<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (Date of earliest event reported): November 15, 1995
-----------------
ROTECH MEDICAL CORPORATION
--------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED ON ITS CHARTER)
Florida 59-2115892
- ---------------------------- -------------------
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4506 L.B. McLeod Road, Suite F, Orlando, Florida 32811
- ------------------------------------------------ ------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (407) 841-2115
- --------------------------------------------------- --------------
Not Applicable
- --------------
(former name or former address, if changed since last report)
<PAGE>
The undersigned Registrant hereby amends the following item, financial
statements, exhibits or other portions of its Current Report on Form 8-K, filed
November 15, 1995, relating to the acquisition of an aggregate of individually
insignificant businesses acquired during the period August 1, 1995 to November
1, 1995.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
- ---------------------------------------------------------------------------
(a) 1. Financial Statement of Businesses Acquired.
-------------------------------------------
Advantage Healthcare, Inc.
--------------------------
Report of Independent Certified Public Accountants
Balance Sheet at December 31, 1994
Statement of Income for the Year Ended December 31, 1994
Statement of Changes in Stockholders' Equity for the Year
Ended December 31, 1994
Statement of Cash Flows for the Year Ended December 31, 1994
Notes to Financial Statements
Interim Balance Sheet at September 30, 1995 (unaudited)
Interim Statement of Income for the Nine Months Ended
September 30, 1995 (unaudited)
Interim Statement of Stockholder's Equity for the Nine Months
Ended September 30, 1995 (unaudited)
Interim Statement of Cash Flows for the Nine Months Ended
September 30, 1995 (unaudited)
Notes to Interim Financial Statements as of September 30, 1995
(unaudited)
Revco Home Health Care Centers, Inc.
------------------------------------
Report of Independent Public Accountants
Balance Sheet at June 3, 1995
<PAGE>
Statement of Operations for the Forty-four Week Period
Beginning July 30, 1994 and Ending June 3, 1995
Statement of Stockholders' Deficit for the Forty-four Week
Period Beginning July 30, 1994 and Ending June 3, 1995
Statement of Cash Flows for the Forty-four Week Period
Beginning July 30, 1994 and Ending June 3, 1995
Notes to Financial Statements
Interim Balance Sheet at September 30, 1995 (unaudited)
Interim Statement of Income for the Four Months Ended
September 30, 1995 (unaudited)
Interim Statement of Stockholders' Deficit for the Four
Months Ended September 30, 1995 (unaudited)
Interim Statement of Cash Flows for the Four Months Ended
September 30, 1995 (unaudited)
Notes to Interim Financial Statements as of September 30, 1995
(unaudited)
Valley Home Medical, Inc.
-------------------------
Independent Auditors' Report
Combined Balance Sheet at November 30, 1994 and 1993
Combined Statement of Income for the Years Ended November 30,
1994 and 1993
Combined Statement of Stockholders' Equity for the Years Ended
November 30, 1994 and 1993
Combined Statement of Cash Flows for the Years Ended
November 30, 1994 and 1993
Notes to Combined Financial Statements
Interim Balance Sheet at October 31, 1995 (unaudited)
<PAGE>
Interim Statement of Income for the Eleven Months Ended
October 31, 1995 (unaudited)
Interim Statement of Stockholders' Equity for the Eleven Months
Ended October 31, 1995 (unaudited)
Interim Statement of Cash Flows for the Eleven Months Ended
October 31, 1995 (unaudited)
Notes to Interim Financial Statements as of October 31, 1995
(unaudited)
(b) 1. Pro Forma Financial Information
-------------------------------
Pro Forma Condensed Combined Financial Statements at July 31,
1995
Pro Forma Condensed Combined Interim Financial Statements at
October 31, 1995 (unaudited)
<PAGE>
ADVANTAGE HEALTHCARE, INC.
FINANCIAL REPORT
DECEMBER 31, 1994
C O N T E N T S
Page
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
Balance sheet 2
Statement of income 3
Statement of changes in stockholders' equity 4
Statement of cash flows 5
Notes to financial statements 6-8
<PAGE>
Report of Independent Certified Public Accountants
--------------------------------------------------
To the Board of Directors and Stockholders
Advantage Healthcare, Inc.
Chattanooga, Tennessee
We have audited the accompanying balance sheet of Advantage Healthcare,
Inc. as of December 31, 1994, and the related statements of income, changes in
stockholders' equity, and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides 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 Advantage Healthcare, Inc.
as of December 31, 1994, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
/s/ Hazlett, Lewis & Bieter, PLLC
Chattanooga, Tennessee
December 22, 1995
<PAGE>
ADVANTAGE HEALTHCARE, INC.
BALANCE SHEET
December 31, 1994
- -------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 97,588
Accounts receivable, less allowance for doubtful
accounts of $31,500 218,926
Inventories 72,974
Prepaid expenses and other assets 6,597
---------
Total current assets 396,085
---------
EQUIPMENT AND VEHICLES, at cost (Note 2)
Rental equipment - pharmacy 17,605
Rental equipment - respiratory therapy 149,334
Rental equipment - DME 166,437
Office equipment 41,337
Vehicles 166,142
---------
540,855
Less accumulated depreciation (379,331)
---------
Equipment and vehicles, net 161,524
---------
$ 557,609
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 20,219
Accounts payable 103,618
Accrued pension plan expense (Note 3) 64,901
Other accrued expenses 1,729
---------
Total current liabilities 190,467
---------
LONG-TERM DEBT, less current maturities shown above (Note 2) 23,479
---------
STOCKHOLDERS' EQUITY
Common stock, no par value, stated value $100 per share;
2,000 shares authorized; 300 shares outstanding 30,000
Retained earnings 313,663
---------
Total stockholders' equity 343,663
---------
$ 557,609
=========
The Notes to Financial Statements are an integral part of this statement.
<PAGE>
ADVANTAGE HEALTHCARE, INC.
STATEMENT OF INCOME
Year Ended December 31, 1994
- ------------------------------------------------------------------------
REVENUES
Pharmacy $ 896,311
Respiratory therapy 404,132
DME 330,052
Other 19,886
----------
Total revenues 1,650,381
----------
COST OF REVENUES
Pharmacy 313,820
Respiratory therapy 84,975
DME 156,129
Other 4,762
----------
Total cost of revenues 559,686
----------
Gross profit 1,090,695
----------
OPERATING EXPENSES
Officers' salaries 219,840
Salaries and wages 204,280
Commissions 319,563
Officers' and employee benefits 122,218
Outside services 19,048
Provision for bad debt expense 22,480
Rent expense 106,579
Depreciation 25,646
Utilities 5,627
Telephone 15,963
Business insurance 17,876
Vehicle expense 22,202
Professional fees 20,228
Accreditation fees 8,951
Office expenses 28,033
Taxes and licenses 4,756
Advertising 4,278
Dues and subscriptions 2,781
Contributions 2,445
Travel and entertainment 10,838
Other expenses 7,225
----------
Total operating expenses 1,190,857
----------
Operating loss (100,162)
----------
OTHER INCOME (EXPENSES)
Interest income 4,643
Interest expense (1,875)
----------
Total other income (expenses), net 2,768
----------
Net loss ($97,394)
=========
The Notes to Financial Statements are an integral part of this statement.
