Dailystocks.com - Ticker-based level links to all the information for the Stocks you own. Portal for Daytrading and Finance and Investing Web Sites
DailyStocks.com
What's New
Site Map
Help
FAQ
Log In
Home Quotes/Data/Chart Warren Buffett Fund Letters Ticker-based Links Education/Tips Insider Buying Index Quotes Forums Finance Site Directory
OTCBB Investors Daily Glossary News/Edtrl Company Overviews PowerRatings China Stocks Buy/Sell Indicators Company Profiles About Us
Nanotech List Videos Magic Formula Value Investing Daytrading/TA Analysis Activist Stocks Wi-fi List FOREX Quote ETF Quotes Commodities
Make DailyStocks Your Home Page AAII Ranked this System #1 Since 1998 Bookmark and Share


Welcome!
Welcome to the investing community at DailyStocks where we believe we have some of the most intelligent investors around. While we have had an online presence since 1997 as a portal, we are just beginning the forums section now. Our moderators are serious investors with MBA and CFAs with practical experience wwell-versed in fundamental, value, or technical investing. We look forward to your contribution to this community.

Recent Topics
Article by DailyStocks_admin    (03-31-08 03:23 AM)

The Daily Magic Formula Stock for 03/31/2008 is Allion Healthcare Inc. According to the Magic Formula Investing Web Site, the ebit yield is 15% and the EBIT ROIC is 50-75 %.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


Dailystocks.com makes NO RECOMMENDATIONS whatsoever, and provides this for informational purpose only.

BUSINESS OVERVIEW

Overview

We are a national provider of specialty pharmacy and disease management services focused on HIV/AIDS patients. We sell HIV/AIDS medications, ancillary drugs and nutritional supplies under our trade name MOMS Pharmacy. As of December 31, 2007, we owned and operated 11 specialty pharmacies in four states, and in December 2007 we serviced 15,610 patients. We work closely with physicians, nurses, clinics, AIDS Services Organizations, or ASOs, and government and private payors to improve clinical outcomes and reduce treatment costs for our patients. Most of our patients rely on Medicaid and other state-administered programs, such as the AIDS Drug Assistance Program, or ADAP, to pay for their HIV/AIDS medications. Billing requirements for these programs are complex. We are one of a limited number of providers that has qualified for certain HIV/AIDS premium reimbursement programs under legislation enacted in California and New York.

We operate our business as a single segment configured to serve key geographic areas most efficiently. All of our revenues are attributed to sales of our products in the United States. Our revenues were $246.7 million, $209.5 million, and $123.1 million for the fiscal years ended December 31, 2007, 2006 and 2005, respectively. Our net income was $3.3 million and $3.2 million for the years ended December 31, 2007 and 2006, respectively, and we recorded a net loss of $1.0 million for the fiscal year ended December 31, 2005. Our total assets were $126.6 million, $121.6 million and $86.3 million at December 31, 2007, 2006 and 2005, respectively. We believe that the combination of services we offer to patients, healthcare providers and payors makes us an attractive source of specialty pharmacy and disease management services, contributes to better clinical outcomes and reduces overall healthcare costs. Our services include the following:



•

Specialized MOMSPak prescription packaging that helps reduce patient error associated with complex multi-drug regimens, which require multiple drugs to be taken at varying doses and schedules;



•

Reimbursement experience which assists patients and healthcare providers with complex reimbursement processes and optimizes collection of payment;



•

Arrangement for the timely delivery of medications in a discreet and convenient manner as directed by our patients or their physicians;



•

Specialized pharmacists who consult with patients, physicians, nurses and ASOs to provide education, counseling, treatment coordination, clinical information and compliance monitoring; and



•

Information systems and prescription automation solutions that make the provision of clinical data and the transmission of prescriptions more efficient and accurate.

According to the World Health Organization, or the WHO, and the Joint United Nations Programme on HIV/AIDS, or UNAIDS, as many as two million individuals living in the United States as of the end of 2005 were infected with HIV/AIDS. Of this number, between 400,000 and 500,000 were receiving HIV/AIDS medications, according to the Cleveland Journal of Medicine. Our distribution centers are located in or near metropolitan areas in those states – New York, California, Florida, New Jersey and Washington – where a majority of HIV/AIDS patients live in the United States, according to the Centers for Disease Control and Prevention, or the CDC.

We have grown our business primarily by acquiring other specialty pharmacies and expanding our existing business. We have generated our internal growth primarily by increasing the number of patients we serve and filling more prescriptions per patient. In addition, our business has grown as the price of HIV/AIDS medications has increased. Since 2003, we have acquired seven specialty pharmacies in California and two specialty pharmacies in New York. We will continue to evaluate acquisition opportunities as they arise, especially other specialty pharmacies that have established relationships with HIV/AIDS patients, clinics and hospitals. On December 10, 2007, we opened a satellite pharmacy in Oakland, California. We will continue to consider acquisitions and satellite locations in both our existing markets and in markets where we do not currently have operations.

Recent Events

On March 13, 2008, we signed a definitive merger agreement to acquire 100% of the stock of Biomed America, Inc., or Biomed, for aggregate consideration of approximately $117.8 million. Biomed is a leading provider of specialized biopharmaceutical medications and services to chronically ill patients. Under the definitive merger agreement, we will pay Biomed stockholders an aggregate of $48.0 million in cash and issue a total of 9.35 million shares of common and preferred stock valued at approximately $51.4 million. We will also assume up to $18.4 million of Biomed’s debt. In addition, we may make an earn-out payment in 2009 if Biomed achieves certain financial performance benchmarks during the first 12 months after closing. We expect to pay the purchase price with funds from a new senior credit facility, available cash and newly issued common stock and preferred stock. The closing will be subject to government approval and is expected to close within 60 days.

HIV/AIDS


Human Immunodeficiency Virus, commonly known as HIV, is the virus that causes Acquired Immune Deficiency Syndrome, commonly known as AIDS. The demographic profile of HIV/AIDS patients has shifted since the disease was first diagnosed in 1981. Most HIV/AIDS patients now live in the inner-city of major metropolitan areas and are dependent on government programs to pay for the medications used to treat HIV/AIDS. From 1981 to 2005, approximately 40,000 people per year were diagnosed with AIDS in the United States, according to the CDC. A UNAIDS/WHO report estimates that 46,000 additional people became infected with HIV in North America in 2007.

The current standard of care for the treatment of HIV/AIDS involves complex treatment regimens of multiple drugs, or multi-drug regimens, that consist of predominantly oral medications taken by a patient multiple times a day, typically outside a clinical setting. Anti-retroviral drugs are medications for the treatment of infection by retroviruses , primarily HIV . Different classes of anti-retroviral drugs act at different stages of the HIV life cycle. Combinations of several (typically three or four) anti-retroviral drugs are known as Highly Active Anti-Retroviral Therapy. The number of medications and varying dosages and schedules often confuse and overwhelm patients. As a result, many patients lose confidence in their ability to adhere to their drug regimens and simply stop taking their HIV/AIDS medications, while others lose track of which doses they have taken or inadvertently miss a dose. Alcohol and illicit drug use are also factors causing non-compliance. Poor adherence or even slight or occasional deviations from a prescribed regimen can reduce the potency of therapy and lead to viral resistance. Once resistance has developed in a patient, success rates of other HIV medications are often limited, particularly if the patient’s adherence issues are not resolved, and treatment options become greatly limited. Studies reported by the AIDS Research Institute on adherence within the HIV/AIDS population have shown that if a patient does not take at least 95% of his or her medication doses as prescribed, the medication may become ineffective or the patient may develop drug resistance to the medication. Given the ability of HIV to mutate rapidly in the absence of anti-retroviral medication, taking a multi-drug regimen exactly as prescribed, without missing or reducing doses, is critical to effective treatment.

