-----------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- ------------------------------------------------------------------------------
FORM 8-KA
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) May 22, 1995
Amendment Number 1 to Form 8-K
dated June 5, 1995
CONMED CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 0-16093 16-0977505
- ------------------------------- ------------ -------------------
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
310 Broad Street, Utica, New York 13501
--------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(315) 797-8375
----------------------------------------------------
(Registrant's telephone number, including area code)
-------------------------------------------------------------
(Former name or former address, if changes since last report)
<PAGE>
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired.
Report of Independent Accountants
Balance Sheets of The Master Medical Corporation
as of December 31, 1994 and 1993
Statements of Income and Retained Earnings of The Master Medical
Corporation for the years ended December 31, 1994 and 1993
Statements of Cash Flows of The Master Medical Corporation for the
years ended December 31, 1994 and 1993
Notes to Financial Statements
The financial statements of The Master Medical Corporation set forth above are
attached hereto.
(b) Pro Forma Financial Information
Pro Forma Consolidated Balance Sheet as of March 31, 1995
Pro Forma Consolidated Statements of Income for Three Months Ended
March 31, 1995 and for the Year Ended December 30, 1994
Notes to Pro Forma Statements
The proforma financial information is attached hereto.
<PAGE>
CONMED CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
On May 22, 1995, CONMED Corporation ("CONMED") acquired the business and certain
assets and liabilities of The Master Medical Corporation ("Master Medical") for
a cash purchase price of approximately $9,500,000.
The acquisition was accounted for using the purchase method of accounting.
Allocations of the purchase price have been determined based upon preliminary
estimates of fair market value and, therefore, are subject to change.
Differences between the amounts included herein and the final allocations are
not expected to be material. The proforma statements should be read in
conjunction with the historical financial statements.
The following pro forma consolidated statements of income for three months ended
March 31, 1995 and for the year ended December 30, 1994 have been prepared as if
the purchase transaction and the related bank financing had occurred at the
beginning of 1994. The pro forma balance sheet at March 31, 1995 has been
prepared as if the purchase accounting had been applied at that date. The pro
forma adjustments are based upon available information and certain assumptions
that management believes are reasonable.
The pro forma statements do not purport to represent what CONMED's results of
operations would actually have been if such transactions had occurred at the
beginning of the period or to project the results of operations as of any future
date or for any future period.
<PAGE>
CONMED Corporation
Unaudited Pro Forma Consolidated Balance Sheet
March 31, 1995
(in thousands)
<TABLE>
<CAPTION>
ASSETS
Historical
Historical Master Pro
CONMED Medical Adjustments Forma
---------- ---------- ----------- -----
<S> <C> <C> <C> <C>
Current Assets:
Cash .................................... $ 955 $1,597 ($1,097)(1)&(2) $ 1,455
Accounts receivable, net ................ 18,115 926 19,041
Inventories ............................. 16,241 1,272 17,513
Deferred income tax ..................... 1,494 1,494
Prepaid expenses ........................ 579 34 613
-------- ------ ------- --------
Total current assets ............... 37,384 3,829 (1,097) 40,116
Property, plant and equipment .................... 17,706 742 18,448
Covenant not to compete .......................... 1,486 100 (1) 1,586
Goodwill ......................................... 40,077 6,842 (1) 46,919
Patents, and other assets ........................ 5,760 448 (48)(1) 6,160
-------- ------ ------- --------
Total assets ....................... $102,413 $5,019 $ 5,797 $113,229
======== ====== ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long term debt $ 3,000 $ 3,000 (2) $ 6,000
Accounts payable ........................ 3,080 363 3,443
Income taxes payable .................... 1,351 1,351
Accrued payroll and withholdings ........ 2,994 153 3,147
Accrued pension ......................... 446 73 (73)(1) 446
Accrued patent litigation ............... 2,359 2,359
Other current liabilities ............... 2,932 300 (1) 3,232
-------- ------ ------- --------
Total current liabilities .......... 16,162 589 3,227 19,978
Long term debt ................................... 17,000 7,000 (2) 24,000
Deferred income taxes ............................ 1,011 1,011
Accrued pension .................................. 276 276
Deferred compensation ............................ 755 755
Long term leases ................................. 3,871 3,871
Other long term liabilities ...................... 685 685
-------- ------ ------- --------
Total liabilities .................. 39,760 589 10,227 50,576
-------- ------ ------- --------
Shareholders' Equity:
Common stock ............................ 71 71
Paid in capital ......................... 41,273 345 (345)(3) 41,273
Retained earnings ....................... 21,309 4,085 (4,085)(3) 21,309
-------- ------ ------- --------
Total equity ....................... 62,653 4,430 (4,430) 62,653
-------- ------ ------- --------
Total liabilities and
shareholders' equity ............. $102,413 $5,019 $ 5,797 $113,229
======== ====== ======= ========
See accompanying notes to the Unaudited Pro Forma Consolidated Financial Information
for explanation of pro forma adjustments.
