As filed with the Securities and Exchange Commission on February 29, 1996
SEC Registration No. 33-64977
SECURITIES AND EXCHANGE COMMISSION
AMENDMENT NO. 1
FORM S-1 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
CONTOUR MEDICAL, INC.
(Exact Name of Registrant as Specified in its Charter)
Nevada 3842 77-0163521
(State or Other Juris- (Primary Standard Industrial (IRS Employer Iden-
diction of Incorpora- Classification Code Number) tification Number)
tion)
3340 Scherer Drive, St. Petersburg, Florida 33716
(813) 572-0089
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
Gerald J. Flanagan, President
3340 Scherer Drive, St. Petersburg, Florida 33716
(813) 572-0089
(Name, Address and Telephone Number of Agent for Service)
Copies to:
Jon D. Sawyer, Esq.
Jon D. Sawyer, P.C.
1401 Seventeenth Street, Suite 460
Denver, Colorado 80202
(303) 295-2355
_____________________________________________________________________________
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box.
<TABLE>
__________________________________________________________________________________________
CALCULATION OF REGISTRATION FEE
<CAPTION>
Title of Each Class Proposed Maxi- Proposed Maximum Amount of
of Securities to Amount to be mum Offering Aggregate Offer-
Registration
be Registered Registered Price Per Unit ing Price
Fee
<S> <C> <C> <C> <C>
Common Stock, 119,225 $4.50<F2> $ 536,512.50 $
185.00
$.001 Par Value<F1> Shares Per Share
Common Stock, 300,000 $4.50<F4> $1,350,000.00 $
465.52
$.001 Par Value<F3> Shares Per Share
Common Stock, 600,000 $4.125<F6> $2,475,000.00 $
853.45
$.001 Par Value<F5> Shares Per Share
Common Stock, 550,000 $2.182<F8> $1,200,000.00 $
413.79
$.001 Par Value<F7> Shares Per Share
Total $5,561,512.50
$1,917.76
(See Notes on following sheet)
<FN>
<FN1>
Issuable upon exercise of the Registrant's Class B Warrants outstanding.
<FN2>
Based on the exercise price of the Class B Warrants.
<FN3>
Issuable upon the exercise of the Registrant's Class C Warrants outstanding.
<FN4>
Based on the exercise price of the Class C Warrants.
<FN5>
Issuable upon the conversion of the Registrant's Series A Convertible
Preferred Stock outstanding.
<FN6>
Estimated based on the closing price of the Registrant's Common Stock as
reported on the Nasdaq Small Cap Market on December 8, 1995.
<FN7>
Shares issuable upon the exercise of Consultants' Warrants.
<FN8>
Based on the average exercise price of the Consultants' Warrants.
</FN>
</TABLE>
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registra-
tion Statement shall thereafter become effective in accordance with Section
8(a) of the Securities Act of 1933 or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
CONTOUR MEDICAL, INC.
Cross-Reference Sheet pursuant to Item 501(b) of Regulation S-K
between Registration Statement (Form S-1) and Form of Prospectus.
Item Number and Caption Heading in Prospectus
1. Forepart of the Registration Outside Front Cover Page;
Statement and Outside Front Inside Front Cover Page
Cover Page of Prospectus
2. Inside Front and Outside Back Inside Front Cover Page;
Cover Pages of Prospectus Outside Back Cover Page
3. Summary Information, Risk Prospectus Summary; Risk
Factors and Ratio of Earnings Factors; The Company
to Fixed Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Description of Securities
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution Outside Front Cover Page;
Plan of Distribution
9. Description of the Securities to Description of Securities
be Registered
10. Interest of Named Experts and Not Applicable
Counsel
11. Information With Respect to
the Registrant:
(a) Description of Business The Company; Business
(b) Description of Properties Business -- Facilities
(c) Legal Proceedings Not Applicable
(d) Market Price; Dividends and Price Range of Common Stock;
Related Stockholder Matters Dividend Policy; Risk Factors;
Description of Securities
(e) Financial Statements Financial Statements
(f) Selected Financial Information Selected Financial Information
(g) Supplementary Financial Not Applicable
Information
(h) Management's Discussion and Management's Discussion and
Analysis of Financial Condi- Analysis of Financial Condi-
tion and Results of Opera- tion and Results of Operations
tions
(i) Disagreements with Accountants Not Applicable
(j) Directors and Officers Management
(k) Executive Compensation Management
(l) Security Ownership Security Ownership of Management
and Principal Shareholders
(m) Certain Relationships and Management; Certain Transactions
Related Transactions
12. Disclosure of Commission Posi- Not Applicable
tion on Indemnification for
Securities Act Liabilities
SUBJECT TO COMPLETION; DATED _________, 1996
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
CONTOUR MEDICAL, INC.
119,225 Shares of Common Stock Issuable Upon
Exercise of Class B Warrants
300,000 Shares of Common Stock Issuable Upon
Exercise of Class C Warrants
600,000 Shares of Common Stock Issuable Upon
Conversion of Series A Convertible Preferred Stock
550,000 Shares of Common Stock Issuable
Upon Exercise of Consultants' Warrants
Included in the securities offered hereby are 119,225 shares of common
stock, $.001 par value ("Common Stock") underlying Class B redeemable common
stock purchase warrants (the "Class B Warrants") of the Company. Also
included in the securities offered hereby are 300,000 shares of Common Stock
underlying Class C redeemable common stock purchase warrants (the "Class C
Warrants"). The Class B Warrants and Class C Warrants were issued as part of
units sold in two separate private offerings conducted by the Company. Each
Class B Warrant entitles the holder to purchase one share of Common Stock at
an exercise price of $4.50 per share until July 15, 1996, subject to earlier
redemption by the Company. Each Class C Warrant entitles the holder to
purchase one share of Common Stock at an exercise price of $4.50 per share
from February 25, 1996, through February 24, 1999, subject to earlier
redemption by the Company. (See "DESCRIPTION OF SECURITIES.")
Also included in the securities offered hereby are 600,000 shares of
Common Stock of the Company issuable upon the conversion of the Company's
Series A Convertible Preferred Stock. The Series A Convertible Preferred
Stock was issued as part of Units sold in a private offering conducted by the
Company. Each share of Series A Convertible Preferred Stock is convertible
into one share of Common Stock commencing on February 24, 1996, unless
redeemed by the Company. (See "DESCRIPTION OF SECURITIES.")
Also included in the securities offered hereby are 550,000 shares of the
Common Stock underlying certain common stock purchase warrants which were
issued to consultants of the Company ("Consultants Warrants"), which entitle
the holders to purchase shares of Common Stock at exercise prices of $1.50 and
$3.00 per share. (See "DESCRIPTION OF SECURITIES.")
The Company's Common Stock currently trades in the Nasdaq Small Cap
Market under the symbol "CTMI", and on February 7, 1996, the closing price of
the Common Stock was $6.00. (See "PRICE RANGE OF COMMON STOCK.")
__________________
THESE ARE SPECULATIVE SECURITIES. AN INVESTMENT IN THE SECURITIES
OFFERED HEREIN INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING
ON PAGE 7.
___________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
___________________
<TABLE>
<CAPTION>
Underwriting Proceeds
Price to Discounts and to the
Warrant Holders Commissions<FN1> Company<FN2>
<S> <C> <C> <C>
Per Share on Exercise of
Class B Warrants $ 4.50 -0- $ 4.50
Total $ 536,512 -0- $ 536,512
_____________________________________________________________________________
Per Share on Exercise of
Class C Warrants $ 4.50 -0- $ 4.50
Total $1,350,000 -0- $1,350,000
_____________________________________________________________________________
Per Share on Exercise of
Consultants' Warrants<FN3> $ 2.182 -0- $ 2.182
Total $1,200,000 -0- $1,200,000
<FN>
<FN1>
No commissions or fees will be paid in connection with the exercise of
the Class B Warrants, Class C Warrants or Consultants' Warrants.
<FN2>
Before deducting expenses of this offering estimated at $30,000.
<FN3>
Based on the average exercise price of the Consultants' Warrants.
</FN>
</TABLE>
The date of this Prospectus is _________, 1996.
ADDITIONAL INFORMATION
A Registration Statement on Form S-1, including amendments thereto,
relating to the securities offered hereby has been filed by the Company with
the Securities and Exchange Commission, Washington, D.C. This Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits and schedules thereto. For further information with respect to
the Company and the securities offered hereby, reference is made to such
Registration Statement, exhibits and schedules. Statements contained in this
Prospectus as to the contents of any contract or other document referred to
are not necessarily complete, and in each instance reference is made to the
copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. However, all material elements of such contracts and
documents are disclosed in this Prospectus. A copy of the Registration
Statement may be inspected without charge at the Commission's principal
offices in Washington, D.C., and copies of all or any part thereof may be
obtained from the Commission upon the payment of certain fees prescribed by
the Commission.
The Company is subject to the reporting requirements of Section 13(a)
and to the proxy requirements of Section 14 of the Securities Exchange Act of
1934, as amended, and in accordance therewith files periodic reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information concerning the Company may be inspected or
copied at the public reference facilities at the Commission located at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the Commission's
Regional Offices in New York, 7 World Trade Center, New York, New York 10048,
and in Chicago, Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such documents can be obtained at
the public reference section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
THE COMPANY
Contour Medical, Inc. and subsidiaries (the "Company") manufactures a
full line of orthopedic care and rehabilitation products in addition to a full
line of disposable surgical products. The orthopedic and rehabilitative
products include pads and positioning aids for x-rays, CAT scans, mammograms
and MRI's; braces for reconstructive rehabilitation after surgery; and finger
spreaders, leg spreaders and leg positioning devices to prevent atrophy and
speed recovery from surgery. Sterile and non-sterile products such as
sponges, swabs, instrument holders, equipment covers and drapes make up the
Company's disposable product line.
In addition to the standard product lines offered, the Company offers
customers the benefit of specialty manufacturing. The Company's staff assists
in total product development from concept to completed product manufacturing
and distribution.
In 1994, the Company began manufacturing and marketing its "REDI NURSE
SYSTEM[TM]" product line, which provides custom packaged procedural trays for
use in clinics and nursing homes as well as by home health care nurses. The
Company also designs and fabricates disposable medical products for sports
medicine applications.
Beginning in 1995, the Company commenced distribution of medical supply
products to nursing home and retirement facilities owned, leased or managed by
Retirement Care Associates, Inc., the Company's majority shareholder. The
Company has now expanded this activity to other nursing home operators and
other health care providers.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Outstanding 4,613,841 Shares<FN1>
Securities Offered Upon
Exercise of Class B Warrants 119,225 Shares of Common Stock
Securities Offered Upon
Exercise of Class C Warrants 300,000 Shares of Common Stock
Securities Offered Upon
Conversion of Series A
Convertible Preferred Stock 600,000 Shares of Common Stock
Securities Offered Upon
Exercise of Consultants'
Warrants 550,000 Shares of Common Stock
Common Stock Outstanding
After Offering 6,183,066 Shares(1)
Nasdaq Small Cap Market
Symbol CTMI
__________________
<FN>
<FN1>
As of February 1, 1996. Does not include 460,000 shares of Common Stock
issuable upon the exercise of outstanding options. (See "MANAGEMENT.")
[/FN]
</TABLE>
RISK FACTORS: The purchase of these securities involves a high degree
of risk. Prospective investors should review carefully and consider the
factors described under "RISK FACTORS."
USE OF PROCEEDS: The proceeds from the offering will be used for
general corporate purposes. (See "USE OF PROCEEDS.")
SUMMARY FINANCIAL DATA: The following table sets forth certain selected
financial data with respect to the Company and is qualified in its entirety by
reference to the financial statements and notes thereto included in this Pro-
spectus.
Balance Sheet Data:
At
December 31, At June 30, At December 31,
1995 1995 1994 1993
Current Assets $4,899,832 $4,351,326 $1,129,398 $1,224,496
Total Assets 6,066,982 5,176,426 1,484,568 1,878,465
Current Liabilities 1,679,898 1,377,578 410,162 829,200
Working Capital 3,219,934 2,973,748 719,236 395,296
Long-Term Debt 1,061,130 907,711 554,323 -0-
Shareholders' Equity 3,325,954 2,891,137 520,083 648,765
Statement of Income Data:
For the Six Months For the Six Months
Ended December 31, Ended June 30,
1995 1994 1995 1994
Sales $4,750,349 $2,016,545 $3,568,459 $1,929,200
Net Income (Loss) 229,869 (121,370) 111,373 (478,798)
Net Income (Loss) Per
Common Share $ .05 $ (.05) $ .02 $ (.21)
Weighted Average Shares
and Share Equivalents
Outstanding 4,613,841 2,560,883 4,558,215 2,230,472
Cash Dividends Per Share -0- -0- -0- -0-
For the Year Ended December 31,
1994 1993 1992
Sales $3,945,745 $3,618,359 $3,440,701
Net Income (Loss) (529,182) (73,536) 79,126
Net Income (Loss) Per
Common Share $ (.21) $ (.05) $ .07
Weighted Average Shares
and Share Equivalents
Outstanding 2,560,883 1,366,158 1,124,197
Cash Dividends Per Share -0- -0- -0-
RISK FACTORS
The securities offered hereby represent a speculative investment and
involve a high degree of risk of a loss of part or all of the investment.
Therefore, prospective investors should read this entire Prospectus and
carefully consider the following risk factors in addition to the other
information set forth elsewhere in this Prospectus prior to making an
investment.
1. ACCUMULATED DEFICIT. As of December 31, 1995, the Company had an
accumulated deficit of $(64,540). There can be no assurance that the Company
will be able to maintain profitable operations on a long-term basis.
2. ADVANCES MADE TO MAJORITY SHAREHOLDER AND DEPENDENCE ON SALES TO
FACILITIES CONTROLLED BY IT. The Company has engaged in a number of
transactions with its majority shareholder, Retirement Care Associates, Inc.
("Retirement Care"), as well as facilities owned, leased or controlled by it.
In particular, as of December 31, 1995, the Company had advanced $941,563 to
Retirement Care on an interest-free basis. In addition, during the six
months ended December 31, 1995, and the six months ended June 30, 1995, the
Company sold approximately $1,653,000 and $1,426,000, respectively, in bulk
medical supplies to nursing homes and retirement facilities owned, leased or
managed by Retirement Care, and such sales represented approximately 35% and
40% of the Company's sales during such periods, respectively. As of December
31, 1995, such facilities owed the Company $1,254,555 in accounts receivable
in connection with such sales. The Company is dependent upon the continuation
of sales to the affiliated facilities and the payment of amounts owed by
Retirement Care and the affiliated facilities.
3. ARTIBRARY OFFERING PRICE. The prices at which the Class B
Warrants, Class C Warrants and Consultants' Warrants may be exercised were
arbitrarily determined by the Company. The exercise prices bear no
relationship to objective criteria of value.
4. PROCEEDS OF WARRANT EXERCISES NOT ALLOCATED. The net proceeds
from the exercise of the Class B Warrants, Class C Warrants and Consultants'
Warrants have not been designated to be used for a specific purpose by the
management of the Company. Persons who exercise their Class B, Class C
Warrants or Consultants' Warrants will be trusting their funds to management,
who will have broad discretion in determining specific expenditures of the
funds. Accordingly, this uncertainty increases the risk of an investment in
the Company since investors do not have an opportunity to review and evaluate
the specific expenditures which may be made by the Company. The Company does
not intend to use the funds to make acquisitions of other businesses, and has
no present plans or discussions related to possible future acquisitions. See
"USE OF PROCEEDS."
5. RETENTION OF CONTROL BY RETIREMENT CARE ASSOCIATES, INC.
Retirement Care Associates, Inc. ("Retirement Care") beneficially owns 67.9%
of the Company's Common Stock outstanding. Since cumulative voting in the
election of Directors is not permitted, it presently has the power to elect
all of the Directors of the Company.
6. POTENTIAL ADVERSE IMPACT OF GOVERNMENT REGULATION AND
HEALTHCARE REFORM. The healthcare supply industry is not highly regulated at
present. Therefore, the Company has not been directly impacted by
governmental regulations in the healthcare area. The Company is unable to
determine to what extent, if any, regulation of medical supplies may be
proposed or adopted or, if adopted, the favorable or unfavorable impact, if
any, they would have on the Company's operations. In addition, there can be
no assurance that future healthcare reform will not negatively impact the
Company, or its major customers.
7. COMPETITION. The Company is a small manufacturing concern engaged
in a specialized niche of the health care supply business. It therefore
competes with all of the health care product manufacturers, substantially all
of which are better capitalized and have significantly greater resources than
does the Company.
8. SUCCESS DEPENDENT ON MANAGEMENT. Success of the Company depends
on the active participation of Gerald J. Flanagan. The Company has an
employment agreement with Mr. Flanagan, but it has not obtained "key-man"
insurance on him. The loss of the services of Mr. Flanagan could adversely
affect the development of the Company's business.
9. PRODUCT LIABILITY. Due to the nature of the business of the
Company, it faces substantial potential liability in connection with the sale
and consumption of its products. The Company carries liability insurance in
the amount of $1,000,000 per occurrence and also carries an umbrella excess
liability insurance policy which has a $2,000,000 per occurrence limit with an
aggregate limit of $2,000,000. It is possible that liabilities arising out of
use of the products of the Company could have a severe effect on the Company.
10. DIVIDEND POLICY. The Company has paid no cash dividends on its
Common Stock and has no present intention of paying cash dividends in the
foreseeable future. It is the present policy of the Board of Directors to
retain all earnings to provide for the growth of the Company. Payment of cash
dividends in the future will depend, among other things, upon the Company's
future earnings, requirements for capital improvements and financial
condition. As a result, investors may never receive any income from the
ownership of the Company's Common Stock.
THE COMPANY
The Company was organized in the State of Nevada under the name Master
Acquisitions, Inc. in April 1987. Its name was changed to Best Acquisitions,
Inc. in March 1988, and in 1989, the Company conducted an initial public
offering as a "blank check" company seeking business opportunities. In 1991,
the Company's name was again changed to Associated Healthcare Industries, Inc.
("AHII"). The Company was a development stage company operating in the health
care industry prior to the acquisition of all of the issued and outstanding
stock of the Michigan and Florida Subsidiaries in May 1993, as discussed
below. In connection with the acquisition of the stock of the Michigan and
Florida Subsidiaries, the Company's name was changed to Contour Medical, Inc.
on June 30, 1993.
On May 14, 1993, effective as of January 1, 1993, the Company acquired
all of the issued and outstanding stock of the Michigan and Florida
Subsidiaries in exchange for the issuance of (i) 1,000,000 shares of the
Company's Class D Redeemable Preferred Stock and 666,666 Class D Warrants
(valued by the parties at $6,000,000); and (ii) 666,669 shares of the
Company's Class C Convertible Preferred Stock (valued by the parties at
$2,000,000). In April 1994, all Class D Redeemable Preferred Stock and Class
D Warrants were exchanged for shares of Class One Convertible Preferred Stock
and Common Stock.
The Michigan Subsidiary operates from a 23,000 square foot company-owned
facility located on twelve acres in Grand Blanc, Michigan, approximately 50
miles north of Detroit and about 15 minutes from Flint. The Michigan
Subsidiary was established in 1974 to develop and manufacture products for the
imaging industry. These product lines today include a full line of pads and
positioning aids for X-rays, MRI, CAT and mammography usages. The business
has further diversified its orthopedic products used in therapy procedures for
patient's recovery from surgery, and prolonged immobilization resulting from
disease or nerve damage. The Michigan Subsidiary's products are primarily
reusable products which typically can be used for one to two years.