In the United States, HIV/AIDS-associated morbidity and mortality rates have declined significantly due to combination therapies, which combine multiple HIV drugs into a single medication. Before combination therapies, 48% of adults infected with HIV that were diagnosed with AIDS within 10 years of infection died after 10 years of infection, according to the U.S. Department of Health and Human Services. After increasing every year between 1987 and 1994 at an average annual rate of 16%, AIDS mortality in the United States leveled off in 1995 and has since decreased, according to the CDC. In 1995, 19% of people living with AIDS in the United States died, as compared to 4% in 2005, according to the CDC. While HIV/AIDS remains life threatening, healthcare providers increasingly treat HIV/AIDS more as a long-term chronic disease.

We are one of only a few specialty pharmacy and disease management service companies that primarily serve HIV/AIDS patients. Despite the special needs of the HIV/AIDS infected population, few national and regional pharmacies have focused on this patient population. Most of the pharmacies serving this market are local or small regional providers located in a single urban market. These pharmacies often do not have the resources or sophistication to provide the specialty pharmacy and disease management services required by patients, healthcare providers and payors to maximize adherence to the treatment regimen. We also believe that neither retail pharmacies nor mail order pharmacies offer the range of specialty pharmacy and disease management services we provide.

Our Products and Services

We offer specialty pharmacy and disease management services to assist patients, healthcare providers and payors in managing HIV/AIDS. We sell HIV/AIDS medications, ancillary drugs and nutritional supplies. Patients or physicians generally initiate the prescription process by contacting us on our toll-free telephone number, through our facsimile number or through our electronic prescription writer. Some clinics have medication drop-off boxes in which physicians also may leave prescriptions for us to fill. Additionally, a patient may direct his or her physician to call, fax or electronically transmit a prescription to us. If requested by a patient, one of our pharmacists may contact the patient’s physician directly to obtain prescription information. Our pharmacists are required to validate and verify the completeness of each prescription, answer questions and, if appropriate, help coordinate support and training for patients. As soon as we receive a prescription, we also seek approval for reimbursement from the payor. Once the prescription is verified and we have received authorization from the patient’s insurance company or state insurance program, the order is filled, shipped and delivered. Patients also have the option to pick up their medications at our pharmacies.

We have designed our services to meet the following challenges that are of particular importance to HIV/AIDS patients, healthcare providers and payors:

Adherence

Packaging . We have designed our services to improve patient adherence to complex multi-drug regimens. We dispense prescribed medications in a customized dose-by-dose package called a MOMSPak. We also dispense these medications in pre-filled pillboxes at the patient’s request. Our customized packaging provides increased convenience to the patient and enhances patient adherence to complex multi-drug regimens.

Increased attention has recently been paid to Medicaid fraud and the resale of HIV/AIDS medications on the black market. According to POZ, a leading HIV publication, the resale of unopened HIV medications on the black market has become a problem in New York. Additionally, some small pharmacies are reportedly repurchasing the medications they distribute to Medicaid patients. We believe the current problem is attributable to the availability of unopened HIV/AIDS medications. Our automated prescription packaging system requires us to open the original bottles before separating the medications into a MOMSPak, thereby reducing the likelihood of after-market resale of HIV/AIDS medications. Doctors can continue to write HIV medication prescriptions with less fear of becoming complicit in Medicaid fraud if medication bottles are opened before distribution.

Delivery . We arrange for delivery of medications as directed by our patients or their physicians in a discreet, convenient and timely manner. We believe that this increases patient adherence, as it eliminates the need to pick up medications at a local pharmacy.

Reimbursement Management

We have experience with the complex reimbursement processes of Medicaid and ADAP, which optimizes collection of payment. As a result, we are able to manage efficiently the process of checking reimbursement eligibility, receiving authorization, adjudicating claims and confirming receipt of payment.

We work with government and private payors to obtain appropriate reimbursement. Our billing and reimbursement specialists typically secure pre-approval from a payor before any shipment of medications and also review such issues as pre-certification or other prior approval requirements, lifetime limits, pre-existing condition clauses and the availability of special state programs. Because the majority of our prescriptions are adjudicated through electronic submission, we are reasonably certain at the time we ship medications that we will receive payment from the payor.

Due to the high cost and extended duration of the treatment of HIV/AIDS, the availability of adequate health insurance is an on-going concern for our patients and their families. We work closely with physicians and our patients to monitor coverage reductions or termination dates. Because of our ability to facilitate reimbursement from government and private payors, in many cases, we provide prescription medications to patients at lower initial out-of-pocket costs than they might obtain from other sources.

The two largest HIV/AIDS markets in the United States - California and New York - have established specialized Medicaid reimbursement for HIV/AIDS medications. In 2004, California approved a three-year HIV/AIDS Pharmacy Pilot Program, which we refer to as the California Pilot Program, which provides additional reimbursement for HIV/AIDS medications for up to ten qualified pharmacies. We own two of the ten pharmacies that qualified for this program. The California Pilot Program was recently extended as part of California’s 2007 budget process and is currently set to expire on June 30, 2008. In New York, we qualify for a higher reimbursement rate under the revised reimbursement rates of the state-mandated Medicaid program. Our continuing qualification for the higher reimbursement rate is dependent on recertification every two years by the New York State Department of Health as an approved specialized HIV pharmacy. We are certified through September 2008. If the legislation in California is not renewed or we are not recertified in New York as an approved HIV specialized pharmacy in the future, our revenue would be reduced and our profits could suffer.

Disease Management

The medications we distribute to our patients require timely delivery, may require temperature-maintained distribution, and very often require dosage monitoring. Our employees have developed expertise in HIV/AIDS drug treatment that allows them to provide customized care to our patients. By focusing on the HIV/AIDS community, we have been able to design our services to help patients better understand and manage their medication needs and schedules.

Upon initiating service, we work closely with the patient and the patient’s physician and other healthcare providers to implement multi-drug regimens and manage the following services:



•

Programs to monitor dosage compliance and outcomes;


•

Clinical information and consultation regarding the patient’s illness, medications being used and treatment regimens;



•

Educational information on the patient’s illness, including advancements in research, technology and combination therapies;



•

Assistance in setting realistic expectations for a patient’s therapy, including challenges with adherence, and with anticipated outcomes and side effects;



•

Systems for inventory management and record keeping; and



•

Assistance in coordinating treatment outside of the home or hospital setting.

We believe that these disease management services benefit government and private payors by helping our patients avoid costly episodes that can result from non-adherence to a prescribed care regimen. Improved patient adherence avoids costs for the payor by reducing the incidence of physician intervention, hospitalization and emergency room visits. Our staff works closely with patient care coordinators to routinely monitor the patient’s care regimen.

We also assist patients by helping with the formation of patient support groups, advocating legislation to advance the interests of the HIV/AIDS community, and participating in national and regional advocacy groups.

Information Systems and Prescription Automation Solutions

We have licensed and developed information systems that enable patients and healthcare providers to more effectively manage and treat HIV/AIDS. We believe the transmission of electronic prescriptions reduces confusion and potential medication errors. Our electronic prescription transmittal software enables healthcare providers to view their patients’ prescription histories, request new prescriptions or renew prescriptions online, thereby saving physicians and their staff time. We have also developed an interface between our pharmacy information system and the MOMSPak automated packaging system that allows for the efficient processing of prescriptions.

In July 2005, we acquired substantially all of the assets of Oris Medical Systems, Inc., or OMS. As a result of this acquisition, we obtained OMS’ rights to the LabTracker—HIV ™ software system, which enables healthcare providers to record, track and analyze the outcomes of HIV/AIDS treatment. OMS’ rights included a license of LabTracker from Ground Zero Software, Inc., or Ground Zero, the right to license LabTracker to pharmacy providers and the right to develop a pharmacy interface with LabTracker ’s existing system. On April 2, 2007, Ground Zero formally notified us of the termination of the OMS license to use the LabTracker software.

Relationships with Pharmaceutical Companies

We actively pursue marketing and other business relationships with pharmaceutical manufacturers. We look to work with manufacturers of the leading HIV/AIDS medications to enhance their awareness of our services and to increase our opportunities to benefit from their significant sales teams and marketing efforts. The HIV/AIDS sales teams at pharmaceutical companies regularly make sales calls on the leading prescribers of HIV/AIDS medications. If these sales teams are aware of our products and services, they will be in a position to inform the leading prescribers about the benefits we offer, which can increase our visibility in the market.