</TABLE>
<PAGE>
CONMED Corporation
Unaudited Pro Forma Consolidated Statement of Income
For the Year Ended December 30, 1994
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
ProForma
Adjustment
For Birtcher Historical
Historical Acquisition ProForma Master
CONMED (Note 5) CONMED Medical Adjustments ProForma
---------- ------------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Sales ............................... $ 71,064 $ 28,001 $ 99,065 $ 8,271 $ -- $ 107,336
--------- --------- --------- --------- --------- ---------
Cost of sales ........................... 38,799 18,188 56,987 4,806 (1,116)(1) 60,677
Selling and administrative expense ...... 20,979 5,561 26,540 1,726 326 (2) 28,592
Research and development expense ........ 2,352 1,415 3,767 3,767
--------- --------- --------- --------- --------- ---------
62,130 25,164 87,294 6,532 (790) 93,036
--------- --------- --------- --------- --------- ---------
Income from operations .................. 8,934 2,837 11,771 1,739 790 14,300
Interest income (expense) ............... (628) (667) (1,295) 30 (795)(3) (2,060)
--------- --------- --------- --------- --------- ---------
Income before income taxes .............. 8,306 2,170 10,476 1,769 (5) 12,240
Provision for income taxes .............. 2,890 1,082 3,972 617 (4) 4,589
--------- --------- --------- --------- --------- ---------
Net income .............................. $ 5,416 $ 1,088 $ 6,504 $ 1,769 $ (622) $ 7,651
========= ========= ========= ========= ========= =========
Weighted average number of shares
and equivalents outstanding ............ 6,416 1,080 7,496 7,496
========= ========= ========= =========
Earnings per common and common
equivanlent shares ..................... $0.84 $0.87 $1.02
===== ===== =====
</TABLE>
See notes to unaudited pro forma financial information.
<PAGE>
CONMED Corporation
Unaudited Pro Forma Consolidated Statement of Income
For the Three Months Ended March 31, 1995
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
ProForma
Adjustment
For Birtcher Historical
Historical Acquisition ProForma Master
CONMED (Note 5) CONMED Medical Adjustments ProForma
---------- ------------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Sales ............................... $ 19,753 $ 4,861 $ 24,614 $ 2,004 $ -- $ 26,618
--------- --------- --------- --------- --------- ---------
Cost of sales ........................... 10,725 3,163 13,888 1,108 (277)(1) 14,719
Selling and administrative expense ...... 5,338 663 6,001 487 87 (2) 6,575
Research and development expense ........ 664 (7) 657 657
--------- --------- --------- --------- --------- ---------
16,727 3,819 20,546 1,595 (190) 21,951
--------- --------- --------- --------- --------- ---------
Income from operations .................. 3,026 1,042 4,068 409 190 4,667
Interest income (expense) ............... (194) (137) (331) 31 (219)(3) (519)
--------- --------- --------- --------- --------- ---------
Income before income taxes .............. 2,832 905 3,737 440 (29) 4,148
Provision for income taxes .............. 992 396 1,388 144 (4) 1,532
--------- --------- --------- --------- --------- ---------
Net income .............................. $ 1,840 $ 509 $ 2,349 $ 440 $ (173) $ 2,616
========= ========= ========= ========= ========= =========
Weighted average number of shares
and equivalents outstanding ............ 6,922 7,800 7,800
========= ========= =========
Earnings per common and common
equivanlent shares ..................... $0.27 $0.30 $0.34
===== ===== =====
</TABLE>
See notes to unaudited pro forma financial information.
