8-K 1 t23261.txt CURRENT EVENT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of Earliest event reported): October 10, 2001 Commission File Number:0-17821 ALLION HEALTHCARE, INC. ----------------------- (Exact name of registrant as specified in its charter) DELAWARE 11-2962027 -------- ---------- (State or other jurisdiction of (I.R.S.Employer incorporation or organization) Identification No.) 33 WALT WHITMAN ROAD, SUITE 200A HUNTINGTON STATION, NY 11746 -------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code...(631) 547-6520 -------------- ITEM 5. OTHER EVENTS As we have previously reported, we have entered into an agreement to acquire a retail pharmacy business operating in the state of New York from Prescripticare, L.L.C. This division, Specialty Care Pharmacy Division ("SCPD") fills individual patient specific specialty oral and injectable prescription medications and biopharmaceuticals. This transaction will be sometimes referred to as the "Asset Purchase." In connection with the Asset Purchase, we are providing the following financial information. A. Unaudited Pro Forma Condensed Financial Statements of Allion Healthcare, Inc., and SCPD as of June 30, 2001 and for the six months ended June 30, 2001 and year ended December 31, 2000. B. Audited Financial Statements of SCPD as of and for the year ended December 31, 2000 and for the period from March 25, 1999 to December 31, 1999; and C. Unaudited Interim Financial Statements of SCPD for the six month periods ended June 30, 2001 and 2000 The Asset Purchase was subject to numerous closing conditions, all of which have been satisfied. UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS Consideration to be provided by Allion Healthcare, Inc. ("Allion") in the Asset Purchase is $900,000, $600,000 of which was payable at the closing and the remainder of which is payable in $100,000 installments each month for three months following the closing. This consideration will be allocated to the tangible and identifiable intangible assets acquired according to their respective fair values at the closing of the transaction. On September 24, 2001, Allion sold certain assets acquired from SCPD for $ 175,000. The unaudited pro forma statements of operations of Allion for the six months ended June 30, 2001 and the year ended December 31, 2000, give effect to (i) the Asset Purchase applying the purchase method of accounting, (ii) certain adjustments that are directly attributable to the Asset Purchase as if the transaction was consummated as of January 1, 2000 and (iii) the subsequent sale of certain assets acquired from SCPD. The unaudited pro forma condensed balance sheet as of June 30, 2001 is presented as if the asset purchase and sale of certain assets acquired had occurred on June 30, 2001. In the opinion of Allion and SCPD management, all adjustments and/or disclosures necessary for a fair presentation of the pro forma data have been made. These unaudited pro forma condensed financial statements are presented for illustrative purposes only and are not necessarily indicative of the operating results or the financial position that would have been achieved had the Asset Purchase and sale of certain assets been consummated as of the dates indicated or of the results that may be obtained in the future. These unaudited pro forma condensed financial statements and notes thereto should be read in conjunction with the Allion consolidated financial statements and the notes thereto as of and for the year ended December 31, 2000 and the Allion consolidated financial statements and the notes thereto for the six month period ended June 30, 2001. PROFORMA BALANCE SHEET (UNAUDITED)
