifically but not limited to, inventory, equipment, software, accounts receivable, intangibles and deposit accounts of the Company. The Revolver is subject to certain financial restrictions, subject to the Lender’s prior written approval, including, but not limited to, capital expenditures not to exceed $200,000, additional indebtedness, acquisitions of entities and payment of dividends and distributions. Furthermore, the loan agreement provides that the Borrowers will maintain a minimum debt service coverage ratio of not less than 1.00 to 1.00, as defined.
| 11 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Should one or more of these risks or uncertainties materialize, or should any of our business.assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We cannot determine what, ifundertake no obligation to update or revise any material effect these matters will haveforward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required under applicable securities laws.
The forward-looking statements contained in this Form 10-Q and other documents that we file or furnish with the SEC contain forward-looking statements that are based on current expectations, estimates, forecasts and projections about our future performance, our business, our beliefs and our management’s assumptions. In addition, we, or others on our behalf, may make forward-looking statements in press releases or written statements, on the Company’s website or in our communications and discussions with investors and analysts in the normal course of business through meetings, webcasts, phone calls, conference calls and other communications.
Statements that are not historical facts are forward-looking statements, including, without limitation, those regarding estimates of and goals for future financial position and operating performance as well as forward-looking statements concerning the expected execution and effect of our business strategies. Words such as “expect,” “likely,” “outlook,” “forecast,” “preliminary,” “would,” “could,” “should,” “can,” “will,” “project,” “intend,” “plan,” “goal,” “guidance,” “continue,” “sustain,” “synergy,” “believe,” “seek,” “estimate,” “anticipate,” “may,” “possible,” “assume,” and variations of such words and similar expressions are intended to identify such forward-looking statements.
These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions, known or unknown, that could cause actual results to vary materially from those indicated or anticipated, including, but not limited to the following:
| · | We have limited funds and may require additional financing; | |
| · | We may not be able to effectively integrate and manage our current and anticipated growth strategies; | |
| · | We could be subject to unforeseen costs associated with our Pharmacy Acquisitions which could reduce our profitability; | |
| · | We may enter into additional leveraged transactions in connection with future Pharmacy Acquisitions; | |
| · | We may be negatively affected by restrictive terms and covenants in our existing credit facility; | |
| · | We may be required to perform as a co-guarantor on certain indebtedness obligations, and if such event were to occur, we do not anticipate that we would have sufficient cash resources to meet such obligations; | |
| · | We are substantially dependent on a single supplier of pharmaceutical products; | |
| · | We must maintain sufficient sales to qualify for favorable pricing under our long term supply contract; | |
| · | We may be affected by the introduction of new brand name and generic prescription drugs, the conversion rate and mix of prescriptions filled, the reimbursement rate by third party payors of prescriptions and increases in the cost to procure those drugs; | |
| · | We are subject to considerable uncertainty as to how current Health Reform Laws will affect our business and operations; | |
| · | We could be negatively affected by future legislative or regulator policies designed to manage healthcare costs or alter healthcare financing practices; and | |
| · | We handle confidential healthcare information for our customers and are subject to the risk in securing such confidential information and protecting it from cyber-attacks. |
These and other risks, assumptions and uncertainties are described in Item 1A. “Risk Factors” These risks and uncertainties include, but are not limited to, those factors described in the “Risk Factors” sections of operations.
OVERVIEW
Key measures used by the Company’s management to evaluate business segment performance include revenue, cost of sales, gross profit, investment incomeselling, general and administrative expense (“SG&A”) and EBITDA. EBITDA is calculated as net income before deducting interest, taxes, depreciation and amortization. EBITDA is a non-GAAP measure that Company’s management considers to best present the results of ongoing operations and is useful when comparing the performance between different reporting periods. In certain instances, we have presented EBITDA (Adjusted) which also excludes certain one-time, non-recurring, non-operating losses or impairments, as the Company considers excluding these adjustments necessary to derive the results of ongoing operations. In those instances, we have identified when the Company is presenting adjusted EBITDA. Although EBITDA or EBITDA (Adjusted) is not a measure of actual cash flow because it does not consider changes in assets and liabilities that may impact cash balances, the Company believes it is a useful metric to evaluate operating performance and has therefore included such measures in the discussion of operating results below.