<PAGE>
CONMED CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL INFORMATION
(dollar amounts in thousands)
Notes to the Unaudited Pro Forma Consolidated Balance Sheet
1. The acquisition of Master Medical was effected by the payment of
$9,500,000 subject to adjustment based on the net book value of the assets
acquired at May 22, 1995. The transaction will be accounted for as a purchase.
This total purchase price, historical book value and preliminary adjustments of
book value resulting from the acquisition are summarized as follows (in
thousands):
Purchase price of sets acquired $9,500
------
Adjustments to determine Goodwill:
Historical net book value of
Master Medical (4,430)
To adjust covenant not to
compete and patents to estimated
fair value (52)
To adjust for cash balance
and pension liabilities which
were not acquired 1,524
To increase current liabilities
for change in control costs and
financial, legal, accounting and
similar expenses 300
------
Total adjustments (2,658)
------
Goodwill $6,842
======
2. The purchase price was financed through a $10,000,000 advance under
the Company's $30,000,000 term loan. The entire term loan is payable over five
years at an interest rate of 1.625% over LIBOR. As a result of the Master
Medical acquisition and the Company's acquisition of Birtcher Medical Systems,
Inc. in March 1995, the entire term loan commitment has been utilized. The
Company has a $10,000,000 line of credit with interest at LIBOR plus 1.5%.
3. Entries to eliminate the equity of Master Medical in the ProForma
Consolidated Balance Sheet are as follows:
Paid in capital $ (345)
Retained earnings (4,085)
------
$(4,430)
=======
Notes to the Unaudited Pro Forma Consolidated Statements of Income
1. Cost of sales has been adjusted to eliminate the commission costs of
independent sales representatives included in Master Medical cost of sales.
CONMED will utilize its own employee sales force to market the Master Medical
products.
2. Selling and administrative expense has been adjusted to reflect the
increased amount of amortization of goodwill and patents; both to be amortized
over a fifteen year period. Additionally, costs have been increased for
commission expense for the CONMED salesforce because of increased sales volume
and reduced for the salaries and pension costs of former Master Medical officers
who have not been retained by CONMED.
3. Interest expense has been increased for the additional $10,000,000
borrowing under the Company's term loan agreement.
4. Master Medical formerly operated as a sub chapter S corporation and
therefore did not record tax expense at the corporate level. An adjustment has
been made for the estimated tax effect of Master Medical's historical income and
pro forma adjustments.
5. On March 14, 1995 CONMED acquired Birtcher Medical Systems, Inc.
("Birtcher") through an exchange of the Company's common stock for all of the
outstanding common and preferred stock of Birtcher in a purchase transaction.
The column entitled "ProForma Adjustment for Birtcher Acquisition" in the
Unaudited ProForma Consolidated Statement of Income for the three months ended
March 31, 1995 and for the year ended December 30, 1994 adjusts the historical
CONMED statements of income to reflect Birtcher as if the purchase transaction
had occurred as of the beginning of the respective periods presented.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONMED CORPORATION
By: /s/ Robert D. Shallish, Jr.