ALLION HEALTHCARE, INC. PRO FORMA CONDENSED CONSOLDIATED BALANCE SHEET JUNE 30, 2001 ------------- ASSETS HISTORICAL ------ -------------------- PRO FORMA SALE OF ALLION SCPD ADJUSTMENTS SUBTOTAL ASSETS PRO FORMA ------ ---- ----------- -------- ------ --------- Current Assets: Cash and cash equivalents $1,221,359 $ 12,171 $ (12,171)(3) $ 621,359 $ 175,000(4) $ 796,359 (600,000)(2) Accounts receivable, net 1,056,287 1,619,618 (1,619,618)(3) 1,056,287 - 1,056,287 Inventories 106,695 429,703 - 536,398 (150,000)(4) 386,398 Prepaid expenses and other current assets 21,893 26,000 (26,000)(3) 21,893 - 21,893 ---------- ---------- ------------ ---------- ------------- ----------- Total current Assets 2,406,234 2,087,492 (2,257,789) 2,235,937 25,000 2,260,937 PROPERTY AND EQUIPMENT, net 54,033 59,777 - 113,810 - 113,810 OTHER INTANGIBLES - - 410,520(3) 410,520 (103,000)(4) 307,520 OTHER 170,802 12,092 (12,092)(3) 170,802 - 170,802 ---------- --------- ------------- ---------- ------------- ------------ $ 2,631,069 $2,159,361 $(1,859,361) $ 2,931,069 $ (78,000) $ 2,853,069 ========= ========== ============= ========== ============= ============ LIABILITES AND STOCKHOLDERS' EQUITY ----------------------------------- Current liabilites: Accounts payable and other accrued expenses $ 1,257,228 $1,688,312 $(1,688,312)(2) $1,257,228 $ - $ 1,257,228 Note payable 1,500,000 - 300,000 1,800,000 - 1,800,000 ---------- --------- ------------- ---------- ------------- ------------ Total current liabilities 2,757,228 1,688,312 (1,388,312) 3,057,228 - 3,057,228 ---------- --------- ------------- ---------- ------------- ------------ Due to parent - 1,265,101 (1,265,101)(3) - - - Stockholders' Equity: Divisional Deficit - (794,052) 794,052(3) - - - Convertible preferred Stock,$.01 par value; Shares authorized 5,000,000; issued and outstanding 845,834 8,458 - - 8,458 - 8,458 Common stock,$.01 par value,shares authorized 15,000,000; issued and outstanding 3,100,000 31,000 - - 31,000 - 31,000 Additional paid-in Capital 3,137,944 - - 3,137,944 - 3,137,944 Accumulated deficit (3,303,561) - - (3,303,561) (78,000)(4) (3,381,561) ---------- --------- ------------- ---------- ------------- ------------ (126,159) (794,052) 794,052 (126,519) (78,000) (204,159) ---------- --------- ------------- ---------- ------------- ------------ $2,631,069 $2,159,361 $(1,859,361) $2,931,069 $ (78,000) $ 2,853,069 ========== ========== ============ ============ ========== =========== 3
See accompanying notes to pro forma condensed consolidated financial statements PROFORMA STATEMENT OF OPERATIONS (UNAUDITED)
ALLION HEALTHCARE, INC. PRO FORMA CONDENSED CONSOLDIATED STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2001 ------------------------------ HISTORICAL --------------------- PRO FORMA SALE OF ALLION SCPD ADJUSTMENTS SUBTOTAL ASSETS PRO FORMA ------ ---- ----------- -------- ------ --------- NET SALES ................ $ 5,595,938 $ 6,121,042 $ -- $ 11,716,980 $(1,530,261)(4) $ 10,186,719 COST OF GOODS SOLD ....... 4,699,418 5,284,049 -- 9,983,467 (1,321,013)(4) 8,662,454 ----------- ----------- --------- ------------ ----------- ------------ Gross profit ...... 896,520 836,993 -- 1,733,513 (209,248) 1,524,265 OPERATING EXPENSES: Selling, general and administrative ...... (10,250) expenses ................ 1,365,541 698,080 41,000(3) 2,104,621 (41,026) 2,053,345 ----------- ----------- --------- ------------ ----------- ------------ (Loss)Income from operations ....... (469,021) 138,913 (41,000) (371,108) (157,972) (529,080) INTEREST EXPENSE ......... (59,364) (121,634) 121,634(3) (59,364) -- (59,364) ----------- ----------- --------- ------------ ----------- ------------ (LOSS) INCOME BEFORE INCOME TAXES ............ (528,385) 17,279 80,634 (430,472) (157,972) (588,444) INCOME TAXES ............. 8,096 -- -- 8,096 -- 8,096 ----------- ----------- --------- ------------ ----------- ------------ NET (LOSS)INCOME ......... $ (536,481) $ 17,279 $ 80,634 $ (438,568) $ (157,972) $ (596,540) =========== =========== ========= ============ =========== ============ BASIC AND DILUTED LOSS PER COMMON SHARE ........ $ (.17) $ (.19) =========== ============ BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING ....... 3,100,000 3,100,000 ========== =============
See accompanying notes to pro forma condensed consolidated financial statements 4