The Company also tracks prescriptions sold to assess operational performance.
| 12 |
Three Months Ended September 30, | ||||||||||||||||||||||||
Healthcare | Real Estate Advisory Services | |||||||||||||||||||||||
2007 | 2006 | $ Change | 2007 | 2006 | $ Change | |||||||||||||||||||
(Restated) | ||||||||||||||||||||||||
| Revenue | $ | 10,894,000 | $ | 10,313,000 | $ | 581,000 | $ | 4,244,000 | $ | 1,971,000 | $ | 2,273,000 | ||||||||||||
| Cost of Sales | 7,376,000 | 6,929,000 | 447,000 | 2,427,000 | 1,130,000 | 1,297,000 | ||||||||||||||||||
| Gross Profit | 3,518,000 | 3,384,000 | 134,000 | 1,817,000 | 841,000 | 976,000 | ||||||||||||||||||
| Operating expenses | 3,374,000 | 2,970,000 | 404,000 | 656,000 | 681,000 | (25,000 | ) | |||||||||||||||||
| Equity in income (losses) of equity method investees | - | - | - | - | - | - | ||||||||||||||||||
| Other income | 6,000 | (1,000 | ) | 7,000 | - | - | - | |||||||||||||||||
| Interest income (expense), net | (123,000 | ) | (83,000 | ) | (40,000 | ) | (48,000 | ) | (100,000 | ) | 52,000 | |||||||||||||
| Minority interests | - | - | - | (11,000 | ) | - | (11,000 | ) | ||||||||||||||||
| Income tax provision | (38,000 | ) | - | (38,000 | ) | (108,000 | ) | (13,000 | ) | (95,000 | ) | |||||||||||||
| Discontinued operations | - | - | - | - | - | - | ||||||||||||||||||
Net income (loss) | $ | (11,000 | ) | $ | 330,000 | $ | (341,000 | ) | $ | 994,000 | $ | 47,000 | $ | 947,000 | ||||||||||
Plus: | ||||||||||||||||||||||||
| Interest (income) expense, net | $ | 123,000 | $ | 83,000 | $ | 40,000 | $ | 48,000 | $ | 100,000 | $ | (52,000 | ) | |||||||||||
| Income tax provision | 38,000 | - | 38,000 | 108,000 | 13,000 | 95,000 | ||||||||||||||||||
| Depreciation and amortization | 49,000 | 99,000 | (50,000 | ) | 38,000 | 78,000 | (40,000 | ) | ||||||||||||||||
| Discontinued operations | - | - | - | - | - | - | ||||||||||||||||||
EBITDA | $ | 199,000 | $ | 512,000 | $ | (313,000 | ) | $ | 1,188,000 | $ | 238,000 | $ | 950,000 | |||||||||||
Three Months Ended September 30, | ||||||||||||||||||||||||
Corporate & Other | Consolidated | |||||||||||||||||||||||
2007 | 2006 | $ Change | 2007 | 2006 | $ Change | |||||||||||||||||||
(Restated) | ||||||||||||||||||||||||
| Revenue | $ | - | $ | - | $ | - | $ | 15,138,000 | $ | 12,284,000 | $ | 2,854,000 | ||||||||||||
| Cost of Sales | - | - | - | 9,803,000 | 8,059,000 | 1,744,000 | ||||||||||||||||||
| Gross Profit | - | - | - | 5,335,000 | 4,225,000 | 1,110,000 | ||||||||||||||||||
| Operating expenses | 325,000 | 304,000 | 21,000 | 4,355,000 | 3,955,000 | 400,000 | ||||||||||||||||||
| Equity in income (losses) of equity method investees | 214,000 | (84,000 | ) | 298,000 | 214,000 | (84,000 | ) | 298,000 | ||||||||||||||||
| Other income | 68,000 | 19,000 | 49,000 | 74,000 | 18,000 | 56,000 | ||||||||||||||||||
| Interest income (expense), net | (13,000 | ) | (16,000 | ) | 3,000 | (184,000 | ) | (199,000 | ) | 15,000 | ||||||||||||||
| Minority interests | - | - | - | (11,000 | ) | - | (11,000 | ) | ||||||||||||||||
| Income tax provision | (35,000 | ) | - | (35,000 | ) | (181,000 | ) | (13,000 | ) | (168,000 | ) | |||||||||||||
| Discontinued operations | - | - | - | - | - | - | ||||||||||||||||||
Net income (loss) | $ | (91,000 | ) | $ | (385,000 | ) | $ | 294,000 | $ | 892,000 | $ | (8,000 | ) | $ | 900,000 | |||||||||
Plus: | ||||||||||||||||||||||||
| Interest (income) expense, net | $ | 13,000 | $ | 16,000 | $ | (3,000 | ) | $ | 184,000 | $ | 199,000 | $ | (15,000 | ) | ||||||||||
| Income tax provision | 35,000 | - | 35,000 | 181,000 | 13,000 | 168,000 | ||||||||||||||||||
| Depreciation and amortization | 6,000 | 6,000 | - | 93,000 | 183,000 | (90,000 | ) | |||||||||||||||||
| Discontinued operations | - | - | - | - | - | - | ||||||||||||||||||
EBITDA | $ | (37,000 | ) | $ | (363,000 | ) | $ | 326,000 | $ | 1,350,000 | $ | 387,000 | $ | 963,000 | ||||||||||