----------------------------
Vice President-Finance
Dated: August 2, 1995
<PAGE>
THE MASTER MEDICAL CORPORATION
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1994 AND 1993
<PAGE>
TABLE OF CONTENTS
INDEPENDENT AUDITOR'S REPORT
FINANCIAL STATEMENTS
Balance Sheets
Statements of Income and Retained Earnings
Statements of Cash Flows
Notes to Financial Statements
SUPPLEMENTARY INFORMATION
Independent Auditor's Report on Supplementary Information
Schedules of Selling, General and Administrative Expenses
<PAGE>
[GRAPHIC -- LOGO] Mansperger James A Mansperger
Patterson Don A. Patterson
& McMullin Jeffrey C. McMullin
CERTIFIED PUBLIC ACCOUNTANTS James A. Wraith
To the Shareholders of
THE MASTER MEDICAL CORPORATION
Phoenix, Arizona
We have audited the accompanying balance sheets of THE MASTER MEDICAL
CORPORATION, as of December 31,1994 and 1993 and the related statements of
income, retained earnings, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's rnanagement. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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, the financial statements referred to above present fairly, in
all material respects, the financial position of THE MASTER MEDICAL CORPORATION
as of December 31, 1994 and 1993, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/Mansperger Patterson & McMullin
June 15, 1995
Tempe, Arizona
MEMBERS AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
ARIZONA SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS
1222 E. Baseline Rd., Suite 200 Tempe, Arizona 85283
(602) 831-9500 FAX (602) 831-8630
<PAGE>
THE MASTER MEDICAL CORPORATION
BALANCE SHEETS
AS OF DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
ASSETS
1994 1993
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents (Note 1) .................. $ 1,241,339 $ 600,454
Trade receivables (Notes 1 & 3) ..................... 985,407 969,314
Inventories (Notes 1, 2 & 3) ........................ 1,135,387 847,442
Prepaid expenses .................................... 56,779 50,530
----------- -----------
Total current assets ........................... 3,418,912 2,467,740
----------- -----------
PROPERTY AND EQUIPMENT (Notes 1, 3 & 6)
Furniture and fixtures .............................. 37,275 28,798
Computer hardware and software ...................... 58,416 56,870
Machinery and equipment ............................. 1,276,795 1,091,517
Machinery & equipment - not in use .................. 16,350 --
----------- -----------
1,388,836 1,177,185
Less: accumulated depreciation ...................... (639,733) (502,479)
----------- -----------
749,103 674,706
----------- -----------
OTHER ASSETS
Patents, less accumulated amortization of
$977,947 and $837,054 for 1994 and
1993, respectively (Notes 1 & 3) .................. 470,239 613,497
Loan fees, less amortization of
$27,714 and $20,156 for 1994 and
1993, respectively (Notes 1 & 3) .................. 10,078 17,637
Deposits ............................................ 4,489 --
----------- -----------
484,806 631,134
----------- -----------
$ 4,652,821 $ 3,773,850
=========== ===========
</TABLE>
<PAGE>
THE MASTER MEDICAL CORPORATION
BALANCE SHEETS
AS OF DECEMBER 31, 1994 AND 1993
(Continued)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
1994 1993
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accrued expenses ............... $ 455,574 $ 667,107
Accrued commissions ................................. 165,610 161,053
Accrued pension cost (Note 4) ....................... 193,252 264,207
----------- -----------
Total current liabilities ...................... 814,436 1,092,367
----------- -----------
COMMITMENTS AND CONTINGENCIES
(Notes 6 & 7)
SHAREHOLDERS' EQUITY (Note 3)
Common stock, no par value; authorized
1,000,000 shares, issued and outstanding
20,000 ............................................ 100 100
Additional paid-in capital .......................... 344,507 344,507
Retained earnings ................................... 3,585,871 2,475,336
Excess of additional pension liability over
unrecognized prior service cost ................... (92,093) (138,730)
----------- -----------
3,838,385 2,681,213
----------- -----------
$ 4,652,821 $ 3,773,580
=========== ===========
</TABLE>
The Accompanying Notes are an Integral Part
of these Financial Statements.
<PAGE>
THE MASTER MEDICAL CORPORATION
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
NET SALES .................................. $8,270,587 $8,219,457
Cost of goods sold ......................... 4,805,867 5,319,822
---------- ----------
GROSS PROFIT ............................... 3,464,720 2,899,635
Selling, general and administrative expenses 1,847,402 2,396,346
---------- ----------
INCOME FROM OPERATIONS ..................... 1,617,318 503,289
---------- ----------
OTHER INCOME (EXPENSES)
Miscellaneous income ....................... 121,735 6,987
Interest income ............................ 30,560 14,116
Interest expense ........................... (578) (651)
Loss on disposition of assets .............. -- (35,107)
---------- ----------
151,717 (14,655)
---------- ----------
NET INCOME ................................... 1,769,035 488,634
Retained earnings, beginning of year ....... 2,475,336 2,639,002
Distributions .............................. (658,500) (652,300)
---------- ----------
RETAINED EARNINGS, END OF YEAR ............. $3,585,871 $2,475,336
========== ==========
</TABLE>
The Accompanying Notes are an Integral Part
of these Financial Statements.