We have entered into a specialized services agreement with Roche Laboratories Inc., or Roche, to receive product pricing discounts, and we have agreed to provide Roche with blind patient data with respect to FUZEON , an HIV medication manufactured by Roche. We believe that Roche has entered into this type of agreement with only a limited number of pharmacies. See Item 1. Business – Privacy and Confidentiality; Electronic Transactions and Security in this Annual Report for a discussion of the regulations pertaining to the sharing of such patient data under the Health Insurance Portability and Accountability Act of 1996, or HIPAA. Standards are provided under HIPAA regulations for removing all individually identifiable health information in order to produce de-identified data that may be transferred without obtaining the patient’s authorization. Although we have implemented certain privacy protections for the sharing of this data under HIPAA privacy regulations, we cannot assure you that we have complied with all of the HIPAA privacy requirements. Any failure to comply could subject us to enforcement actions, including civil and criminal penalties.

On November 8, 2007, we signed an exclusive distribution agreement with Galea Life Sciences for Nutraplete, the first therapeutic dietary supplement designed specifically for people living with HIV/AIDS. We intend to distribute Nutraplete at each of our pharmacy locations.

Marketing

We intend to expand our business in the major metropolitan markets where the majority of HIV/AIDS patients live and where we operate by enhancing our existing relationships and creating new relationships with HIV/AIDS clinics, hospitals and prescribing physicians through direct sales, outreach programs and community-based education programs. Our sales team markets to the leading prescribers of HIV/AIDS medications, and we actively pursue relationships with the largest HIV/AIDS clinics, ASOs, and other groups focused on HIV/AIDS. We provide our services under the trade name of MOMS Pharmacy.

We believe MOMS Pharmacy is a recognized brand name within the HIV/AIDS community. We have a website at www.momspharmacy.com, which contains educational material and information of interest for the community, to directly market our products to the HIV/AIDS community and service organizations. We do not intend our Internet address to be an active link in this Annual Report on Form 10-K, and the contents of our website are not a part of this Annual Report on Form 10-K.

Suppliers

We purchase from wholesale distributors the approximately 1,000 branded and generic prescription medications that we use to fill prescriptions for patients. In 2003, we entered into a five-year prime vendor agreement with AmerisourceBergen to provide us with the HIV/AIDS medications we sell. Pursuant to this agreement, we are obligated to purchase at least 95% of the medications we sell from AmerisourceBergen. As part of this agreement, we receive improved payment terms relative to the terms we could get from other pharmaceutical distributors. In addition, we have agreed to purchase minimum dollar amounts of medications from AmerisourceBergen over the five-year term of the agreement, which expires in September 2008. If we fail to meet these minimum purchase amounts, we would be required to make an additional payment equal to 0.2% of the unpurchased amount. We believe we have met our minimum purchase obligations under this agreement. Pursuant to the terms of a security agreement entered into in connection with the prime vendor agreement, AmerisourceBergen holds a subordinated security interest in all of our assets.

In the past, we depended on existing credit terms from AmerisourceBergen to meet our working capital needs between the times we purchase medications from AmerisourceBergen and when we receive reimbursement or payment from third party payors. If our position changes and again we have to rely on credit to meet working capital needs, we may become limited in our ability to continue to increase the volume of medications we need to fill prescriptions if we are unable to maintain adequate credit terms from AmerisourceBergen or, alternatively, if we are unable to obtain sufficient financing from third-party lenders.

Competition

Our industry is highly competitive, fragmented and undergoing consolidation, with many public and private companies focusing on different products or diseases. Each of our competitors provides a different mix of products and services than we do. Some of our current and potential competitors include:



•

Specialty pharmacy distributors such as Medco Health Solutions, Inc., BioScrip, Inc. and Express Scripts, Inc.;



•

Pharmacy benefit management companies such as Medco Health Solutions, Inc., Express Scripts, Inc. and CVS/Caremark Rx, Inc.;



•

Specialty pharmacy divisions of national wholesale drug distributors;



•

Hospital-based pharmacies;



•

Retail pharmacies;



•

Manufacturers that sell their products both to distributors and directly to clinics and physician offices; and



•

Hospital-based care centers and other alternate-site healthcare providers.

Many of our existing and potential competitors have substantially greater financial, technical, marketing and distribution resources than we do. Additionally, many of these companies have greater name recognition and more established relationships with HIV/AIDS patients. Furthermore, these competitors may be able to adopt more aggressive pricing policies and offer customers more attractive terms than we can.

Third Party Reimbursement, Cost Containment and Legislation

We generate the majority of our net sales from patients who rely on Medicaid and ADAP for reimbursement, both of which are highly regulated government programs and are subject to frequent changes and cost containment measures. Medicaid is a state program partially funded by the federal government. Payments to pharmacies for Medicaid-covered outpatient prescription drugs are set by the states. Federal reimbursement to states for the federal share of those payments is subject to a ceiling called the federal upper limit, or FUL. In recent years, Medicaid and ADAP have reduced reimbursement to providers.

Historically, many government payors, including Medicaid and ADAP programs, paid us directly or indirectly for the medications we dispense at average wholesale price, or AWP, or a percentage of AWP. Private payors with whom we may contract also reimburse us for medications at AWP or a percentage of AWP. Federal and state governmental attention has recently focused on the validity of using AWP as the basis for Medicaid medication payments, including payments for HIV/AIDS medications, and most state Medicaid programs now pay substantially less than AWP for the prescription drugs we dispense.

In January of 2006, the federal government enacted the Deficit Reduction Act of 2005, or the Reduction Act, which established average manufacturer price, or AMP, as the benchmark for prescription drug reimbursement in the Medicaid program, eliminating the previously used AWP standard. The Reduction Act also made changes to the FUL for multiple source drugs, such as generics. Effective January 1, 2007, for multiple source drugs, the FUL became 250% of the AMP. On July 6, 2007, the Centers for Medicare and Medicaid Services, or CMS, issued final regulations that (1) defined what will be considered a multiple source drug, and (2) defined AMP by identifying the categories of drug sales that would be used to calculate AMP. The final regulations also mandated that CMS publish AMPs reported to it by manufacturers on CMS’ website. The final regulations became effective October 1, 2007.

The first publication of AMP data and the resulting FULs was scheduled to occur in December of 2007. However, on December 19, 2007, the National Association of Chain Drug Stores, or NACDS, and the National Community Pharmacists Association, or NCPA, sought and were granted a preliminary injunction in U.S. District Court that halted CMS’ implementation of its AMP regulations and the posting of any AMP data. In their complaint, the two pharmacy groups allege that the AMP regulations go beyond what Congress intended when it passed the Social Security Act. Specifically, the lawsuit alleges that (1) in defining AMP, CMS included categories of drug sales that exceeded the plain language of the Social Security Act and (2) CMS’ definition of multiple source drugs is impermissibly broad and, in some respects, contrary to the Social Security Act. On March 14, 2008, CMS issued an interim final rule revising its definition of multiple source drug to address an issue raised in the NACDS/NCPA lawsuit. The preliminary injunction is still in effect.

We cannot predict the outcome of the NACDS/NCPA case. If the preliminary injunction is lifted and CMS is allowed to implement the AMP regulations, it could adversely impact our revenues. While there is no requirement that states use AMP to set payment amounts, we believe that the adoption of AMP will result in lower Medicaid reimbursement rates for medications we dispense. We continue to review the potential impact that the Reduction Act and the AMP regulations may have on our business and are not yet in a position to fully assess their impact on our business or profitability. However, the use of AMP in the FUL may have the effect of reducing the reimbursement rates for certain medications that we currently dispense or may dispense in the future. Further, states may elect to base all Medicaid pharmacy reimbursement on AMP instead of AWP. If the individual states make this decision, it may have the effect of reducing the reimbursement rates for certain medications that we currently dispense or may dispense in the future.