Dougherty’s Pharmacy, Inc. (“Dougherty’s,” which is also referred to in this Quarterly Report on Form 10-Q as “we,” “us,” or “the Company”) is a value oriented company focused on successfully acquiring, managing and growing community based pharmacies in the Southwest Region. Our wholly owned subsidiary, Dougherty’s Holdings, Inc., owns and operates multiple Dougherty’s Pharmacies, which we operate as a single segment in our financial reporting. The flagship store, Dougherty’s Pharmacy, is a turn-key multi-service pharmacy located in a highly prestigious area of Dallas, Texas. Centrally located, we believe that Dougherty’s Pharmacy continues to provide a level of service not typically provided by national pharmacy chain stores. We fulfill virtually any prescription need, from the simplest to the most complex compounding prescriptions. Most national pharmacy chains do not provide complex pharmacy prescription services. We specialize in providing solutions for our retail customers’ pharmacy needs and also for our customers residing in assisted living facilities. Dougherty’s long history began in 1929 and continues today as one of Dallas’s oldest, largest and best-known full-service pharmacies, which also includes durable medical equipment, home healthcare products services, and health and wellness supplements. We have a customer service oriented philosophy and typically do not attempt to compete solely based on price, as is the case with most of the Company increased $2,854,000 duringnational pharmacy chains.
Additional community pharmacies are located in Dallas, El Paso, and Springtown, Texas and in McAlester, Oklahoma.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion explains the third quartermaterial changes in our results of 2007operations for the three and six months ended June 30, 2017 and 2016, and the significant developments affecting our financial condition since the Form 10-12G and Form 10-12G/A filed June 2, 2017 and July 21, 2017, respectively. We strongly recommend that you read our audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations for the years ended December 31, 2016 and 2015 and the three months ended March 31, 2017 and 2016 filed in those reports, along with this report.
Comparison of the Three and Six Months Ended June 30, 2017 to $15,138,000. This represents a 23.2% increase over revenue of $12,284,000the Three and Six Months Ended June 30, 2016 (000’s Omitted)
| Three Months ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Revenue | $ | 10,211 | $ | 10,998 | $ | 20,266 | $ | 21,814 | ||||||||
| Cost of sales | 7,448 | 8,163 | 14,716 | 16,057 | ||||||||||||
| Gross profit | 2,763 | 2,835 | 5,550 | 5,757 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Selling, General and Administrative | 2,627 | 2,696 | 5,203 | 5,457 | ||||||||||||
| Depreciation and amortization | 254 | 267 | 520 | 528 | ||||||||||||
| Other income | – | 40 | – | 40 | ||||||||||||
| Interest expense | 100 | 111 | 202 | 217 | ||||||||||||
| Loss of disposal of assets | 75 | 114 | 75 | 114 | ||||||||||||
| Income tax provision | 12 | 10 | 23 | 20 | ||||||||||||
| Net loss | $ | (305 | ) | $ | (323 | ) | $ | (473 | ) | $ | (539 | ) | ||||
| plus: | ||||||||||||||||
| Interest expense | $ | 100 | $ | 111 | $ | 202 | $ | 217 | ||||||||
| Depreciation and amortization | 254 | 267 | 520 | 528 | ||||||||||||
| Loss on disposal of assets | 75 | 114 | 75 | 114 | ||||||||||||
| Income tax provision | 12 | 10 | 23 | 20 | ||||||||||||
| EBITDA (Adjusted) | $ | 136 | $ | 179 | $ | 347 | $ | 340 | ||||||||
| Prescription count | 109,376 | 110,454 | 221,221 | 221,525 | ||||||||||||
Revenues
Net revenues decreased approximately $787,000 or 7.2%, and $1.6 million, or 7.1% in the third quarter of 2006. The increase is primarily attributable to increased volume of retail pharmacy prescriptionsthree and other merchandise at the retail pharmacies and increased revenue at Park InfusionCare in the healthcare segment of our business and an increase in the commissions earned for tenant representation services in the real estate advisory services segment of our business.