<PAGE>
ADVANTAGE HEALTHCARE, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Year Ended December 31, 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Retained
Stock Earnings Total
------- -------- --------
<S> <C> <C> <C>
BALANCE, December 31, 1993, as previously
reported (unaudited) $30,000 $373,339 $403,339
Restatement of assets and liabilities to
reflect accounting under generally
accepted accounting principles (Note 5) - 37,718 37,718
------- -------- --------
BALANCE, December 31, 1993, as restated 30,000 411,057 441,057
Net loss for the year - (97,394) (97,394)
------- -------- --------
BALANCE, December 31, 1994 $30,000 $313,663 $343,663
======= ======== ========
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
<PAGE>
ADVANTAGE HEALTHCARE, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1994
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(97,394)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 54,974
Provision for bad debt expense 22,480
Change in operating assets and liabilities:
Accounts receivable (1,223)
Inventories (3,693)
Prepaid expenses and other assets 10,316
Accounts payable 78,117
Accrued pension plan expense (3,587)
Other accrued expenses 574
--------
Net cash provided by operating activities 60,564
--------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment and vehicles (75,436)
--------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 34,468
Principal payments on long-term debt (16,655)
--------
Net cash provided by financing activities 17,813
--------
Net increase in cash 2,941
Cash at beginning of year 94,647
--------
Cash at end of year $ 97,588
========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for interest $ 1,875
========
The Notes to Financial Statements are an integral part of this statement.
<PAGE>
ADVANTAGE HEALTHCARE, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1994
- --------------------------------------------------------------------------------
Note 1. Summary of Operations and Significant Accounting Policies
The accounting and reporting policies of the Company conform with
generally accepted accounting principles. The policies that materially
affect financial position and results of operations are summarized
below.
Company operations:
The Company is engaged primarily in the sale and rental of
pharmaceutical supplies and sale and rental of home healthcare
equipment to home healthcare patients.
Cash and cash equivalents:
For purposes of reporting cash flows, cash and cash equivalents
include cash on hand and cash in bank.
Inventories:
Inventories consist principally of pharmaceutical supplies,
respiratory therapy supplies and durable medical equipment (DME).
Inventories are valued at the lower of cost (first-in first-out
method) or market.
Equipment and vehicles:
Equipment and vehicles are recorded at cost. Depreciation is provided
over the estimated useful lives of the respective classes of assets
using the straight-line method.
Income taxes:
The Company has elected by consent of its shareholders to be taxed
under the provisions of Subchapter S of the Internal Revenue Code.
Under these provisions, the Company does not pay federal corporate
income taxes on its taxable income. Instead, the shareholders are
liable for federal income tax on the Company's taxable income.
Rental income recognition:
The Company rents equipment under month-to-month leases. Income is
recognized monthly for rental equipment based on equipment on lease
each month. Rental equipment is depreciated over its economic useful
life. Some DME is leased under informal lease-to-buy arrangements over
13 months. Income for DME rented under lease-to-buy arrangements is
recognized monthly based on equipment on lease and the related
equipment cost is charged to cost of revenues over the lease-to-buy
term.
<PAGE>
ADVANTAGE HEALTHCARE, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1994
- -------------------------------------------------------------------------------
Note 1. Summary of Operations and Significant Accounting Policies (continued)
Use of estimates in the preparation of financial statements:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Note 2. Long-term Debt
The Company's long-term debt consists of the following:
<TABLE>
<S> <C>
Vehicle installment note; payable $561 monthly, including
interest at 8.99% through December 1997; collateralized
by vehicle $17,622
Vehicle installment note; payable $526 monthly, including
interest at 7.80% through October 1997; collateralized
by vehicle 16,429
Vehicle installment note payable to stockholder in monthly
payments of $1,228, including interest at 4.75% through
September 1995; collateralized by vehicle 9,647
_______
43,698
Less current maturities (20,219)
_______
$23,479
=======
</TABLE>
Aggregate maturities of long-term debt for succeeding years are as
follows:
1995 $20,219
1996 11,498
1997 11,981
Note 3. Employee Pensions - Individual Retirement Accounts
The Company has adopted a simplified employee pension agreement under
the provisions of Section 408(k) of the Internal Revenue Code. The
Plan covers substantially all full-time employees who have completed
two years of service and are at least 21 years old. Contributions to
the Plan by the Company are discretionary in each year. The Company's
contribution to the Plan for 1994 was $64,901.
<PAGE>
ADVANTAGE HEALTHCARE, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1994
- --------------------------------------------------------------------------------
Note 4. Operating Leases and Related-Party Transaction
Office space is leased from the stockholders under a 15-year lease
agreement expiring in 2006. The agreement provides for annual rentals of
$86,304, subject to an escalation at the lessor's discretion based on
the CPI index. Total rents paid to related parties during 1994 was
$86,304. The Company also leases medical equipment under short-term
lease agreements with various expiration dates. Rental expense under
these leases totaled $20,275 in 1994. The following is a schedule by
year of future minimum rental payments required under operating leases
that have initial or remaining noncancelable lease terms in excess of
one year as of December 31, 1994.
1995 $ 86,304
1996 86,304
1997 86,304
1998 86,304
1999 86,304
Thereafter 604,128
Note 5. Restatement of Retained Earnings at Beginning of Year
Prior to January 1, 1994, the Company's financial statements were not
audited and were prepared primarily on an income-tax basis of
accounting. Retained earnings and related assets at the beginning of the
year have been restated to reflect the use of generally accepted
accounting principles (GAAP). The principal differences relate to use of
an allowance for uncollectible accounts receivable versus the direct
write-off method for bad debts; use of estimated economic useful lives
for depreciable assets versus tax depreciable lives and recognizing the
cost of DME sold under lease-to-buy arrangements with the related lease
revenue. The net effect of these adjustments of $37,718 is reflected as
an adjustment of beginning retained earnings in the accompanying
statement of stockholders' equity.
Note 6. Event Subsequent to December 31, 1994
Effective October 1, 1995, Rotech Medical Corporation through its
subsidiary, Beta Medical Equipment, Inc., acquired substantially all of
the assets of Advantage Healthcare, Inc. Rotech operates home healthcare
agencies providing infusion therapy, medical equipment, respiratory and
oxygen care in various states.
<PAGE>
Advantage Healthcare, Inc.
Interim Balance Sheet (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
--------------------
<S> <C>
ASSETS
Current Assets:
Cash $147,515
Accounts receivable:
Trade, less allowance for contractual
adjustments and doubtful accounts 206,586
Inventories 30,404
Prepaid expenses and other 3,997
--------
Total Current Assets 388,502
Other Assets 2,600
Property and Equipment, less accumulated
depreciation 136,741
--------
Total Assets $527,843
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable, accrued expenses and
other liabilities $ 22,329
Current maturities of long-term debt 13,045
--------
Total Current Liabilities 35,374
Other liabilities:
Long-term debt 13,160
Stockholders' Equity:
Common stock, no par value, stated value
$100 per share, 2000 shares
authorized; 300 outstanding 30,000
Retained earnings 449,309
--------
479,309
--------
Total Liabilities and Stockholders' Equity $527,843
========
</TABLE>
See accompanying notes to interim financial statements (unaudited).
<PAGE>
Advantage Healthcare, Inc.
Interim Statement of Cash Flows (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1995
------------------
<S> <C>
NET CASH PROVIDED BY OPERATING
ACTIVITIES $ 84,830
INVESTING ACTIVITIES
Purchases of property and equipment (24,584)
---------
Net cash used in investing activities (24,584)
FINANCING ACTIVITIES
Payments on notes payable (10,319)
---------
Net cash used by financing activities (10,319)
---------
Increase in cash 49,927
Cash at beginning of period 97,588
---------
Cash at end of period $ 147,515
=========
</TABLE>
See accompanying notes to interim financial statements (unaudited).