In New York, reimbursement rates for pharmacy services provided under Medicaid were reduced in September 2004, in July 2006, and again in July 2007. Under the new reimbursement rate effective July 1, 2007, prescriptions are reimbursed at AWP less 14% plus a $3.50 dispensing fee for brand name drugs and AWP less 25% plus a $4.50 dispensing fee for generic drugs. However, approved specialized HIV pharmacies will continue to be reimbursed at AWP less 12% plus the same dispensing fees. The legislation authorizing the more favorable reimbursement rate for approved pharmacies is effective until further legislation changes it. We have been notified by the Department of Health in New York that we qualify for the specialized HIV pharmacy reimbursement; however, our continuing qualification for specialized HIV pharmacy reimbursement is dependent upon our recertification every two years by the Department of Health in New York as an approved specialized HIV pharmacy. We are currently certified through September 2008. There can be no assurance that we will obtain our recertification in New York in the future.

As of September 1, 2004, as part of the passage of the California state budget, reimbursement rates for pharmacy services provided under Medi-Cal, the Medicaid reimbursement program administered in California, were reduced. Under the new reimbursement rate, prescriptions are reimbursed at AWP less 17% plus a $7.25 dispensing fee. The previous reimbursement rate was AWP less 10% with a $4.05 dispensing fee. On September 28, 2004, California approved the California Pilot Program, which provides additional reimbursement for HIV/AIDS medications for up to ten qualified pharmacies. We own two of the ten pharmacies that qualified for this program. The California Pilot Program was recently extended as part of California’s 2007 budget process and is currently set to expire on June 30, 2008.

Cost containment initiatives are a primary trend in the U.S. healthcare industry. The increasing prevalence of managed care, centralized purchasing decisions, consolidation among and integration of healthcare providers, and competition for patients has affected and continues to affect pricing, purchasing, and usage patterns in healthcare. Efforts by payors to eliminate, contain or reduce costs through coverage exclusions, lower reimbursement rates, greater claims scrutiny, closed provider panels, restrictions on required formularies, mandatory use of generics, limitations on payments in certain therapeutic drug categories, claim delays or denials and other similar measures could erode our profit margins or materially harm the results of our operations. We can offer no assurance that payments under governmental and private third-party payor programs will be timely or will remain at rates similar to present levels.

Government Regulation

Marketing, repackaging, dispensing, selling and purchasing drugs is highly regulated and regularly scrutinized by state and federal government agencies for compliance with laws and regulations governing:



•

Inducements for patient referrals;



•

Manufacturer-calculated and -reported AWP and ASP amounts;



•

Joint ventures and management agreements;



•

Referrals from physicians with whom we have a financial relationship;



•

Professional licensure;



•

Repackaging, storing, and distributing prescription pharmaceuticals;



•

Incentives to patients; and



•

Product discounts.

The laws and regulations governing these issues are very complex and generally broad in scope, often resulting in differing interpretations and inconsistent court decisions. Compliance with laws continues to be a significant operational requirement for us. We believe that we currently comply in all material respects, and intend to continue to comply, with all laws and regulations with respect to our operations and conduct of business. However, the application of complex standards to the operation of our business creates areas of uncertainty, and there can be no assurance that all of our business practices would be interpreted by the appropriate regulatory agency to be in compliance in all respects with the applicable requirements. Any failure or alleged failure to comply with applicable laws and regulations could have a material adverse effect on our business.

Moreover, regulation of the healthcare industry frequently changes. We are unable to predict or determine the future course of federal, state and local regulation, legislation or enforcement or what additional federal or state legislation or regulatory initiatives may be enacted in the future relating to our business or the healthcare industry in general, or what effect any such legislation or regulation might have on us. We cannot provide any assurance that federal or state governments will not impose additional restrictions or adopt interpretations of existing laws that could have a material adverse effect on our business or financial position. Consequently, any future change, interpretation, violation or alleged violation of law or regulations could have a material adverse effect on our business. The following areas of government regulation particularly apply to our business.

CEO BACKGROUND

Michael P. Moran has served as our Chairman, Chief Executive officer and President and as a member of our Board of Directors since 1997. From 1996 to 1997, Mr. Moran was a Regional Vice President at Coram Healthcare, Inc. From 1990 to 1996, Mr. Moran was a Regional Vice President for Chartwell Home Therapies, Inc. Prior to 1990, Mr. Moran held various sales and management positions at Critical Care America, Inc. Mr. Moran received a B.A. in Management from Assumption College.

Gary P. Carpenter, CPA has served as one of our directors since December 2006. He has been a partner in charge of Healthcare Services at Holtz Rubenstein Reminick, LLP (“Holtz”) since 1998. Prior to joining Holtz, Mr. Carpenter founded his own healthcare consulting firm. He was also Vice President of Finance at a national healthcare corporation and has worked with healthcare companies in a variety of areas, including corporate organizational issues, profit maximization and representation before Medicare and Medicaid government representatives on various reimbursement issues. Mr. Carpenter has experience in mergers and acquisitions in the healthcare industry and has worked with a number of hospitals on their expansion plans into the home healthcare industry. Mr. Carpenter is a member of the New York State Society of CPAs. He is also a member of the Healthcare Financial Management Association where he is the chairman of the Continuing Care Committee. Mr. Carpenter serves on the Advisory Board for the Long Island chapter of the Multiple Sclerosis Society and is a Trustee of the Environmental Center of Smithtown. He also serves on the Pastoral Council of St. Patrick Church. Mr. Carpenter has previously served as a member of the Board of St. Patrick School and as an Associate Trustee of North Shore University Hospital. Mr. Carpenter earned his B.B.A. in Accounting from Adelphi University.

Russell J. Fichera has served as one of our directors since May 2006 and has served as the chairperson of the Audit Committee since August 2006. Mr. Fichera began his professional career with the public accounting firm of Arthur Andersen & Co and has over 20 years of experience in healthcare. Since 2003, he has served as Chief Financial Officer of EnduraCare Therapy Management, a national provider of contract rehabilitation services to skilled nursing facilities and hospitals. From 2001 to 2003, he served as Chief Financial Officer of Advanced Care Solutions, Inc., a start-up healthcare services business with an innovative outsourcing solution for ICU and ER nurse staffing. From 1999 to 2001, he served as the Chief Financial Officer of American Pharmaceutical Services, a national provider of institutional pharmacy services. From 1997 to 1999, he served as Chief Financial Officer of Prism Health Group, a privately held therapy program management firm. Mr. Fichera is a certified public accountant and a member of the Massachusetts Society of Certified Public Accountants and the American Institute of CPAs. Mr. Fichera received his B.S. in Accounting from Bentley College.

John Pappajohn has served as one of our directors since 1996. Since 1969, Mr. Pappajohn has served as the President and principal stockholder of Equity Dynamics, Inc., a financial consulting firm, and the sole owner of Pappajohn Capital Resources, a venture capital firm. Mr. Pappajohn has served on the boards of directors of over 40 public companies and currently serves as a director of the following public companies: PharmAthene, Inc., MC Informatics, Inc., ConMed Healthcare Management, Inc., American CareSource Holdings, Inc. and CareGuide, Inc. (f/k/a Patient Infosystems, Inc.). Mr. Pappajohn has been an active private equity investor in healthcare companies for more than 30 years. Mr. Pappajohn has also been a founder in several public healthcare companies including Caremark Rx, Inc., Quantum Health Resources and Radiologix, Inc. Mr. Pappajohn received his B.S.C. in Business from the University of Iowa.

Derace Schaffer, M.D. has served as one of our directors since 1996. Dr. Schaffer is the founder and Chief Executive Officer of The Lan Group, a venture capital firm specializing in healthcare and high technology investments. Dr. Schaffer currently serves as a director of the following public companies: PharmAthene, Inc., American CareSource Holdings, Inc. and CareGuide, Inc. (f/k/a Patient Infosystems, Inc.). He also served as chairman of several healthcare companies including Radiologix, Inc. and Patient Infosystems, Inc. when those companies were private. From 1980 to 2001, Dr. Schaffer was Chief Executive Officer and Chairman of the Board of Imaging Group, P.C. Dr. Schaffer received his postgraduate radiology training at Harvard Medical School and Massachusetts General Hospital, where he served as Chief Resident. Dr. Schaffer is currently also a Clinical Professor of Radiology at Weill Cornell Medical School and a member of Alpha Omega Alpha, the national medical honor society.