In 1984, the Michigan Subsidiary's management decided to diversify its
operations into the disposable products market, and established a sister
company in St. Petersburg, Florida, the Florida Subsidiary. The Florida
Subsidiary began manufacturing disposable, sterile and non-sterile single-use
products for hospital, surgical and emergency room environments in 1984.
These products include bags, covers and drapes for protection of equipment and
patients in these special procedure areas. Additional products have been
developed for the kit-packers "kit" market. Products for this market include
foam products such as sponges, prep swabs and instrument holders which are
included in the kits sold by other manufacturers.
In 1994, the Florida Subsidiary's operation was expanded to include the
new REDI NURSE SYSTEM[TM] production. In this connection, the warehouse
facility in St. Petersburg was expanded to include an additional 12,500 square
feet of warehouse space to accommodate increased product orders for the
established products and new product lines.
On September 30, 1994, Retirement Care Associates, Inc. ("Retirement
Care") acquired 846,669 shares of the Company's outstanding Common Stock and
all 2,000,000 shares of the Company's Class One Convertible Preferred Stock
from three persons who were Officers and Directors of the Company.
Subsequently, Retirement Care converted the Class One Convertible Preferred
Stock into 2,000,000 shares of Common Stock. The Common Stock acquired by
Retirement Care in these transactions represented approximately 63% of the
Company's Common Stock outstanding after the completion of these transactions.
Since then, Retirement Care has acquired securities of the Company which has
increased its benefical ownership to 67.9%.
Retirement Care acquired the stock from William D. Gabriele, Rudolph J.
Dallessandro and Howard E. Hagon in exchange for shares of Retirement Care's
common and preferred stock. In connection with the exchange of shares,
Messrs. Gabriele, Dallessandro and Hagon each resigned as Officers and
Directors of the Company, and each resigned as employees within 90 days of the
closing. Following these resignations, three new Directors of the Company
selected by Retirement Care were elected. These three persons also serve as
directors of Retirement Care.
Retirement Care is a publicly-held company (listed on the New York Stock
Exhange) which is engaged in the management and operation of retirement care
and long-term nursing home facilities in the Southeastern United States.
Although Retirement Care now has three representatives on the Board of
Directors, it does not intend to take an active role in the day-to-day
management of the Company.
Beginning in 1995, the Company commenced distribution of medical supply
products to nursing home and retirement facilities owned, leased or managed by
Retirement Care. The Company has now expanded this activity to other nursing
home operators and other health care providers.
The Company's principal executive offices are located at 3340 Scherer
Drive, St. Petersburg, Florida 33716, and its telephone number is (813)
572-0089.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded in the over-the-counter market, and
since September 21, 1995, has been traded on the Nasdaq Small Cap Market under
the symbol "CTMI." The following table sets forth the closing high and low
bid prices of the Company's Common Stock as reported by the OTC Bulletin Board
for the periods indicated prior to September 21, 1995, and by The Nasdaq Stock
Market thereafter. These prices are believed to be representative
inter-dealer quotations, without retail markup, markdown or commissions, and
may not epresent prices at which actual transactions occurred.
<TABLE>
<CAPTION>
Bid<FN1>
Quarter Ended High Low
<S> <C> <C>
March 31, 1993 . . . . . . . . . . . . . $ 3.12 $0.91
June 30, 1993. . . . . . . . . . . . . . $ 2.73 $1.04
September 30, 1993 . . . . . . . . . . . $ 3.00 $0.26
December 31, 1993. . . . . . . . . . . . $ 2.25 $0.50
March 31, 1994 . . . . . . . . . . . . . $ 2.25 $1.00
June 30, 1994. . . . . . . . . . . . . . $ 2.00 $0.50
September 30, 1994 . . . . . . . . . . . $ 2.00 $1.75
December 31, 1994. . . . . . . . . . . . $ 5.00 $2.00
March 31, 1995 . . . . . . . . . . . . . $ 5.125 $ 3.50
June 30, 1995. . . . . . . . . . . . . . $ 5.50 $ 3.75
September 30, 1995 . . . . . . . . . . . $ 8.00 $4.375
December 31, 1995. . . . . . . . . . . . $ 6.25 $4.00
___________________
<FN>
<FN1>
As restated to give retroactive affect to a 1 for 13 reverse stock split which
occurred in July 1993.
</FN>
</TABLE>
A recent closing price for the Common Stock is set forth on the cover
page of this Prospectus. As of December 1, 1995, there were approximately 110
record holders of the Company's Common Stock. Based on securities position
listings, the Company believes that there are approximately 500 beneficial
holders of the Company's Common Stock.
DIVIDEND POLICY
The Company has paid no cash dividends on its Common Stock and has no
present intention of paying cash dividends in the foreseeable future. It is
the present policy of the Board of Directors to retain all earnings to provide
for the growth of the Company. Payment of cash dividends in the future will
depend, among other things, upon the Company's future earnings, requirements
for capital improvements and financial condition. The Company does, however,
intend to consider additional stock dividends in the future.
The Company's ability to pay any cash dividends on the Company's Common
Stock in the future will be limited by the dividend requirements of the
Company's Series A Convertible Preferred Stock. (See "DESCRIPTION OF
SECURITIES.")
SELECTED FINANCIAL INFORMATION
The following table sets forth certain selected financial data with
respect to the Company, and is qualified by reference to the financial
statements and notes thereto filed herewith:
Balance Sheet Data:
At At
December 31, 1995 June 30, 1995
Current Assets $4,899,832 $4,351,326
Total Assets 6,066,982 5,176,426
Current Liabilities 1,679,898 1,377,578
Working Capital 3,219,934 2,973,748
Long-Term Debt 1,061,130 907,711
Shareholders' Equity 3,325,954 2,891,137
<TABLE>
<CAPTION>
At December 31,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Current Assets $1,129,398 $1,224,496 $1,054,020 $1,078,858
$1,054,994
Total Assets 1,484,568 1,878,465 1,375,726 1,427,362
1,593,793
Current Liabilities 410,162 829,200 601,727 653,178
500,091
Working Capital 719,236 395,296 452,293 425,680
554,903
Long-Term Debt 554,323 -0- 480,000 559,311
696,229
Shareholders' Equity 520,083 648,765 293,999 214,973
397,473
</TABLE>
<TABLE>
Statement of Income Data:
<CAPTION>
For the Six Months For the Six Months
Ended December 31, Ended June 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Sales $4,750,349 $2,016,545 $3,568,459
$1,929,200
Net Income (Loss) 229,869 (121,370) 111,373
(478,798)
Net Income (Loss)Per Common
Share $ .05 $ (.05) $ .02 $
(.21)
Weighted Average
Shares and Share
Equivalents Out-
standing 4,613,841 2,560,883 4,558,215
2,230,472
Cash Dividends
Per Common Share -0- -0- -0- -0-
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended December 31,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Sales $3,945,745 $3,618,359 $3,440,701 $3,516,135
$3,960,958
Net Income (Loss) (529,182) (73,536) 79,126 20,383
387,765
Net Income (Loss)
Per Common
Share $ (.21) $ (.05) $ .07 $ .01 $
.48
Weighted Average
Shares and Share
Equivalents Out-
standing 2,560,883 1,366,158 1,124,197 656,308
656,308
Cash Dividends
Per Common Share -0- -0- -0- -0-
- -0-
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of
sales for the periods indicated:
<TABLE>
<CAPTION>
Six Months
Ended Six Months
December 31, Ended June 30, Year Ended December 31,
1995 1994 1995 1994 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Sales 72.0% 64.5% 71.3% 73.8% 64.5% 57.0% 51.0%
Gross Profit 28.0% 35.5% 28.7% 26.2% 35.5% 43.0% 49.0%
Operating
Expenses 20.7% 39.2% 23.6% 34.1% 40.1% 44.9% 43.6%
Net Income (Loss)
Before Income
Taxes (Benefit) 7.3% (6.0%) 4.6% (24.8%) (13.4%) (3.5%) 3.0%
Income Taxes
(Benefit) 2.5% -- 1.5% -- -- (1.4%) 0.7%
Net Income (Loss) 4.8% (6.0%) 3.1% (24.8%) (13.4%) (2.0%) 2.3%
</TABLE>
SIX MONTHS ENDED DECEMBER 31, 1995, COMPARED TO SIX MONTHS ENDED DECEMBER 31,
1994
As a result of the factors discussed below, for the six months ended
December 31, 1995, the Company had net income of $229,869 compared to a net
loss of $(121,370) for the six months ended December 31, 1994.
Sales increased $2,733,804 for the six months ended December 31, 1995, as
compared to 1994. Approximately $510,000 of this increase was due to
increased demand for the Company's traditional product lines, and
approximately $570,000 of the increase resulted from sales of pre-packaged
kits to other than nursing homes. Approximately $1,653,000 of the sales
increase was attributed to sales of bulk medical supplies and pre-packaged
kits to nursing homes managed or operated by the Company's Parent. There were
no sales to nursing homes in the comparable period of 1994. Sales to nursing
homes managed or operated by the Parent represents a new market which was
created for the Company by the Parent during 1995. Approximately $205,000 of
these nursing home sales represent sales of the pre-packaged kits and the
remainder of $1,448,000 represents sales of bulk medical supplies to the
nursing homes.
Gross profit for the six months ended December 31, 1995, was $1,330,010
or 28% of sales, as compared to $715,470 or 35% of sales, for the same period
of the previous year. The decrease in gross profit as a percentage of sales
is primarily due to the fact that pre-packaged kits and bulk medical supply
products have lower gross profit margins.
Operating expenses for the six month period ending December 31, 1995,
were $984,944 as compared to $789,740 in 1994. The operating expenses
increased approximately 25% as the result of higher administrative and
marketing costs due to the increased level of sales and overall business
activity.
SIX MONTHS ENDED JUNE 30, 1995, COMPARED TO SIX MONTHS ENDED JUNE 30, 1994
As a result of the factors discussed below, the Company had net income
of $111,373 for the six months ended June 30, 1995, as compared to a net loss
of $478,798 for the six months ended June 30, 1994.
Sales for the six months ended June 30, 1995, increased to $3,568,459 as
compared to $1,929,200 during the same period in 1994, due to growth in sales
volume of the existing product lines and the addition of bulk medical supply
sales. Approximately $1,426,000 of the sales increase was attributable to
sales of bulk medical supplies and pre-packaged kits to nursing homes managed
or operated by the Company's parent. These sales, which started during April
1995 represent a new market for the Company. Approximately $175,000 of these
nursing home sales represents sales of the Company's prepackaged kits and the
remainder of the nursing home sales represents sales of bulk medical suplies.
The remaining $213,000 of the overall sales increase was due to an increased
demand for the Company's existing product line.
Gross profit for the six months ended June 30, 1995, was $1,024,083 or
28.7% of sales as compared to $505,500 or 26.2% of sales for the six months
ended June 30, 1994. The gross profit percentage remained relatively constant
in 1995 as compared to the comparable period in 1994 because the product mix
in both periods included about the same percentage of REDI NURSE kits which
have a lower gross profit than the manufactured products. The 1995 period
included approximately $1,251,000 in sales of bulk medical supplies which also
have a lower gross profit, and the 1994 period margin was reduced due to the
costs of developing and shipping numerous prototype kits for customer
evaluation and introduction prior to FDA approvals. In prior years, the
Company had higher gross profit margins because most of the Company's sales
were of products manufactured by the Company.
Operating expenses for the six months ended June 30, 1995, increased to
$841,275 as compared to $657,199 for the same period in 1994. Total operating
expenses increased approximately $184,000 as a result of the increased
staffing necessary to service the increased volumes, but as a percentage of
sales they decreased to approximately 24% of sales in 1995 versus 34% of sales
in the same period in 1994.
Net income before taxes for the six months ended June 30, 1995, was
$166,091 as compared to a net loss before income taxes for the six months
ended June 30, 1994, of $478,798, after deducting offering costs of $305,731.
1994 COMPARED TO 1993
As a result of the factors discussed below, the Company had a net loss
of $529,182 in 1994 as compared to a net loss of $73,536 in 1993.
Sales for 1994 increased by 9% to $3,945,745 as compared to $3,618,359
in 1993 due to growth in sales of existing product lines and increasing sales
in the new REDI NURSE product lines which were introduced during March - April
1994.
Gross profit for 1994 was $1,399,820 or 35.5% of sales, as compared to
$1,557,109 or 43.0% of sales, in fiscal year 1993. The lower gross profit in
1994 resulted from a change in the sales mix of products and the fact that
profit margins on the REDI NURSE lines (introduced during March-April 1994)
are lower since those products are assembled as opposed to being manufactured.
Operating expenses in 1994 were $1,580,385 as compared to $1,623,465 in
1993. The operating expenses decreased primarily due to a reduction of
litigation related fees and expenses of approximately $55,000.
The net loss before income taxes in 1994 was $529,182 after deducting
offering costs totaling $305,731, as compared to a net loss before income
taxes in 1993 of $125,325.
1993 COMPARED TO 1992
As a result of the factors discussed below, the Company had a net loss
of $73,536 in 1993 compared to net income of $79,126 in 1992.
Sales for 1993 were $3,618,359 as compared to $3,440,701 for 1992. In
1993 the Company lost sales of approximately $700,000 to its major customer,
and was able to replace $500,000 in new sales to a new customer.
Gross profit for 1993 was $1,557,109 or 43.0% of sales, as compared to
$1,685,492 or 49% of sales, in fiscal year 1992. The lower gross profit in
1993 resulted from a change in the sales mix of products and production costs
of samples and prototypes for the new REDI NURSE SYSTEM[TM] product lines.
Operating expenses in 1993 were $1,623,465 as compared to $1,499,970 in
1992. The operating expenses increased slightly as the result of higher
administrative costs and a one time litigation settlement expense of $85,000
in 1993.
Net loss before income taxes in 1993 was $125,325 after deducting
litigation settlement expenses of $85,000 as compared to net income before
income taxes in 1992 of $103,379 after deducting bonuses of $460,000. These
bonuses were paid to the operating owners because it resulted in an overall
lower effective tax rate for the Company and the owners.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995, the Company had $3,219,934 of working capital as
compared to $2,973,748 on June 30, 1995. The increase was primarily due to
the $229,869 of net income for the six months December 31, 1995.
Operating activities for the six months ended December 31, 1995, utilized
cash of $166,633 as compared to operating activities during the six months
ended December 31, 1994, which provided cash of $206,492. The increased use
of cash was primarily due to increases in inventory and accounts receivable,
net of the increase in payables.
Inventories increased by approximately 26% from June 30, 1995 to December
31, 1995, because of the need to carry more inventory to serve the growing
nursing home market. Accounts receivable and accounts payable have increased
due to the increased level of sales. Prepaid expenses and other increased
primarily as a result of a deposit paid on equipment to be purchased of
$68,400.
Cash flow of $298,150 was provided from financing activities for the six
months ended December 31, 1995, whereas during the six months ended December
31, 1994 cash flows from financing activities used cash of $43,299. During
the six months ended December 31, 1995, $211,619 was provided from bank
borrowings, $50,000 was provided by the exercise of stock options, and
$36,531 was provided by payment of a short-swing liability by a shareholder.
Cash flow of $176,135 was provided from financing activities for the
three months ended Sepember 30, 1995, whereas during the three months ended
September 30, 1994 cash flows from financing activities used cash of $36,529.
During the three months ended September 30, 1995, $126,135 was provided from
bank borrowings and $50,000 was provided by the exercise of stock options.
At June 30, 1995, the Company had $2,973,748 of working capital as
compared to working capital of $719,236 at December 31, 1994. The increase in
working capital was primarily due to the completion of a private offering of
preferred stock which was completed during February 1995.
Operating activities for the six month period ended June 30, 1995,
utilized cash of $1,030,398 as compared to $120,699 for the same period in
1994. The increased utilization of cash resulted primarily from higher
receivable and inventory levels, net of increased accounts payable, necessary
to support the increase in sales. Operating activities for the years ended
December 31, 1994, and 1993 utilized cash of $28,133 and $209,284,
respectively, and provided cash flow of $16,897 for the year ended in 1992
(which includes only nine months of operations for the Michigan subsidiary).
Investing activities for the six months ended June 30, 1995, utilized
$1,701,945 of cash, of which $533,054 was for the acquisition of equipment and
$1,168,901 was advanced to the Company's majority shareholder as compared to
$6,597 of cash used during the six months ended June 30, 1994, which was
expended for equipment. The cash flows for the years ended December 31, 1994,
1993 and 1992, were used substantially for the acquisition of additional
equipment as needed.
Cash flow of $2,689,372 was provided from financing activities for the
six months ended June 30, 1995, as compared to cash utilized during the six
months ended June 30, 1994, of $17,468. During the six months ended June 30,
1995, cash of $2,216,447 was provided from the issuance of preferred stock and
exercise of stock options, and $482,622 was provided from equipment financing
at favorable long-term rates, utilization of credit line funds of $189,671,
all of which was reduced by repayments on bank loans and advances to the
Company's majority shareholder totaling of $199,328. For the year ended
December 31, 1994, cash flow of $62,833 was provided from financing
activities, whereas in 1993 cash flow of $448,944 was provided due to the sale
of preferred stock of $430,500, and $130,455 of cash flow from financing
activities was used to repay bank loans in 1992.
At June 30, 1995, the Company has a mortgage payable with Michigan
National Bank with an outstanding balance of $491,662, bearing interest at
8.58% with monthly payments of $6,793, including interest, collateralized by
real estate; and a second mortgage with a balance of $78,571 with monthly
principal payments of $1,190 and interest at prime plus .75% (9.75% at June
30, 1995); and a loan secured by equipment with a balance of $182,622, bearing
interest at prime plus .75% with monthly payments of $3,044 including
interest. The Company secured an equipment loan with Fidelity Bank with an
outstanding balance of $300,000 as of June 30, 1995, interest at prime plus 1%
(10% at June 30, 1995), principal of $5,000 plus interest, collateralized by
equipment. At June 30, 1995, the Company had a note payable with Barnett Bank
with a balance of $23,333, interest at prime plus 1% (10% at June 30, 1995),
with principal and interest of $1,667 due monthly, collateralized by accounts
receivable, inventory and equipment of the Florida subsidiary.
The Company currently maintains a total of $350,000 in open credit lines
with its current banks for short-term working capital needs. As of December
31, 1995, $303,800 had been borrowed against these lines. Management believes
that the Company's working capital, together with anticipated net income from
operations and unused lines of credit, will be adequate to meet the Company's
needs for liquidity for at least the next twelve months. If additional
short-term capital is needed, Management believes that the Company's Parent
would pay down the amount it owes the Company. During the six months ended
December 31, 1995, the Company's parent repaid $227,338 to the Company.
Other than the transaction described below, the Company presently has no
commitments for material capital expenditures.
The Company has entered into a Letter of Intent to acquire a company
engaged in the bulk medical supply distribution business through a merger of
such company into a newly formed subsidiary of the Company. Under the terms
of the Letter of Intent, the Company will be required to issue shares of its
Common Stock and pay $300,000 in cash in connection with the merger. The
Company intends to finance the cash portion of the merger out of the Company's
working capital. The completion of the proposed merger is subject to the
execution of a definitive agreement and certain conditions outlined in the
Letter of Intent. The Company expects to complete the merger in March 1996.
At June 30, 1995, the Company had a commitment to purchase sterilization
equipment for $371,000 of which $228,282 was paid as of June 30, 1995. The
Company presently has no other commitments for material capital expenditures.
SEASONALITY AND INFLATION
The Company's business is relatively consistent and stable on a monthly
basis, and has not indicated any seasonality over the past three years.
In addition, the Company does not believe that inflation has had a
material effect on its results from operations during the past three years.
There can be no assurance, however, that the Company's business will not be
affected by inflation in the future.