<PAGE>
THE MASTER MEDICAL CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Cash received from customers ............ $ 8,254,495 $ 8,106,199
Cash paid to suppliers and employees .... (6,895,178) (6,733,897)
Interest received ....................... 30,560 14,116
Interest paid ........................... (578) (651)
Other income ............................ 121,736 6,987
----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES ............. 1,511,035 1,392,754
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures .................... (211,650) (256,923)
Patent expenditures ..................... -- (2,365)
----------- -----------
NET CASH USED BY
INVESTING ACTIVITIES ............. (211,650) (259,288)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Distributions to shareholders ........... (658,500) (652,300)
----------- -----------
NET CASH USED BY
FINANCING ACTIVITIES ............. (658,500) (652,300)
----------- -----------
NET INCREASE IN CASH ........................ 640,885 481,166
Cash at beginning of year ................... 600,454 119,288
----------- -----------
CASH AT END OF YEAR ................ $ 1,241,339 $ 600,454
=========== ===========
</TABLE>
The Accompanying Notes are an Integral Part
of these Financial Statements.
<PAGE>
THE MASTER MEDICAL CORPORATION
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Net Income ..................................... $ 1,769,035 $ 488,634
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ................................. 137,254 89,363
Amortization ................................. 148,452 148,671
Loss on disposition of asset ................. 2,366 35,107
(Increase) decrease in:
Accounts receivable ..................... (16,093) (113,258)
Inventory ............................... (287,946) 554,187
Prepaid expenses ........................ (6,249) (50,530)
Deposits ................................ (4,489) --
Increase (decrease) in:
Accounts payable and accrued expenses ... (211,533) 150,576
Accrued commissions ..................... 4,557 20,469
Accrued pension cost .................... (24,319) 69,535
----------- -----------
(258,000) 904,120
----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES ............................ $ 1,511,035 $ 1,392,754
=========== ===========
</TABLE>
The Accompanying Notes are an Integral Part
of these Financial Statements.
<PAGE>
THE MASTER MEDICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Operations
The Master Medical Corporation (the Company) develops and manufactures
medical supply products. The Company has two basic product lines,
gravity-feed intravenous devices and disposable arm supports, which it sells
domestically and in foreign markets.
Cash and Cash Equivalents
The Company considers all highly liquid temporary investments purchased with
a maturity of three months or less to be cash equivalents. At December 31,
1994, cash equivalents totaled $900,000. There were no cash equivalents as
of December 31, 1993. For the years ended December 31, 1994 and 1993, the
Company has cash in excess of $100,000 on deposit in individual banks. The
Federal Deposit Insurance Corporation (FDIC) insures only the first $100,000
of funds at member banks.
Accounts Receivable
The Company uses the direct write-off method to account for uncollectible
trade receivables. No allowance for doubtful accounts has been provided.
Inventories
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market.
Depreciation
Fixed assets are recorded at cost and depreciation is provided for by using
straight-line and accelerated methods over the following estimated useful
lives:
<TABLE>
<CAPTION>
Estimated Useful Lives
----------------------
<S> <C>
Machinery & Equipment 5 - 7 years
Furniture and Fixtures 5 - 7 years
Computer hardware and software 5 years
</TABLE>
Included in Cost of Goods Sold is depreciation expense of $116,666 and
$75,988 for the years ended December 31, 1994 and 1993, respectively. Also,
included in Selling, General and Administrative Expenses is depreciation
expense of $20,588 and $13,375 for the years ended December 31, 1994 and
1993 respectively.
Income Taxes
Effective May 1, 1991, the Company elected to be taxed under the provision
of Subchapter S of the Internal Revenue Code. Under these provisions, the
Company does not pay federal and state corporate income taxes on its taxable
income. Instead, the shareholders are liable for individual income taxes on
the Company's taxable income.