Harvey Z. Werblowsky, Esq. has served as one of our directors since 2004. Since December 2003, he has been Counsel of Kushner Companies, a real estate organization. From December 1990 until December 2003, Mr. Werblowsky was a partner at the law firm of McDermott Will & Emery LLP. Mr. Werblowsky received a B.A. from Yeshiva University and a J.D. from New York University School of Law.

Robert E. Fleckenstein, R.Ph. has served as our Vice President, Pharmacy Operations since December 2003. Mr. Fleckenstein has held positions in pharmacy management for 20 years, with over 10 of those years in specialty pharmacy. In 2003, he served as Account Manager for US Oncology, Inc. From 2000 to 2002, Mr. Fleckenstein served as Vice President of Operations for CVS ProCare at its Pittsburgh distribution center. From 1997 to 2000, he served as Director of Pharmacy Services for Stadtlanders Drug Company. Prior to 1997, Mr. Fleckenstein held various management level positions in specialty and hospital pharmacy companies. Mr. Fleckenstein received his B.S. in Pharmacy from the University of Pittsburgh and his MBA from the Katz Graduate School of Business at the University of Pittsburgh.

Anthony D. Luna has served as our Vice President, Oris Health, Inc. since March 2006 and our Vice President, HIV Sales since January 2007. From November 2004 to March 2006, Mr. Luna was the Director of Sales, Western Region with our Company. Mr. Luna has held positions in the healthcare industry for more than 16 years, with over 12 of those years in specialty pharmacy. From 1996 until 2004, Mr. Luna served in roles of increasing responsibility, including Vice President of Sales and Marketing and Vice President of Corporate Programs for Modern Healthcare, Inc., a specialty pharmacy. Prior to 1996, Mr. Luna held various positions in patient advocacy and community outreach for various specialty pharmacy and other healthcare companies. Mr. Luna received his master’s degree in Psychology from Pepperdine University and his B.S. in Psychology from California State University Long Beach.

Stephen A. Maggio has served as our Secretary, Treasurer, and Interim Chief Financial Officer since July 2007 and our Director of Finance since January 2005. Mr. Maggio served as a consultant to the Company from November 2004 to January 2005. From 2003 to November 2004, Mr. Maggio owned and operated a franchise business. Prior to that, Mr. Maggio served as Vice President, Chief Financial Officer for Dunhill Staffing Systems, Inc. from 2002 to 2003. Mr. Maggio received his B.S. in Accounting from Fordham University. He is a certified public accountant and a member of the New York Society of CPAs and the American Institute of CPAs.

COMPENSATION

Elements of 2006 Executive Compensation Plan

There are three primary components of executive compensation for the Company’s executive officers: base salary, bonus and stock option awards. Our named executive officers also receive health, disability and life insurance benefits similar to all employees and certain limited perquisites. While the elements of compensation are considered separately, the Committee takes into account the total compensation package afforded by the Company to the individual executive. For example, each executive’s initial offer of employment included base salary and stock options, where the value of the total compensation being offered was considered in the offer.

Base Salary. Base salaries for the Company’s executive officers are determined initially by evaluating the responsibilities of the position held and the experience of the individual in light of the Company’s compensation philosophy described above. No specific formula is applied in setting an executive officer’s base salary, either with respect to the total amount of base salary or the relative value of base salary to the executive officer’s total compensation package. Salaries paid to executive officers (including the CEO) are reviewed annually by the Committee and are determined based on an assessment of the nature of the position; the individual’s contribution to the Company’s corporate goals; experience and tenure; growth in the Company’s size and complexity; and changes in the executive’s responsibilities. The Committee approves all changes to executive officers’ salaries.

In March 2006, Mr. Luna received a base salary increase of $60,000 in connection with his promotion from Vice President of Sales, Western Region to Vice President, Oris Health, Inc. His increased base salary of $175,000 was consistent with the salary paid to the previous executive who served in this role. The amount of the increase is also reflective of the fact that Mr. Luna would no longer receive sales commissions in addition to his base salary for his sales efforts. Instead, he is now eligible to participate in the discretionary bonus program described below.

In October 2006, Mr. Spencer and Mr. Moran received base salary increases of $90,000 and $100,000, respectively, which were implemented at the same time we finalized their employment agreements. In determining the value of Mr. Spencer’s and Mr. Moran’s salary increases, the Committee reviewed the increased responsibilities assumed by Mr. Spencer and Mr. Moran, their individual performance and contributions to the Company’s growth, as well as the salaries of executive officers employed by comparable companies. The employment agreements and salary increases were approved to take into account the fact that their responsibilities as the primary officers of a public company had increased significantly over the past two years, but that their compensation levels had not similarly increased. The board of directors also felt that it was important to better secure the services of Mr. Moran and Mr. Spencer because of their Company and industry knowledge and their importance to the continued operations of the Company. In addition, the Committee desired to include non-competition covenants in the agreements. The salary increases were intended, in part, to compensate these executives for agreeing to such noncompete agreements. The Committee determined these increases to be reasonable and competitive for the size and location of our operations by reviewing the compensation of public companies comparable in size and geographic footprint. The Committee did not conduct a formal peer group review and did not target specific salary levels, but rather reviewed the public filings of Option Care, Inc., BioScrip, Inc., Apria Healthcare Group Inc. and Lincare Holdings, Inc., whose compensation programs they believed reflect common industry practices of companies similar in size and geographic location.

Mr. Fleckenstein and Ms. Salthouse did not receive salary increases in fiscal 2006.

Bonus. We do not have a formal bonus program. Instead, the Committee, in its discretion, may award bonuses to executive officers. Bonuses, if any, are determined based upon a subjective assessment of an executive officer’s performance, as well as the overall performance of the Company, at the close of the fiscal year. We do not have pre-established corporate or individual performance goals. The Committee also may award bonuses for an executive officer’s strategic transactions (such as acquisitions or partnerships), financing transactions or other significant contributions that benefit the Company. According to their employment agreements, Messrs. Moran and Spencer may receive discretionary bonus amounts of up to 40% of their then-effective base salary. Unlike in prior years, in fiscal 2006 we did not award discretionary bonuses for our named executive officers, except for Mr. Fleckenstein. This was because the Committee decided to provide for significant option awards as described below, rather than cash awards. Mr. Fleckenstein’s 2006 bonus was intended to reward his performance in integrating acquisitions in California.

Stock Options. Stock options are designed to align the interests of executives with those of the Company’s stockholders. The vesting requirement of stock options also provides a strong retentive element, while keeping management focused on creating stockholder value. At this time, stock options are the only form of equity that the Company has granted to executive officers. Stock option grants may be made to executive officers: (i) upon initial employment, (ii) upon promotion to a new, higher position that entails increased responsibilities and accountability, (iii) for recognition of superior performance, or (iv) as a long-term incentive for continued service with the Company. Determinations as to the number of options granted to our executives were based on an overall pool of options to be made available to all employees and were generally allocated to employees based on compensation, performance and classification within the organization. The overall pool of options was determined by calculating the total number of shares available for grant under our Amended 1998 Stock Option Plan and our Amended and Restated 2002 Stock Incentive Plan. Based on the available shares, management submitted a recommendation to the Committee for consideration in granting options awards to the majority of the employees. Emphasis was placed on granting more equity to the more senior executives based on their classification within the organization, and, as a result, Executive-level employees were granted 50,000 options and Vice President-level employees were granted 25,000 options. Senior level executives received a higher number of shares in recognition of their increased responsibilities and strategic role in furthering our growth and operations.