| 13 |
Gross profit
Gross profit dollars decreased $72,000, or 2.5%, and $207,000, or 3.6% in the costthree and six months ended June 30, 2017, as compared to prior year. Gross profit as a percent of sales at Park InfusionCare versusrevenues increased approximately 130 basis points for the three months ended June 30, 2017, to 27.1%, as compared to prior year. Gross profit as a 10.9% increase in revenue at Park InfusionCare due to a changepercentage of net revenues increased approximately 100 basis points in the mix of revenuesix months ended June 30, 2017 to lower margin therapies.
SG&A expenses
SG&A expenses decreased $69,000, or 2.6%, and $254,000, or 4.7% in the third quarterthree and six months ended June 30, 2017, as compared to prior year. SG&A expenses as a percentage of 2006. Gross profitrevenues for the three months ended June 30, 2017, increased by $287,000 or 13.2% atto 25.7%, up 120 basis points from 24.5% for the retail pharmaciessame period prior year and decreased by $153,000, or 12.6% at Park InfusionCare.
Earnings Before Interest, Taxes, Depreciation and Amortization
EBITDA (Adjusted) decreased by $313,000 to EBITDA of $199,000$43,000, or 24.0%, and increased $7,000, or 2.1% in the third quarter of 2007 from EBITDA of $512,000 in the third quarter of 2006. This overall decrease is due primarily to an increase in operating expenses at the retail pharmaciesthree and Park InfusionCare. EBITDA at the retail pharmacies decreased 8.8% in the third quarter of 2007 to $488,000 from $534,000 in the third quarter of 2006. During the third quarter of 2007, Park InfusionCare had an EBITDA loss of ($118,000) in the third quarter of 2007six months ended June 30, 2017 as compared to prior year. EBITDA of $123,000 in the third quarter of 2006, a decrease of $241,000.
Three Months Ended September 30, | ||||||||
2007 | 2006 | |||||||
(Unaudited) | (Unaudited) | |||||||
| Ampco Partners, Ltd. | $ | 15,000 | $ | 5,000 | ||||
| Fairways Frisco, L.P. | 199,000 | (89,000 | ) | |||||
| $ | 214,000 | $ | (84,000 | ) | ||||
Nine Months Ended September 30, | ||||||||||||||||||||||||
Healthcare | Real Estate Advisory Services | |||||||||||||||||||||||
2007 | 2006 | $ Change | 2007 | 2006 | $ Change | |||||||||||||||||||
(Restated) | ||||||||||||||||||||||||
| Revenue | $ | 32,809,000 | $ | 30,273,000 | $ | 2,536,000 | $ | 11,171,000 | $ | 8,504,000 | $ | 2,667,000 | ||||||||||||
| Cost of Sales | 21,917,000 | 21,061,000 | 856,000 | 6,951,000 | 5,071,000 | 1,880,000 | ||||||||||||||||||
| Gross Profit | 10,892,000 | 9,212,000 | 1,680,000 | 4,220,000 | 3,433,000 | 787,000 | ||||||||||||||||||
| Operating expenses | 9,716,000 | 9,191,000 | 525,000 | 2,136,000 | 2,353,000 | (217,000 | ) | |||||||||||||||||
| Equity in income (losses) of equity method investees | - | - | - | - | - | - | ||||||||||||||||||
| Other income | 83,000 | 90,000 | (7,000 | ) | - | 100,000 | (100,000 | ) | ||||||||||||||||
| Interest income (expense), net | (313,000 | ) | (252,000 | ) | (61,000 | ) | (165,000 | ) | (313,000 | ) | 148,000 | |||||||||||||
| Minority interests | - | - | - | (21,000 | ) | (23,000 | ) | 2,000 | ||||||||||||||||