<PAGE>
Advantage Healthcare, Inc.
Notes to Interim Financial Statements - September 30, 1995 (Unaudited)
- -------------------------------------------------------------------------------
1. BASIS OF REPORTING
The interim balance sheet as of September 30, 1995 and the interim statements of
income, stockholders' equity and cash flows for the nine months ended September
30, 1995 are unaudited. In the opinion of management, these statements have
been prepared on the same basis as the audited financial statements and include
all adjustments, consisting only of normal recurring accruals, necessary for the
fair statement of the results of the interim periods.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These interim financial statements should be
read in conjunction with the financial statements and notes thereto included in
the Company's audited financial statements as of and for the year ended December
31, 1994. The results of operations for the interim period are not necessarily
indicative of the results which may be expected for an entire year.
2. SUBSEQUENT EVENT
Effective October 1, 1995, the Company sold substantially all of its net assets
and granted a covenant not to compete to a Florida-based provider of home health
care services for approximately $2.6 million cash and 56,281 shares of the
buyer's restricted common stock valued at $1.1 million.
<PAGE>
REVCO HOME HEALTH CARE CENTERS, INC.
FINANCIAL STATEMENTS
AS OF JUNE 3, 1995
TOGETHER WITH REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Revco Home Health Care Centers, Inc.:
We have audited the accompanying balance sheet of Revco Home Health Care
Centers, Inc. (an Ohio corporation and an indirect wholly owned subsidiary of
Revco D.S., Inc.) as of June 3, 1995 and the related statements of operations,
stockholder's deficit and cash flows for the forty-four week period beginning
July 30, 1994 (acquisition date) and ending June 3, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Revco Home Health Care
Centers, Inc. as of June 3, 1995, and the results of its operations and cash
flows for the forty-four week period beginning July 30, 1994 (acquisition date)
and ending June 3, 1995 in conformity with generally accepted accounting
principles.
Cleveland, Ohio,
December 15, 1995.
<PAGE>
REVCO HOME HEALTH CARE CENTERS, INC.
------------------------------------
BALANCE SHEET
-------------
JUNE 3, 1995
------------
($ in 000's)
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
CURRENT ASSETS:
Cash $ 784
Accounts receivable, net of allowance
for doubtful accounts of $4,867 4,073
Inventories 4,257
Other current assets 82
-------
Total current assets 9,196
PROPERTY AND EQUIPMENT, net (Note 2) 3,128
-------
$12,324
=======
LIABILITIES AND STOCKHOLDER'S DEFICIT
- -------------------------------------
CURRENT LIABILITIES:
Compensation and benefits $ 332
DUE TO PARENT 13,029
-------
13,361
STOCKHOLDER'S DEFICIT:
Common stock, $.01 par value, 850
shares authorized, issued and -
outstanding
Accumulated deficit (1,037)
-------
(1,037)
-------
$12,324
=======
</TABLE>
The accompanying notes to financial statements
are an integral part of this balance sheet.
<PAGE>
REVCO HOME HEALTH CARE CENTERS, INC.
------------------------------------
STATEMENT OF OPERATIONS
-----------------------
FOR THE FORTY-FOUR WEEK PERIOD BEGINNING
----------------------------------------
JULY 30, 1994 (ACQUISITION DATE) AND ENDING JUNE 3, 1995
--------------------------------------------------------
($ in 000's)
<TABLE>
<S> <C>
REVENUE:
Sales of supplies and equipment $18,101
Equipment rental 4,923
-------
23,024
-------
COST OF SALES 10,797
OPERATING EXPENSES 12,823
DEPRECIATION AND AMORTIZATION 441
-------
24,061
-------
Net loss $(1,037)
=======
</TABLE>
The accompanying notes to financial statements
are an integral part of this statement.
<PAGE>
REVCO HOME HEALTH CARE CENTERS, INC.
------------------------------------
STATEMENT OF STOCKHOLDER'S DEFICIT
----------------------------------
FOR THE FORTY-FOUR WEEK PERIOD BEGINNING
----------------------------------------
JULY 30, 1994 (ACQUISITION DATE) AND ENDING JUNE 3, 1995
--------------------------------------------------------
($ in 000's)
<TABLE>
<CAPTION>
Common Accumulated
Stock Deficit Total
------- ----------- --------
<S> <C> <C> <C>
BALANCE, JULY 30, 1994 $ - $ - $ -
Net loss - (1,037) (1,037)
------ -------- --------
BALANCE, JUNE 3, 1995 $ - $(1,037) $(1,037)
====== ======== ========
</TABLE>
The accompanying notes to financial statements
are an integral part of this statement.
<PAGE>
REVCO HOME HEALTH CARE CENTERS, INC.
------------------------------------
STATEMENT OF CASH FLOWS
-----------------------
FOR THE FORTY-FOUR WEEK PERIOD BEGINNING
----------------------------------------
JULY 30, 1994 (ACQUISITION DATE) AND ENDING JUNE 3, 1995
--------------------------------------------------------
($ in 000's)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,037)
Adjustments to reconcile net loss to
net cash used for operating
activities-
Depreciation and amortization 441
Changes in assets and liabilities-
Accounts receivable (1,381)
Inventories 949
Other, net (13)
-------
Net cash used for operating activities (1,041)
-------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net additions to property and equipment (786)
-------
Net cash used for investing activities (786)
-------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net advances from parent 2,570
-------
Net cash provided by financing activities 2,570
-------
NET INCREASE IN CASH 743
-------
CASH, BEGINNING OF PERIOD 41
-------
CASH, END OF PERIOD $ 784
=======
</TABLE>
The accompanying notes to financial statements
are an integral part of this statement.
<PAGE>
REVCO HOME HEALTH CARE CENTERS, INC.
------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
JUNE 3, 1995
------------
1. ORGANIZATION AND SUMMARY OF
SIGNICANT ACCOUNTING POLICIES:
------------------------------
Revco Home Health Care Centers, Inc. (HHC) is a wholly owned operating
subsidiary of Hook-SupeRx, Inc. (HSI). HSI is a wholly owned subsidiary of
Revco D.S., Inc. (Revco and, collectively, with HSI, the Parent). The
accompanying financial statements include the operating results of HHC since
Revco's acquisition of HSI, which for financial reporting purposes was July 30,
1994.
Revco Acquisition of HSI
- ------------------------
In July 1994, Revco completed its acquisition of HSI. The acquisition was
accounted for using the purchase method. Accordingly, the carrying values of
HHC's net assets were adjusted to their estimated fair values. The net fair
values assigned to HHC assets exceeded the Parent's allocated acquisition cost
of HHC. In the accompanying financial statements, the resulting excess was
allocated to reduce the values of HHC's noncurrent assets (Note 2). None of the
acquisition financing or any other HSI or Revco debt has been pushed down to or
recorded by HHC.
Transactions with Parent
- ------------------------
The Parent provided HHC with certain services including executive, legal, data
processing, accounting, tax and financial services. HHC's coverage for
liability, industrial compensation and other insurance was provided under
programs administered by the Parent. In accordance with the Securities and
Exchange Commission Rules and Regulations, certain expenses have been adjusted
in the accompanying financial statements to reflect the costs incurred by the
Parent on behalf of HHC. These specific expenses were allocated according to a
formula based on the ratio of HHC's revenues to the Parent's revenues.