The majority of the options granted to employees by the Committee vest at a rate of 20% to 25% per year for the first four or five years of the ten-year option term. Vesting rights cease upon termination of employment and exercise rights cease 90 days after termination of employment, except that in the case of death, disability or retirement the board of directors may, in its sole discretion, approve a request to extend the exercise rights through the expiration date of the option. Options are awarded at the closing price of the Company’s common stock as reported by NASDAQ on the date of grant. While we do not have a grant policy, historically we have not timed the grant of equity awards to coincide with, precede or follow the release of material non-public information. Prior to the exercise of options, the holder has no rights as a stockholder with respect to the shares subject to such option, including voting rights.

Retirement Benefits

Our 401(k) savings plan is a tax-qualified retirement savings plan pursuant to which all employees, including named executive officers, are able to contribute up to the annual limits prescribed by the Internal Revenue Service, or the IRS, on a before-tax basis. We do not currently provide for matching contributions.

Perquisites and Other Personal Benefits

While we limit the perquisites that we make available to our executive officers, our executives are entitled to few benefits that are not otherwise available to all of our employees. In this regard, it should be noted that we do not provide pension arrangements, post-retirement health coverage, or similar benefits to our executives or employees.

We provided the following perquisites to one or more of our named executive officers in fiscal 2006:


•

Monthly automobile allowances ranging from $600-$800 per month. Mr. Luna and Ms. Salthouse received $600 per month, and beginning October 2006, Mr. Moran and Mr. Spencer each received $800 per month. Mr. Fleckenstein does not receive an automobile allowance.


•

100% of health premiums for the base plans we offer to employees, except that Mr. Spencer, our former Chief Financial Officer, is self-insured and we reimbursed his out-of-pocket premiums paid in lieu of his participation in Allion’s health plan. The annual cost of Mr. Spencer’s health coverage has generally been less than the amount we pay for other employees under our health plan.


•

We reimbursed Mr. Spencer for commuting expenses from his home in Maryland to our offices as part of his employment agreement. Additionally we paid any gross-up of taxes due as a result of commuting expenses that are deemed to be income by the IRS for tax purposes.

We provided no other perquisites or benefits to any of our named executive officers in the fiscal year ended December 31, 2006.

Attributed costs of the personal benefits described above for our named executive officers apply to the fiscal year ended December 31, 2006 and are included in the “All Other Compensation” column of the “Summary Compensation” table.

The Company has entered into employment agreements, which include severance provisions for a change of control, with our Chief Executive Officer and Chief Financial Officer. The change of control severance provisions are designed to promote stability and continuity of senior management by focusing their attention on our growth and development. Information regarding applicable payments under the employment agreements for these officers is provided below under the heading “Potential Payments Upon Termination or a Change in Control”. There currently are no employment agreements in place for our other named executive officers.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview

We are a national provider of specialty pharmacy and disease management services focused on HIV/AIDS patients. We sell HIV/AIDS medications, ancillary drugs and nutritional supplies under our trade name MOMS Pharmacy. We work closely with physicians, nurses, clinics and ASOs, and with government and private payors, to improve clinical outcomes and reduce treatment costs for our patients. Most of our patients rely on Medicaid and other state-administered programs, such as ADAP, to pay for their HIV/AIDS medications.

We believe that the combination of services we offer to patients, healthcare providers and payors makes us an attractive source of specialty pharmacy and disease management services, contributes to better clinical outcomes and reduces overall healthcare costs. Our services include the following:



•

Specialized MOMSPak prescription packaging that helps reduce patient error associated with complex multi-drug regimens, which require multiple drugs to be taken at varying doses and schedules;



•

Reimbursement experience which assists patients and healthcare providers with the complex reimbursement processes and optimizes collection of payment;



•

Arrangement for the timely delivery of medications in a discreet and convenient manner as directed by our patients or their physicians;



•

Specialized pharmacists who consult with patients, physicians, nurses and ASOs to provide education, counseling, treatment coordination, clinical information and compliance monitoring; and



•

Information systems and prescription automation solutions that make the provision of clinical data and the transmission of prescriptions more efficient and accurate.

We have grown our business primarily by acquiring other specialty pharmacies and expanding our existing business. In December 2007, we opened our first satellite pharmacy in Oakland, California. Since the beginning of 2003, we have acquired seven specialty pharmacies in California and two specialty pharmacies in New York. We also generate internal growth primarily by increasing the number of patients we serve and filling more prescriptions per patient in our existing locations. We will continue to evaluate acquisitions and expand our existing business as opportunities arise or circumstances warrant.

On March 13, 2008, we signed a definitive merger agreement to acquire 100% of the stock of Biomed for aggregate consideration of approximately $117.8 million. Biomed is a leading provider of specialized biopharmaceutical medications and services to chronically ill patients. Under the definitive merger agreement, we will pay Biomed’s stockholders an aggregate of $48.0 million in cash and issue a total of 9.35 million shares of our common and preferred stock valued at approximately $51.4 million. We will also assume up to $18.4 million of Biomed’s debt. In addition, we may make an earn-out payment in 2009 if Biomed achieves certain financial performance benchmarks during the first 12 months after closing. We expect to pay the purchase price with funds from a new senior credit facility, available cash and newly issued common stock and preferred stock. The closing will be subject to government approval and is expected to close within 60 days.

Geographic Footprint. We operate our business as a single reporting segment configured to serve key geographic areas. As of December 31, 2007, we operated eleven distribution centers, strategically located in California (seven separate locations), New York (two separate locations), Florida and Washington to serve major metropolitan areas where high concentrations of HIV/AIDS patients reside. In discussing our results of operations, we address changes in the net sales contributed by each of these regional distribution centers because we believe this provides a meaningful indication of the historical performance of our business.

We ceased operating our Austin, Texas distribution center as of June 30, 2005. A significant portion of the operations of that distribution center was dedicated to serving organ transplant and oncology patients. Consistent with our strategy of focusing on the HIV/AIDS market, we decided not to continue this business. We did not record any material expense associated with the discontinuance of these operations and closing that facility. In 2005, our Austin, Texas distribution center contributed approximately $1,500 of net sales to our financial results. As a result of our decision to discontinue our Texas operations, we have presented the results of the Texas distribution center as “discontinued operations.” As required by generally accepted accounting principles in the United States, or GAAP, we have restated prior periods to reflect the presentation of the Texas facility as “discontinued operations,” so that period-to-period results are comparable.

Net Sales . As of December 31, 2007, approximately 64% of our net sales came from payments directly from government sources such as Medicaid, ADAP, and Medicare (excluding Part D, described below, which is administered through private payor sources). These are all highly regulated government programs subject to frequent changes and cost containment measures. We continually monitor changes in reimbursement for HIV/AIDS medications.

On December 8, 2003, the MMA was signed into law. This legislation made significant structural changes to the federal Medicare program, including the establishment of a new Medicare Part D outpatient prescription drug program. Effective January 1, 2006, Medicaid coverage of prescription drugs for Medicaid beneficiaries who were also eligible for Medicare transitioned to the Medicare program. These beneficiaries, referred to as “dual eligibles,” are now enrolled in the Medicare PDPs. We have agreements in the geographic regions we serve with most of these PDPs to provide prescription drugs to our dual-eligible patients. Typically, the PDPs provide a lower reimbursement rate than the rates we received from the Medicaid programs. In December 2007 and 2006, approximately 20.3% and 19.4% of our patients, respectively, received coverage under a PDP.

Gross Profit . Our gross profit reflects net sales less the cost of goods sold. Cost of goods sold is the cost of pharmaceutical products we purchase from wholesalers. The amount that we are reimbursed by government and private payors has historically increased as the price of the pharmaceuticals we purchase has increased. However, as a result of cost containment initiatives prevalent in the healthcare industry, private and government payors have reduced reimbursement rates, which prevents us from recovering the full amount of any price increases.

Operating Expenses . Our operating expenses are made up of both variable and fixed costs. Our principal variable costs, which increase as net sales increase, are labor and delivery. Our principal fixed costs, which do not vary directly with changes in net sales, are facilities, equipment and insurance.