USE OF PROCEEDS
The net proceeds to be realized from the exercise of the Warrants will
approximate $506,512 (after deducting $30,000 in offering expenses) if all of
the Class B Warrants are exercised, $1,350,000 if all of the Class C Warrants
are exercised, and an additional $1,200,000 if all of the Consultants'
Warrants are exercised. The net proceeds from the exercise of the Class B
Warrants, Class C Warrants and Consultants' Warrants will be used for general
corporate purposes, including working capital to support increases in the
volume of the Company's sales.
Pending utilization, management intends to make temporary investment of
the proceeds in bank certificates of deposit, interest-bearing savings
accounts, prime commercial paper or government obligations. Such investment
in interest-bearing assets, if continued for an excessive period of time
within the definition of the Investment Company Act of 1940, could subject the
Company to classification as an "investment company" under the Act and to
registration and reporting requirements thereunder.
Although the Company presently has no arrangements to do so, some or all
of the proceeds from the exercise of the Warrants may be advanced to the
Company's majority shareholder, Retirement Care Associates, Inc., until such
funds are needed by the Company. Such advances may be made on a non-interest
bearing basis.
BUSINESS
GENERAL
Contour Medical, Inc. and subsidiaries (the "Company") manufactures a
full line of orthopedic care and rehabilitation products in addition to a full
line of disposable surgical products. The orthopedic and rehabilitative
products include pads and positioning aids for x-rays, CAT scans, mammograms
and MRI's; braces for reconstructive rehabilitation after surgery; and finger
spreaders, leg spreaders and leg positioning devices to prevent atrophy and
speed recovery from surgery. Sterile and non-sterile products such as
sponges, swabs, instrument holders, equipment covers and drapes make up the
Company's disposable product line.
Since 1994, the Company has also been marketing its "REDI NURSE
SYSTEM[TM]" product line, which provides custom packaged procedural trays for
use in clinics and nursing homes as well as by home health care nurses. The
Company also designs and fabricates disposable medical products for sports
medicine applications.
Beginning in 1995, the Company commenced distributing medical supply
products to nursing home and retirement facilities owned, leased or managed by
Retirement Care Associates, Inc., the Company's majority shareholder. The
Company has now expanded this activity to other nursing home operators and
other health care providers.
PRODUCTS
The Company provides a full line of orthopedic care and rehabilitation
products for patients. These products range from braces designed for
reconstructive rehabilitation of patients after surgery to finger spreaders,
leg spreaders and leg positioning devices (designed to prevent muscle atrophy
and speed recovery after surgery) and a full line of proprietary orthopedic
devices used in rehabilitative therapy procedures. Some of these products
are utilized for long-term care of wheelchair or bed-bound patients in the
hospital and the home. During the six months ended June 30, 1995, positioning
aids and orthopedic products accounted for approximately 27% of the Company's
sales.
The Company manufactures disposable surgical procedure products for
outpatient surgery, X-ray, radiology and other imaging technology within the
hospital, emergency room, integrated patient care facilities and clinic
market. These products, such as pads, bags, equipment covers and drapes are
used to protect equipment, patient and attending personnel in the surgery or
emergency room environment. These products are designed to meet the
requirements of infection control for medical, industrial, and institutional
applications. In general, these rules require emergency rooms, clinics and
similar areas to cover all equipment to protect the patient from infection
from prior patients. The Company also produces over 300 configurations of
disposable foam products, such as sponges, swabs, prep-swabs, vaginal swabs,
instrument rests and holders, pocket liners, and positioning and comfort aids
which are used during surgery, emergency treatment, X-ray and radiology
procedures. Most products are available for either sterile or non-sterile
applications. Specialty items such as face shields, esmark bandages, safety
pins, and rubber bands are provided with or as part of the Company's products
to fill specific needs within the use environment. Revenues from these
disposable surgical and special procedure products comprised approximately 34%
of the Company's sales revenue during the six months ended June 30, 1995.
In addition to the standard product lines offered, the Company offers
specialty manufacturing for customers with special product needs. The
Company's staff assists in the product development, from concept to completed
product manufacturing and distribution.
During March-April 1994, the Company introduced a new product line named
the REDI NURSE SYSTEM[TM] following the grant of four new 510(K) applications
by the U.S. Food and Drug Administration. This product line consists of
custom packaged procedural trays which can be used for specified applications.
The applications for which products are available include wound care, catheter
irrigation, catheter insertion, IV therapy and precautionary procedures.
The Company presently does not sterilize its products. Products
requiring sterilization are shipped via truck to the Atlanta, Georgia area,
where the products are sterilized, and then sent back to the Company's plant
in St. Petersburg. The sterilization process adds approximately a week to the
Company's delivery schedule. Once a year, the Company must provide validation
of its product sterility to the FDA. The inspection is done on a product load
designated by the Company by an inspection company engaged by the Company.
The sterilization validation process generally takes several weeks and results
in delayed shipment of the sterilized products to customers. In order to
eliminate the delays caused by shipping products out for sterilization, the
Company has ordered sterilization equipment which is expected to be installed
in the Company's facilities in December 1995. At September 30, 1995,
approximately $228,000 had been paid toward the purchase of this equipment.
Suppliers for the materials used by the Company in manufacturing its
products, i.e. foam and plastic, are plentiful. The Company purchases
supplies only from companies with proven consistent quality. The Company does
not use any recycled materials as it has found the quality of such materials
is not consistent.
The Company's bulk medical supply distribution operations involves the
purchase of large quantities of medical supplies from manufacturers and
distributing such supplies to nursing homes and other health care providers.
Revenues from the sale of bulk medical supplies accounted for approximately
39% of the Company's sales revenue during the six months ended June 30, 1995.
MANUFACTURING
The Company presently meets product demand by operating its
manufacturing and assembly facilities with a single shift, which represents
about 40% of the Company's operating capacity. The manufacturing processes
used by the Company include plastic molding, contour fabrication of foams and
plastics, metal fabrication, specialized foam product coating, and heat
sealing and sewing.
The Company owns and operates a 23,000 square foot facility on
approximately 12 acres in Michigan, in which it manufactures imaging and
orthocare products. The Company also leases approximately 37,000 square feet
in Florida, in which it manufactures its disposable surgical and special
procedure products, and produces its new REDI NURSE SYSTEM[TM] product line,
as well as an additional 32,000 square feet for its bulk medical supply
distribution activities.
SALES, MARKETING AND MARKETS
Historically, the Company has focused on the disposable and limited life
medical product markets for both sterile and non-sterile applications. The
Company markets to three distinct markets: (i) the end user; (ii) the dealer,
and (iii) the value added reseller ("VAR").
The following is a historical perspective of the sales mix for the six
months ended June 30, 1995, and for the preceding four years in each of these
markets, which are further discussed below, for each of the Michigan and
Florida Subsidiaries:
MICHIGAN
1995 1994 1993 1992 1991
VAR Sales 49% 62% 69% 54% 67%
Dealer Sales 42% 27% 13% 27% 19%
End User (Hospital)
Sales 9% 11% 18% 19% 14%
FLORIDA
1995 1994 1993 1992 1991
VAR Sales 53% 57% 59% 78% 78.5%
Dealer Sales 4% 12% 27% 14% 14.2%
End User (Hospital)
Sales 4% 31% 14% 8% 7.3%
Bulk Supply Sales 39% -- -- -- --
During the six months ended June 30, 1995, the Company sold
approximately $1,426,000 in products (primarily bulk medical supplies) to
facilities owned, leased or managed by Retirement Care Associates, Inc., the
Company's majority shareholder. Such sales represented 40% of total sales for
the period. However, no individual customer represented more than 10% of
total sales during the period.
During the years ended December 31, 1992, 1993 and 1994, only one
customer each year accounted for more than 10% of the Company's combined
revenues. Sales to Argon Medical, a division of Henley International, Dallas,
Texas, comprised 27% of the Company's revenues in 1992, and sales to Baxter
Medical accounted for approximately 13.8% and 23% in 1993 and 1994,
respectively.
END USERS. The end user market is common to all three of these markets,
and is made up of three primary care sectors: hospitals, clinics and
orthopedic care facilities.
HOSPITALS. The Company currently focuses on the surgical
procedure and emergency room products within the hospital markets. These
products, such as bags, equipment covers and drapes, are used to protect
equipment, patient and attending personnel in the surgery or emergency room
environment. The Company custom manufactures these products to suit the
customer's needs. Additionally, the Company produces several disposable foam
items, such as a variety of sponges, swabs, instrument holders, and
positioning aids, which are used during surgery, emergency treatment, X-ray
and radiology procedures. Specialty items, such as face shields, esmark
bandages, safety pins and rubber bands, are provided to fill specific needs
within the hospital environments.
The hospital market is a stable market for the Company's
disposable product lines designed for use within the traditional roles of
health service by the hospital community. The hospital market for disposable
products is represented by over 6,000 hospital units. The Company currently
deals with approximately 300 of these hospital units. With the spread of
Hepatitis B and HIV related diseases, the emphasis on single patient use
products and special coatings on multi-use products places the Company in the
forefront of the industry within this market niche. Management believes that
substantial future growth is available within this market by vertical
penetration of additional departments within the hospital.
CLINICS. At present, the Company is focused on outpatient surgery
centers, large integrated care facilities, X-ray, radiology and other imaging
technology centers within the clinic market. These facilities have similar
product needs as their comparable departments within the hospital markets.
According to the American Hospital Association, hospital outpatient surgeries
outnumbered inpatient surgeries for the first time in 1990. Hospital
inpatient admissions declined by 10%, while outpatient visits grew nearly 44%.
Management believes outpatient servicing through clinics shows definite trends
for continued aggressive growth through the year 2000 and beyond.
ORTHOPEDIC CARE FACILITIES. The orthopedic care facility
represents a combination of product markets due to its function as a surgery
center as well as rehabilitative care center. The Company provides a full
line of orthopedic care and rehabilitation products for patients, from braces
designed for reconstructive rehabilitation of patients after surgery to a leg
spreader device, which would be utilized by a long-term care patient who is
wheelchair or bed-bound. These products are utilized in the home and in
long-term care facilities.
DEALERS. The dealer market covers the full spectrum of the Company's
product lines. The Company sells its products at a discount to volume dealers
which sell the Company's products.
VAR MARKET. The VAR market consists of original equipment manufacturers
(OEM's) and dealers. Many of the foam products produced by the Company are
sold to OEM's for use in packaging their kits for special surgical procedures.
Additional OEM products include pads and positioning aids for imaging units
such as MRI's, CAT scans, and X-rays. The Company's diversified manufacturing
capability allows the Company to offer OEM's custom product design.
MARKETING
Prior to 1993, the Company relied on four marketing methods: sales made
by Company management, trade shows, direct order catalogs and referrals from
customers. Sales were made directly to OEM's and kit packers by the Company's
management, and sales to hospitals were solicited by direct mail catalogues.
Accordingly, sales were limited due to time constraints on management imposed
by their other duties. The Company currently employs two sales directors, who
are responsible for soliciting new business, maintaining contact with the
Company's present customer base and directing the efforts of an independent
sales representation organization employed by the Company effective July 19,
1994, to market the Company's REDI NURSE SYSTEM[TM] product line to the home
healthcare and nursing home industry in the southeast. This sales
organization has 11 direct sales representatives who service approximately
4,500 dealers throughout the southeastern U.S. The Company's agreement with
the sales organization is for a two year period, and is automatically
renewable unless canceled by either party. The Company is required to pay the
organization a commission of 10% of sales.
The independent manufacturer's representative program is intended to
provide representation of the Company's products by an established network of
sales representatives across the country. The Company hopes to reach new
customers in the home health care and nursing home markets, as well as the
private clinic markets. In addition, the Company hopes to access new
departments within the hospital structure which as yet have not been a part of
the Company's markets. Because these institutions have historically purchased
products from the Company, the Company is optimistic this new representative
program will develop additional uses for existing products as well as
providing outlets for new products. New products, such as the REDI NURSE
SYSTEM[TM], combine service benefits as well as product benefits which have a
wide range of applications in nursing homes and for home healthcare providers.
The Company is also selling products to its majority shareholder,
Retirement Care Associates, Inc., and a warehouse has been stocked to
accommodate the medical supply needs of the nursing homes and retirement
facilities which it operates or manages. In addition, the Company is now also
selling bulk medical supplies to other nursing homes and health care
providers.
MARKET EXPANSION
Nursing homes, adult congregate living facilities and home health care
markets are currently expanding markets with expected high growth in the next
ten years. The Federal home care budget was $12.5 billion for 1992. The
November 18, 1992, issue of "Home Health Line," the home care industry's
national independent newsletter, reports conservative estimates for growth at
an annual rate of 15-20% or more. The continuing emphasis on cost containment
and the continuing AIDS epidemic are two reasons for this projected growth.
Additional factors and trends reported as fostering this growth include: the
boom in medical technology; care rendered in the patient's home is far less
expensive than that delivered in hospitals; the increasing age of our
population; patients prefer home care, resulting in faster recovery from
illness and injury; and home care offers emotional advantages to people who
benefit from the support of family members and the comfort of a familiar
environment.
The Company is introducing new products and product lines, such as its
REDI NURSE SYSTEM[TM], which combine service benefits as well as product
benefits and have a wide range of applications in the nursing home and home
health care markets. Special procedure trays, positioning aids, foam
products, are all used within these environments. Special order products,
such as procedure trays for use within the home and the nursing home markets,
offer ease-of-help, which enable a non-skilled home helper to assist with the
health care process after simple instruction. With the changing demographics
of the population base moving toward an over sixty-five majority, the Company
expects the market for products which can be used by non-skilled home helpers
to increase.
Private radiology centers and walk-in clinics are also markets which are
expected to offer avenues of growth. The Company intends to continue to
diversify its markets through the development of both products and marketing
strategies to provide access to new markets within its manufacturing focus.
LETTER OF INTENT TO ACQUIRE BULK MEDICAL SUPPLY COMPANY
On January 30, 1996, the Company entered into a Letter of Intent with a
privately-held bulk medical supply company located in the Southeast pursuant
to which the two companies have proposed to merge the privately-held company
into a newly formed subsidiary of the Company. Under the terms of the Letter
of Intent, the Company would issue shares of its Common Stock equal in value
to $2,100,000 and pay $300,000 in cash in connection with the merger.
The bulk medical supply company has annual revenues of approximately
$10,000,000.
The completion of the proposed merger is subject to the execution of a
definitive agreement and certain conditions outlined in the Letter of Intent.
The Company expects to complete the merger in March 1996.
COMPETITION
The Company is a small manufacturing concern engaged in a specialized
niche of the health care supply business. It therefore competes with all of
the health care product suppliers, most of which are better capitalized and
have significantly greater resources and industry name recognition than does
the Company.
Management is not aware of any companies which offer the product
variety, quality and delivery schedule offered by the Company. The Company's
competitors in the disposable markets are primarily companies or individuals
who establish small bag manufacturing facilities, but are not able to offer
the variety of bag sizes, configurations, and consistent quality, as the
Company. Larger manufacturers such as Microtech and Xomed, are not direct
competitors in these products because they are not focused on specialty
disposable products, but rather manufacture primarily for their own use.
These specialized products are offered to customers in limited variety
according to their internal usages because of the high fixed overhead of the
larger manufacturer relative to the volume of available sales. Therefore,
specialty bags make up a very small percentage of their business. The Company
believes its competitive edge to be its ability to deliver small or large
numbers of its products, in 300 different sizes, and on a same day delivery
schedule (except for specialty orders).
The imaging and orthocare markets are limited by total volume
requirements for product. These products represent a significant volume of
sales with high profit margins because of the Company's low fixed overheads
and tightly controlled variable costs. These products are highly specialized
and the Company offers a proprietary line within these products which is not
available from the Company's competition. Five companies located across the
U.S., which are of a similar size in volume to the Company, represent the
primary competition within these markets; however, these companies do not
presently offer the product diversity, quality or proprietary design offered
by the Company.
PATENTS AND TRADEMARKS
The Company has been assigned the rights to two patents on products it
markets. The patents expire within the next two years, and are not considered
significant to the Company's overall sales or product lines. Letters Patent
No. 4370976, dated February 1, 1983, covers a dynamic foam orthosis, a
splinting device which is used to straighten and support joints following
surgery or trauma. The rights to this Patent were assigned to the Company in
1976 by its inventors, William T. Gabriele and his son, Joseph M. Gabriele.
The Company also holds the rights to Letters Patent No. 4030719, dated
June 21, 1977, covering a child immobilizing device for X-rays, also invented
by William T. Gabriele and Joseph M. Gabriele. This device immobilizes
infants and young children during a radiographic examination. All of the
materials used in the device are radiolucent, thus showing no trace of shadows
or foreign artifacts on radiographic film.
The Company has a registered trademark under the Trademark Act of 1946,
as amended, Reg. No. 1,680,218, registered on March 24, 1992, for the
Hugger[TM], the child immobilizing device.
In December 1994, the Company received trademark registration for the
REDI NURSE SYSTEM[TM] mark. The Company believes the trademark will
contribute to product identification with the Company.
EMPLOYEES
As of February 1, 1996, the Company had approximately 121 employees,
including 66 full-time, including management, and 55 hourly, part-time
employees. None of the Company's employees are represented by unions.
Management considers its employee labor relations to be good.
FACILITIES
The Company owns a 23,000 square foot facility located on twelve acres
in Grand Blanc, Michigan, sixty miles north of Detroit, from which its
Michigan Subsidiary operates. This building is subject to mortgages payable
to a banking institution of approximately $570,000 as of June 30, 1995.
The Company's corporate offices are maintained in the offices of its
Florida Subsidiary in St. Petersburg, Florida. The Company leases
approximately 69,000 square feet under three leases from an unaffiliated
lessor, for which it pays $25,960 rent on a monthly basis. One of the leases
expires on the last day of February 1996, one lease expires on the last day of
January 1996, and the third lease expires on the last day of July 1997. The
Company believes these facilities are adequate for the Company's present and
planned operations.
LEGAL PROCEEDINGS
There are no pending legal proceedings, and the Company is not aware of
any threatened legal proceedings to which the Company is a party.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Directors and Executive Officers of the Company are as follows:
Name Age Positions and Offices Held
Gerald J. Flanagan 53 President, Treasurer and Chief
Financial Officer and Director
R. Scott Williams 33 Vice President - Marketing
Chris Brogdon 47 Chairman of the Board and Director
Edward E. Lane 59 Director
Darrell C. Tucker 37 Director
Phillip M. Rees 32 Secretary
There is no family relationship between any Director or Executive
Officer of the Company.
The Company presently has no Nominating Committee, Compensation
Committee or Audit Committee.
Set forth below are the names of all Directors and Executive Officers of
the Company, all positions and offices with the Company held by each such
person, the period during which he has served as such, and the principal
occupations and employment of such persons during at least the last five
years:
Gerald J. Flanagan - President, Treasurer, Chief Financial Officer and
Director. Mr. Flanagan has been employed by the Company since July 1993.
From 1984 until July 1993, he served as the independent certified public
accountant for the Company's Florida subsidiary. Mr. Flanagan has been a
certified public accountant for more than 23 years, specializing in
international financial transactions and tax. Mr. Flanagan earned a Bachelor
of Science in Business Administration degree from St. Mary's College, Winona,
Minnesota, in 1963. He has been a certified financial planner in Florida
since 1989. From 1969 to 1978, Mr. Flanagan was a treasurer successively for
Velsicol Chemical Corp., a subsidiary of Northwest Industries, Chicago,
Illinois, and Milton Roy Company, St. Petersburg, Florida, companies listed on
the New York Stock Exchange and the American Stock Exchange, respectively.