Management believes that these expenses were reasonably allocated. Charges to
HHC for such services totaled $450,000 for the current period and are included
in operating expenses in the accompanying statement of operations.
Due to Parent
- -------------
The Parent provided financing to HHC through an intercompany debt account. No
interest is charged to HHC on intercompany borrowings from the Parent. There
are no set repayment terms relative to the due to parent account.
Fiscal Year
- -----------
HHC's fiscal year ends on the Saturday closest to May 31.
Inventory
- ---------
Inventory consists primarily of medical supplies and equipment and is stated at
the lower of cost or market. Cost is determined using the first-in, first-out
method.
<PAGE>
Revenue Recognition
- -------------------
Revenues are recognized on sales of supplies and medical equipment on the date
of delivery and on rental during the time period the equipment is used by
patients. A majority of HHC's revenues are billed to insurance carriers and
other care providers and are subject to review for eligibility. Accounts
receivable are recognized at estimatable reimbursable amounts. Provisions are
made for doubtful accounts and estimated sales returns. Provision for doubtful
accounts for the forty-four weeks ended June 3, 1995 was $2,995,000 and is
included in operating expenses in the accompanying statement of operations.
Approximately 55% of HHC's receivables are due from Medicare and Medicaid
programs.
Income Taxes
- ------------
HHC's results of operations have been included in the consolidated federal tax
returns of the Parent. The accompanying financial statements reflect the tax
accounts of HHC as if it were a corporation filing separate returns. The
corresponding tax amounts paid by or credited to HHC by the Parent are included
in the amount due to parent on the accompanying balance sheet. No income tax
benefit has been recognized in the accompanying statement of operations for the
current period.
2. PROPERTY AND EQUIPMENT:
-----------------------
As discussed above, as of July 30, 1994, HHC's property and equipment were
adjusted to reflect the push-down of the Parent's allocation of the acquisition
cost of HHC. All current period additions are stated at cost. Depreciation and
amortization is provided using the straight-line method over the remaining
useful lives of the respective assets.
Property and equipment is summarized as follows ($ in 000's):
<TABLE>
<CAPTION>
Financial
Reporting Financial
Value Reporting
Before Parent Value After
Estimated Push-Down of Push-Down of
Useful Acquisition Acquisition
Lives Cost Cost
---------- ------------- ------------
<S> <C> <C> <C>
Rental equipment 5 $4,070 $2,867
Land - 84 84
Building 20 618 618
Vehicles 5 235 -
Leasehold improvements 3-7 455 -
Store furniture and fixtures 3-7 292 -
Office equipment 3-5 181 -
------ ------
$5,935 3,569
======
Less- Accumulated depreciation and
amortization (441)
------
$3,128
======
</TABLE>
<PAGE>
3. COMMITMENTS AND CONTINGENCIES:
------------------------------
HHC conducts substantially all of its retailing operations in leased premises.
Future minimum lease payments under noncancelable operating leases are as
follows ($ in 000's):
<TABLE>
<CAPTION>
<S> <C>
1996 $ 975
1997 873
1998 645
1999 514
2000 341
2001 and thereafter 1,042
------
$4,390
======
</TABLE>
Rental expense for the current period was $944.
HHC is subject to litigation in the normal course of business. Management
believes the effect, if any, of an unfavorable settlement of litigation will not
have a material effect on the financial position or results of operations of
HHC.
4. SUBSEQUENT EVENT:
-----------------
On September 29, 1995, the Parent completed the sale of substantially all of the
assets of HHC to Responsive Home Health Care, Inc., a Florida corporation and a
wholly owned subsidiary of RoTech Medical Corporation, a Florida corporation.
<PAGE>
Revco Home Health Care Centers, Inc.
Interim Balance Sheet (Unaudited)
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1995
------------------
ASSETS
Current Assets:
Cash $ -
Accounts receivable:
Trade, net of allowance for
contractual adjustments
and doubtful accounts 4,645,200
Inventories 2,615,000
-----------
Total Current Assets 7,260,200
Property and Equipment, net 3,170,670
-----------
Total Assets $10,430,870
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Compensation and benefits 500,670
-----------
Total Current Liabilities 500,670
Due to parent $10,658,000
Stockholders' Deficit:
Common stock, $.01 par value, 850
shares authorized, issued and -
outstanding
Accumulated deficit (727,800)
-----------
(727,800)
-----------
Total Liabilities and Stockholders' Deficit $10,430,870
===========
See accompanying notes to interim financial statements (unaudited).
<PAGE>
Revco Home Health Care Centers, Inc.
Interim Statement of Income (Unaudited)
- --------------------------------------------------------------------------------
FOUR MONTHS ENDED
SEPTEMBER 30, 1995
--------------------
Operating revenue $8,489,700
Cost and expenses:
Cost of revenue 6,074,900
Selling, general and administrative 2,005,700
Depreciation 99,900
----------
8,180,500
----------
Net Income $ 309,200
==========
See accompanying notes to interim financial statements (unaudited).
<PAGE>
Revco Home Health Care Centers, Inc.
Interim Statement of Stockholders' Deficit (Unaudited)
- --------------------------------------------------------------------------------
COMMON STOCK
-------------- ACCUMULATED
SHARES AMOUNT DEFICIT
---------------------------
Balance at June 4, 1995 850 - $(1,037,000)
Net income 309,200
---------------------------
Balance at September 30, 1995 850 - $(727,800)
===========================
See accompanying notes to interim financial statements (unaudited).
<PAGE>
Revco Home Health Care Centers, Inc.
Interim Statement of Cash Flows (Unaudited)
- -------------------------------------------------------------------------------
FOUR MONTHS ENDED
SEPTEMBER 30, 1995
------------------
NET CASH PROVIDED BY OPERATING $ 1,729,570
ACTIVITIES
INVESTING ACTIVITIES
Purchases of property and equipment (142,570)
-----------
Net cash used in investing activities (142,570)
FINANCING ACTIVITIES
Payments to parent (2,371,000)
-----------
Net cash used by financing activities (2,371,000)
-----------
Decrease in cash (784,000)
Cash at beginning of period 784,000
-----------
Cash at end of period $ -
===========
See accompanying notes to interim financial statements (unaudited).
<PAGE>
Revco Home Health Care Centers, Inc.
Notes to Interim Financial Statements - September 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
1. BASIS OF REPORTING
The interim balance sheet as of September 30, 1995 and the interim statements of
income, stockholders' deficit and cash flows for the four months ended September
30, 1995 are unaudited. In the opinion of management, these statements have been
prepared on the same basis as the audited financial statements and include all
adjustments, consisting only of normal recurring accruals, necessary for the
fair statement of the results of the interim periods.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These interim financial statements should be
read in conjunction with the financial statements and notes thereto included in
the Company's audited financial statements as of and for the forty-four week
period ended June 3, 1995. The results of operations for the interim period are
not necessarily indicative of the results which may be expected for an entire
year.
2. SUBSEQUENT EVENT
Effective October 1, 1995, the Company sold substantially all of its net assets
to a Florida-based provider of home health care services for $10.4 million cash.
<PAGE>
[LETTERHEAD OF TANNER & CO. APPEARS HERE]
TO THE BOARD OF DIRECTORS OF
VALLEY HOME MEDICAL INC.