| Income tax provision | (38,000 | ) | - | (38,000 | ) | (193,000 | ) | (86,000 | ) | (107,000 | ) | |||||||||||||
| Discontinued operations | - | 230,000 | (230,000 | ) | - | - | - | |||||||||||||||||
Net income (loss) | $ | 908,000 | $ | 89,000 | $ | 819,000 | $ | 1,705,000 | $ | 758,000 | $ | 947,000 | ||||||||||||
Plus: | ||||||||||||||||||||||||
| Interest (income) expense, net | $ | 313,000 | $ | 252,000 | $ | 61,000 | $ | 165,000 | $ | 313,000 | $ | (148,000 | ) | |||||||||||
| Income tax provision | 38,000 | - | 38,000 | 193,000 | 86,000 | 107,000 | ||||||||||||||||||
| Depreciation and amortization | 198,000 | 293,000 | (95,000 | ) | 140,000 | 223,000 | (83,000 | ) | ||||||||||||||||
| Discontinued operations | - | (230,000 | ) | 230,000 | - | - | - | |||||||||||||||||
EBITDA | $ | 1,457,000 | $ | 404,000 | $ | 1,053,000 | $ | 2,203,000 | $ | 1,380,000 | $ | 823,000 | ||||||||||||
Nine Months Ended September 30, | ||||||||||||||||||||||||
Corporate & Other | Consolidated | |||||||||||||||||||||||
2007 | 2006 | $ Change | 2007 | 2006 | $ Change | |||||||||||||||||||
(Restated) | ||||||||||||||||||||||||
| Revenue | $ | - | $ | - | $ | - | $ | 43,980,000 | $ | 38,777,000 | $ | 5,203,000 | ||||||||||||
| Cost of Sales | - | - | - | 28,868,000 | 26,132,000 | 2,736,000 | ||||||||||||||||||
| Gross Profit | - | - | - | 15,112,000 | 12,645,000 | 2,467,000 | ||||||||||||||||||
| Operating expenses | 1,128,000 | 876,000 | 252,000 | 12,980,000 | 12,420,000 | 560,000 | ||||||||||||||||||
| Equity in income (losses) of equity method investees | 75,000 | (300,000 | ) | 375,000 | 75,000 | (300,000 | ) | 375,000 | ||||||||||||||||
| Other income | 69,000 | 32,000 | 37,000 | 152,000 | 222,000 | (70,000 | ) | |||||||||||||||||
| Interest income (expense), net | (41,000 | ) | (14,000 | ) | (27,000 | ) | (519,000 | ) | (579,000 | ) | 60,000 | |||||||||||||
| Minority interests | (1,000 | ) | (8,000 | ) | 7,000 | (22,000 | ) | (31,000 | ) | 9,000 | ||||||||||||||
| Income tax provision | (43,000 | ) | (12,000 | ) | (31,000 | ) | (274,000 | ) | (98,000 | ) | (176,000 | ) | ||||||||||||
| Discontinued operations | - | - | - | - | 230,000 | (230,000 | ) | |||||||||||||||||
Net income (loss) | $ | (1,069,000 | ) | $ | (1,178,000 | ) | $ | 109,000 | $ | 1,544,000 | $ | (331,000 | ) | $ | 1,875,000 | |||||||||
Plus: | ||||||||||||||||||||||||
| Interest (income) expense, net | $ | 41,000 | $ | 14,000 | $ | 27,000 | $ | 519,000 | $ | 579,000 | $ | (60,000 | ) | |||||||||||
| Income tax provision | 43,000 | 12,000 | 31,000 | 274,000 | 98,000 | 176,000 | ||||||||||||||||||
| Depreciation and amortization | 19,000 | 18,000 | 1,000 | 357,000 | 534,000 | (177,000 | ) | |||||||||||||||||
| Discontinued operations | - | - | - | - | (230,000 | ) | 230,000 | |||||||||||||||||
EBITDA | $ | (966,000 | ) | $ | (1,134,000 | ) | $ | 168,000 | $ | 2,694,000 | $ | 650,000 | $ | 2,044,000 | ||||||||||
LIQUIDITY AND CAPITAL RESOURCES
We maintain a $305,000 increase at Park InfusionCare and a $220,000 increase at the retail pharmacies due primarilylevel of liquidity sufficient to increased payroll and payroll related expenses.