Mr. Flanagan was responsible for cash management, which included establishing
international credit lines, cash transfer arrangements, management of world
wide banking relationships, including foreign subsidiaries, accounts
receivable management, corporate tax policy and investment coordination. From
1979 through 1992, Mr. Flanagan maintained his own public accounting firm
specializing in tax, financial planning and management advisory services in
St. Petersburg, Florida.
R. Scott Williams - Vice President - Marketing. Mr. Williams has been
employed by the Company since March 1993. From 1988 to 1991, he was an
Account Representative for Motorola Communications, Inc., a communication
systems manufacturing company. In 1991, he was employed with Med-Equip, Inc.,
a medical distribution company. From 1991 to 1992, he was Vice President of
Sales for Zygiene Medical Technology, Inc., a medical manufacturing company.
Chris Brogdon - Chairman of the Board and Director. Mr. Brogdon has
been a Director of the Company since September 30, 1994. He has served as
President and a Director of Retirement Care Associates, Inc. ("Retirement
Care"), a New York Stock Exchange company, since October, 1991. He also
served as Treasurer of Retirement Care from October, 1991, to November,
1993. He served as Secretary of Capitol Care from July, 1990, until it was
merged into Retirement Care in November, 1992, and now serves in these same
capacities with Capitol Care. Mr. Brogdon has been involved in financing and
operating nursing homes and retirement communities since 1982. From 1969
until 1982, Mr. Brogdon was employed in the securities business as a retail
salesman. Mr. Brogdon attended Georgia State University in Atlanta, Georgia.
Since March, 1987, Mr. Brogdon has been Secretary/Treasurer of Winter Haven
Homes, Inc. ("WHH") and since August, 1990, he has been Secretary/Treasurer
of National Assistance Bureau, Inc. ("NAB"). Both WHH and NAB are engaged
in the business of owning and operating nursing homes and retirement
communities. These two companies either own or operate pursuant to long-term
leases with options to purchase, or are the sole or managing general partner
of limited partnerships that own or lease a total of ten nursing home
properties. Mr. Brogdon is also a Director of Perennial Development
Corporation, a publicly-held company which provides physical, speech and
occupational therapists to nursing homes and other long-term care providers.
Edward E. Lane - Director. Mr. Lane has been a Director of the Company
since September 30, 1994. He has served as Secretary and a Director of
Retirement Care since October, 1991. Mr. Lane graduated from the University
of Iowa in 1959. From 1961 until 1968, he was self-employed as Gene Lane &
Associates where he was engaged in industrial financing with municipal tax
exempt bonds. From 1968 until 1971, he was employed by the investment banking
firm of Johnson, Lane, Space, Smith & Co. in Atlanta, Georgia. From 1972
until 1984, he was self-employed as Gene Lane & Associates where he was
involved with private investment banking principally in the areas of municipal
and industrial finance. In 1984, he was involved in the creation of the full
service investment banking firm of Lane, McNally & Jackson where he was a
principal until the firm was sold and merged into Bay City Securities, Inc. in
1987. In 1988, Mr. Lane co-founded Winter Haven Homes, Inc. to acquire
defaulted retirement centers and nursing homes. Mr. Lane also serves as
President and a Director of Gordon Jensen Health Care Association, Inc., a
nonprofit corporation that owns nine nursing homes and three personal care
facilities and National Assistance Bureau, Inc., a nonprofit corporation that
owns four health care facilities.
Darrell C. Tucker - Director. Mr. Tucker has been a Director of the
Company since September 30, 1994. He has been a Director of Retirement Care
since November, 1991, and Treasurer since November, 1993. Mr. Tucker also
serves as President of Capitol Care. He also served as President of Capitol
Care from October, 1990, until it was merged into the Company in November,
1992. From September, 1988, to July, 1990, he was a risk manager for Pruitt
Corporation where he was involved in insurance management for 30 long-term
health care facilities. From April, 1987 to August, 1988, he was Chief
Financial Officer for Allgood Health Care, Inc. which managed 12 nursing home
facilities. Mr. Tucker received a Bachelors Degree in Accounting from the
University of Georgia in 1980.
Phillip M. Rees - Secretary. Mr. Rees has been Secretary of the Company
since October 18, 1994. He has been general counsel for Retirement Care since
July 1994. From May 1989 to July 1994, Mr. Rees was an attorney with the law
firm of Vincent, Chorey, Taylor & Feil in Atlanta, Georgia. He received a
Bachelors Degree in Economics in 1985 and a Juris Doctorate Degree in 1989
from the University of North Carolina.
EXECUTIVE COMPENSATION
The following table sets forth information regarding the executive
compensation for the Company's Chief Executive Officer and each other
executive officer who received compensation in excess of $100,000 for the six
months ended June 30, 1995, and the years ended December 31, 1994, 1993 and
1992:
<TABLE>
Summary Compensation Tables
<CAPTION>
Annual Compensation
Other
Annual
Name and Principal Compen-
Position Year Salary Bonus sation
<S> <C> <C> <C> <C>
Gerald J. Flanagan, 1995 $ 50,000 -0- -0-
President 1994 $ 69,250 -0- -0-
1993 $ 75,000 -0- -0-
William J. Gabriele, 1994 $114,500 -0- -0-
Chief Executive 1993 $150,000 $ 70,000 -0-
Officer<FN1> 1992 $294,000 $285,000 -0-
Rudolf J. Dallessandro, 1994 $ 62,200 -0- -0-
Executive Vice Presi- 1993 $100,000 -0- -0-
dent (Sales & Market- 1992 $180,000 $110,000 -0-
ing)<FN1>
Howard H. Hagon, 1994 $ 82,200 -0- -0-
Executive Vice Presi- 1993 $100,000 -0- -0-
dent (Operations)<FN1> 1992 $ 63,000 $ 65,000 -0-
<FN>
<FN1>
These persons resigned as Officers and Directors of the Company on September
30, 1994.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Long-Term Compensation
Awards Payouts
Securities
Underlying All
Restricted Options/ Other
Name and Principal Stock SARs LTIP Compen-
Position Year Award(s) (Number) Payouts sation
<S> <C> <C> <C> <C> <C>
Gerald J. Flanagan, 1995 -- -- -- -0-
President 1994 -- -- -- -0-
1993 -- 250,000 -- -0-
William J. Gabriele, 1994 -- -- -- -0-
Chief Executive 1993 -- -- -- -0-
Officer<FN1> 1992 -- -- -- -0-
Rudolf J. Dallessandro, 1994 -- -- -- -0-
Executive Vice Presi- 1993 -- -- -- -0-
dent (Sales & Market- 1992 -- -- -- -0-
ing)<FN1>
Howard H. Hagon, 1994 -- -- -- -0-
Executive Vice Presi- 1993 -- -- -- -0-
dent (Operations)<FN1> 1992 -- -- -- -0-
___________________
<FN>
<FN1>
These persons resigned as Officers and Directors of the Company on September
30, 1994.
</FN>
</TABLE>
<TABLE>
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values
<CAPTION>
Securities Under- Value of
Unexer-
lying Unexer-
cised-in-the
Shares cised Options
Money\Options/
Acquired on SARs at FY-End
SARsatFY-End
Exercise Exercisable/
Exercisable/
Name (Number) Value Realized Unexercisable
Unexercisable
<S> <C> <C> <C> <C>
Gerald J. Flanagan 15,385 $64,617 166,667 / 83,333
$541,668/$270,832
</TABLE>
EMPLOYMENT AGREEMENTS
On January 1, 1993, the Florida Subsidiary and the Michigan Subsidiary
executed employment agreements (the "Agreements") with Messrs. Gabriele,
Dallessandro and Hagon. Each Agreement provided that the employee was to
devote his full time and energy to the Company. The Agreements provided for a
base salary for Messrs. Gabriele, Dallessandro and Hagon of $150,000, $100,000
and $100,000, respectively, and incentive quarterly bonuses equal to 15.18%,
5.36% and 4.46%, respectively, of combined net income of the Michigan and
Florida Subsidiaries (defined as net operating income before taxes),
calculated without giving effect to net operating loss carryforwards or
carrybacks. The Agreements further provided for the same medical and life
insurance coverage as the Company provides for its other senior executive
officers. Each of the Agreements required payment of the employee's full
salary through the Scheduled Termination Date, irrespective of whether the
employee's employment terminates, the employee renders the services specified
or whether such services are deemed satisfactory by the Company. However,
each of these persons agreed to cancel their Agreements, and effective
December 29, 1994, no further compensation will be paid to these persons.
In November 1993, effective as of July 1, 1993, the Florida Subsidiary
and the Company executed a five year employment agreement with Gerald J.
Flanagan. The agreement shall be automatically extended for additional one
year periods unless terminated by either party on 60 days' notice. The
agreement provides for a base salary of $75,000 per year plus incentive
bonuses, and the same medical and life insurance benefits as are provided to
the Company's senior executive officers. The agreement contains trade
secrets, confidentiality and non-competition covenants. Effective October 1,
1994, Mr. Flanagan's salary was increased to $100,000 per year.
R. Scott Williams, the Company's Vice President of Marketing, has an
employment agreement with the Company pursuant to which he presently receives
an annual salary of $75,000. The initial term of this agreement was through
February 21, 1995, but is automatically extendable for additional one year
periods unless either party gives 60 days' notice of an intent to terminate
prior to the end of a term.
NON-QUALIFIED EMPLOYEE STOCK BONUS PLAN
On April 20, 1993, the Company's Board of Directors and a majority of
the owners of its Common Stock approved the adoption by the Company of a
Non-Qualified Employee Stock Bonus Plan (the "Plan") to reward individual
performance, provide incentives for employee performance, and to attract and
retain employees. The Company set aside 1,000,000 shares of its Common Stock
under the Plan, which is administered by the Board of Directors. Shares may
be awarded to employees of the Company, including its Subsidiaries, at a
purchase price of not less than $.01 per share. Options awarded under the
Plan will vest over a three year period and are exercisable for a period of
five years from date of grant. The only options which have been granted under
the Plan are an option to purchase 250,000 shares granted to Gerald J.
Flanagan in July 1993, which is exercisable at $2.00 per share; an option to
purchase 100,000 shares granted to R. Scott Williams in October 1994, which is
exercisable at $2.25 per share; and options to purchase an aggregate of 50,000
shares granted to two employees in May 1995, which are exercisable at $3.90
per share.
1996 STOCK OPTION PLAN
On February 1, 1996, the Company's Board of Directors adopted the
Company's 1996 Stock Option Plan (the "1996 Plan"). The plan must be approved
by the Company's shareholders within 12 months of February 1, 1996. The 1996
Plan allows the Board to grant stock options from time to time to employees,
officers and directors of the Company and consultants to the Company. The
Board has the power to determine at the time the option is granted whether the
option will be an Incentive Stock Option (an option which qualifies under
Section 422 of the Internal Revenue Code of 1986) or an option which is not an
Incentive Stock Option. However, Incentive Stock Options will only be granted
to persons who are key employees of the Company. Vesting provisions are
determined by the Board at the time options are granted. The total number of
shares of Common Stock subject to options under the 1996 Plan may not exceed
300,000, subject to adjustment in the event of certain recapitalizations,
reorganizations and similar transactions. The option price must be satisfied
by the payment of cash.
The Board of Directors may amend the 1996 Plan at any time, provided that
the Board may not amend the 1996 Plan to materially increase the number of
shares available under the 1996 Plan, materially increase the benefits
accruing to Participants under the 1996 Plan, or materially change the
eligible class of employees without shareholder approval.
On February 1, 1996, the Board of Directors granted non-qualified stock
options to purchase an aggregate of 85,000 shares of Common Stock subject to
shareholder approval of the 1996 Plan. All of the options are exercisable at
$4.875 per share and, once the 1996 Plan is approved by the Company's
shareholders, will be fully vested. The options will expire five years after
the date of grant.
Included in options granted on February 1, 1996, are non-qualified stock
options granted to Chris Brogdon, Edward E. Lane and Darrell C. Tucker,
Directors of the Company, to purchase 25,000 shares each, and non-qualified
stock options granted to Phillip M. Rees, Secretary of the Company, to
purchase 10,000 shares.
SECURITY OWNERSHIP OF
MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The following table sets forth, as of December 1, 1995, each person
known by the Company to be the beneficial owner of five percent or more of the
Company's Common Stock, all Directors individually and all Directors and
Officers of the Company as a group. Except as noted, each person has sole
voting and investment power with respect to the shares shown.
<TABLE>
<CAPTION>
Amount of Bene- Percent
Name and Address of Beneficial Owner ficial Ownership Of Class
<S> <C> <C>
Retirement Care Associates, Inc.<FN1> 3,134,169 <FN2> 67.9%
6000 Lake Forrest Drive, Suite 200
Atlanta, GA 30328
Gerald J. Flanagan 255,385 <FN3> 5.3%
3340 Scherer Drive
St. Petersburg, FL 33716
R. Scott Williams 74,359 <FN4> 1.6%
3340 Scherer Drive
St. Petersburg, FL 33716
Chris Brogdon -0- <FN5> --
6000 Lake Forrest Drive, Suite 200
Atlanta, GA 30328
Edward E. Lane 9,000 <FN5> 0.2%
6000 Lake Forrest Drive, Suite 200
Atlanta, GA 30328
Darrell C. Tucker 5,000 <FN5> 0.1%
6000 Lake Forrest Drive, Suite 200
Atlanta, GA 30328
All Directors and Executive Officers 381,629 7.8%
as a Group (6 Persons)
__________________
<FN>
<FN1>
Retirement Care Associates, Inc. ("Retirement Care") is a publicly-held
corporation of which Chris Brogdon is President, Director and a principal
hareholder; Edward E. Lane is Secretary, Director and a principal shareholder;
Darrell C. Tucker is a Director and a President of a subsidiary; and Michael
P. Traba and Julian S. Daley are Directors.
In addition, Connie Brogdon, the wife of Chris Brogdon, is a principal
shareholder of Retirement Care. The following sets forth the percentage
ownership beneficially held by such persons in Retirement Care:
Chris Brogdon 23.3%
Edward E. Lane 22.0%
Darrell C. Tucker 4.4%
Michael P. Traba 1.1%
Julian S. Daley 0.2%
Connie Brogdon 23.3%
<FN2>
Includes 42,500 shares underlying Class C Warrants held by Retirement Care
Associates, Inc. and 85,000 shares of Common Stock into which shares of Series
A Convertible Preferred Stock held by Retirement Care Associates, Inc. may be
converted.
<FN3>
Represents 30,385 shares of Common Stock held by Mr. Flanagan and 225,000
shares issuable upon the exercise of currently exercisable stock options held
by Mr. Flanagan.
<FN4>
Includes 7,692 shares of Common Stock held directly by Mr. Williams and 66,667
shares issuable upon the exercise of currently exercisable stock options held
by him.
<FN5>
Does not include shares held by Retirement Care Associates, Inc. of which such
person is an officer, director and/or principal shareholder. Also does not
include shares underlying stock options granted to these persons under the
Company's 1996 Stock Option Plan because the options are contingent on
shareholder approval of such plan.
[/FN]
</TABLE>
CERTAIN TRANSACTIONS
During 1994, Retirement Care Associates, Inc., the Company's majority
shareholder, advanced the Company $165,000. This was repaid without interest
during February 1995.
In connection with the acquisition of the Michigan and Florida
Subsidiaries in May, 1993, the Company issued (i) 1,000,000 shares of the
Company's Class D Redeemable Preferred Stock and 666,666 Class D Warrants
(valued by the parties at $6,000,000); and (ii) 666,669 shares of the
Company's Class C Convertible Preferred Stock (valued by the parties at
$2,000,000). The shares were allocated among the shareholders of the Michigan
and Florida Subsidiaries as follows: the first 33,333 shares of Class C
Preferred Stock were allocated to Rudolph J. Dallessandro (having a value for
purposes of the transaction of $100,000); and the remaining stock to trusts
owned by each of Messrs. Gabriele, Dallessandro and Hagon in accordance with
the following percentages: 60.72% to William J. Gabriele, 21.43% to Rudolph
J. Dallessandro and 17.85% to Howard H. Hagon. Trusts owned by Messrs.
Gabriele, Dallessandro and Hagon also received a total of 666,669 Class D
Warrants. In April 1994, all shares of Class D Redeemable Preferred Stock and
Class D Warrants held by Messrs. Gabriele, Dallessandro and Hagon, who were
then Officers and Directors of the Company, were exchanged for 2,000,000
shares of Class One Convertible Preferred Stock, and were canceled.
On April 23, 1993, Joseph L. DuRant, a former Officer and Director of
the Company, executed a promissory note in the amount of $22,500, bearing
interest at a rate of 10% per annum, payable to the Company. The note was
secured by Mr. DuRant's shares of Common Stock in the Company. This note was
repaid in full during 1994.
In February 1995, Retirement Care Associates, Inc. ("Retirement Care"),
the Company's majority shareholder, purchased 85,000 shares of Series A
Preferred Stock and 42,500 Class C Redeemable Common Stock Purchase Warrants
for a total of $340,000 in cash as part of a private offering conducted by the
Company. Also in February 1995, the Company advanced $1,168,901 out of the
proceeds of the private offering to Retirement Care. The advance to
Retirement Care is due on demand and is interest free. This transaction was
approved by the only disinterested member of the Board of Directors based on
an understanding among the Board members that Retirement Care will repay the
advance as the Board determines the Company needs the money. In addition, if
the Company needs to borrow money from Retirement Care, as it did in 1994,
Retirement Care will loan the money on an interest free basis. It is the
Company's policy that all transactions with affiliates, including major
shareholders and members of management, must be approved by a majority of the
disinterested directors.
During the six months ended December 31, 1995, and the six months ended
June 30, 1995, nursing home and retirement facilities owned, leased or managed
by Retirement Care purchased a total of approximately $1,653,000 and
$1,426,000, respectively, in bulk medical supplies from the Company. As of
December 31, 1995, such facilities owed the Company $1,254,555 in accounts
receivable in connection with such sales.
Retirement Care has guaranteed a $250,000 line of credit of the Company
from a commercial bank. As of December 31, 1995, $248,800 had been drawn on
this line of credit.
DESCRIPTION OF SECURITIES
COMMON STOCK
The authorized capital stock of the Company includes 76,000,000 shares
of $.001 par value Common Stock. All shares have equal voting rights and,
when issued, are fully paid and non-assessable. Voting rights are not
cumulative, and, therefore, the holders of more than 50% of the Common Stock
of the Company could, if they chose to do so, elect all the Directors.
Upon liquidation, dissolution or winding up of the Company, the assets
of the Company, after the payment of liabilities and any preferences on
Preferred Stock, will be distributed pro rata to the holders of the Common
Stock. The holders of the Common Stock do not have preemptive rights to
subscribe for any securities of the Company and have no right to require the
Company to redeem or purchase their shares. The shares of Common Stock
presently outstanding are, and the shares of Common Stock to be sold pursuant
to this offering will be, upon issuance, fully paid and non-assessable.
Holders of Common Stock are entitled to share equally in dividends when,
as and if declared by the Board of Directors of the Company, out of funds
legally available therefor. The Company has not paid any cash dividends on
its Common Stock, and it is unlikely that any such dividends will be declared
in the foreseeable future.
CLASS B WARRANTS
The following discussion is a summary of certain terms and provisions of
the Class B Warrants contained in the Warrant Agreement between the Company
and American Securities Transfer, Inc. (the "Warrant Agent").
Each Class B Warrant entitles the holder to purchase, at a price of
$4.50, one share of Common Stock until July 15, 1996. Beginning on July 15,
1995, the Company may redeem the Class B Warrants at $.0001 per Warrant upon
30 days' prior written notice in the event that the reported bid price of the
Common Stock is at least $4.75 for at least 20 business days prior to the
mailing of the notice of redemption.