ALLION HEALTHCARE, INC. PRO FORMA CONDENSED CONSOLDIATED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2000 HISTORICAL -------------------- PRO FORMA SALE OF ALLION SCPD ADJUSTMENTS SUBTOTAL ASSETS PRO FORMA ------ ---- ----------- -------- ------ --------- NET SALES $9,167,587 $10,622,463 $ - $19,790,050 $(2,443,167)(4) $17,346,883 COST OF GOODS SOLD 7,658,984 9,174,089 - 16,833,073 (2,110,041)(4) 14,723,032 --------- --------- ---------- ------------- ----------- ----------- Gross profit 1,508,603 1,448,374 - 2,956,977 (333,126) 2,623,851 OPERATING EXPENSES: Selling, general and administrative (20,500) (4) expenses 2,415,531 2,080,717 82,000(3) 4,578,248 (60,016) 4,497,732 --------- ---------- ----------- ---------- ---------- --------- Income (loss) from operations (906,928) (632,343) (82,000) (1,621,271) (252,610) (1,873,881) ---------- ---------- ------------ ----------- ---------- ----------- OTHER: Interest expense (306,591) (111,730) 111,730 (306,591) - (306,591) Other income, net 72,948 - - 72,948 - 72,948 ---------- --------- ----------- ----------- ----------- --------- Total other expense (233,643) (111,730) 111,730 (233,643) - (233,643) ---------- ---------- ----------- ------------ ------------ ---------- LOSS BEFORE INCOME TAX BENEFIT (1,140,571) (744,073) 29,730 (1,854,914) (252,610) (2,107,524) INCOME TAX BENEFIT (129,632) - - (129,632) - (129,632) ----------- -------- -------- ------------ ---------- ----------- LOSS FROM CONTINUING OPERATIONS $(1,010,939) $(744,073) $ 29,730 $(1,725,282) $(252,610) $(1,977,892) ============= ========= ========= ============ ========== =========== BASIC AND DILUTED LOSS PER COMMON SHARE $ (.33) $ (.64) ========= =========== BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 3,096,813 3,096,813 ========= ===========
See accompanying notes to pro forma condensed consolidated financial statements 5 NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION (1) BASIS OF PRESENTATION The purchase method of accounting has been used in the preparation of the accompanying unaudited pro forma condensed financial statements. Under this method of accounting, the purchase consideration is allocated to tangible and identifiable intangible assets acquired and liabilities assumed based on their respective fair values. For purposes of the unaudited pro forma condensed consolidated financial statements, the preliminary fair values of SCPD's assets were estimated by SCPD's and Allion's management. The final allocation of the purchase price will be determined after the completion of the Asset Purchase and will be based on appraisals and a comprehensive final evaluation of tangible and identifiable intangible assets acquired (including their estimated useful lives). For the purposes of pro forma adjustments, SCPD has adopted Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Intangible Assets." (2) CONSIDERATION Pursuant to the Purchase Agreement, Prescripticare,L.L.C. will receive $900,000, $600,000 of which was payable at the closing and the remainder of which is payable in $ 100,000 installments each month for three months following the closing. (3) ASSET PURCHASE The preliminary allocation to the assets purchased is as follows: Inventory $ 430,000 Property and equipment 59,000 Contracts/Customer Lists 411,000 --------- Total consideration $ 900,000 ========= All SCPD assets not included above ( including cash and cash equivalents, accounts receivable and other assets) are removed in preparation of the unaudited pro forma condensed consolidated financial statements because they are not being acquired by Allion. In addition, all SCPD liabilities are removed in preparation of the unaudited pro forma condensed consolidated financial statements because such liabilities are not being assumed by Allion. Incremental amortization expense of the increase in net book value of identifiable intangible assets acquired. Twelve months amortization $ 21,000 ======== six months amortization $ 10,000 ======== The above pro forma adjustments are based on preliminary estimates. The final allocation of the purchase price will be determined after the completion of the Asset Purchase and will be based on appraisals and a comprehensive final evaluation of the fair value of Prescripticare's tangible and identifiable assets acquired at the time of the asset purchase. Interest expense related to loans from SCPD's parent have been eliminated as Allion is not assuming any liabilities of SCPD. Allion believes that the intangible assets acquired from Prescripticare, L.L.C included in the five year category are comprised principally of contracts and customer lists. In addition, Allion intends to continue to expand the combined company's existing lines of business, develop new businesses by leveraging the products of SCPD and take advantage of synergies that exist between Allion and SCPD. Allion believes that it will benefit from the asset purchase for an indeterminable period of time of at least five years and, therefore, a five-year amortization period is appropriate for purchase of the contracts and customer lists. 