Typically, the language of a 8-K is most often simply a copy/paste of the related PR that is issued either immediately before or immediately following the filing of the 8-K.
But what is interesting is that in this particular case, the language used in the PR is quite different. Here is the PR that was issued in advance of the 8-K:
TYSONS CORNER, Va., Mar 06, 2015 (BUSINESS WIRE) -- ScripsAmerica, Inc. (OTCBB: SCRC), a leading provider of a range of specialty prescription and over the counter pharmaceuticals and medical supplies, today announced that it has signed Letters of Intent to acquire an equity interest in 2 additional specialty pharmacies licensed to dispense pharmaceutical specialty products in a total of 40 states. Bob Schneiderman, Chief Executive Officer and Founding Partner of ScripsAmerica, said, "As part of our growth strategy, we believe that making strategic acquisitions of additional pharmacies similar in profile to Main Avenue Pharmacy represent an attractive, low-risk means to expand our geographic presence, leverage our existing investment, and introduce new products to our extensive distribution network. The two new pharmacies are licensed in a total of 40 states and already have a healthy mail order business, bringing us a platform that nicely complements our current operations. In addition, with these additions we also gain the market expertise and knowledge of their management teams, which will serve to strengthen our overall organization."
ScripsAmerica intends to fund the acquisition from existing cash balances or borrowing availability. The transaction is subject to normal due diligence and the completion of satisfactory purchase agreement, with the intention to close the acquisition no later than June 30, 2015.
Separately, Main Avenue Pharmacy received notice from one of its payor insurance companies that its agreement was ending effective March 13, 2015.
Mr. Schneiderman added, "We are already filing for arbitration to adjudicate the ending of our insurance contract as we firmly believe this decision is unjust. While the matter is adjudicated, however, the insurance company has elected to not reimburse its patients who purchase certain of our products from Main Avenue Pharmacy, which will have an impact on their revenues. Fortunately, while any temporary or permanent loss of these reimbursements to our patients will impact our revenues, we still believe our total revenues in 2015 will grow due to the efforts underway to diversify into adjacent and complementary healthcare operations, such as PIMD, diabetic medical supplies, additional pharmacies, and, prospectively, a Physician dispensing program. In addition, we believe revenues from Main Avenue Pharmacy and other lines of business should enable us to generate a profit in 2015."
About ScripsAmerica, Inc.
ScripsAmerica, Inc. is a supplier of prescription, OTC and nutraceutical drugs, delivering pharmaceutical products to a wide range of end users across the health care industry. End users include retail pharmacies, hospitals, long-term care facilities and government and home care agencies. For more information, visit www.ScripsAmerica.com.
(1) In a prior post, I had alluded to my belief that we would not necessarily see Gregory FCA out front in any way, but that they would likely be moving transparently behind the scenes guiding BS Schneiderman on a variety of issues, and that one of the indicators we may see of this is a change in how SCRC communicates (i.e. if we see SCRC saying things that they never spoke of before or saying things differently than they used to in the past).
It is my belief that this 8-K is an example of Gregory FCA's positive influence on BS Schneiderman. Remember, when SCRC acquired Main Ave, SCRC never 8-K'd this acquisition, they only PR'd it. And there was NEVER even a PR when the LOI was entered into (I am presuming a LOI was entered into as this is SOP for any business acquisition or mgmt services agreement).
Unlike BS Schneiderman or Jeff Andrews (SCRC's CFO), Gregory FCA knows that both the LOI and any subsequent consummation of a deal are PR-worthy events. In addition, Gregory FCA also knows that a 8-K is a very valuable tool to generate exposure to the smart money on the Street as REAL investors pay attention to SEC filings and don't give a rat's azz about company-issued PR's.
(2) For folks who may not be familiar with LOI's, as stated in the PR and 8-K, they are by definition "non-binding". BUT, to even reach the point where a LOI is signed DOES mean that negotiations are SERIOUS and LEGITIMATE.
An LOI is typically entered into when the primary terms are agreed upon (i.e. purchase price), and only the smaller issues are left to hash out, along with the potential buyer being granted confidential access to the target company's private records (i.e. financial records). Once SCRC is satisfied that all is kosher and both parties can agree on the remaining terms, the deal would then be finalized.
BUT, it is still no guarantee. The other terms may or may not prove to be deal-breakers, or during the course of their due diligence, SCRC may come across something that makes the acquisition no longer palatable to them.
(3) BS Schneiderman has gone on record in the PR as saying that the acquisitions would be financed by either cash on hand or thru "borrowing availability". I am hoping that he sticks to his prior statements that all future borrowing would be stricly straight debt and NOT any convert notes or equity-based financing.
(4) An important data point that was not disclosed is what percentage of equity interest in each pharmacy SCRC is planning to acquire. Under US GAAP, the accounting and -- more importantly, the financial reporting -- is vastly different depending on whether SCRC acquires less than 20%, between 20%-50%, or greater than 50% of any target company.
Anything that is not greater than 50% would mean that the acquisition is reflected strictly as an investment on SCRC's balance sheet. THIS MEANS THAT THERE IS NOTHING FROM SCRC'S SHARE OF THE TARGET COMPANY'S REVENUES THAT WILL EVER SHOW UP AS INCREMENTAL REVENUE ON SCRC'S INCOME STATEMENT.
The ONLY way that revenues from the target company will show up as revenues for SCRC is if SCRC's investment is greater than 50%, because then US GAAP considers SCRC to now have a controlling interest in the target company -- and therefore, like PIMD and Main Ave, the target company is now deemed to be a subsidiary of SCRC and gets consolidated into SCRC the same way PIMD and Main Ave are.
(5) The CVS/Caremark issue is likely one that SCRC will not be able to emerge from arbitration successfully. CVS/Caremark is a behemoth pharmacy benefits management company and has an army of attorneys in-house that most likely ensured that all contracts (especially those contracts with small local pharmacies like Main Ave) included terms that heavily favor CVS/Caremark, whether it is financial terms or exit options.
SCRC may not like it, just like it did not like the terms of the Ironridge deal, but it will simply come down to whether the terms of the agreement that SCRC inherited from the prior owners of Main Ave permitted CVS/Caremark to terminate the agreement the way they did, when they did it. If so, then, like Ironridge, this will be an open and shut case.
In hindsight, now, perhaps knowing that compounding was an area of pharma that was going to get pinched (via the new insurance coverage restrictions) combined with knowing that CVS/Caremark (and possibly other pharmacy benefits managers) had an out-clause in the short-term horizon, it leads one to wonder if perhaps this may have been why the prior owner of Main Ave was willing to sell this pharmacy for such a dirt-cheap price? In addition, one now wonders if the absence of new state licenses for Main Ave has been intentional if Mgmt was aware that this CVS/Caremark termination was likely and that other pharmacy benefits managers may follow suit?
This arbitration hearing will be very important. SCRC needs a favorable ruling, no doubt.
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On the bad. The question that should be asked is how much business is Scripts getting from cvs/caremark.
Before we jump to any conclusion let's get that info.
No outsider knows exactly how much, BUT, as investors, we don't need to know this. The fact that it was 8-K'd tells us already that the impact from CVS/Caremark is material. That is the SEC rule for determining whether an event is required to be 8-K'd to shareholders. If it was not material, BS Schneiderman would not disclose this event and the 8-K would simply have discussed the two LOI's that were signed as part of planned M&A activity.