Any Warrantholder who does not exercise prior to the redemption date, as
set forth in the Company's notice of redemption, will forfeit the right to
purchase the shares of Common Stock underlying the Class B Warrants and, after
the redemption date, any outstanding Class B Warrants will become void and be
of no further force or effect. If the Company does not redeem the Class B
Warrants, the Class B Warrants will expire, become void and be of no further
force or effect on conclusion of the exercise period. All of the Class B
Warrants must be redeemed if any are to be redeemed.
The Company has authorized and reserved for issuance the shares of
Common Stock issuable upon exercise of the Class B Warrants. When delivered,
all shares of Common Stock issued upon exercise of the Class B Warrants will
be duly and validly authorized and issued, fully paid and non-assessable, and
no preemptive rights or rights of first refusal will exist with respect
thereto.
A Class B Warrant may be exercised upon surrender of the Class B Warrant
certificate on or prior to its expiration date (or earlier redemption date) at
the offices of American Securities Transfer, Inc., the Warrant Agent, with the
"Form of Election to Purchase" of the Class B Warrant certificate completed
and executed as indicated, accompanied by payment of the full exercise price
for the number of shares with respect to which the Class B Warrant is being
exercised.
The exercise price of the Class B Warrants and the number of shares to
be obtained upon exercise of the Class B Warrants are subject to adjustment in
certain circumstances including a stock split of, or stock dividend on, or a
subdivision, combination, or recapitalization of the Common Stock. In the
event of liquidation, dissolution or winding up of the Company, holders of the
Class B Warrants, unless exercised, will not be entitled to participate in the
assets of the Company. Holders of the Class B Warrants have no voting,
preemptive, liquidation or other rights of a shareholder, and no dividends
will be declared on the Class B Warrants.
CLASS C WARRANTS
The following discussion is a summary of certain terms and provisions of
the Class C Warrants contained in the Warrant Agreement between the Company
and American Securities Transfer, Inc. (the "Warrant Agent").
Each Class C Warrant entitles the holder to purchase, at a price of
$4.50, subject to adjustment, one share of Common Stock during the period
commencing February 25, 1996, until three years after such date. At any time
during the period the Class C Warrants are exercisable, the Company may redeem
the Class C Warrants at $.05 per Warrant upon 45 days' prior written notice in
the event that (1) there is a current registration statement in effect
covering the shares underlying the Class C Warrants; (2) the Common Stock is
trading on NASDAQ, the American Stock Exchange or some other equivalent
exchange; and (3) the closing bid price of the Common Stock exceeds $7.00 for
20 of 30 consecutive trading days ending not more than five days prior to the
mailing of the notice of redemption.
The Class C Warrants may only be redeemed if a current registration
statement is in effect. Any Warrantholder who does not exercise prior to the
redemption date, as set forth in the Company's notice of redemption, will
forfeit the right to purchase the shares of Common Stock underlying the Class
C Warrants and, after the redemption date, any outstanding Class C Warrants
will become void and be of no further force or effect. If the Company does
not redeem the Class C Warrants, the Class C Warrants will expire, become void
and be of no further force or effect on conclusion of the exercise period.
All of the Class C Warrants must be redeemed if any are to be redeemed.
The Company has authorized and reserved for issuance the shares of
Common Stock issuable upon exercise of the Class C Warrants. When delivered,
all shares of Common Stock issued upon exercise of the Class C Warrants will
be duly and validly authorized and issued, fully paid and non-assessable, and
no preemptive rights or rights of first refusal will exist with respect
thereto.
A Class C Warrant may be exercised upon surrender of the Class C Warrant
certificate on or prior to its expiration date (or earlier redemption date) at
the offices of American Securities Transfer, Inc., the Warrant Agent, with the
"Purchase Form" on the third page of the Class C Warrant certificate completed
and executed as indicated, accompanied by payment of the full exercise price
for the number of shares with respect to which the Class C Warrant is being
exercised.
The exercise price of the Class C Warrants and the number of shares to
be obtained upon exercise of the Class C Warrants are subject to adjustment in
certain circumstances including a stock split of, or stock dividend on, or a
subdivision, combination, or recapitalization of the Common Stock. In the
event of liquidation, dissolution or winding up of the Company, holders of the
Class C Warrants, unless exercised, will not be entitled to participate in the
assets of the Company. Holders of the Class C Warrants have no voting,
preemptive, liquidation or other rights of a shareholder, and no dividends
will be declared on the Class C Warrants.
SERIES A CONVERTIBLE PREFERRED STOCK
The authorized capital stock of the Company includes 1,265,000 shares
of Series A Convertible Preferred Stock, $.001 par value, of which 600,000
shares are currently outstanding. Holders of the Series A Convertible
Preferred Stock are entitled to receive cumulative dividends of 4% or $0.16
per share annually, payable on a semi-annual basis, beginning from the date of
issuance. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company, the holders of shares
of the Series A Convertible Preferred Stock are entitled to receive out of the
assets of the Company available for distribution to its stockholders, before
any payment or distribution shall be made on the Common Stock, an amount per
share equal to $4.00. Each share of Series A Convertible Preferred Stock is
entitled to one (1) vote and votes together with the holders of the Common
Stock as a single class.
Beginning on February 25, 1996, each share of the Series A Convertible
Preferred Stock may be converted into one share of the Company's Common Stock,
and the conversion rights will continue until such shares have been redeemed.
The conversion rate shall be subject to adjustment in the event of a stock
split of, stock dividend on, or a subdivision, combination or recapitalization
of the Common Stock.
Beginning on February 25, 1998, shares of the Series A Convertible
Preferred Stock may be redeemed, at the Company's option. The redemption
price shall be $4.00 per share together with accrued and unpaid dividends to
the redemption date.
If fewer than all of the outstanding shares of Series A Convertible
Preferred Stock are to be redeemed, the Company will select those to be
redeemed pro rata or by lot or in such other manner as the Board of Directors
may determine. There is no mandatory redemption or sinking fund obligation
with respect to the Series A Convertible Preferred Stock. In the event that
the Company has failed to pay accrued and unpaid dividends on the Series A
Convertible Preferred Stock, it may not redeem any of the then outstanding
shares of the Series A Convertible Preferred Stock until all such accrued and
unpaid dividends and (except with respect to shares being redeemed) the then
current semi-annual dividends have been paid in full.
Notice of redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of record of shares of
Series A Convertible Preferred Stock to be redeemed at the address shown on
the stock transfer books of the Company. After the date of notice, but only
until the redemption date, holders of the Series A Convertible Preferred Stock
will continue to have the right to convert their shares into Common Stock.
After the redemption date, dividends will cease to accrue on the shares of
Series A Convertible Preferred Stock called for redemption and all rights of
the holders of such shares will terminate, except the right to receive the
redemption price without interest.
CONSULTANT'S WARRANTS
On October 10, 1994, the Company issued warrants to purchase shares of
its Common Stock to JDK & Associates, Inc., a consultant to the Company.
These warrants are exercisable to purchase up to 300,000 shares of Common
Stock at $1.50 per share during the two year period commencing on October 10,
1995. The Company has agreed to register the shares of Common Stock issuable
upon the exercise of these warrants under the Securities Act of 1933, as
amended.
On November 1, 1994, the Company also issued warrants to purchase shares
of its Common Stock to Cohig & Associates, Inc. ("Cohig") pursuant to an
agreement dated November 1, 1994, pursuant to which Cohig will provide certain
financial advisory and investment banking services for the Company. These
warrants are exercisable to purchase up to 200,000 shares of Common Stock at
$3.00 per share during the four year period commencing November 1, 1995, and
Cohig has piggyback registration rights.
On November 1, 1994, the Company also issued warrants to purchase shares
of its Common Stock to Daniel Duquette ("Duquette") pursuant to an agreement
dated November 1, 1994, pursuant to which Duquette will provide certain
financial advisory consulting services for the Company. These warrants are
exercisable to purchase up to 50,000 shares of Common Stock at $3.00 per share
during the two year period commencing November 1, 1995, and Duquette has
piggyback registration rights.
TRANSFER AND WARRANT AGENT
American Securities Transfer, Inc., 938 Quail Street, No. 101, Lakewood,
Colorado 80215, serves as Transfer and Warrant Agent for the Company's Common
Stock, Class B Warrants, and Class C Warrants.
PLAN OF DISTRIBUTION
WARRANTS
The shares of Common Stock issuable upon the exercise of the Class B
Warrants, the Class C Warrants and the Consultant's Warrants are being offered
by the Company through its officers and directors who will receive no
commissions or other direct or indirect compensation or remuneration in
connection therewith. They will, however, be reimbursed for their
out-of-pocket expenses. The securities are offered on a best efforts, "any or
all" basis. Proceeds from exercise of any of the Warrants will be deposited
directly into Company bank accounts and will not be subject to any escrow or
other similar requirement. In an attempt to induce exercise of the Warrants,
officers and directors of the Company may communicate with Warrant holders by
mail, telephone or in person. This Prospectus will be delivered to all
Warrant holders of record as of the date hereof. Any supplement or amendment
to this Prospectus will be provided to all Warrant holders of record on the
date the same is filed with or declared effective by the Securities and
Exchange Commission, as applicable.
The Class B Warrants are exercisable at a price of $4.50 to purchase one
share of Common Stock through July 15, 1996. Persons who wish to exercise
their Class B Warrants must deliver an executed Warrant with the Form of
Election to Purchase, duly executed, accompanied with payment in check or
money order payable to "American Securities Transfer, Inc." (the "Warrant
Agent"). All payments must be received by the Warrant Agent prior to the
termination of the exercise period, and Class B Warrants not exercised prior
to the termination of the exercise period will expire.
The Class C Warrants are exercisable at a price of $4.50 to purchase one
share of Common Stock from February 25, 1996 through February 24, 1999.
Persons who wish to exercise their Class C Warrants must deliver an executed
Warrant with the form of Election to Purchase, duly executed, accompanied with
payment in check or money order payable to "American Securities Transfer,
Inc." (the "Warrant Agent"). All payments must be received by the Warrant
Agent prior to the termination of the exercise period, and Class C Warrants
not exercised prior to the termination of the exercise period will expire.
The Consultants' Warrants are exercisable at the prices per share and
for the terms specified below:
Number of Shares Exercise Price Expiration
Name of Consultant Subject to Warrants Per Share Date of Warrant
Cohig & Associates, Inc.
And Assigns 200,000 $3.00 October 31,1999
JDK & Associates, Inc.
And Assigns 300,000 $1.50 October 9, 1997
Daniel Duquette 50,000 $3.00 October 31,1997
In order to exercise their Consultants' Warrants, the holders must deliver an
executed Warrant with the Election to Purchase duly executed, accompanied with
payment in check or money order payable to "Contour Medical, Inc." for the
number of shares subscribed to the Company. All payments must be received by
the Company prior to the termination of the exercise period, and to the extent
that the Consultants' Warrants are not exercised prior to the termination of
the exercise period, they will expire.
SERIES A CONVERTIBLE PREFERRED STOCK
The shares of Common Stock issuable upon the conversion of the Series A
Convertible Preferred Stock are being offered by the Company through its
officers and directors who will receive no commissions or other direct or
indirect compensation or remuneration in connection therewith. They will,
however, be reimbursed for their out-of-pocket expenses. This Prospectus will
be delivered to all holders of the Series A Convertible Preferred Stock of
record as of the date hereof. Any supplement or amendment to this Prospectus
will be provided to all Warrantholders of record on the date the same is filed
with or declared effective by the Securities and Exchange Commission, as
applicable.
Commencing on February 25, 1996, each share of Series A Convertible
Preferred Stock may be converted into one share of Common Stock at the
election of the holder, unless earlier redeemed. Persons who wish to convert
their Series A Convertible Preferred Stock must deliver an executed stock
certificate with the form of Election to Convert, duly executed, to American
Securities Transfer, Inc.
LEGAL MATTERS
The legality of the securities of the Company offered will be passed on
for the Company by Jon D. Sawyer, P.C., 1401 Seventeenth Street, Suite 460,
Denver, Colorado 80202.
EXPERTS
The financial statements included in this Prospectus and in the
Registration Statement have been audited by BDO Seidman, LLP, Independent
Certified Public Accountants, to the extent and for the periods set forth in
their report appearing elsewhere herein and in the Registration Statement, and
are included in reliance upon such report given upon the authority of said
firm as experts in auditing and accounting.
The financial statements included in this Prospectus and in the
Registration Statement, to the extent and for the periods set forth in their
report appearing elsewhere herein, have been audited by Pender Newkirk &
Company, Certified Public Accountants, and are included herein in reliance on
the authority of such firm as experts in accounting and auditing.
INDEX TO FINANCIAL STATEMENTS
Page(s)
Consolidated Balance Sheets as of December 31, 1995
(Unaudited) and June 30, 1995. . . . . . . . . . . . . . . . . . . F-1
Consolidated Statements of Operations for the six months
ended December 31, 1995 and 1994 (Unaudited) . . . . . . . . . . . F-3
Consolidated Statements of Cash Flows for the six months
ended December 31, 1995 and 1994 (Unaudited) . . . . . . . . . . . F-4
Notes to Consolidated Financial Statements (Unaudited). . . . . . . F-6
Reports of Independent Certified Public Accountants . . . . . . . . F-10
Consolidated Balance Sheets as of June 30, 1995, and
the years ended December 31, 1994 and 1993. . . . . . . . . . . . . F-12
Consolidated Statements of Operations for the six months ended
June 30, 1995 and 1994, and the years ended December 31,
1994, 1993 and 1992. . . . . . . . . . . . . . . . . . . . . . . . . F-14
Consolidated Statements of Shareholders' Equity for the six
months ended June 30, 1995 and 1994, and the years ended
December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . F-15
Consolidated Statements of Cash Flows for the six
months ended June 30, 1995 and 1994, and the years ended
December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . F-21
Notes to Consolidated Financial Statements . . . . . . . . . . . . . F-22
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
[CAPTION]
December 31, June 30,
1995 1995
------------ ----------
(Unaudited)
[S] [C] [C]
ASSETS
Current:
Cash $ 42,593 $ 96,235
Accounts receivable - trade
Related parties (Note 4) 1,254,555 943,094
Other 871,615 760,703
Inventories (Note 5) 1,635,673 1,297,394
Refundable income taxes 10,680 10,680
Prepaid expenses and other 143,153 74,319
Due from parent (Note 4) 941,563 1,168,901
---------- ----------
Total Current Assets 4,899,832 4,351,326
Property and Equipment, less
accumulated depreciation (Note 6) 807,121 592,243
Other Assets:
Deposit on equipment 355,454 228,282
Other 4,575 4,575
---------- ----------
Total Other Assets 360,029 232,857
$6,066,982 $5,176,426
See accompanying notes to consolidated financial statements.
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
[CAPTION]
December 31, June 30,
1995 1995
------------- -----------
(Unaudited)
[S] [C] [C]
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable to banks -
credit lines (Note 7) $ 303,800 $ 245,600
Accounts payable 1,070,648 882,524
Accrued expenses 136,973 80,977
Current maturities of long-term
debt (Note 8) 168,477 168,477
---------- ----------
Total Current Liabilities 1,679,898 1,377,578
Long-term debt, less current
maturities (Note 8) 1,061,130 907,711
---------- ----------
Total Liabilities 2,741,028 2,285,289
Stockholders' Equity:
Preferred stock - Series A conver-
tible, $.001 par value, shares
authorized 1,265,000; issued
600,000, at aggregate liquidation
preference 2,400,000 2,400,000
Common stock $.001 par - shares
authorized 76,000,000; issued
4,613,841 and 4,573,600 (net of
$765 discount) 3,848 3,808
Additional paid-in capital 986,646 781,738
Accumulated (Deficit) (64,540) (294,409)
---------- ----------
Total stockholders' equity 3,325,954 2,891,137
$6,066,982 $5,176,426
See accompanying notes to consolidated financial statements.
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
[CAPTION]
Six Months Ended
December 31, December 31,
1995 1994
------------ ------------
(Unaudited) (Unaudited)
[S] [C] [C]
SALES $4,750,349 $2,016,545
COST OF SALES 3,420,339 1,301,075
GROSS PROFIT 1,330,010 715,470
OPERATING EXPENSES 984,944 789,740
OTHER INCOME (EXPENSE) 3,220 (47,100)
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES 348,286 (121,370)
INCOME TAX EXPENSE 118,417 --
---------- ----------
NET INCOME (LOSS) $ 229,869 $ (121,370)
NET INCOME (LOSS) PER COMMON SHARE,
PRIMARY $ .05 $ (.05)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES 4,613,841 2,560,883
See accompanying notes to consolidated financial statements.
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
[CAPTION]
Six Months Ended
December 31, December 31,
1995 1994
------------ ------------
(Unaudited) (Unaudited)
[S] [C] [C]
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 229,869 $(121,370)
Adjustments to reconcile net income
(loss) to net provided (used) by
operating activities:
Depreciation 70,447 60,284
Tax benefit from NOL 118,417 --
(Increase) decrease in accounts
receivable (422,373) (41,521)
(Increase) decrease in inventories (338,279) 42,239
(Increase) decrease in other
current assets and other assets (68,834) 94,051
Increase (decrease) in accounts
payable 188,124 183,887
Increase (decrease) in accrued
expenses and other liabilities 55,996 (11,078)
--------- ---------
Total Adjustments (396,502) 327,862
Net cash provided (used) by
operating activities (166,633) 206,492
CASH FLOW FROM INVESTING ACTIVITIES:
Acquisition of equipment (412,497) (80,984)
Decrease in due from parent 227,338 --
--------- ---------
Net cash provided (used) by
investing activities (185,159) (80,984)
See accompanying notes to consolidated financial statements.
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
[CAPTION]
Six Months Ended
December 31, December 31,
1995 1994
------------ ------------
(Unaudited) (Unaudited)
[S] [C] [C]
CASH FLOWS FROM FINANCING ACTIVITIES:
Deferred offering costs $ -- $(55,767)
Net borrowing (payments) on loans 211,619 (35,326)
Proceeds from exercise of options 50,000 47,794
Payment of short-swing liability
by shareholder 36,531 --
-------- --------
Net cash provided (used) by
financing activities 298,150 (43,299)
-------- --------
NET INCREASE (DECREASE) IN CASH (53,642) 82,209
CASH BEGINNING OF PERIOD 96,235 56,997
CASH END OF PERIOD $ 42,593 $139,206
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION AND NON-CASH
ACTIVITIES:
[CAPTION]
[S] [C] [C]
Cash paid for interest $ 66,061 $ 28,045
Cash paid for income tax $ 930 $ --
See accompanying notes to consolidated financial statements.
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
1. Basis of Presentation
---------------------
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments, consisting of normal recurring accruals, considered
necessary for a fair presentation have been included. It is suggested that
these condensed financial statements be read in conjunction with the
financial statements and notes thereto included in the June 30, 1995,
audited financial statements for Contour Medical, Inc. and Subsidiaries. The
results of operations for the periods ended December 31, 1995 and 1994 are
not necessarily indicative of the operating results for the full year.
The consolidated financial statements include the accounts of Contour
Medical, Inc. ("CMI") and its wholly-owned subsidiaries, Contour Fabricators,
Inc. ("CFI") and Contour Fabricators of Florida, Inc. ("CFFI"), collectively
referred to as the Company. All material intercompany accounts and
transactions have been eliminated. CMI is a majority-owned subsidiary of
Retirement Care Associates, Inc. ("Parent").
2. Change in Year End
------------------
The Company changed its fiscal year end from December 31 to June 30
during 1995.