We have audited the accompanying balance sheet of Valley Home Medical Inc.
as of November 30, 1994 and the combined balance sheet of Valley Home Medical,
Inc. and Valley Home I.V. Services, Inc., as of November 30, 1993, and the
related statements of income, stockholders' equity and cash flows for the years
ended November 30, 1994 and 1993. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the financial position of Valley Home Medical, Inc., and
Valley Home I.V. Services, Inc., as of November 30, 1994 and 1993, and the
results of their operations and its cash flows of the years ended November 30,
1994 in conformity with generally accepted accounting principles.
/s/ Tanner & Co.
July 14, 1995
<PAGE>
VALLEY HOME MEDICAL, INC.
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
NOVEMBER 30,
1994 1993
---------- ----------
<S> <C> <C>
ASSETS
------
Current Assets:
Cash $ - $ 2,452
Accounts receivable (net of allowance
for doubtful accounts of $80,000 and
$87,000 at November 30, 1994 and 728,613 479,992
1993, respectively)
Inventories 394,924 83,148
Notes receivable - related parties 19,587 136,554
--------- --------
Total Current Assets 1,143,124 702,146
Property and Equipment, net 552,964 286,612
Other assets 3,142 9,439
Investment in Layton Drug Company - 104,366
Deferred tax asset 19,000 -
--------- --------
$1,718,230 $1,102,563
========== ==========
</TABLE>
<PAGE>
VALLEY HOME MEDICAL, INC.
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
NOVEMBER 30,
1994 1993
---------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Checks written in excess of cash in $ 22,417 $ 40,165
bank
Current portion of long-term debt 252,769 12,850
Note payable 153,321 26,000
Accounts payable 381,863 71,092
Accrued expenses 32,011 47,238
Income taxes payable 28,743 33,500
---------- ----------
Total current liabilities 871,124 230,845
---------- ----------
Long-term debt 76,379 -
---------- ----------
Total liabilities 947,503 230,845
Commitments - -
Stockholders' equity:
Valley Home Medical, Inc.
Common Stock, no par value , 10,000
shares authorized; shares issued and
outstanding, 2,500 and 1,500 at 436,021 1,500
November 30, 1994 and 1993,
respectively
Valley Home I.V. Services, Inc.
Common stock, no par value; 10,000
shares authorized; 1,000 shares - 1,000
issued and outstanding at November
30, 1993
Retained earnings 334,706 878,218
Treasury stock - (9,000)
---------- ----------
770,727 871,718
---------- ----------
Total Stockholders' equity $1,718,230 $1,102,563
========== ==========
</TABLE>
See notes to combined financial statements.
<PAGE>
VALLEY HOME MEDICAL, INC.
COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1994 1993
------------ ----------
Revenue:
<S> <C> <C>
Net Sales 3,867,440 1,571,359
Net rental income 452,670 351,191
----------- ----------
Total revenue 4,320,110 1,922,550
Cost of sales and rental 2,177,971 584,846
----------- ----------
Gross profit 2,142,139 1,337,704
----------- ----------
Selling, general and administrative 2,213,768 1,314,951
expenses
----------- ----------
Income (loss) from operations (71,629) 22,753
----------- ----------
Other income (expense):
Interest expense (18,987) (5,497)
Other 34,490 59,441
----------- ----------
15,503 53,944
----------- ----------
Income (loss) before income (56,126) 76,697
taxes
Income taxes (provision) benefit:
Current (7,000) (11,500)
Deferred 19,000 (3,500)
----------- ----------
Total income taxes 12,000 (15,000)
----------- ----------
Net (loss) income $ (44,126) $ 61,697
=========== ==========
</TABLE>
See notes to combined financial statements.
<PAGE>
VALLEY HOME MEDICAL, INC.
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED NOVEMBER 30, 1994 AND 1993
<TABLE>
<CAPTION>
VALLEY HOME VALLEY HOME
MEDICAL, INC. I.V. SERVICES, INC.
COMMON STOCK COMMON STOCK
---------------------- -----------------------
NO. OF NO. OF RETAINED TREASURY
SHARES AMOUNT SHARES AMOUNT EARNINGS STOCK
---------- --------- --------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 1, 1992 1,500 $ 1,500 1,000 $ 1,000 $ 816,521 $(9,000)
Net Income
- - - - 61,697 -
------- -------- ------ ------- --------- -------
Balance, November 30, 1993
1,500 1,500 1,000 1,000 878,218 (9,000)
Acquisition of Valley Home I.V.
Services, Inc. 1,000 434,521 (1,000) (1,000) (442,521) 9,000
Distribution to shareholders in
connection with acquisition of Layton - - - - (56,865) -
Drug Company, Inc.
Net (loss) - - - - (44,126) -
------- -------- ------ ------- --------- -------
Balance, November 30, 1994 2,500 $436,021 - - 334,706 -
======= ======== ======= ======== ========= =======
</TABLE>
See notes to combined financial statements.
<PAGE>
Valley Home Medical, Inc.
Statement of Cash Flows
Years Ended November 30, 1994 and 1993
1994 1993
---------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Reconciliation of net income to net cash
provided by operating activities:
Net Income (loss) $ (44,126) 61,697
Adjustments to reconcile net income
to net cash (used in) provided by
operating activities:
Depreciation 135,282 65,680
Loss on disposal of assets 13,247 -
(Increase) decrease in:
Accounts receivable (120,590) 48,087
Inventories (776) (20,308)
Other assets 6,297 1,353
Increase (decrease) in:
Checks written in excess of
cash in bank (17,748) 40,165
Accounts payable 58,222 11,393
Accrued expenses (15,227) 6,049
Income taxes payable (4,757) (22,000)
Deferred income taxes (19,000) 3,500
--------- ---------
Net cash (used in)
provided by
operating activities (9,176) 195,616
--------- ---------
CASH FLOWS FROM INVESTMENT ACTIVITIES:
Purchase of property and equipment (398,494) (139,878)
Payments received from notes receivable 116,967 -
Increase in notes receivable - (136,554)
Decrease in investment - 7,114
--------- ---------
Net cash (used in)
investing activities (281,527) (269,318)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net changes in notes payable 140,471 30,801
Proceeds from long-term debt 244,128 -
Principal payments on long-term debt (96,348)
--------- ---------
Net cash provided by (used in)
financing activities 288,251 30,801
--------- ---------
<PAGE>
VALLEY MEDICAL, INC.
STATEMENT OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
1994 1993
-------------------------
<S> <C> <C>
Net decrease in cash (2,452) (42,901)
Cash, beginning of year 2,452 45,353
------- ------
Cash, end of year $ - 2,452
======= ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest $ 5,837 6,321
======= ======
Income taxes $12,094 30,184
======= ======
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Effective January 1, 1994, the Company increased its ownership in Layton
Drug Company, Inc., from 30 percent to 100 percent. The Company did this through
the issuance of a note payable in the amount of $155,369. At the time of the
increase in ownership, Layton Drug Company, Inc., had the following assets and
liabilities:
<TABLE>
<CAPTION>
<S> <C>
Accounts Receivable $ 128,032
Inventory 311,000
Office equipment 19,119
Accumulated depreciation (2,732)
Accounts payable (252,549)
---------
Equity at January 1, 1994 202,870
Less total investment in
Layton Drug Company Inc.
Investment in Layton Drug (104,366)
Issuance of note payable (155,369)
---------
Net excess of consideration
paid over assets acquired $ (56,865)
=========
</TABLE>
See notes to combined financial statements.
<PAGE>
VALLEY HOME MEDICAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
NOVEMBER 30, 1994 AND 1993
1. BASIS OF PRESENTATION
The financial statements present the financial condition, results of
operation and cash flows of Valley Home Medical, Inc. (Company) at November 30,
1994 and for the year then ended. The Company acquired Valley Home I.V.