Amortization
Patents are amortized using the straight-line method over 10 to 17 years.
Included in Selling, General and Administrative Expenses is patent
amortization expense totaling $140,921 and $141,113 for the years ended
December 31, 1994 and 1993, respectively.
Loan fees are amortized using the straight-line method over a 5 year period
based on the life of the loan. Included in Selling, General and
Administrative Expenses is loan amortization expense totaling $7,558 for
each of the years ended December 31, 1994 and 1993.
NOTE 2 - INVENTORIES
Inventories as of December 31, 1994 and 1993 consisted of the following:
<TABLE>
1994 1993
---------- ----------
<S> <C> <C>
Raw materials ........................ $ 193,435 $ 187,478
Work in progress ..................... 183,152 264,517
Finished goods ....................... 758,800 395,447
---------- ----------
$1,135,387 $ 847,442
========== ==========
</TABLE>
NOTE 3 - LINE OF CREDIT
The Company has a revolving line of credit with a commercial bank which
allows for borrowings up to $2,100,000. The line bears interest at 1% over
the bank's prime rate and is payable monthly through maturity on April 29,
1995. The line is secured by accounts receivable, equipment, inventory,
patents and all other intangible assets and is personally guaranteed by the
shareholders. There was no outstanding balance on the line of credit for the
years ended December 31, 1994 and 1993.
The line of credit also places restrictions on the Company's ability to,
among other things, make investments; incur new indebtedness; merge with or
acquire other businesses; sell or dispose of its common stock; maintain
minimum net worth, operating income and other operating ratios, as defined;
and pay dividends.
Subsequent to December 31, 1994, the Company terminated the line of credit.
NOTE 4 - PENSION PLAN
Effective January 1, 1990, the Company adopted a defined benefit pension
plan covering all employees meeting minimum age and service requirements.
Plan benefits are based on 3.5% of the participants average monthly
compensation multiplied by the total number of years of service (up to a
maximum of 35 years). The Company's funding policy is to meet the minimum
funding standards.
The following table sets forth the plan's funded status and amounts
recognized in the Company's statement of financial position for the years
ended December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits
of $810,457 and $697,143 for the years ended December
31, 1994 and 1993, respectively ........................ $ (822,516) $ (697,732)
=========== ===========
Projected benefit obligation for service rendered to date (1,014,631) (875,240)
Plan assets at fair value primarily invested in short-term
Cash investments and a Federal Home Loan discount
note which matures in 1995 ............................ 629,264 433,525
----------- -----------
Projected benefit obligation in excess of plan assets .... (385,367) (441,715)
Unrecognized net loss from past experience different
from that assumed and effects of changes in assumptions 228,032 191,023
Unrecognized prior service cost .......................... 45,588 24,463
Adjustment required to recognize minimum liability ....... (81,505) (37,978)
----------- -----------
Accrued pension cost ..................................... $ (193,252) $ (264,207)
=========== ===========
</TABLE>
The net periodic pension cost for the years ended December 31, 1994 and 1993
includes the following components:
<TABLE>
<S> <C> <C>
Service cost ............................................. $ 231,194 $ 218,672
Interest cost on projected benefit obligation ............ 56,830 13,120
Actual return on plan assets ............................. (13,013) (8,980)
Net asset gain during period deferred for
later recognition ...................................... (125,848) (24,984)
Amortization of unrecognized net loss from prior period .. 13,737 --
Amortization of unrecognized prior service cost .......... 3,486 2,038
----------- -----------
Net periodic pension cost ................................ $ 166,386 $ 199,866
=========== ===========
</TABLE>
For each of the years ended December 31, 1994 and 1993 the actuarial present
value of the projected benefit obligation was determined assuming a
weighted-average discount rate of 6%, annual salary increases of 3% and an
expected long-term rate of return of 8%.
NOTE 5 - OPERATING LEASES
During 1993, the Company conducted its business on leased premises under
month to month lease agreements for monthly rentals totaling approximately
$1,500. One of the leases requires a four month cancellation notice. Rental
expense for the year ended December 31, 1993 was $19,041.