While we believe that we now have a sufficient revenue base to continue to operate profitably given our current level of operating and other expenses, our business remains subject to uncertainties and potential changes that could result in losses. In particular, changes to reimbursement rates, unexpected increases in operating expenses, difficulty integrating acquisitions or declines in the number of patients we serve or the number of prescriptions we fill could adversely affect our future results. For a further discussion regarding these uncertainties and potential changes, see Item 1A. Risk Factors in this Annual Report on Form 10-K.

Critical Accounting Policies

Management believes that the following accounting policies represent “critical accounting policies,” which the SEC defines as those that are most important to the portrayal of a company’s financial condition and results of operations and require management’s most difficult, subjective, or complex judgments, often because management must make estimates about uncertain and changing matters. Our critical accounting policies affect the amount of income and expense we record in each period, as well as the value of our assets and liabilities and our disclosures regarding contingent assets and liabilities. In applying these critical accounting policies, we make estimates and assumptions to prepare our financial statements that, if made differently, could have a positive or negative effect on our financial results. We believe that our estimates and assumptions are both reasonable and appropriate, in light of applicable accounting rules. However, estimates involve judgments with respect to numerous factors that are difficult to predict and are beyond management’s control. As a result, actual amounts could differ materially from estimates.

We discuss these and other significant accounting policies related to our continuing operations in Note 2 of the notes to our Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K.

Revenue Recognition . We are reimbursed for a substantial portion of our net sales by government and private payors. Net sales are recognized upon delivery, which occurs when our customers receive medications or products, and are recorded net of contractual allowances to patients, government and private payors and others in the period when delivery to our patients is completed. Contractual allowances represent estimated differences between billed sales and amounts expected to be realized from third-party payors under contractual agreements.

Any patient can initiate the filling of prescriptions by having a doctor call in prescriptions to our pharmacists, faxing our pharmacists a prescription, mailing prescriptions, or electronically submitting prescriptions to one of our facilities. Once we have verified that the prescriptions are valid and have received authorization from a patient’s insurance company or state insurance program, the pharmacist then fills the prescriptions and ships the medications to the patient through our outside delivery service, an express courier service or postal mail, or the patient picks up the prescription at the pharmacy. During December 2007, we serviced 15,610 patients.

We receive premium reimbursement under the California Pilot Program and have been certified as a specialized HIV pharmacy eligible for premium reimbursement under the New York State Medicaid program. The California Pilot Program was recently extended as part of California’s 2007 budget process and is currently set to expire on June 30, 2008. We are currently certified in New York through September 2008. We qualified for both the California and New York programs in 2005, including retroactive payment of prescriptions dating back to September 2004. Premium reimbursement for eligible prescriptions dispensed in the current period are recorded as a component of net sales in the period in which the patient receives the medication. These revenues are estimated at the time service is provided and accrued to the extent that payment has not been received. Under the California Pilot Program, we receive regular payments for premium reimbursement, which are paid in conjunction with the regular reimbursement amounts due through the normal payment cycle. In New York, we receive the premium payment annually, and we received the annual payment for fiscal 2006 under the New York program in October 2007. For additional information regarding each of these reimbursement programs, please refer to Part I, Item 1. Business—Third Party Reimbursement, Cost Containment and Legislation.

The California Department of Health Services, or DHS, audited the premium reimbursement paid to us under the California Pilot Program for the period September 1, 2004 to August 2, 2007. Upon completion of the audit, we were assessed and paid $758 of which $640 relates to periods prior to 2007, which was recorded in 2007.

Allowance for Doubtful Accounts. Management regularly reviews the collectibility 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 uncollectible accounts. The allowance for estimated uncollectible accounts is adjusted as needed to reflect current collection, write-off and other trends, including changes in assessment of realizable value. While management believes the resulting net carrying amounts for accounts receivable are fairly stated at each quarter end and that we have made adequate provision for uncollectible accounts based on all available information, no assurance can be given as to the level of future provisions for uncollectible accounts or how they will compare to the levels experienced in the past. Our ability to successfully collect our accounts receivable depends, in part, on our ability to adequately supervise and train personnel in billing and collections and minimize losses related to system changes.

Long-Lived Asset Impairment. In assessing the recoverability of our intangible assets, we make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. If we determine that impairment indicators are present and that the assets will not be fully recoverable, their carrying values are reduced to estimated fair value. Impairment indicators include, among other conditions: cash flow deficits, a historic or anticipated decline in net sales or operating profit, adverse legal or regulatory developments, accumulation of costs significantly in excess of amounts originally expected to acquire the asset, and material decreases in the fair value of some or all of the assets. Changes in strategy or market conditions could significantly impact these assumptions, and as a result, we may be required to record impairment charges for these assets. We have adopted Statement of Financial Accounting Standards, or SFAS, No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” or SFAS No. 144. For the year ended December 31, 2007, we recorded a non-cash charge of $599 to our results of operations to reflect the impairment of our intangible asset as a result of the termination of our license for the Labtracker-HIV TM software from Ground Zero.

Results of Operations

Fiscal Years Ended December 31, 2007 and 2006

The following table sets forth the net sales and operating data for each of our distribution centers for the 12 months ended December 31, 2007 and 2006:

The prescription and patient month data has been presented to provide additional data about our operations. A prescription typically represents a 30-day supply of medication for an individual patient. “Patient months” represents a count of the number of months during a period that a patient received at least one prescription. If an individual patient received multiple medications during each month for a yearly period, a count of 12 would be included in patient months irrespective of the number of medications filled each month.

Net Sales. Net sales in 2007 increased to $246,661 from $209,503 in 2006, an increase of 17.7%. Included in net sales for the year ended December 31, 2006 is $917 of retroactive premium reimbursement relating to prior periods in 2005 and 2004, as a result of retroactive payment of prescriptions dating back to September 2004 upon our qualification in 2005 for the California Pilot Program and premium reimbursement in New York. Included in net sales for the year ended December 31, 2007 is a reduction of $640 of premium reimbursement, previously reported in 2005 and 2006 revenue, related to prior periods in 2006, 2005 and 2004, as a result of the DHS audit. Net sales in California and New York increased by 15.9% and 22.4%, respectively for the year ended December 31, 2007 as compared to the same period in 2006, primarily attributable to acquisitions completed during fiscal 2006 and an increase in volume from the addition of new patients. For the years ended December 31, 2007 and 2006, we recorded net sales of $2,330 and $2,685, respectively, for the New York and California premium reimbursement programs collectively.

As of December 31, 2007 and 2006, the receivable balance relating to premium reimbursement was $792 and $606. Accounts receivable at December 31, 2007 consisted of $792 relating to the New York reimbursement program for which we receive annual payments. Based on our experience in 2007, we expect to receive payment with respect to the New York program in the fourth quarter of 2008; however, there can be no assurance as to when we will actually receive payment. At December 31, 2007, we had a liability of $180 related to the California reimbursement program for overpayments made in 2007.

Gross Profit . Gross profit was $35,274 and $30,641 for the years ended December 31, 2007 and 2006, respectively, and represents 14.3% and 14.6% of net sales, respectively. Gross profit for the years ended December 31, 2007 and 2006 includes ($640) and $917, respectively, related to the retroactive premium reimbursement (in net sales) from prior periods.

Selling, General and Administrative Expenses . Selling, general and administrative expenses for the year ended December 31, 2007 increased to $30,302 from $27,698 for the year ended December 31, 2006, but declined as a percentage of net sales to 12.3% in 2007 from 13.2% in 2006. The increase in selling, general and administrative expenses was primarily due to increased expenses related to acquisitions. The decrease in selling, general and administrative expenses as a percentage of net sales is primarily due to integrating the acquisitions into our existing facilities, which improved operating efficiencies related to labor and other resources as prescription volumes increased.

Included in selling, general & administrative expenses for the fiscal year ended December 31, 2007 was approximately $1,485 of legal expenses relating to the litigation with Oris Medical Systems, Inc., or OMS, discussed in Part I, Item 3. Legal Proceedings of this Annual Report on Form 10-K.