Services (Home I.V.) effective December 1, 1993. The acquisition was effected
through a stock-for-stock transaction wherein the Company issued 1,500 shares of
its common stock for 100 percent of the outstanding common stock of Home I.V.
The acquisition was accounted for as a purchase with all assets and liabilities
recorded at their historical cost. Home I.V. had similar ownership as the
Company. At the time of the acquisition, the Corporation of Home I.V. was
terminated.
Effective January 1, 1994, the Company acquired the remaining 70 percent
of Layton Drug Company, Inc. (Layton Drug). The Company previously owned 30
percent. The Company issued a note payable in the amount of $155,369 for the
remaining interest in Layton Drug. At the time of the acquisition, the
Company's investment in Layton Drug plus the issued note payable exceeded the
equity of Layton Drug by $212,234. This has been recorded as a distribution.
The owners of Layton Drug are similar to those of the Company.
The financial statements at November 30, 1994 and the year then ended
include those of the Company and Home I.V. for the entire year and Layton Drug
from January 1, 1994.
The combined financial statements at November 30, 1993 and for the year
then ended include those of the Company and Home I.V. Layton Drug was
accounted for on the equity method as the Company had a 30 percent interest.
2. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNT POLICIES
ORGANIZATION
Valley Home Medical, Inc., (the Company) was incorporated under the laws
of the State of Utah on December 28, 1983. The primary purpose of the Company
is to rent and sell medical equipment, supplies and pharmaceutical products.
INVENTORIES
Inventories consist of pharmaceutical, medical equipment and supplies
held for sale and are stated at the lower of average cost (FIFO basis) or
market.
<PAGE>
VALLEY HOME MEDICAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED
2. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation and amortization
is computed using the straight-line method over estimated useful lives or lease
terms as follows:
Leasehold improvements 5-10 years
Furniture and fixtures 5-10 years
Rental equipment 3-10 years
Equipment and signs 5 years
Vehicles 5 years
INCOME TAXES
Deferred income taxes are provided in amounts sufficient to give effect
to temporary differences between financial and tax reporting, principally
related to depreciation and the allowance for bad debts.
REVENUE RECOGNITION
The Company is involved in the business of selling pharmaceutical
products, providing respiratory services and equipment sales and the sale of
rehabilitation and adaptive equipment.
Revenues are accounted for as follows:
* Patient revenues are recognized net of contractual adjustments related
to third party payers when services are rendered. The amount paid by
third party payors is dependent upon the benefits included in the
patient's policy.
* Other revenues are recognized as the services are rendered or the
sales are made.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentration of credit risk consist primarily of trade receivables. In the
normal course of business, the Company provides credit terms to its customers.
Accordingly, the Company performs ongoing credit evaluations of its customers
and maintains allowances for possible losses which, when realized, have been
within the range of management's expectations.
The Company's customer base consists primarily of individuals in the
state of Utah. Substantially all revenues and accounts receivable are from these
customers.
<PAGE>
VALLEY HOME MEDICAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED
2. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
short-term securities purchased with a maturity of three months or less to be
cash equivalents.
3. NOTES RECEIVABLE
The Company has the following notes receivable at November 30, 1994 and 1993:
1994 1993
-------- -------
Notes receivable from an
officer/shareholder at an interest
rate of 10%, due on demand, unsecured $19,587 24,054
Note receivable from a related entity
at an interest rate of 10%, due on
demand, unsecured - 112,500
------- -------
Total $19,587 136,554
======= =======
4. PROPERTY AND EQUIPMENT
Property and equipment at November 30, 1994 and 1993 consisted of the following:
1994 1993
----------- ---------
Rental equipment $ 411,067 324,902
Equipment 117,110 132,485
Furniture and fixtures 262,802 65,337
Vehicles 218,435 148,734
Leasehold improvements 12,263 12,128
---------- --------
1,021,677 683,586
Less accumulated depreciation and (468,713) (396,974)
amortization
---------- --------
Property and equipment - net $ 552,964 286,612
========== ========
<PAGE>
VALLEY HOME MEDICAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED
5. INVESTMENT
At November 30, 1993, the Company had a 30 percent investment in Layton
Drug Company. The investment was accounted for on the equity method of
accounting. The equity value was $104,366 at November 30, 1993. Effective
January 1, 1994, the Company acquired the remaining 70 percent ownership in
Layton Drug through the issuance of a note payable of $155,369. Upon acquiring
the remaining ownership, the Layton Drug Corporation was terminated. Operations
of Layton Drug have been included in the financial statements from January 1,
1994 through November 30, 1994.
6. NOTE PAYABLE
Note payable at November 30, 1994 and 1993 consisted of the following:
1994 1993
-------- ------
Line of credit payable to a financial
institution due May 14, 1996; with
interest payments at the bank's prime
rate (8.5% at November 30, 1994) plus
1.50% payable monthly; collateralized
by accounts receivable and inventory $153,321 26,000
======== ======
7. LONG-TERM DEBT
Long-term debt at November 30, 1994 and 1993 consisted of the following:
1994 1993
-------- ------
Note payable to an officer/shareholder
on demand with no interest requiring
no monthly payment, secured by $155,369 -
inventory
Note payable to a company requiring
monthly payments of $8,003 including
interest at a rate of 6.25%, due April 125,650 -
1996, unsecured
<PAGE>
VALLEY HOME MEDICAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED
7. LONG-TERM DEBT
Long-term debt at November 30, 1994 and 1993 consisted of the following:
1994 1993
--------- --------
Notes payable to a financial
institution, payable in aggregate
monthly installments of $626 including
interest at 10.95%, collateralized by
certain pieces of property and
equipment 28,870 -
Note payable to a financial institution
requiring monthly payments of $471
including interest at 9.0%, due on
demand and unsecured 19,259 -
Note payable to an officer shareholder
at an interest rate of 10% due on
demand and unsecured - 12,850
-------- ------
329,148 12,850
Less current portion 252,769 12,850
-------- ------
Long-term debt $ 76,379 -
======== ======
Future maturities of long-term debt at November 30, 1994 were as follows:
Year ending November 30:
1995 $252,769
1996 46,535
1997 10,587
1998 11,702
1999 7,555
--------
$329,148
========
<PAGE>
VALLEY HOME MEDICAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED
8. RELATED PARTY TRANSACTIONS
The Company has notes receivable and notes payable to related parties at
November 30, 1994 and 1993. For more detail of the terms of the notes see notes
3, 6, and 7. A summary of related party notes and approximate balances are as
follows:
1994 1993
-------- -------
Accounts receivable - related party $ 80,000 80,000
======== =======
Notes receivable - officer shareholder $ 19,587 24,059
======== =======
Note receivable - related entity $ - 112,500
======== =======
Notes payable - officer shareholder $155,369 12,850
======== =======
Interest Income $ 1,850 2,000
======== =======
Interest Expense $ 14,250 1,300
======== =======
In addition, during fiscal year 1994, the Company entered into a lease
agreement with a related party to rent its primary facility under a
noncancellable lease with monthly payments $11,000. Rent expense was $81,441.
9. INCOME TAXES
The provisions for income taxes differs from the amount computed at
federal statutory rates as follows:
1994 1993
--------- --------
Tax at statutory rates $(23,000) (14,000)
State tax (5,000) (1,000)
-------- -------
$(28,000) (15,000)
======== =======
The deferred tax asset for the years ended November 30, 1994 and 1993,
results from temporary differences between financial statement income primarily
related to the difference in the writing off of bad debts for financial
reporting and income taxes.