Nine Months Ended September 30, | ||||||||
2007 | 2006 | |||||||
(Unaudited) | (Unaudited) | |||||||
| Ampco Partners, Ltd. | $ | 79,000 | $ | 73,000 | ||||
| Fairways Frisco, L.P. | (4,000 | ) | (373,000 | ) | ||||
| $ | 75,000 | $ | (300,000 | ) | ||||
As of SeptemberJune 30, 2007,2017, we had working capital of approximately $2.4$2.3 million as compared to a working capital deficit of approximately $0.1$1.9 million at December 31, 2006.2016. This net increase is primarily due primarily to $3.7 millioncash proceeds received upon the disposition of notes payable included as a current liability at December 31, 2006, which were refinanced and thus classified as long term at September 30, 2007. These notes payable related to the Healthcare segment which was refinanced with a new credit facility with Amegy Bank in February 2007.
As of SeptemberJune 30, 2007,2017, we had cash and restricted cash equivalents of approximately $1.3 million$751,000, of which $303,000 was restricted, as compared to approximately $2.7 million$361,000, of which $303,000 was restricted, at December 31, 2006. Cash flows2016. The increase in cash for the three months ended June 30, 2017, of $390,000 was primarily the result of cash proceeds received upon the disposition of the CPOC investment of $617,000.
As of June 30, 2017, the Company had total current assets of $6,476,000 and total current liabilities of $4,181,000 creating working capital of approximately $2,295,000 as compared to total current assets of $6,013,000 and total current liabilities of $4,065,000 creating working capital of approximately $1,948,000 at December 31, 2016. The increase in total cash of $390,000 and working capital of $347,000 is primarily due to cash proceeds received upon the disposition of the Humble pharmacy of $274,000 and disposition of CPOC of $617,000 during the first quarter of 2017, of which $100,000 of the proceeds were used to pay off a term note with our bank and the remainder was held in cash. The change in total cash as of June 30, 2017, without the proceeds of $617,000 from operating activities were $1.3 million which is offset bythe sale of CPOC would have been a decrease of cash and working capital of $544,000.
| 14 |
The change in cash and cash equivalents is as follows:
| Six Months Ended June 30, | ||||||||
| 2017 | 2016 | |||||||
| Net cash provided by operating activities | $ | 472 | $ | 958 | ||||
| Net provided by (used in) investing activities | 818 | (461 | ) | |||||
| Net cash used in financing activities | (900 | ) | (517 | ) | ||||
| Net increase (decrease) increase in cash | $ | 390 | $ | (20 | ) | |||
Net cash provided by operating activities was approximately $472,000 in the six months ended June 30, 2017, compared to $959,000 in the six months ended June 30, 2016. The decrease of $486,000 was primarily due to changes in accounts receivable of an increase of $320,000 due to a reduction in accounts receivable related to the decline in revenues discussed above, a decrease of $717,000 due to an increase in accounts payable related to timing of payment of invoices and a decrease of $89,000 due to other net changes.
Net cash used in investing activities was approximately $818,000 in the six months ended June 30, 2017, compared to a negative $461,000 in the six months ended June 30, 2016. Cash used to purchase property and equipment was $73,000 for the six months ended June 30, 2017 compared to $461,000 for the prior year. The decrease of $388,000 was primarily due to capital expenditures incurred during the six months ended June 31, 2016 related to the relocation of a pharmacy. For the six months ended June 30, 2017, cash proceeds from the disposition of the Humble pharmacy were $274,000, and cash provided by the proceeds of the disposition of CPOC was $617,000.