3. Related Party Transactions
--------------------------
During 1995, the Company began distributing medical supplies to health
care facilities owned, leased or managed by the Parent. Sales to these
facilities approximated $907,000 for the three month period ended December
31, 1995, and $1,653,000 for the six month period ended June 30, 1995. Trade
accounts receivable of $1,254,555 and $943,094 were outstanding as of
December 31, 1995 and June 30, 1995, respectively, as related to these
health care facility sales. Additionally, the Company had an outstanding
loan receivable due from its parent company of $941,563 and $1,168,901 as of
December 31, 1995 and June 30, 1995, respectively, which is due on demand
with no stated interest rate.
4. Inventories
-----------
Inventories are summarized as follows:
[CAPTION]
December 31, June 30,
1995 1995
----------- ----------
[S] [C] [C]
Raw Materials $ 329,584 $ 259,952
Work in process 55,334 58,704
Finished goods 1,250,755 978,738
---------- ----------
$1,635,673 $1,297,394
All inventories are pledged as collateral (see Notes 6 and 7).
5. Property and Equipment
----------------------
Property and equipment consist of the following:
[CAPTION]
December 31, June 30,
Useful Lives 1995 1995
------------ ------------- ----------
[S] [C] [C] [C]
Land -- $ 50,000 $ 50,000
Building 5-45 years 596,247 596,247
Machinery and equipment 3-7 years 1,278,095 1,034,568
Furniture and fixtures 5-7 years 128,593 124,651
Leasehold improvements 5 years 51,779 13,923
Vehicles 3-5 years 9,109 9,109
---------- ----------
2,113,823 1,828,498
Less accumulated depre-
ciation 1,306,702 1,236,255
---------- ----------
$ 807,121 $ 592,243
All property and equipment are pledged as collateral (see Notes 6 and 7).
6. Notes Payable to Banks
----------------------
Notes payable to banks consists of the following:
[CAPTION]
December 31, June 30,
1995 1995
------------- ----------
[S] [C] [C]
Borrowings under CFFI's $250,000 line
of credit, interest at prime plus 1%
(10% and 9.75% at June 30 and December
31, 1995, respectively), payable monthly,
collateralized by accounts receivable
and inventory $248,800 $245,600
Borrowings under lines of credit 55,000 --
-------- --------
$303,800 $245,600
<PAGE>
7. Long-term Debt
--------------
Long-term debt consists of the following:
[CAPTION]
December 31, June 30,
1995 1995
------------ ----------
[S] [C] [C]
Mortgage payable to bank, bearing interest
at 8.58%, principal and interest of $6,793,
due monthly through 2003, collateralized by
accounts receivable, inventory, equipment
and real property $ 436,455 $ 491,622
Mortgage payable to bank, interest at prime
plus .75% (9.75% and 9.5% at June 30 and
December 31, 1995, respectively), principal
of $1,190 plus interest due monthly through
2000, collateralized by accounts receivable,
inventory, equipment and real property 71,431 78,571
Note payable to bank, interest at prime plus
.75% (9.75% and 9.5% at June 30 and December
31, 1995, respectively), principal and
interest of $3,044 due monthly through May
2000, collateralized by accounts receivable,
inventory, equipment and real property 436,721 182,622
Note payable to bank, interest at prime plus
1% (10% and 9.75% at June 30 and December 31,
1995, respectively), principal of $5,000 plus
interest due monthly through June 2000,
collateralized by equipment 270,000 300,000
Note payable to bank, interest at prime plus
1% (10% and 9.75% at June 30 and December 31,
1995, respectively), principal and interest
of $1,667 due monthly through August 1996,
collateralized by accounts receivable, inven-
tory and equipment 15,000 23,333
---------- ----------
1,229,607 1,076,188
Less current maturities 168,477 168,477
---------- ----------
Total long-term debt $1,061,130 $ 907,711
The net book value of property and equipment collateralized under the
above debt agreements was $807,121 and $592,243 as of December 31, 1995 and
June 30, 1995, respectively.
Certain of the above agreements contain certain financial and operating
covenants, including requirements that the Company maintain certain net worth
levels and satisfy current and debt-to-net-worth ratios. The Company was in
compliance with all debt covenants as of December 31, 1995 and June 30, 1995.
The aggregate maturities of long-term debt are as follows as of December
31, 1995:
[S] [C]
1996 $168,477
1997 $162,136
1998 $159,456
1999 $163,798
2000 $168,527
Thereafter $407,213
8. Stockholder' Equity
-------------------
During the six months ended December 31, 1995, common stock and
additional paid-in capital increased $204,948 as a result of $50,000 in
proceeds received from the exercise of 25,000 options, $36,531 received from
a stockholder for the gain recognized from the sale of shares of the
Company's stock, and $118,417 recognized as an income tax benefit arising
from the net operating loss carryforward attributable to CMI. Also during
the six months ended December 31, 1995, the Company issued 15,241 shares of
Common Stock to resolve certain matters relating to prior conversions of
preferred stock.
9. Subsequent Event
----------------
The Company has entered into a Letter of Intent to acquire a company
engaged in the bulk medical supply distribution business through a merger of
such company into a newly formed subsidiary of the Company. Under the terms
of the Letter of Intent, the Company will be required to issue shares of its
Common Stock and pay $300,000 in cash in connection with the merger. The
Company intends to finance the cash portion of the merger out of the
Company's working capital. The completion of the proposed merger is subject
to the execution of a definitive agreement and certain conditions outlined
in the Letter of Intent. The Company expects to complete the merger in
March 1996.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Contour Medical, Inc.
St. Petersburg, Florida
We have audited the accompanying consolidated balance sheets of Contour
Medical, Inc. (a subsidiary of Retirement Care Associates, Inc.) and
Subsidiaries as of June 30, 1995 and December 31, 1994 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the six months and 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. These 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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Contour
Medical, Inc. and Subsidiaries as of June 30, 1995 and December 31, 1994 and
the results of their operations and their cash flows for the six months and
year then ended in conformity with generally accepted accounting principles.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Orlando, Florida
August 18, 1995
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Contour Medical, Inc.
St. Petersburg, Florida
We have audited the accompanying consolidated balance sheet of Contour
Medical, Inc. and Subsidiaries as of December 31, 1993 and the related
consolidated statements of operations, changes in stockholders' equity, and
cash flows for the years ended December 31, 1993 and 1992. These consolidated
financial statements are the responsibility of the management of Contour
Medical, inc. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These 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 disclosure 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Contour
Medical, Inc. and Subsidaries as of December 31, 1993 and the results of its
operations, changes in stockholders' equity, and cash flows for the years
ended December 31, 1993 and 1992 in conformity with generally accepted
accounting principles.
/s/ Pender Newkirk & Company
Pender Newkirk & Company
Certified Public Accountants
Tampa, Florida
January 21, 1994
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994 1993
Assets
<S> <C> <C> <C>
Current:
Cash $ 96,235 $ 139,206 $ 150,132
Accounts receivable -
trade (Notes 6 and 7):
Related parties (Note 3) 943,094 - -
Other 760,703 579,941 545,383
Inventories (Notes 4, 6 and 7) 1,297,394 389,077 423,055
Refundable income taxes 10,680 8,180 99,121
Prepaid expenses and other 74,319 12,994 6,805
Due from parent (Note 3) 1,168,901 - -
Total current assets 4,351,326 1,129,398 1,224,496
Property and equipment,
less accumulated depreciation
(Notes 5, 6 and 7) 592,243 339,151 391,654
Other assets:
Deferred offering costs - 11,444 257,185
Deposit on equipment (Note 9) 228,282 - -
Other 4,575 4,575 5,130
Total other assets 232,857 16,019 262,315
$5,176,426 $1,484,568 $1,878,465
</TABLE>
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994 1993
Liabilities and Stockholders' Equity
<S> <C> <C> <C>
Current liabilities:
Notes payable to banks (Note 6) $ 245,600 $ 55,929 $ 80,000
Accounts payable 882,524 115,520 92,257
Accrued expenses 80,977 142 10,943
Due to parent - 165,000 -
Current maturities of long-term
debt (Note 7) 168,477 73,571 646,000
Total current liabilities 1,377,578 410,162 829,200
Long-term debt, less current maturities
(Note 7) 907,711 554,323 -
Total liabilities 2,285,289 964,485 829,200
Commitments and contingencies (Note 9)
Redeemable cumulative preferred stock -
Class D (liquidation preference
$6,445,056) (Note 10) - - 400,500
Stockholders' equity (Note 10):
Preferred stock - Class A convertible
(liquidation preference $99,525,
net of $74,525 discount) - - 25,000
Preferred stock - Class B convertible
(liquidation preference $100,000,
net of $100,000 discount) - - -
Preferred stock - Class E convertible
(liquidation preference $518,958) - - 295,742
Preferred stock - Series A convertible,
$.001 par value, shares authorized
1,265,000; issued 600,000, at
aggregate liquidation preference 2,400,000 - -
Common stock $.001 par - shares
authorized 76,000,000; issued
4,573,600, 4,972,190 and 2,308,239
(net of $765 discount) 3,808 3,793 1,129
Additional paid-in capital 781,738 922,072 140,923
Deficit (294,409) (405,782) 185,971
2,891,137 520,083 648,765
Less treasury stock, at cost - - -
Total stockholders' equity 2,891,137 520,083 648,765
$5,176,426 $1,484,568 $1,878,465
</TABLE>
See accompanying notes to consolidated financial statements.
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six months ended June 30, Year ended December 31,
1995 1994 1994 1993
1992
(unaudited)
(Note1)
<S> <C> <C> <C> <C> <C>
Sales (Notes 3 and 11) $3,568,459 $1,929,200 $3,945,745 $3,618,359
$3,440,701
Cost of sales 2,544,376 1,423,700 2,545,925 2,061,250
1,755,209
Gross profit 1,024,083 505,500 1,399,820 1,557,109
1,685,492
Selling, general and ad-
ministrative expenses 841,275 657,199 1,550,385 1,538,465
1,499,970
Litigation settlements
(Note 9) - - 30,000 85,000
- -
Income (loss) from
operations 182,808 (151,699) (180,565) (66,356)
185,522
Other income (expenses):
Offering costs
(Note 1) - (305,731) (305,731) -
- -
Interest (39,098) (25,582) (53,627) (63,758)
(86,584)
Other 22,381 4,214 10,741 4,789
4,441
(16,717) (327,099) (348,617) (58,969)
(82,143)
Income (loss) before
taxes on income
(benefit) 166,091 (478,798) (529,182) (125,325)
103,379
Taxes on income (benefit)
(Note 8) 54,718 - - (51,789)
24,253
Net income (loss) $ 111,373 $ (478,798) $ (529,182) $ (73,536) $
79,126
Earnings (loss) per
common share $ .02 $ (.21) $ (.21) $ (.05) $
.07
Weighted average common
shares outstanding 4,558,215 2,230,472 2,560,883 1,366,158
1,124,197
</TABLE>
See accompanying notes to consolidated financial statements.
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Subscribed Additional
Common Stock Common Stock
Paid-in
Shares Amount Shares Amount
Capital
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1991 9,600 $ 9,600 - $ -
$12,137
Net income - - - - -
Retirement of treasury stock (2,700) (2,700) - -
(12,137)
Balance, December 31, 1992 6,900 6,900 - - -
Acquisition of CMI 16,315,034 16,315 150,000 75
517,939
Recapitalization (6,900) (23,215) - (75)
(517,939)
Issuance of stock 180,045 33 (150,000) -
4,967
Contribution of stock - - - - -
1-for-13 reverse stock split (15,226,227) (30) - -
30
Conversion of Class A
preferred stock 365,704 366 - -
27,226
Conversion of Class C
preferred stock 846,669 847 - -
404,356
Issuance of Class E
preferred stock in
exchange for common stock (172,986) (87) - -
(295,656)
Net loss - - - - -
Balance, December 31, 1993 2,308,239 1,129 - -
140,923
Conversion of Class A
preferred stock 219,182 220 - -
39,557
Conversion of Class B
preferred stock 33,333 33 - -
(33)
Conversion of Class D
preferred stock and
warrants 238,450 238 - -
75,212
Conversion of Class E
preferred stock 172,986 173 - -
295,569
Conversion of Class One
preferred stock 2,000,000 2,000 - -
370,844
Net loss - - - - -
Balance, December 31, 1994 4,972,190 3,793 - -
922,072
Issuance of Series A
preferred stock - - - -
(214,997)
Exercise of common stock
options 15,385 15 - -
19,985
Correction of Class A
preferred stock conversion 255 - - - -
Redemption of Class A warrants - - - -
(40)
Tax benefit from utilization of
net operating loss carry-
forward - - - -
54,718
Retirement of treasury stock (414,230) - - - -
Net income - - - - -
Balance, June 30, 1995 4,573,600 $ 3,808 - $ -
$781,738
</TABLE>
See accompanying notes to consolidated financial statements.
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Convertible
Retained
PreferredStock
Earnings Treasury Stock Series A
(Deficit) Shares Amount Shares
Amount
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1991 $ 523,136 2,700 $330,000 - $
-
Net income 79,126 - - -
-
Retirement of treasury
stock (315,163) (2,700) (330,000) -
-
Balance, December 31, 1992 $ 287,099 - - - $
-
Acquisition of CMI (1,039,673) - - -
-
Recapitalization 1,039,673 - - -
-
Issuance of stock - - - -
-
Contribution of stock - 5,385,000 - -
-
1-for-13 reverse stock split - (4,970,770) - -
-
Conversion of Class A
preferred stock (27,592) - - -
-
Conversion of Class C
preferred stock - - - -
-
Issuance of Class E
preferred stock in
exchange for common stock - - - -
-
Net loss (73,536) - - -
-
Balance, December 31, 1993 185,971 414,230 - -
-
Conversion of Class A
preferred stock (14,777) - - -
-
Conversion of Class B
preferred stock - - - -
-
Conversion of Class D
preferred stock and
warrants (47,794) - - -
-
Conversion of Class E
preferred stock - - - -
-
Conversion of Class One
preferred stock - - - -
-
Net loss (529,182) - - -
-
Balance, December 31, 1994 (405,782) 414,230 - -
-
Issuance of Series A
preferred stock - - - 600,000
2,400,000
Exercise of common stock
options - - - -
-
Correction of Class A
preferred stock conversion - - - -
-
Redemption of Class A
warrants - - - -
-
Tax benefit from utilization
of net operating loss
carryforward - - - -
-
Retirement of treasury stock - (414,230) - -
-
Net income 111,373 - - -
-
Balance, June 30, 1995 $ (294,409) - $ -
600,000$2,400,000
</TABLE>
See accompanying notes to consolidated financial statements.
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Redeemable
Cumulative Convertible Convertible
Convertible
Preferred Stock Preferred Stock Preferred
Stock Preferred
Class D Class One Class A
Stock Class B
Shares Amount Shares Amount Shares Amount
Shares Amount
<S> <C> <C> <C> <C> <C> <C>
<C> <C>
Balance, December
31, 1991 - $ - - $ - - $ -
- $ -
Net income - - - - - -
- -
Retirement of
treasury stock - - - - - -
- -
Balance, December
31, 1992 - - - - - -
- -
Acquisition of
CMI 1,000,000 - - - 36,325
33,919 2 100,000
Recapitalization - - - - -
(33,919) - (100,000)
Issuance of stock 74,176 400,500 - - 334,319
25,000 - -
Issuance of stock
in satisfaction
of loans - - - - - -
- -
Conversion of
Class A pre-
ferred stock - - - (271,119) - -
- -
Conversion of
Class C pre-
ferred stock - - - - - -
- -
Issuance of
Class E pre-
ferred stock
in exchange
for common
stock - - - - - -
- -
Acquisition and
retirement of
stock - - - - - -
- -
Net income - - - - - -
- -
Balance, December
31, 1993 1,074,176 400,500 - - 99,525 25,000
2 -
Conversion of
Class A pre-
ferred stock - - - -
(99,525)(25,000) - -
Conversion of
Class B pre-
ferred stock - - - - - -
(2) -
Conversion of
Class D pre-
ferred stock
and warrants (1,074,176) (400,500) 2,000,000 372,844 - -
- - Conversion of
Class E pre-
ferred stock - - - - - -
- -
Conversion of
Class One pre-
ferred stock - - (2,000,000) (372,844) - -
- -
Net loss - - - - - -
- -
Balance, Decem-
ber 31, 1994 - - - - - -
- -
Issuance of
Series A pre-
ferred stock - - - - - -
- -
Exercise of
common stock
options - - - - - -
- -
Correction of
Class A pre-
ferred stock - - - - - -
- -
Redemption of
Class A
warrants - - - - - -
- -
Tax benefit
from utiliza-
tion of net
operating
loss carry
forward - - - - - -
- -
Retirement of
treasury
stock - - - - - -
- -
Balance, June
30, 1995 - $ - - $ - - $ -
- $ -
</TABLE>
See accompanying notes to consolidated financial statements.
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Convertible
Cumulative Class C Subscribed
Convertible
Preferred Stock Preferred Stock Preferred Stock
Preferred
Class C Series E Class A
Stock Class E
Shares Amount Shares Amt Shares Amount
Shares Amount
<S> <C> <C> <C> <C> <C> <C> <C>
<C>
Balance, December
31, 1991 - $ - - $- - $ -
- - $ -
Net income - - - - - -
- - -
Retirement of
treasury stock - - - - - -
- - -
Balance, December
31, 1992 - - - - - -
- - -
Acquisition of
CMI 666,669 - 325,000 - 309,319 289,728
- - -
Recapitalization - (74,797) - - - (289,728)
- - -
Issuance of stock - - - - (309,319) -
- - -
Issuance of stock
in satisfaction
of loans 180,000 480,000 - - - -
- - -
Conversion of
Class A pre-
ferred stock - - - - - -
- - -
Conversion of
Class C pre-
ferred stock (846,669) (405,203) - - - -
- - -
Issuance of
Class E pre-
ferred stock
in exchange
for common
stock - - - - -
- -172,986 295,742
Acquisition and
retirement of
stock - - (325,000) - - -
- - -
Net income - - - - - -
- - -
Balance, December
31, 1993 - - - - - -
172,986 295,742
Conversion of
Class A pre-
ferred stock - - - - - -
- - -
Conversion of
Class B pre-
ferred stock - - - - - -
- - -
Conversion of
Class D pre-
ferred stock
and warrants - - - - - -
- - -
Conversion of
Class E pre-
ferred stock - - - - -
- -(172,986)(295,742)
Conversion of
Class One pre-
ferred stock
Net loss - - - - - -
- - -
Balance, Decem-
ber 31, 1994 - - - - - -
- - -
Issuance of
Series A pre-
ferred stock - - - - - -
- - -
Exercise of
common stock
options - - - - - -
- - -
Correction of
Class A pre-
ferred stock - - - - - -
- - -
Redemption of
Class A
warrants - - - - - -
- - -
Tax benefit
from utiliza-
tion of net
operating
loss carry
forward - - - - - -
- - -
Retirement of
treasury
stock - - - - - -
- - -
Balance, June
30, 1995 - $ - - $- - $ -
- - $ -
</TABLE>
See accompanying notes to consolidated financial statements.