<PAGE>
VALLEY HOME MEDICAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED
10. FRANCHISE AGREEMENT
The Company has entered into a franchise agreement with another entity in
which it is required to pay 9 percent of the collections on certain sales. The
agreement will expire in January 1996. The amount paid on the obligation was
$96,471 and $106,040 in fiscal years 1994 and 1993, respectively.
11. LEASES
OPERATING LEASES
The Company leased a building from a related party in 1994 and part of
1993 under noncancelable operating leases. The Company also leased a building
from a non-related party in 1993. Rent expense approximated $81,000 and $20,000
for the years ended November 30, 1994 and 1993, respectively.
Future minimum annual rentals under the operating leases as of November
30, 1994 were as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending November 30:
1995 $ 132,000
1996 132,000
1997 132,000
1998 132,000
1999 132,000
Thereafter 1,859,000
----------
Total $2,519,000
==========
</TABLE>
<PAGE>
Valley Home Medical, Inc.
Interim Balance Sheet (Unaudited)
- --------------------------------------------------------------------------------
OCTOBER 31, 1995
----------------
ASSETS
Current Assets:
Cash $ (109,077)
Accounts receivable:
Trade, less allowance for
contractual adjustments
and doubtful accounts 1,206,383
Inventories 514,428
Prepaid expenses and other 14,399
----------
Total Current Assets 1,626,133
Property and Equipment, less accumulated
depreciation 563,423
----------
Total Assets $2,189,556
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable, accrued expenses and
other liabilities $ 617,775
Current maturities of long-term debt 320,568
----------
Total Current Liabilities 938,343
Other liabilities:
Long-term debt 182,891
Stockholders' Equity:
Common stock, no par value, 10,000
shares authorized; 1,000 issued and
outstanding 436,021
Retained earnings 632,301
----------
1,068,322
----------
Total Liabilities and Stockholders' Equity $2,189,556
==========
See accompanying notes to interim financial statements (unaudited).
<PAGE>
Valley Home Medical, Inc.
Interim Statement of Income (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ELEVEN MONTHS ENDED
OCTOBER 31, 1995
-------------------
<S> <C>
Operating revenue $4,597,431
Cost and expenses:
Cost of revenue 2,328,215
Selling, general and administrative 1,916,675
Depreciation 31,122
Interest 23,824
----------
4,299,836
----------
Net income $ 297,595
==========
</TABLE>
See accompanying notes to interim financial statements (unaudited).
<PAGE>
Valley Home Medical, Inc.
Interim Statement of Stockholders' Equity (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
-----------------
SHARES AMOUNT EARNINGS
----------------------------
<S> <C> <C> <C>
Balance at January 1, 1995 2,500 $436,021 $334,706
Net income 297,595
----------------------------
Balance at October 31, 1995 2,500 $436,021 $632,301
============================
</TABLE>
See accompanying notes to interim financial statements (unaudited).
<PAGE>
Valley Home Medical, Inc.
Interim Statement of Cash Flows (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ELEVEN MONTHS ENDED
OCTOBER 31, 1995
---------------------
<S> <C>
NET CASH USED BY OPERATING ACTIVITIES $(196,150)
INVESTING ACTIVITIES
Purchases of property and equipment (19,439)
---------
Net cash used in investing activities (19,439)
FINANCING ACTIVITIES
Proceeds from notes payable 106,512
---------
Net cash provided by financing activities 106,512
---------
Decrease in cash (109,077)
Cash at beginning of period -
---------
Cash at end of period $(109,077)
=========
</TABLE>
See accompanying notes to interim financial statements (unaudited).
<PAGE>
Valley Home Medical, Inc.
Notes to Interim Financial Statements - October 31, 1995 (Unaudited)
- --------------------------------------------------------------------
1. BASIS OF REPORTING
The interim balance sheet as of October 31, 1995 and the interim statements of
income, stockholders' equity and cash flows for the eleven months ended October
31, 1995 are unaudited. In the opinion of management, these statements have
been prepared on the same basis as the audited financial statements and include
all adjustments, consisting only of normal recurring accruals, necessary for the
fair statement of the results of the interim periods.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These interim financial statements should be
read in conjunction with the financial statements and notes thereto included in
the Company's audited financial statements as of and for the year ended November
30, 1994. The results of operations for the interim period are not necessarily
indicative of the results which may be expected for an entire year.
2. SUBSEQUENT EVENT
Effective November 1, 1995, the Company sold substantially all of its net assets
and granted a covenant not to compete to a Florida-based provider of home health
care services for $3.3 million cash.
<PAGE>
RoTech Medical Corporation and Subsidiaries
Pro Forma Condensed Combined Financial Statements
The pro forma condensed combined financial statements for the year ended
July 31, 1995 have been prepared to illustrate the estimated combined effects of
the Agreements of Purchase and Sales (Agreements) between RoTech Medical
Corporation (the Company) and Advantage, Hooks and Valley. The pro forma
condensed combined balance sheet as of July 31, 1995 was derived by adjusting
the historical balance sheet as of July 31, 1995 of the Company and the
historical balance sheet as of September 30, 1995 of Advantage, the historical
balance sheet as of June 3, 1995 of Hooks and the historical balance sheet as of
October 31, 1995 of Valley.
The pro forma condensed combined statement of income was derived by
adjusting the historical statement for the year ended July 31, 1995 of the
Company and the historical statement of income for the year ended September 30,
1995 of Advantage, the historical statement of income for the forty-four
week period ended June 3, 1995 of Hooks and the historical statement of income
for the year ended October 31, 1995 of Valley. The pro forma condensed combined
statement of income was prepared as if each purchase and sale had occurred on
August 1, 1994. The pro forma condensed combined statement of income presented
is not necessarily indicative of the results of operations that might have
occurred had the transaction been completed as of the date specified or of the
results of operations of the Company and its subsidiaries for any future period.
No changes in operating revenue and expenses have been made to reflect the
results of any modification to operations that might have been made had the
Agreements been consummated on the aforesaid assumed effective date for purposes
of presenting pro forma results. Certain supportable payroll costs attributable
to acquired entities' employees whose services would have been terminated upon
the effective date of purchase and sale along with certain expenses for
duplicate locations have been eliminated. The acquisitions have been accounted
for in accordance with the purchase method of accounting. The pro forma
condensed combined statement of income includes amortization of intangible
assets as if the Agreements had been completed on the assumed effective date
referred to above.
The pro forma condensed combined financial statements should be read in
conjunction with the audited consolidated financial statements and related notes
thereto included in the Company's July 31, 1995 Form 10-K.