Net cash used in financing activities was $900,000 in the six months ended June 30, 2017, compared to net cash used in financing activities of $2.5 million$517,000 in the six months ended June 30, 2016. For the six months ended June 30, 2017, borrowings of $9,426,000 and payments of $9,631,000 were made on the revolving credit facility; payments of $695,000 were made on notes payable. For the six months ended June 30, 2016, borrowings of $13,750,000 and payments of $13,662,000 were made on the revolving credit facility; payments of $605,000 were made on notes payable.
Our principal indebtedness at June 30, 2017, consists of the following:
| · | A number of term notes in favor of Cardinal Health in the aggregate amount of $3,618,000, secured by certain retail pharmacy assets, and maturing between August 2019 and August 2020; | |
| · | A revolving credit facility in the principal amount of $4,750,000, of which the Company has currently borrowed $3,970,000 on the revolving credit facility, leaving $780,000 available for future borrowings; | |
| · | A number of notes payable to sellers of acquired pharmacies in the aggregate amount of $203,000, unsecured, and maturing on or before September 18, 2018. |
The material terms under these agreements include, without limitation, notice requirements for certain material events, the provision of periodic financial statements, the maintenance of certain financial ratios, maintaining certain minimum insurance requirements, as well as restrictions on our ability to incur additional indebtedness, incur future capital expenditures, as well as restrictions on our ability purchase, create or acquire any interest in any other pharmacy store or distributing company, or loan, invest in or advance money or assets to any other person, enterprise or entity for the acquisition of a pharmacy store or distributing company without the prior written consent of the First National Bank of Omaha.
In addition, the Company may be required to make payment as a resultco-guarantor on a promissory note issued by a bank in favor of an individual who was previously, through August of 2008, a related party of the Company. The total principal amount due and owing under the promissory note as of July 15, 2017, of $1,887,884 (the “Guarantee Payment”), and as the co-guarantor, of which $136,000 payments on notes payablehave been made during 2017. The Company has received written assurance that the primary obligors are current in their payment obligations under the promissory note as of $11.3 million offsetAugust 1, 2017. The promissory note is collateralized by a property that is currently held for sale, is expected to sell before the end of the calendar year and for which the proceeds will be sufficient and are expected to be used to pay off the balance of the promissory note. Upon payment of the promissory note in full, the restricted cash borrowed on notes payablebalance of $8.8 million.
Our future capital needs are uncertain. TheManagement anticipates funding our capital needs through a combination of projected positive cash flow after debt service and available borrowings under our revolving line of credit; however, cash flow projections are based on anticipated operations of our business, for which we can provide no assurance. Additionally, if we were to make additional acquisitions, we would likely need additional capital to fund all, or a portion, of those acquisitions. If the company does not generate the necessary cash flow, the Company may or may notwill need additional financing in the futureexcess of our current revolving line of credit to fund operations.operations in the future. We do not know whether additional financing will be available when needed, or that, if available, we will be able to obtain financing on terms favorable, or even acceptable, to stockholders.the Company.
| 15 |
Tax Loss Carryforwards
At December 31, 2006, the Company2016, we had approximately $51$48 million of federal net operating loss carryforwards available to offset future taxable income, which, if not utilized, will fully expire from 20182020 to 2024. In addition, the Company had approximately $2.9 million of state net operating loss carryforwards available to offset future taxable income, which, if not utilized, will fully expire from 2007 to 2009.2035. We believe that the issuance of shares of our common stock pursuant to our initial public offering on November 15, 1999 caused an “ownership change” for purposes of Section 382 of the Internal Revenue Code of 1986, as amended. Consequently, we believe that the portion of our net operating lossfederal NOL carryforwards attributable to the period prior to November 16, 1999 is subject to an annual limitation pursuant to Section 382. Our total deferred tax assets have been fully reserved as a result of the uncertainty of future taxable income. Accordingly,income, except for $3 million that is estimated to offset future taxable income from pharmacy operations and or the sale of pharmacy businesses. The estimated deferred tax asset is consistent with the prior year, accordingly, no tax benefit has been recognized in the periods presented.