6 (4) SALE OF CERTAIN ASSETS The pro forma financial statements also include adjustments to record the sale of certain assets acquired from SCPD subsequent to the SCPD asset purchase. The condensed consolidated pro forma statements of operations include adjustments to eliminate the revenues and certain direct costs and amortization of intangible assets allocated to the sale of certain assets. The estimated gain on the sale of certain assets is not reflected in the condensed consolidated pro forma statements of operations, as it will not have a continuing impact on the combined companies' future operations. The gain on the sale is reflected in the pro forma adjusted accumulated deficit. The preceding unaudited pro forma condensed financial statements do not include any pro forma adjustments for the following: A. Any operating efficiencies and cost savings that may be achieved with respect to the combined companies. B. Upon closing of the Asset Purchase, the combined companies may incur integration related expenses as a result of the elimination of duplicate facilities and functions, operational realignment and related workforce reductions. Such SCPD costs would generally be recognized as a liability assumed as of the Asset Purchase date resulting in goodwill while Allion related costs would be recognized as an expense through the statements of operations. 7 INDEX TO PRESCRIPTICARE, L.L.C.-SPECIALTY PHARMACY DIVISION FINANCIAL STATEMENTS A. Financial Statements of Prescripticare, L.L.C. - Specialty Pharmacy Division for the year ended December 31, 2000 and for the period from March 25, 1999 to December 31, 1999 Report of Independent Accountants F-2 Balance Sheets F-3 Statements of Operations F-4 Statements of Cash Flows F-5 Notes to Financial Statements F-5 - F-8 8 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Members of Prescripticare, L.L.C. We have audited the balance sheet of Prescripticare LLC-Specialty Care Pharmacy Division as of December 31, 2000 and the related results of operations and cash flows for the year ended December 31, 2000 and for the period from March 25, 1999 to December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Prescripticare, L.L.C. - Specialty Care Pharmacy Division as of December 31, 2000 and the results of its operations and its cash flows for the year ended December 31, 2000 and for the period from March 25, 1999 to December 31, 1999 in conformity with accounting principles generally accepted in the United States of America. HOLTZ RUBENSTEIN & CO., LLP Melville, New York October 8, 2001 F-2
PRESCRIPTICARE, L.L.C.-SPECIALTY CARE PHARMACY DIVISION BALANCE SHEETS ASSETS December 31, June 30, ------ 2000 2001 ------------ ------------ (Unaudited) CURRENT ASSETS: Cash and cash equivalents $ 125,827 $ 12,171 Accounts receivable, net of allowance for doubtful accounts of $775,000 and $891,000 as of December 31, 2000 and June 30, 2001, respectively 1,252,101 1,619,618 Inventories 522,156 429,703 Prepaid expenses and other current assets 7,290 26,000 ----------- ----------- Total current assets 1,907,374 2,087,492 PROPERTY AND EQUIPMENT, net 69,220 59,777 OTHER 11,367 12,092 ----------- ----------- TOTAL ASSETS $ 1,987,961 $ 2,159,361 =========== =========== LIABILITIES AND DIVISIONAL DEFICIT ---------------------------------- CURRENT LIABILITIES: Accounts payable and other accrued expenses $ 1,531,606 $ 1,688,312 ----------- ----------- DUE TO PARENT 1,267,686 1,265,101 ----------- ----------- DIVISIONAL DEFICIT (811,331) (794,052) ----------- ----------- TOTAL LIABILITIES AND DIVISIONAL DEFICIT $ 1,987,961 $ 2,159,361 =========== ===========
See notes to financial statements. F-3