<PAGE>
ROTECH MEDICAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Pro Forma Condensed Combined Statements of Income
<TABLE>
<CAPTION>
For the Year Ended July 31, 1995
------------------------------------------------------------
(Unaudited)
RoTech RoTech
Medical Medical
Corporation Corporation
Consolidated Combined Combined
Year Ended Acquired Pro Forma Pro Forma
July 31, 1995 Entities Adjustments Results
------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenue $134,111,458 $33,180,673 $167,292,131
Cost and expenses:
Cost of revenue 36,287,811 15,497,748 (1,200,000)(a) 50,585,559
Selling, general
and administrative 66,477,381 18,533,434 (1,875,000)(b) 83,135,815
Depreciation and amortization 9,565,238 546,828 304,000 (c) 10,416,066
Interest 835,462 (18,271) 1,108,400 (d) 1,925,591
------------ ---------- ---------- -----------
113,165,892 34,559,739 (1,662,600) 146,063,031
------------ ---------- ---------- -----------
Income before income taxes 20,945,566 (1,379,066) 1,662,600 21,229,100
Income tax expense 7,800,800 (12,000) 117,474 (e) 7,906,274
------------ ---------- ---------- -----------
Net Income $13,144,766 ($1,367,066) $1,545,126 $13,322,826
============ ========== ========== ===========
Net Income Per Share $1.27 $1.29
============ ===========
Weighted Average Number
of Shares Outstanding 10,342,000 10,342,000
</TABLE>
<PAGE>
RoTech Medical Corporation and Subsidiaries
Notes to Pro Forma Condensed Combined Financial Statements
(1) Elimination of net book value of certain assets and liabilities not
aquired. Reclassification of certain liabilities assumed to accounts
payable.
(2) Purchase price paid as an increase in current note payable to bank.
Elimination of the acquired entities' equity in accordance with the
purchase method of accounting. (Shares issued as consideration paid for
acquired entities' net assets are contingent and, therefore, not recorded
as outstanding and not included in the weighted average share
calculations.)
(3) Additional intangibles resulting from the excess of the purchase price over
the net assets acquired and non-compete contracts. This adjustment does not
contemplate any change to the purchase price for the differences in the
business purchased at their respective dates of acquisition compared to
what the purchase price may have been as of August 1, 1994.
(a) Supportable adjustments to reduce the acquired entities' cost of revenue
based on minimum cost savings to be gained by those acquired entities
purchasing goods under the Company's contractual arrangements.
(b) Supportable general and administrative expenses relating directly to the
payroll and related expenses of those terminated employees and locations
determined to be duplicated by the Company's existing structure and
therefore would not be needed after the acquisition. Elimination of
estimated non-recurring expenses incurred by Advantage, Hooks and Valley.
(c) Amortization of intangibles recorded in the acquisition (amortized over
various lives from 5 to 25 years).
(d) Additional interest expense related to borrowings for cash paid to acquire
Advantage, Hooks and Valley; assumed borrowed on August 1, 1994, less
interest expense pertaining to liabilities not assumed by the Company.
Assumed 6.8% interest rate on purchase price.
(e) Adjustment to income tax expense for the tax expense relating to the net
income as adjusted for the combined entity. Income taxes are calculated on
the basis that operations of the consolidated company could be combined as
one company for federal income tax purposes at the actual historical rate
for the period. No assurance can be given that these tax benefits will be
realizable by the Company.
<PAGE>
RoTech Medical Corporation and Subsidiaries
Pro Forma Condensed Combined Interim Financial Statements
The pro forma condensed combined interim financial statements for the three
months ended October 31, 1995 have been prepared to illustrate the estimated
combined effects of the Agreements of Purchase and Sale (Agreements) between
RoTech Medical Corporation (the Company) and Advantage, Hooks and Valley.
The pro forma condensed combined interim statement of income was derived by
adjusting the unaudited historical statement for the three months ended October
31, 1995 of the Company and the unaudited historical interim statement of income
for the nine months ended September 30, 1995 of Advantage, the unaudited
historical interim statement of income for the four months ended September 30,
1995 of Hooks and the unaudited historical interim statement of income for the
eleven months ended October 31, 1995 of Valley. The pro forma condensed
combined interim statement of income was prepared as if each purchase and sale
had occurred on August 1, 1995. The pro forma condensed combined interim
statement of income presented is not necessarily indicative of the results of
operations that might have occurred had the transaction been completed as of the
date specified or of the results of operations of the Company and its
subsidiaries for any future period.
No changes in operating revenue and expenses have been made to reflect the
results of any modification to operations that might have been made had the
Agreements been consummated on the aforesaid assumed effective date for purposes
of presenting pro forma results. Certain supportable payroll costs attributable
to acquired entities' employees whose services would have been terminated upon
the effective date of purchase and sale along with certain expenses for
duplicate locations have been eliminated. The acquisitions have been accounted
for in accordance with the purchase method of accounting. The pro forma
condensed combined interim statement of income includes amortization of
intangible assets as if the Agreements had been completed on the assumed
effective date referred to above.
The pro forma condensed combined interim financial statements should be
read in conjunction with the audited consolidated financial statements and
related notes thereto included in the Company's July 31, 1995 Form 10-K and the
condensed consolidated interim financial statements and the related notes
thereto included in the Company's October 31, 1995 Form 10-Q.
<PAGE>
ROTECH MEDICAL CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Pro Forma Condensed Combined Interim Statements of Income
<TABLE>
<CAPTION>
For the Three Months Ended October 31, 1995
----------------------------------------------------------
(Unaudited)
RoTech
Medical RoTech
Corporation Medical
Consolidated Corporation
Three Months Combined Combined
Ended Acquired Pro Forma Pro Forma
October 31, 1995 Entities Adjustments Results
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenue $45,119,179 $5,821,884 $50,941,063
Cost and expenses:
Cost of revenue 12,247,877 4,263,844 (200,000)(a) 16,311,721
Selling, general
and administrative 21,648,847 1,716,170 (500,000)(b) 22,865,017
Depreciation and amortization 3,897,523 68,830 72,500 (c) 4,038,853
Interest 440,963 7,135 203,433 (d) 651,531
------------- ---------- --------- -----------
38,235,210 6,055,979 (424,067) 43,867,122
------------- ---------- --------- -----------
Income before income taxes 6,883,969 (234,095) 424,067 7,073,941
Income tax expense 2,560,836 0 70,669 (e) 2,631,505
------------- ---------- --------- -----------
Net Income $4,323,133 $ (234,095) $353,397 $4,442,435
============= ========== ========= ===========
Net Income Per Share $0.37 $0.38
============= ==========
Weighted Average Number
of Shares Outstanding 11,823,000 11,823,000
</TABLE>
<PAGE>
RoTech Medical Corporation and Subsidiaries
Notes to Pro Forma Condensed Combined Interim Financial Statements
(a) Supportable adjustment to reduce the acquired entities' cost of revenue
based on minimum cost savings to be gained by those acquired entities
purchasing goods under the Company's contractual arrangements.
(b) Supportable general and administrative expenses relating directly to the
payroll and related expenses of those terminated employees and locations
determined to be duplicated by the Company's existing structure and
therefore would not be needed after the acquisition. Elimination of
estimated non-recurring expenses incurred by Advantage, Hooks and Valley.
(c) Amortization of intangibles recorded in the acquisition (amortized over
various lives from 5 to 25 years).
(d) Additional interest expense related to borrowings for cash paid to acquire
Advantage, Hooks and Valley; assumed borrowed on August 1, 1995, less
interest expense pertaining to liabilities not assumed by the Company.
Assumed 6.8% interest rate on purchase price.
(e) Adjustment to income tax expense for the tax expense relating to the net
income as adjusted for the combined entity. Income taxes are calculated on
the basis that operations of the consolidated company could be combined as
one company for federal income tax purposes at the actual historical rate
for the period. No assurance can be given that these tax benefits will be
realizable by the Company.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment of Report on 8-K to be signed on its
behalf by the undersigned hereunto duly authorized.
RoTech Medical Corporation,
a Florida Corporation
Dated: January 11, 1996 By: /s/ Stephen P. Griggs
---------------- --------------------------
Stephen P. Griggs, President
and Chief Operating Officer