During 1994, a new lease commenced September 1, 1994. The company conducts
its business on leased premises under a month to month lease agreement for
monthly rentals totaling approximately $4,400. The lease is cancelable with
a ninety day cancellation notice after the thirty-sixth month of the lease.
Upon early cancellation of the lease, the Company would be liable for a
minimum fee of $2,500 monthly as well as reimbursing the lessor for the
unamortized costs associated with the commencement of the lease. Rental
expense for the year ended December 31, 1994 was $31,756.
Approximate future minimum rental payments for the years subsequent to
December 31, 1994 are as follows:
<TABLE>
<S> <C>
1995 $ 52,800
1996 52,800
1997 46,000
1998 32,400
1999 21,600
---------
$ 205,600
---------
</TABLE>
NOTE 6 - COMMITMENTS AND CONTINGENCIES
During 1994, the Company entered into an agreement for the construction of
production equipment in the amount of approximately $54,500. The cost
incurred relating to this equipment as of December 31, 1994 was
approximately $16,350 and is included in the accompanying financial
statements under the caption "Machinery & equipment - not in service."
The Company filed a lawsuit in October 1992 against a competitor seeking a
determination of invalidity and non-infringement of a U.S. patent licensed
to the competitor. The products involved were the I.V. pumpette products,
which represented only about 2% of the Company's 1993 sales. A satisfactory
resolution was obtained in 1994. For the year ended December 31, 1993 legal
fees incurred relating to the lawsuit were $583,256. For the year ended
December 31, 1993, a liability of $137,679 for additional legal fees
incurred subsequent to December 31, 1993 was accrued and is included in the
accompanying financial statements under "Accounts Payable and Accrued
Expenses." The Company has not incurred any subsequent additional fees.
NOTE 7 - SUBSEQUENT EVENT
Subsequent to December 31, 1994, the Company entered into an agreement to
sell substantially all of its assets. The agreement was completed in May
1995.
<PAGE>
[GRAPHIC -- LOGO] Mansperger James A Mansperger
Patterson Don A. Patterson
& McMullin Jeffrey C. McMullin
CERTIFIED PUBLIC ACCOUNTANTS James A. Wraith
INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTARY INFORMATION
To the Shareholders of
THE MASTER MEDICAL CORPORATION
Phoenix, Arizona
Our report on our audits of the basic financial statements for 1994 and 1993
appears on page 1. Those audits were made for the purpose of forming an opinion
on the basic financial statements taken as a whole. The accompanying Schedule I
is presented for purposes of additional analysis and is not a required part of
the basic financial statements. Such information has not been subjected to the
procedures applied in the audits of the basic financial statements, and
accordingly, we express no opinion on it.
/s/Mansperger Patterson & McMullin
June 15, 1995
Tempe, Arizona
MEMBERS AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
ARIZONA SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS
1222 E. Baseline Rd., Suite 200 Tempe, Arizona 85283
(602) 831-9500 FAX (602) 831-8630
<PAGE>
SCHEDULE I
THE MASTER MEDICAL CORPORATION
SCHEDULES OF SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES
Professional fees .......................... $ 362,834 $ 212,524
Payroll taxes and employee benefits ........ 238,305 266,668
Officers' salaries ......................... 220,000 380,000
Sales salaries ............................. 197,804 182,782
Depreciation and amortization .............. 169,067 162,046
Advertising and promotion .................. 148,174 116,632
Office salaries ............................ 141,500 154,776
Travel and entertainment ................... 106,795 70,372
Office supplies ............................ 57,683 104,498
Insurance .................................. 55,136 63,940
Telephone and utilities .................... 44,400 38,596
Rent ....................................... 31,756 19,041
Repairs and maintenance .................... 25,555 9,290
Auto ....................................... 25,259 27,089
Casual labor ............................... 13,073 2,550
Miscellaneous .............................. 10,061 --
Litigation expenses ........................ -- 583,256
Research and development ................... -- 2,286
---------- ----------
$1,847,402 $2,396,346
========== ==========
</TABLE>
See Independent Auditor's Report on Supplementary Information.