PRESCRIPTICARE, L.L.C.-SPECIALTY CARE PHARMACY DIVISION STATEMENTS OF REVENUES AND EXPENSES Period from March 25, 1999 Year Ended to Six Months Ended December 31, December 31, June 30 ------------------ 2000 1999 2001 2000 ----------- ---------- ----------- ---------- (Unaudited) (Unaudited) REVENUES, net $10,622,463 $2,606,818 $6,121,042 $ 4,788,267 COSTS AND EXPENSES: Cost of revenues 9,174,089 2,282,809 5,284,049 4,516,185 Selling, general and administrative expenses 2,080,717 372,806 698,080 582,679 Interest expense 111,730 18,461 121,634 31,952 ----------- ----------- --------- ---------- 11,366,536 2,674,076 6,103,763 5,130,816 ----------- ----------- ---------- ---------- EXCESS OF (EXPENSES OVER REVENUES)/ REVENUES OVER EXPENSES $ (744,073) $ (67,258) $ 17,279 $(342,549) ============ =========== ========== ===========
See notes to financial statements. F-4
PRESCRIPTICARE, L.L.C. - SPECIALTY CARE PHARMACY DIVISION STATEMENTS OF CASH FLOWS Period from March 25, 1999 Year Ended to Six Months Ended December 31, December 31, June 30, OPERATING ACTIVITIES: 2000 1999 2001 2000 ------------ ------------- ---------- -------- (Unaudited) (Unaudited) Net (loss) income $ (744,073) $ (67,258) $ 17,279 $(342,549) Adjustments to reconcile net (loss) income to net cash used in operating activities: Depreciation and amortization 21,021 6,638 12,237 8,866 Provision for doubtful accounts 774,173 -- 116,000 383,676 Changes in operating assets and liabilities: Accounts receivable (1,493,627) (532,648) (483,517) (1,111,048) Inventory (213,071) (309,085) 92,453 (25,220) Prepaid expenses and other assets (6,425) (12,231) (19,436) ( 2,769) Accounts payable and accrued expenses 947,399 584,208 156,706 179,465 ------------ ---------- ---------- ----------- Net cash used in operating activities (714,603) (330,376) (108,278) (909,579) ------------ ---------- ---------- ----------- INVESTING ACTIVITIES: Purchase of property and equipment (63,038) (33,842) (2,794) (24,840) ------------ ---------- ---------- ----------- Net cash used in investing activities (63,038) (33,842) (2,794) (24,840) ------------ ---------- ---------- ----------- FINANCING ACTIVITIES: Due to parent 850,704 416,982 (2,584) 882,959 ------------ ---------- ---------- ----------- Net cash provided by (used in) financing activities 850,704 416,982 (2,584) 882,959 ------------ ---------- ---------- ----------- NET INCREASE (DECREASE)IN CASH AND CASH EQUIVALENTS 73,063 52,764 (113,656) (51,460) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 52,764 -- 125,827 52,764 ------------ ---------- ---------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 125,827 $ 52,764 $ 12,171 $ 1,304 ============ ========== ========== ===========
See notes to consolidated financial statements. F-5 PRESCRIPTICARE, L.L.C.- SPECIALTY PHARMACY DIVISION NOTES TO FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 2000, FOR THE PERIOD FROM MARCH 25, 1999 TO DECEMBER 31, 1999 AND FOR THE SIX MONTHS ENDED JUNE 30, 2001 (UNAUDITED) AND JUNE 30, 2000 (UNAUDITED) NOTE 1. BASIS OF PRESENTATION Specialty Care Pharmacy Division ("SCPD") (the "Company") is a division of Prescripticare, L.L.C.("Prescripticare"), which distributes specialty prescription medication services. Prescripticare began SCPD in March 1999 to expand its distribution services into the New York Area. The accompanying financial statements reflect the financial position and results of operations of SCPD on a historical cost basis and include certain allocations of Prescripticare expenses as discussed in Note 4. During the periods covered by the statements of revenues and expenses, SCPD was operated as an integral part of Prescripticare's overall operations and separate financial statements were not prepared for the SCPD business. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CASH AND CASH EQUIVALENTS. The Company considers all highly liquid investments with an original maturity date of three months or less to be cash equivalents. INVENTORIES. Inventories consist entirely of pharmaceuticals. Inventories are recorded at lower of cost or market, cost being determined on a first-in, first-out ("FIFO") basis. PROPERTY AND EQUIPMENT. Property and equipment are stated at cost and are depreciated over their estimated useful lives of the related assets. Depreciation is computed principally on the straight-line method. USE OF ESTIMATES BY MANAGEMENT. The preparation of the Company's financial statements in conformity with generally accepted accounting principles require the Company's management to make certain estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Such estimates primarily relate to accounts receivable and inventory. Actual results