Increase in labor and shipping expenses are related the increased costs associated with a full year of our 2006 acquisitions of Maiman, H&H, Whittier and St. Jude.

Impairment of Long-Lived Assets. As a result of the termination of the LabTracker license agreement with Ground Zero, we recorded a charge of $599 ($1,228, less accumulated amortization of $629) for the year ended December 31, 2007 to reflect the impairment of a long-lived asset related to the LabTracker license.

Operating Income . Operating income for the year ended December 31, 2007 was $4,373 as compared to an operating income of $2,943 for the year ended December 31, 2006, which represented 1.8% and 1.4% of net sales, respectively. The increase in operating income in 2007 is attributable to an increase in gross profit of $4,633, offset by an increase in selling, general and administrative expenses of $2,604 and an impairment of long-lived assets charge of $599. The overall increase in operating income resulted primarily from a full year of our 2006 acquisitions integrated into our existing facilities and, to a lesser extent, prescription growth at our existing pharmacies.

Interest Income. Interest income was $804 and $1,254 for the years ended December 31, 2007 and 2006, respectively. The decrease in interest income is attributable to our increased use of cash to finance acquisitions during 2006, rather than investing those cash amounts, and to the change in our investment portfolio to non-taxable securities. We receive interest income primarily from our investment in short-term securities and other cash equivalents.

Provision for Taxes . We recorded a provision for taxes in the amount of $1,917 and $1,007 for the years ended December 31, 2007 and 2006, respectively. The provision for the years ending December 31, 2007 and 2006 relate to federal, state and local income tax as adjusted for certain permanent differences. Our income taxes payable were significantly less than the tax provisions due to significant tax deductions related to non-cash compensation in 2006 and net operating loss deductions attributable to such non-cash compensation in 2007. The tax benefit of these deductions was credited to additional paid in capital.

The increase in the effective tax rate to 37.0% for the year ended December 31, 2007 from 24.0% for the year ended December 31, 2006 is due to the fact that, for the year ended December 31, 2006, a benefit was recognized upon the reversal of a valuation allowance against our deferred tax assets, thereby reducing the effective tax rate. Because the valuation allowance was released at December 31, 2006, there is no such benefit recognized in the year ended December 31, 2007.

Net Income. For the year ended December 31, 2007, we recorded net income of $3,260 as compared to a net income of $3,190 for the comparable period in 2006. Net income for the year ended December 31, 2007 includes a ($640) pre-tax adjustment to premium reimbursement for prior periods ($403 net of tax) as a result of the DHS audit and a $599 pre-tax charge for the impairment of long-lived assets ($377 net of tax). Net income for the year ended December 31, 2006 includes $917 of pre-tax retroactive premium reimbursement ($697 net of tax) from prior periods in 2005 and 2004, as a result of retroactive payment of prescriptions dating back to September 2004 upon our qualification in 2005 for the California Pilot Program and premium reimbursement in New York.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Results of Operations

Nine months Ended September 30, 2007 and 2006

The prescription and patient month data has been presented to provide additional data about operations. A prescription typically represents a 30-day supply of medication for an individual patient. Patient months represents a count of the number of months during a period that a patient received at least one prescription. If an individual patient received multiple medications during each month of a three month period, a count of three would be included in patient months irrespective of the number of medications filled in each month.

Net Sales. Net sales for the nine months ended September 30, 2007 increased to $183.1 million from $151.6 million for the nine months ended September 30, 2006, an increase of 20.8%. The increase in net sales for the nine months ended September 30, 2007 as compared to the same period in 2006 is primarily attributable to the acquisitions of Maiman, H&H, Whittier and St. Jude and an increase in volume from the addition of new patients.

For the nine month period ended September 30, 2006, we recognized $917 of net sales for retroactive premium reimbursement relating to prior periods in 2005 and 2004. For the nine month period ending September 30, 2007, we recorded revenue of $1,675 relating to the New York and California premium reimbursement programs. The accounts receivable balance at September 30, 2007 relating to premium reimbursement was $913.

Gross Profit. Gross profit was $26,301 and $22,338 for the nine months ended September 30, 2007 and 2006, respectively, and represents 14.4% and 14.7% of net sales, respectively. Gross profit for the nine month period ended September 30, 2006 includes $917 related to the retroactive premium reimbursement (in net sales) from prior periods.

Selling, General and Administrative Expenses. Selling, general and administrative expenses for the nine month period ended September 30, 2007 increased to $22,695 from $19,639 for the nine month period ended September 30, 2006, but declined as a percentage of net sales to 12.4% in 2007 from 13.0% in 2006. The increase in selling, general and administrative expenses was primarily due to increased expenses related to acquisitions. The decrease in selling, general and administrative expenses as a percentage of net sales was primarily due to integrating the acquisitions into our existing facilities, which improved operating efficiencies related to labor and fixed costs.

Included in selling, general and administrative expenses for the nine month period ended September 30, 2007 was approximately $1,119 of legal expenses relating to the litigation with Oris Medical Systems, Inc., or OMS, discussed in Part I, Item 3. Legal Proceedings of our Annual Report on Form 10-K for the year ended December 31, 2006.

Impairment of Long-Lived Assets. As a result of the termination of the LabTracker license agreement with Ground Zero, we recorded a charge of $599 ($1,228 less accumulated amortization of $629) for the nine months ended September 30, 2007 to reflect the impairment of a long-lived asset related to the LabTracker license.

Operating Income. Operating income was $3,007 and $2,699 for the nine months ended September 30, 2007 and 2006, respectively, and represents 1.6% and 1.8% of net sales, respectively. Operating income for the nine month period ended September 30, 2006 includes $917 of retroactive premium reimbursement from prior periods in 2005 and 2004. Operating income for the nine months ended September 30, 2007 includes an impairment of long-lived assets expense of $599. The increase in operating income is primarily due to the acquisitions of Maiman, H&H, Whittier and St. Jude and an increase in the volume of new patients.

Interest Income. Interest income was $556 and $946 for the nine months ended September 30, 2007 and 2006, respectively. The decrease in interest income is attributable to our increased use of cash to finance acquisitions during 2006, rather than investing those cash amounts and to the change in our investment portfolio to non-taxable securities. We receive interest income primarily from our investment in short-term securities and other cash equivalents.

Provision for Taxes. We recorded a provision for taxes of $1,372 and $835 for the nine month periods ended September 30, 2007 and 2006, respectively. The provision for the nine month period ended September 30, 2007 relates to federal, state and local income tax as adjusted for certain permanent differences. The provision for the nine month period ended September 30, 2006 relates primarily to state income tax and federal alternative minimum tax that would have been payable, after applying the net operating loss deduction created from prior years’ income tax deductions (related to stock based compensation) and deferred taxes (related to tax-deductible goodwill). Since the tax amount related to stock based compensation is not payable by the Company, the amount was credited to additional paid in capital.

The increase in the effective tax rate to 38.5% for the nine month period ended September 30, 2007 from 22.9% for the nine month period ended September 30, 2006 is due to the fact that, for the nine months ended September 30, 2006, a benefit was recognized upon the utilization of net operating loss carryforwards that were previously unrecognized due to the valuation allowance, thereby reducing the effective tax rate. Since the valuation allowance was released at December 31, 2006, there is no such benefit recognized in the nine month period ended September 30, 2007.

Net Income. For the nine months ended September 30, 2007, we recorded net income of $2,191 as compared to a net income of $2,810 for the comparable period in the prior year. Net income for the period ended September 30, 2006 includes $917 of retroactive premium reimbursement from prior periods in 2005 and 2004. Net income for the period ended September 30, 2007 includes an impairment of long-lived assets expense of $599. The decrease in net income is primarily attributable to the impairment of a long-lived asset.

SHARE THIS PAGE:  Add to Delicious Delicious  Share    Bookmark and Share



 
Icon Legend Permissions Topic Options
You can comment on this topic
Print Topic

Email Topic

2444 Views