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended June 30, Year ended
December 31,
1995 1994 1994 1993
1992
(unaudited)
<S> <C> <C> <C> <C>
<C>
Cash flows from operting
activities:
Net income (loss) $ 111,373 $(478,798) $(529,182) $(73,536)
$ 79,126
Adjustments to reconcile
net income (loss) to net
cash provided (used) by
operating activities:
Depreciation 51,670 38,400 98,684 53,397
60,313
Loss on sale of equipment - - - -
1,346
Offering costs - 305,731 305,731 -
-
Tax benefit from utiliza-
tion of net operating
loss carryforward 54,718 - - -
-
Cash provided by (used for):
Accounts receivable (1,123,856) (38,037) (34,558) (12,505)
(44,610)
Inventories (908,317) 62,725 33,978 50,654
(89,509)
Refundable income taxes (2,500) - 90,941 (99,121)
-
Prepaid expenses and other (61,325) (15,373) (6,189) (6,805)
10,538
Accounts payable 767,004 4,376 23,263 (74,444)
7,718
Accrued expenses 80,835 277 (10,801) (46,924)
(8,025)
Net cash provided (used) by
operating activities (1,030,398) (120,699) (28,133) (209,284)
16,897
Cash flows from investing
activities:
Acquisition of equipment (304,762) (6,597) (46,181) (123,917)
(34,861)
Cash acquired from acquisition - - - 778
-
Increase in due from parent (1,168,901) - - -
-
Deposit on equipment (228,282) - - -
-
Decrease (increase) in other
assets - - 555 (1,055)
-
Net cash used by investing
activities (1,701,945) (6,597) (45,626) (124,194)
(34,861)
Cash flows from financing
activities:
Deferred offering costs - (10,305) (59,990) (138,136)
-
Proceeds from issuance of
notes payable to bank - 18,508 - 80,000
-
Proceeds (repayments) on
notes payable to bank 189,671 - (42,177) 100,000
(130,455)
Increase (decrease) in due
to parent (165,000) - 165,000 -
-
Proceeds from issuance of
long-term debt 482,622 - - -
-
Payments of long-term debt (34,328) (25,671) - -
-
Payments on loans to stockholder - - - (23,420)
-
Proceeds from issuance of stock - - - 430,500
-
Proceeds from issuance of pre-
ferred stock, net of offering
costs 2,196,447 - - -
-
Exercise of stock options 20,000 - - -
-
Redemption of Class A warrants (40) - - -
-
Net cash provided (used) by
financing activities 2,689,372 (17,468) 62,833 448,944
(130,455)
Net increase (decrease) in cash (42,971) (144,764) (10,926) 115,466
(148,419)
Cash, beginning of period 139,206 150,132 150,132 34,666
183,085
Cash, end of period $ 96,235 $ 5,368 $139,206 $150,132
$ 34,666
</TABLE>
See accompanying notes to consolidated financial statements.
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Contour
Medical, Inc. ("CMI") and its wholly-owned subsidiaries, Contour
Fabricators, Inc. ("CFI") and Contour Fabricators of Florida, Inc.
("CFFI"), collectively referred to as the Company. All material
intercompany accounts and transactions have been eliminated. CMI is
a majority-owned subsidiary of Retirement Care Associates, Inc. ("Parent").
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out) or
market.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost. Depreciation is computed over
the estimated useful lives of the assets by accelerated methods for
financial reporting and income tax purposes.
OFFERING COSTS
Fees, costs and expenses related to offerings of securities are deferred
and charged against the proceeds therefrom or, if the offering is
unsuccessful, charged to operations. Costs of $257,185 related to a
proposed public offering were deferred at December 31, 1993 and charged
to operations in the second quarter of 1994 when the offering was
abandoned. Deferred costs at December 31, 1994, related to the private
placement discussed in Note 10, were charged against the proceeds
therefrom in 1995.
CHANGE IN METHOD OF ACCOUNTING FOR TAXES ON INCOME
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109")
which requires recognition of estimated income taxes payable or
refundable on income tax returns for the current year and for the
estimated future tax effect attributable to temporary differences and
carryforwards. Measurement of deferred income tax is based on enacted
tax laws including tax rates, with the measurement of deferred income tax
assets being reduced by available tax benefits not expected to be
realized.
REVENUE RECOGNITION
Sales are recognized upon shipment of products to customers.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per common share are based on the weighted average number of
common shares outstanding and dilutive common stock equivalent shares
outstanding during each period after giving effect to the one-for-
thirteen reverse stock split which occurred in 1993. Common stock
equivalents for 1995, 1994 and 1993 have not been included since the effect
would be antidilutive. Common stock equivalents for 1992 include the
convertible preferred Class B And Class C shares and the preferred Class D
warrants. Cumulative dividends in arrears of $32,000 related to the Company's
Class A preferred stock (see Note 10) have been deducted from 1995 net income
for the calculation of earnings per common share.
CHANGES IN YEAR ENDS
The Company changed its fiscal year end from December 31 to June 30 during
1995. Accordingly, the June 30, 1995 statements of operations, stockholders'
equity and cash flows are for the six months then ended.
CFI changed its fiscal year from March 31 to December 31 effective April 1,
1992. The financial statements for 1992 include the accounts of CFI for the
nine months ended December 31, 1992.
RECLASSIFICATIONS
Certain amounts in the 1993 and 1992 financial statements have been restated
to conform to current year presentations.
2. ORGANIZATION AND BUSINESS ACQUISITION
Contour Fabricators, Inc., incorporated in March 1974 and located in Grand
Blanc, Michigan, manufactures orthopedic devices used in rehabilitative
therapy procedures and positioning aids for imaging procedures. Contour
Fabricators of Florida, Inc., incorporated in December 1984 and located in St.
Petersburg, Florida, manufactures disposable medical products which consist
primarily of plastic and foam items for use in surgical and other special
medical procedures.
Contour Medical, Inc. (formerly Associated Healthcare Industries, Inc.) was
incorporated in Nevada in April 1987 as a "blank check" company and in 1989
conducted an initial public offering. In May 1993, effective as of January 1,
1993, the stockholders of CFI and CFFI received, in exchange for all their
shares, the following from CMI: 1,000,000 shares of Class D Redeemable
Preferred Stock, 666,669 shares of Class C convertible preferred stock and
666,666 Class D Warrants. Through December 31, 1992, CMI was a
development-stage company in the health-care industry. As a result of this
acquisition, the stockholders of CFI and CFFI had effectively acquired CMI and
control thereof. Accordingly, this acquisition was accounted for as a reverse
acquisition and the financial statements have been prepared as if the entities
had operated as a single entity effective as of January 1, 1993. The
operating results of CMI are included in the accompanying financial statements
since January 1, 1993.
Beginning in 1995, CMI established a medical supply distribution business to
service parent company health care facilities. CMI also distributes medical
supplies to other nursing home operators and health care providers.
3. RELATED PARTY TRANSACTIONS
During 1995, CMI began distributing medical supplies to health care facilities
owned, leased or managed by the majority stockholder of the parent company.
Sales to these facilities approximated $1,426,000 for the period ended June
30, 1995. Trade accounts receivable of $943,094 are outstanding as of June
30, 1995 related to these health care facility sales. Additionally, the
Company had an outstanding loan receivable due from its parent company of
$1,168,901 as of June 30, 1995, which is due on demand with no stated interest
rate.
4. INVENTORIES
Inventories are summarized as follows:
[CAPTION]
June 30, December 31,
1995 1994 1993
[S] [C] [C] [C]
Raw materials $ 259,952 $ 241,942 $ 190,449
Work in process 58,704 62,345 101,572
Finished goods 978,738 84,790 131,034
$1,297,394 $ 389,077 $ 423,055
All inventories are pledged as collateral (see Notes 6 and 7).
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
[CAPTION]
Useful June 30, December 31,
Lives 1995 1994 1993
[S] [C] [C] [C] [C]
Land $ 50,000 $ 50,000 $ 50,000
Building 5-45 yrs. 596,247 594,391 589,843
Machinery and
equipment 3-7 yrs. 1,034,568 765,682 726,510
Furniture and
fixtures 5-7 yrs. 124,651 92,516 90,056
Leasehold
improvements 5 yrs. 13,923 12,038 12,037
Vehicles 3-5 yrs. 9,109 9,109 9,109
1,828,498 1,523,736 1,477,555
Less accumulated
depreciation 1,236,255 1,184,585 1,085,901
$ 592,243 $ 339,151 $ 391,654
All property and equipment is pledged as collateral (see Notes 6 and 7).
6. NOTES PAYABLE TO BANKS
Notes payable to banks consists of the following:
[CAPTION]
June 30, December 31,
1995 1994 1993
[S] [C] [C] [C]
Borrowings under CFFI's $250,000 line
of credit, interest at prime plus
1% (10% at June 30, 1995), payable
monthly, collateralized by accounts
receivable and inventory. $ 245,600 $ - $ -
Borrowings under lines of credit - 55,929 80,000
$ 245,600 $ 55,929 $ 80,000
7. LONG-TERM DEBT
Long-term debt consists of the following:
[CAPTION]
June 30, December 31,
1995 1994 1993
[S] [C] [C] [C]
Mortgage payable to bank, bearing
interest at 8.58%, principal and
interest of $6,793 due monthly
through 2003, collateralized by
accounts receivable, inventory,
equipment and real property. $ 491,662 $509,934 $546,000
Mortgage payable to bank, interest at
prime plus .75% (9.75% at June 30,
1995), principal of $1,190 plus
interest due monthly through 2000,
collateralized by accounts receivable,
inventory, equipment and real property. 78,571 84,627 100,000
Note payable to bank, interest at prime
plus .75% (9.75% at June 30, 1995),
principal and interest of $3,044 due
monthly through May 2000, collateral-
ized by accounts receivable, inventory,
equipment and real property. 182,622 - -
Note payable to bank, interest at prime
plus 1% (10% at June 30, 1995),
principal of $5,000 plus interest due
monthly through June 2000, collateral-
ized by equipment. 300,000 - -
Note payable to bank, interest at prime
plus 1% (10% at June 30, 1995),
principal and interest of $1,667 due
monthly through August 1996, collateral-
ized by accounts receivable, inventory
and equipment. 23,333 33,333 -
1,076,188 627,894 646,000
Less current maturities 168,477 73,571 646,000
Total long-term debt $ 907,711 $554,323 $ -
The net book value of property and equipment collateralized under the above
debt agreements was $592,243 as of June 30, 1995.
All long-term debt at December 31, 1993 was classified as a current liability
as it was the Company's intention to retire all debt from the proceeds of a
proposed stock offering. The proposed offering was subsequently abandoned,
and the debt has been classified in the 1994 and 1995 financial statements in
accordance with the repayment terms in the respective debt agreements.
Certain of the above agreements contain certain financial and operating
covenants, including requirements that the Company maintain certain net worth
levels and satisfy current and debt-to-net-worth ratios. The Company was in
compliance with all debt covenants as of June 30, 1995.
The aggregate maturities of long-term debt are as follows as of June 30, 1995:
1996 $168,477
1997 $162,136
1998 $159,456
1999 $163,798
2000 $168,527
Thereafter $253,794
8. TAXES ON INCOME (BENEFIT)
The following summary reconciles differences from taxes at the federal
statutory rate with the effective rate:
[CAPTION]
Six months ended
June 30, Year ended December 31,
1995 1994 1994 1993 1992
(unaudited)
[S] [C] [C] [C] [C] [C]
Taxes on income (benefit)
at statutory rates 34.0% (34.0%) (34.0%) (34.0%) 34.0%
State income taxes, net
of federal benefit 3.1% - - 1.0% 1.0%
Carryforward of net
operating loss (9.9%) - - - -
Carryback of net operating
loss - - - (8.3%) -
Graduated tax brackets - - - - (11.5%)
Losses not available for
carryback - 34.0% 34.0% - -
Other 5.0% - - - -
Taxes on income (benefit)
at effective rates 32.2% - % - % (41.3%) 23.5%
The Company adopted Statement of Financial Accounting Standards No. 109
("FAS 109"), "Accounting for Income Taxes" effective January 1, 1993. There
was no cumulative effect of this change in accounting principle on the
Company's financial statements. FAS 109 is an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. Unused net operating losses for
income tax purposes, expiring in various amounts from 2007 to 2009, of
approximately $1,221,000, which includes approximately $851,000 attributable
to CMI for the period prior to January 1, 1993, are available at June 30, 1995
for carryforward against future years' taxable income. Under Section 382 of
the Internal Revenue Code, the utilization of this loss is limited to
approximately $414,000 per year. The deferred tax asset related to the tax
benefit of these losses of approximately $467,000 has been offset by a
valuation allowance due to the uncertainty of its realization. The valuation
allowance decreased approximately $63,000 during 1995.
The income tax benefit arising from any utilization of the net operating
losses attributable to CMI will be credited to additional paid-in capital when
recognized. During 1995, the income tax benefit of utilization of net
operating losses attributable to CMI of $54,718 were credited to additional
paid-in capital.
9. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases its offices and manufacturing facility in St. Petersburg,
Florida under a series of two noncancelable long-term leases and one
short-term lease. These leases are classified as operating leases and expire
at various dates from February 1996 through July 1997.
As of June 30, 1995, future minimum rental payments required under operating
leases that have initial or remaining noncancelable lease terms in excess of
one year are as follows:
1996 $ 171,000
1997 131,000
1998 11,000
Total minimum lease payments $ 313,000
Rental expense under all operating leases was approximately $145,500,
$203,000, $189,500 and $123,000 for the six months ended June 30, 1995 and the
years ended December 31, 1994, 1993 and 1992, respectively.
EMPLOYMENT AGREEMENT
The Company has entered into an employment agreement with a key executive for
a five-year period ending in June 1998. The agreement provides for annual
base compensation of $100,000.
LITIGATION
During 1994, the Company was a defendant in an employment injury lawsuit filed
by one of its employees. The Company settled this dispute for approximately
$30,000.
The Company was a defendant in a lawsuit filed by one of its former employees
for wrongful discharge of employment. During the year ended December 31,
1993, the Company settled this dispute for $85,000.
EQUIPMENT PURCHASES
The Company has made a commitment to purchase equipment from a vendor for
a total cost of approximately $371,000. As of June 30, 1995, the Company has
paid $228,282 as a deposit toward the equipment purchase.
10. CAPITAL STOCK
STOCK BONUS PLAN
In March 1993, the Company adopted a non-qualified employee stock bonus plan.
The plan provides for the granting of up to 1,000,000 options for the purchase
of the Company's common stock to eligible employees at purchase prices of at
least $.01 per share. Options awarded under the plan vest over a three-year
period from the date of grant and are exercisable over a five-year period from
the date of grant.
Changes in options outstanding are summarized as follows:
[CAPTION]
Option Price
Shares per Share
[S] [C] [C]
Balance, December 31, 1991 - $ -
Granted 15,386 $1.30
Balance, December 31, 1992 15,386 $1.30
Granted 250,000 $2.00
Balance, December 31, 1993 265,386 $1.30-$2.00
Granted 100,000 $2.25
Balance, December 31, 1994 365,386 $1.30-$2.25
Granted 50,000 $3.90
Exercised (15,385) $1.30
Canceled (1) $1.30
Balance, June 30, 1995 400,000 $2.00-$3.90
All of the above options were granted above fair market value. In addition,
200,000 options were exercisable at June 30, 1995. In addition, 984,615
common shares are reserved for future issuance under this plan.
STOCK SPLIT
In March 1993, the Board of Directors authorized a 1-for-13 reverse stock
split of its common stock effective June 30, 1993. All common shares and per
share amounts have been retroactively adjusted to give effect to the reverse
stock split.
STOCK WARRANTS
At June 30, 1995, the Company had 919,225 stock warrants outstanding.
Information relating to these warrants is summarized as follows:
Number of
Common Exercise
Expiration Number of Shares per Price per
Type Date Warrants Warrant Warrant
Class B July 1996 119,225 1 $4.50
- June 1997 300,000 1 $1.50
Class C May 1999 300,000 1 $4.50
- October 1999 200,000 1 $3.00
The exercise price of the Class C warrants will be reduced by $1 per share if,
by May 1996, the Company has not listed its common stock on the NASDAQ stock
market or another equivalent exchange or has not filed a registration
statement with the SEC relating to the shares of common stock issuable upon
the exercise of these warrants.
The Class B warrants are redeemable by the Company under certain
circumstances. Of the total outstanding warrants, 619,225 were exercisable at
June 30, 1995. In addition, 919,225 common shares are reserved for future
issuance related to these warrants.
CHANGE OF CONTROL
On September 30, 1994, Retirement Care Associates, Inc. ("Retirement Care")
acquired 846,669 shares of the Company's outstanding common stock and
2,000,000 shares of the Company's Class One Convertible Preferred Stock from
three persons who were officers and directors of the Company. Subsequently,
Retirement Care converted the Class One Convertible Preferred Stock into
2,000,000 shares of common stock.
CLASS ONE CONVERTIBLE PREFERRED STOCK
During 1994, the holders of 1,000,000 shares of Class D Redeemable Cumulative
Preferred Stock exchanged their shares for 2,000,000 shares of newly created
no par Class One Convertible Preferred stock. The Class One Preferred Stock
had a liquidation preference of $3.00 per share. Each Class One Preferred
Share was convertible into one share of the Company's common stock. All
2,000,000 shares of Class One Preferred Stock were converted into 2,000,000
shares of common stock in November 1994.
CLASS A CONVERTIBLE PREFERRED STOCK
During 1994, 99,525 shares of Class A Convertible Preferred Stock were
converted into 219,182 shares of common stock. The conversion included a
stock dividend of $14,777 for dividends in arrears through the date of
conversion.
CLASS B CONVERTIBLE PREFERRED STOCK
During 1994, two shares of Class B Convertible Preferred Stock were converted
into 33,333 shares of common stock.
CLASS D REDEEMABLE CUMULATIVE PREFERRED STOCK
In April 1994, 74,176 shares of Class D Redeemable Cumulative Preferred Stock
and 148,345 Class D Warrants were converted into 238,432 shares of common
stock and 119,225 Class B warrants. In addition, 1,000,000 shares of Class D
Redeemable Cumulative Preferred Stock and 846,667 Class D Warrants were
converted into 2,000,000 shares of a new Class One Convertible Preferred
Stock. In November 1994, the Class One shares were converted into an equal
number of shares of common stock. These conversions included a stock dividend
of $47,794 for dividends in arrears through the date of conversion.
CLASS E CONVERTIBLE PREFERRED STOCK
In April 1994, 172,986 shares of Class E Convertible Preferred Stock were
converted into an equal number of shares of common stock.
SERIES A CONVERTIBLE PREFERRED STOCK AND CLASS C WARRANTS
During 1995, the Company completed a private placement of its securities
consisting of 60 units sold at a price of $40,000 per unit. Each unit sold in
the private placement consisted of 10,000 shares of the Company's Series A
Convertible Preferred Stock and 5,000 Class C Redeemable Common Stock Purchase
Warrants. Each share of Series A Preferred stock has a $4 liquidation
preference and is convertible into one share of the Company's common stock
beginning in May 1996. Additionally, the holders of the Series A Preferred
Stock are entitled to receive annual cash dividends (payable semiannually) of
4% of the liquidation preference of the stock, or $.16 per share, on a
cumulative basis from the date of issuance. At June 30, 1995, cumulative
dividends in arrears related to the Series A Preferred Stock amounted to
$32,000 ($.05 per share). The Series A Preferred stock may be redeemed by the
Company at $4 per share plus dividends in arrears beginning in May 1999. In
addition, 1,265,000 common shares are reserved for future issuance upon
conversion of the total authorized Series A preferred stock.
PREFERRED STOCK CANCELLATION
Subsequent to the conversion of the preferred stock classes, the Company
canceled the Class A, Class B, Class C, Class E and Class One Convertible
Preferred Stock and the Class D Redeemable Convertible Preferred Stock.
ISSUANCE OF STOCK IN SATISFACTION OF LOANS
During the year ended December 31, 1993, the Company issued 180,000 shares of
Class C Convertible Cumulative Preferred Stock in satisfaction of $480,000 of
loans payable to stockholders. All of the Class C Preferred Stock of 846,669
shares were converted into an equal number of shares of common stock in 1993.
SHARES RESERVED
At June 30, 1995, the Company has reserved common stock for future issuance
under all of the above arrangements amounting to 3,168,840 shares.