Off Balance Sheet Arrangements
We do not have any unconsolidated special purpose entities and, Commercial Commitments
Contractual Obligations | ||||||||||||||||||||
As of September 30, 2007 | Payments due by Period | |||||||||||||||||||
| Less than | 1-3 | 3-5 | More than | |||||||||||||||||
| 1 year | Years | Years | 5 years | Total | ||||||||||||||||
| Lease Obligations | $ | 1,246,000 | $ | 2,298,000 | $ | 794,000 | $ | 1,790,000 | $ | 6,128,000 | ||||||||||
| Notes Payable | 2,835,000 | 4,346,000 | 229,000 | - | 7,410,000 | |||||||||||||||
| Total | $ | 4,081,000 | $ | 6,644,000 | $ | 1,023,000 | $ | 1,790,000 | $ | 13,538,000 | ||||||||||
Critical Accounting Policies
We prepare our consolidated financial statements in conformity with GAAP, which have been preparedrequires management to make certain estimates and apply judgment. We base our estimates and judgments on historical experience, current trends and other factors that management believes to be important at the time the condensed consolidated financial statements are prepared. On a regular basis, we review our accounting policies and how they are applied and disclosed in our condensed consolidated financial statements.
While we believe that the historical experience, current trends and other factors considered support the preparation of our condensed consolidated financial statements in conformity with GAAP, actual results could differ from our estimates and such differences could be material.
For a full description of our significant accounting policies, please refer to the Notes to Consolidated Financial Statements in Item 1.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As a smaller reporting company, we are not required to provide the information required by this Item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our chief financial officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a–15(e) under the Exchange Act) as of June 30, 2017. Based upon that evaluation, our chief financial officer concluded that as of June 30, 2017, our disclosure controls and procedures were effective.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in rule 13a-15(f) under the Securities and Exchange Act of 1934 as amended. Under the supervision and with the participation of senior and executive management, we conducted an evaluation of our internal controls over financial reporting based upon the framework Internal Control – Integrated Framework (2013) as outlined by COSO, the Committee of Sponsoring Organizations of the Treadway Commission. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. The preparationBecause of these condensed consolidatedits inherent limitations, internal control over financial statements requires managementreporting may not prevent or detect misstatements. Also, projections of an evaluation of effectiveness to make estimates and assumptionsfuture periods are subject to the risk that affectcontrols may become inadequate because of changes in conditions or that the reported amountsdegree of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluatecompliance with the policies or procedures may deteriorate.
Based on our estimates, including those related to long-term investments.
Changes in commodity futures trading or hedging activities and do not enter into derivative financial instrument transactions for trading or other speculative purposes. We also do not currently engage in transactions in foreign currencies or in interest rate swap transactions that could expose us to market risk.
There were no changes in interest rates with respect to the credit agreements entered into by our subsidiaries to the extent that the pricing of these agreements is floating.
| Fixed Rate | Variable | Total | ||||||||||
| 2008 | $ | 174,000 | $ | 2,661,000 | $ | 2,835,000 | ||||||
| 2009 | 617,000 | 3,154,000 | 3,771,000 | |||||||||
| 2010 | 25,000 | 550,000 | 575,000 | |||||||||
| 2011 | - | 229,000 | 229,000 | |||||||||
| Thereafter | - | - | - | |||||||||
| $ | 816,000 | $ | 6,594,000 | $ | 7,410,000 | |||||||
From time to time, the Company may be subject to legal proceedings and claims in the Company’s legalordinary course of business. We are not currently aware of any such proceedings during the nine months ended September 30, 2007 as described in Item 3 of Part I of the Company’s Form 10-K for the year ended December 31, 2006, as filed with the Securities and Exchange Commission on April 16, 2007.
Exhibit Number | Description |
| 31.1 | Certification of the President |
| 101.INS | XBRL Instances Document (1) | |
| 101.SCH | XBRL Taxonomy Extension Schema Document (1) | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document (1) | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document (1) | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document (1) | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document (1) |
| (1) | Filed herewith. |
| 17 |
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the Company has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized on August 14, 2017.
| By: | /s/ Mark S. Heil | |
| Mark S. Heil | ||
| President and Chief Financial Officer (Duly Authorized Principal Executive Officer and Principal Financial Officer) | ||
| 18 |
EXHIBIT INDEX
| 101.INS | ||
| 101.SCH | XBRL Taxonomy Extension Schema Document (1) | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document (1) | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document (1) | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document (1) | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document (1) |
| (1) | Filed herewith. |
| 19 | |||||