could differ from those estimates. INTERIM FINANCIAL STATEMENTS. The unaudited financial statements for the six months ended June 30, 2001 and 2000 reflect all adjustments, consisting only of normal recurring accruals, which are, in the opinion of management, necessary for a fair statement of the results for the period. The results of operations are not necessarily indicative of the results expected for the fiscal year. INCOME TAXES. Prescripticare is organized as a Limited Liability Company ("LLC"). An LLC is treated as a partnership for Federal and state income tax purposes. Accordingly, the taxable income of the Company is taxable to its members, who are responsible for the payment of income taxes in their respective returns. 13 REVENUE RECOGNITION. Revenue from product sales is recognized when the related goods are shipped and all significant obligations of the Company have been satisfied. PROVISION FOR ESTIMATED UNCOLLECTABLE ACCOUNTS. Management regularly reviews the collectability of accounts receivable by tracking collection and write-off activity. Estimated write-off percentages are then applied to each aging category by payor classification to determine the allowance for estimated uncollectable accounts. The allowance for estimated uncollectable accounts is adjusted as needed to reflect current collection, write-off and other trends, including changes in assessment of realizable value. The Company recorded a provision for uncollectable accounts for the year ended December 31, 2000 and for the period from March 25, 1999 to December 31, 1999 approximating $775,000 and $ - and $116,000 and $383,000 for the six months ended June 30, 2001 and 2000, respectively. The provision is included in selling, general and administrative expenses. NOTE 3. PROPERTY AND EQUIPMENT Property and equipment consisted of the following: DECEMBER 31, JUNE 30, --------------------------- 2000 2001 ---------------------------- (Unaudited) Furniture and fixtures $ 15,128 $ 15,128 Machinery and equipment 63,452 65,382 Leasehold improvements 9,169 10,033 Delivery Vehicle 9,130 9,130 --------- --------- 96,879 99,673 Less accumulated depreciation and Amortization (27,659) (39,896) -------- -------- Property and equipment, net $ 69,220 $ 59,777 ======= ====== Depreciation of property and equipment for the year ended December 31, 2000 and for the period from March 25, 1999 to December 31, 1999 approximated $22,000 and $7,000 and $12,000 and $9,000 for the six months ended June 30, 2001 and 2000, respectively. NOTE 4. COSTS AND EXPENSES Allocations of costs between the Company and other operations of Prescripticare are based on identifiable costs and other methods. All costs incurred by Prescripticare which are considered by management to be costs incurred as a result of operating the Company are recorded in the accompanying financial statements. Management believes that the cost allocations from Prescripticare represent a reasonable allocation of expenses to the Company. The amounts that would have or will be incurred on a separate company basis could differ from the amounts allocated due to economies of scale realized by Prescripticare and differences in management techniques and organization, which may require more or less employees, related systems and expenses. 14 NOTE 5. CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS The concentration of credit risk in the Company's accounts receivable is mitigated by the large number of customers and by ongoing credit evaluations performed by the Company. For the year ended December 31, 2000 and for the period from March 25, 1999 to December 31, 1999 revenues from Medicaid and Aids Drug Assistance Program approximated $7,496,000 and $1,630,000 and $1,792,000 and $414,000, respectively and $4,773,000 and $1,026,000 and $3,297,000 and $760,000 for the six months ended June 30, 2001 and 2000. Included in accounts receivable as of December 31, 2000 and June 30, 2001 is accounts receivable from Medicaid and Aids Drug Assistance Program approximating $711,000 and $96,000 and $779,000 and $106,000, respectively. NOTE 6. SUBSEQUENT EVENT In July 2001, Prescripticare sold SCPD for proceeds of $900,000, $600,000 payable at closing and the remainder in $100,000 installments each month for the three months following the closing. 15