11. MAJOR CUSTOMERS
Sales to significant customers were as follows:
Number of
Period ended December 31, Customers
1994 1 $531,000
1993 2 $692,000
1992 1 $928,000
As a result of the increased sales volume due to sales to related parties of
$1,426,000 (see Note 3), there were no sales to significant other customers
during the period ended June 30, 1995.
12. SUPPLEMENTAL CASH FLOW INFORMATION
[CAPTION]
Six months ended
June 30, Year ended December 31,
1995 1994 1994 1993 1992
(unaudited)
[S] [C] [C] [C] [C] [C]
Cash paid for interest $39,065 $ 25,592 $ 53,627 $ 65,251 $83,104
Cash paid for income taxes $ 2,500 $ - $ 5,000 $ 40,054 $24,938
Noncash financing and
investing activities:
Conversion of 1,074,176
shares of Class D preferred
stock and 995,012 Class D
Warrants into 238,450 shares
of common stock and
2,000,000 shares of Class
One preferred stock
(see Note 10) $ - $400,500 $400,500 $ - $ -
Issuance of 180,000 shares
of Class C preferred stock
as payment of stockholder
loans (see Note 10) - - - 480,000 -
Deferred offering costs
charged to additional paid-
in capital as an offset to
private placement offering
proceeds (see Note 10) 11,444 - - - -
As discussed in Note 2, the stockholders of CFI and CFFI exchanged all of
their shares of stock for shares of stock of CMI. As a result of this
transaction, the following assets and liabilities of CMI were acquired
effective January 1, 1993 which were recorded at predecessor basis:
Cash $ 778
Other assets 54,897
Accounts payable and accrued expenses (137,372)
Capital deficit assumed $ (81,697)
No person is authorized to give any information or to make any representation
other than those contained in this Prospectus, and if given or made, such
information or representation must not be relied upon as having been
authorized. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities offered by this Prospectus or
an offer to sell or a solicitation of an offer to buy the securities in any
jurisdiction ot any person to whom it is unlawful to make such offer or
soliciation in such jurisdiction.
TABLE OF CONTENTS
Page
Prospectus Summary 4
Risk Factors 7
The Company 9
Price Range of Common Stock 11
Dividend Policy 12
Selected Financial Information 12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations 14
Use of Proceeds 18
Business 19
Management 26
Security Ownership of Management
and Principal Shareholders 31
Certain Transactions 33
Description of Securities 38
Plan of Distribution 42
Legal Matters 44
Experts 44
Index to Financial Statements 45
CONTOUR MEDICAL, INC.
119,225 Shares of Common Stock Issuable
Upon Exercise of Class B Warrants
300,000 Shares of Common Stock Issuable
Upon Exercise of Class C Warrants
600,000 Shares of Common Stock Issuable
Upon Conversion of Series A
Convertible Preferred Stock
550,000 Shares of Common Stock Issuable
Upon Exercise of Consultant's
Warrants
PROSPECTUS
_______________, 1996
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The estimated expenses of the offering, all of which are to be borne by
the Registrant, are as follows:
SEC Filing Fees . . . . . . . . . . . . . . . . . . . . . $ 1,917.76
Printing Expenses . . . . . . . . . . . . . . . . . . . . 2,500.00
Accounting Fees and Expenses. . . . . . . . . . . . . . . 5,000.00
Legal Fees and Expenses . . . . . . . . . . . . . . . . . 15,000.00
Blue Sky Fees and Expenses. . . . . . . . . . . . . . . . 2,000,00
Registrar and Transfer Agent Fees . . . . . . . . . . . . 500.00
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 3,082.24
Total . . . . . . . . . . . . . . . . . . . . . . . $30,000.00
Item 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The only statute, charter provision, bylaw, contract, or other arrange-
ment under which any controlling person, Director or Officer of the Registrant
is insured or indemnified in any manner against any liability which he may
incur in his capacity as such, is as follows:
(a) Subsection (1) of Section 78.751 of the Nevada Corporation Law
empowers a corporation to "indemnify any person who is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
except an action by or in the right of the corporation, by reason of the fact
that he is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses, including attorneys' fees, judgments,
fines and amounts paid in settlement actually and reasonably incurred by him
in connection with the action, suit or proceeding if he acted in good faith
and in a manner which he reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, does not, of
itself, create a presumption that the person did not act in good faith and in
a manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and that, with respect to any criminal action or
proceeding, he had reasonable cause to believe that his conduct was unlawful."
Subsection (2) of Section 78.751 empowers a corporation to "indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses, including amounts paid in settlement and
attorneys' fees actually and reasonably incurred by him in connection with the
defense or settlement of the action or suit if he acted in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation. Indemnification may not be made for any claim,
issue or matter as to which such a person has been adjudged by a court of
competent jurisdiction, after exhaustion of all appeals therefrom, to be
liable to the corporation or for amounts paid in settlement to the
corporation, unless and only to the extent that the court in which the action
or suit was brought or other court of competent jurisdiction determines upon
application that in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnify for such expenses as the court
deems proper."
Subsection 78.751(3) further provides that "to the extent that a
director, officer, employee or agent of a corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred
to in subsections 1 and 2, or in defense of any claim, issue or matter herein,
he must be indemnified by the corporation against expenses, including
attorneys' fees, actually and reasonably incurred by him in connection with
the defense."
(b) Article Eight of the Restated Articles of Incorporation of the
Registrant provides that no director, officer or stockholder of the Company
shall be personally liable for damages for breach of fiduciary duty as a
director or officer; provided, that this provision shall not eliminate
liability of a director or officer for acts or omissions involving intentional
misconduct, fraud or a knowing violation of law or payments or distributions
in violation of Nevada law.
(c) Article XI of the Bylaws of the Registrant generally provide that
the Company shall indemnify its directors and officers to the fullest extent
permitted by the laws of the State of Nevada.
Item 15. RECENT SALES OF UNREGISTERED SECURITIES.
During its past three fiscal years, the Registrant issued securities
which were not registered under the Securities Act of 1933, as amended (the
"Act"), as follows.
A. From January to April 1992, the Registrant conducted a private
offering of units, each unit consisting of 2,000 shares of Convertible
Redeemable Preferred Stock, at a price of $2,000 per unit. The Registrant
sold 18.1625 Units (36,325 Shares, $1.00 par value) to 6 persons for a total
consideration of $36,325. In November 1992, the Registrant offered holders of
these Units the opportunity to exchange at no cost the 36,325 shares of
Convertible Preferred Stock for 36,325 Units, consisting of 36,325 shares of
the Registrant's Class A Convertible Stock and 36,325 Class A Common Stock
Purchase Warrants. All holders of the Registrant's Convertible Redeemable
Preferred Stock chose to exercise this conversion option. The Class A
Warrants were called for redemption in 1995, and none were exercised.
No brokers/dealers received any compensation in connection with the sale
of these securities.
The Registrant claims the exemption from registration provided by
Section 4(2) of the Securities Act of 1933, as amended, and Regulation D
adopted thereunder.
B. From July 1992 to January 1993, the Registrant conducted a private
offering of Units, each Unit consisting of one share of Convertible Redeemable
Preferred Stock and one Class A Stock Purchase Warrant at a price of $1.00 per
Unit. The Registrant sold 334,319 Units to 16 persons for a total
consideration of $321,819. The Class A Warrants were called for redemption in
1995, and none were exercised.
No brokers/dealers received compensation in connection with the sale of
these securities. However, Tom Walsh, a registered person with a
broker/dealer, helped the Registrant locate purchasers for these Units, and
was permitted to purchase 25,000 Units in consideration of the payment of
$12,500, which represented a reduced rate of $.50 per Unit as compared to
$1.00 per Unit paid by other purchasers.
The Registrant claims exemption from registration provided by Section
4(2) of the Securities Act of 1933, as amended, and Regulation D promulgated
thereunder.
C. In connection with the acquisition of the stock of the Michigan and
Florida Subsidiaries in May 1993, and conversion of notes payable into Class C
Convertible Preferred Stock, the Registrant issued shares of its Class D
Redeemable Preferred Stock, Class D Warrants and Class C Convertible Preferred
Stock to the owners of the Michigan and Florida subsidiaries stock. See
"CERTAIN TRANSACTIONS."
No brokers/dealers were involved in the exchange of these securities.
The Registrant claims the exemption from registration provided by
Section 4(2) of the Securities Act of 1933, as amended.
D. From February through May 1993, the Registrant sold 74,176 shares of
its Class D Redeemable Preferred Stock, and 148,345 Class D Warrants to 21
persons for a total consideration of $445,000.
The Registrant claims the exemption from registration provided by
Section 4(2) of the Securities Act of 1933, as amended.
E. From July of 1993 to January of 1994, the holders of the Class A
Convertible Preferred Units listed in A. and B. above exercised their right to
convert their Class A Preferred Stock into Common Stock. The number of shares
of Common Stock into which the Class A could be converted was calculated by
totaling the number of shares held multiplied by $1.00 (the redemption value)
and adding the dividend accrued to the date of conversion and dividing the sum
of one-half of the average trading price of the Common Stock for 30 days prior
to receipt of the conversion notice. The total Common Stock issued upon
conversion of all of the outstanding shares of the Class A Convertible
Preferred Stock was 584,886.
No broker/dealers were involved in the solicitation of the shareholders
to convert the Class A shares into Common Stock, and no payment by
shareholders were required in order to convert. The Company claims the
exemption provided for in Section 3(a)(9) of the Securities Act of 1933, as
amended, for the transaction.
F. In April 1994, the Registrant offered holders of 74,176 shares of
the Company's Class D Redeemable Preferred Shares and 148,345 Class D
Redeemable Common Stock Purchase Warrants the opportunity to exchange those
shares and warrants for Units identical to those registered in this
Registration Statement. The exchange ratio was calculated by multiplying the
number of Class D Redeemable Preferred Shares held by the $6.00 per share
liquidation value plus accrued dividends plus the number of warrants held
times $1.50 and dividing the sum by the proposed $6.00 per share Unit offering
price. All Class D Redeemable Preferred Shares and Class D Redeemable Common
Stock Purchase Warrants were exchanged for a total of 119,225 Units.
No broker/dealers were involved in the solicitation of the shareholders
to convert their Class D Shares and Class D Warrants into Common Stock, and no
payments by shareholders were required in order to convert. The Company
claims the exemption provided for in Section 3(a)(9) of the Securities Act of
1933, as amended, for the transaction.
G. From time to time during the period of November 1991 to January 1993,
the Registrant sold shares of its Common Stock to 32 persons, including
affiliates, at prices varying from $.01 to $.20, as follows:
<TABLE>
<CAPTION>
Number of
Date(s) Name Shares Amount Paid
<S> <C> <C> <C>
4/18/92, 5/12/92, Frank Bauco 48,079 $80,000
6/4/92 & 8/28/92
5/7/92, 5/15/92 Anthony LaMura 13,848 $28,000
& 8/28/92
5/14/92, 5/15/92 William Miller 43,278 $65,884
& 7/7/92
5/15/92 & 9/8/92 George W. David 3,847 $ 6,000
5/25/92 Frank Caimano 3,847 $ 5,000
6/19/92, 11/16/91 Walter James<FN1> 21,749 $46,540
1/3/92, 1/24/92 &
4/23/92
6/21/92 & 9/1/92 Lillian Munter 7,668 $14,950
9/8/92 Wing Mark 3,226 $ 6,290
9/8/92 Tom Walsh 2,539 $ 4,950
9/10/92 Sam Cohen 7,693 $15,000
9/11/92 Brian David 1,539 $ 3,000
9/11/92 Dominic/Vito Deleonardis 7,693 $15,000
9/23/92 Bob Wine 7,693 $15,000
12/18/92 Dr. George Brennan 7,693 $12,000
1/19/93 Sam & Carol J. Piazza 2,539 $ 5,000
12/10/91, 1/17/92, Carmen Russell<FN1> 20,697 $54,517
1/22/92, 2/5/92,
4/3/92 & 4/7/92
2/7/92 Jim Kowalczyic<FN1> 8,535 $22,189
3/13/92 Robert Cramer<FN1> 3,432 $ 8,922
7/1/92 Damon Cozzolino 8,463 $11,000
7/1/92 Robert Sweets<FN2> 7,693 $10,000
7/1/92 Scott Williams<FN2> 7,693 $10,000
7/1/92 Robert James<FN2> 7,693 $10,000
7/1/92 Jerry Weinger 7,693 Services valued
at $10,000
11/3/92 Don Tomlin 7,693 Services valued
at $10,000
4/1/93 Paul Cornell 3,847 Services valued
at $5,000
2/20/92 Joseph L. DuRant 138,462 Services valued
at $18,000
2/20/92 Edwin B. Salmon, Jr.<FN3> 207,693 Services valued
at $27,000
5/14/93 William J. Gabriele<FN4> 384,561 1,153,683 shares
Charitable Remainder
Unitrust
5/14/93 Howard Hagon<FN4> 113,051 339,153 shares
Charitable Remainder
Unitrust
5/14/93 Rudolph J. Dallessandro<FN4>135,724 408,172 shares
Charitable Remainder
Unitrust
5/14/93 & 5/28/93 R. J. Dallessandro<FN4> 83,333 235,000 shares
5/28/93 W. J. Gabriele<FN4> 130,000 345,000 shares
<FN>
<FN1>
Shares received for note conversions.
<FN2>
Employees who received shares as bonus compensation.
<FN3>
Joe DuRant and Ed Salmon received shares for performance under management
contracts. These shares were subsequently contributed back to the Registrant
at the time of the acquisition of the Michigan and Florida Subsidiaries on May
14, 1993, as part of the acquisition agreement.
<FN4>
Shares received for Conversion of Class C Convertible Preferred Shares.
</FN>
</TABLE>
H. In connection with a proposed public offering of the Company, the
underwriter of the offering requested the Company to obtain lock up agreements
from certain shareholders who had the right to have their shares registered.
The Company authorized 300,000 shares of Class E Convertible Preferred Stock,
which were convertible into shares of Common Stock on a one-for-one basis 180
days after the effective date of a registration statement relating to the
proposed public offering. In September 1993, 16 holders of Common Stock
agreed to exchange their Common Stock with registration rights for 172,986
shares of the Class E Preferred.
No brokers or dealers were involved in the solicitation of the
shareholders to convert their shares of Common Stock to Class E Preferred, and
no payments by shareholders were required in order to convert. The Company
claims the exemption provided for by Section 3(a)(9) of the Securities Act of
1933, as amended, for the transaction.
In April 1994, the 16 holders of the Class E Convertible Preferred Stock
converted their shares of Class E Stock to Common Stock on a one-for-one
basis.
No brokers or dealers were involved in the solicitation of the
shareholders to convert their Class E Stock into Common Stock, and no payments
were required in order to convert. The Company claims the exemption provided
for by Section 3(a)(9) of the Securities Act, as amended, for the transaction.
I. In April 1994, all of the shares of the Class D Redeemable Preferred
Stock and Class D Warrants held by William J. Gabriele, Rudolph J. Dallesandro
and Harold H. Hagon, who were then officers and directors of the Company, were
exchanged for 2,000,000 shares of Class One Convertible Preferred Stock. The
Company claims the exemption provided for in Section 3(a)(9) of the Securities
Act of 1933, as amended, for this transaction.
In September 1994, the holders of Class One Convertible Preferred Stock
sold all of such stock to Retirement Care Associates, Inc. In November 1994,
Retirement Care Associates, Inc. converted the Class One Convertible Preferred
Stock into 2,000,000 shares of the Company's Common Stock. The Company claims
the exemption provided for in Section 3(a)(9) of the Securities Act of 1933,
as amended, for this transaction.
J. During the period from November 1994 through February 1995, the
Company sold units consisting of shares of the Company's Series A Convertible
Preferred Stock and Class C Warrants to purchase Common Stock to 50 accredited
investors in a private offering. A total of 600,000 shares of Series A
Convertible Preferred Stock and 300,000 Class C Warrants were sold in this
offering, for an aggregate of $2,400,000 in cash. The Company paid a
commission of $196,000 to registered broker-dealers for their services as
sales agents. Retirement Care Associates, Inc., the Company's majority
shareholder, invested $340,000 in this offering and received 85,000 shares of
Class A Convertible Preferred Stock and 42,500 Class C Warrants.
With respect to these sales, the Company relied on Section 4(2) of the
Securities Act of 1933, as amended, and Rule 506 of Regulation D promulgated
thereunder. Each investor was given a copy of a Private Placement Memorandum
containing complete information concerning the Registrant, a Form D was filed
with the SEC and the Company complied with the other applicable requirements
of Rule 506. Each investor signed a subscription agreement in which he
represented that he was purchasing the shares for investment only and not for
the purpose of resale or distribution. The appropriate restrictive legends
were placed on the certificate and stop transfer instructions were issued to
the transfer agent.
Item 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following Exhibits are filed as part of this Registration
Statement pursuant to Item 601 of Regulation S-K:
<TABLE>
<CAPTION>
Exhibit
Sequential
No. Description Location
<S> <C> <C>
3.1 Restated Articles of Incorpora- Incorporated by reference to
tion of Associated Health Care Exhibit 3.1 to the Company's
Industries, Inc. Form S-1 Registration State-
ment (File No. 33-66024)
3.2 Amendment to the Restated Incorporated by reference to
Articles of Incorporation Exhibit 3.2 to the Company's
Form S-1 Registration State-
ment (File No. 33-66024)
3.3 Bylaws of the Registrant Incorporated by reference to
Exhibit 3.3 to the Company's
Form S-1 Registration State-
ment (File No. 33-66024)
3.4 Second Amendment to the Restated Incorporated by reference to
Articles of Incorporation of Exhibit 3.4 to the Company's
Contour Medical, Inc., dated Form S-1 Registration State-
July 26, 1993 ment (File No. 33-66024)
3.5 Third Amendment to the Restated Incorporated by reference to
Articles of Incorporation of Exhibit 3.5 to the Company's
Contour Medical, Inc., dated Form S-1 Registration State-
August 27, 1993 ment (File No. 33-66024)
3.6 Fourth Amendment to the Restated Incorporated by reference to
Articles of Incorporation of Exhibit 3.6 to the Company's
Contour Medical, Inc., dated Form S-1 Registration State-
November 10, 1993 ment (File No. 33-66024)
3.7 Amended Bylaws Incorporated by reference to
Exhibit 3.7 to the Company's
Form S-1 Registration State-
ment (File No. 33-66024)
3.8 Sixth Amendment to Articles of Incorporated by reference to
Incorporation, dated November 9, Exhibit 3.8 to the Company's
1993 (there is no "Fifth" Amend- Form S-1 Registration State-
ment) ment (File No. 33-66024)
3.9 Amendment Number Five to Incorporated by reference to
Articles of Incorporation, Exhibit 3.9 to the Company's
dated April 25, 1994 Form S-1 Registration State-
ment (File No. 33-66024)
3.10 Amendment Number Six to Incorporated by reference to
Articles of Incorporation, Exhibit 3.10 to the Company's
dated May 13, 1994 Form S-1 Registration State-
ment (File No. 33-66024)
4.1 Warrant Agreement for Class B Attached
Warrants
4.2 Warrant Agreement for Class C Included with initial filing
Warrants
5 Opinion of Jon D. Sawyer, P.C. Included with initial filing
10.1 Lease Agreement, effective Incorporated by reference to
August 1, 1994, between Contour Exhibit 10.1 to the Company's
Fabricators of Florida, Inc., and Transition Report on Form10-K
William A. and Gerald Gehrand, for the period ended June30,
relating to the Registrant's 1995
office and manufacturing space
in St. Petersburg, Florida
10.2 Lease Agreement, dated March 1, Incorporated by reference to
1993, between the Registrant Exhibit 10.2 to the Company's
and William A. and Gerald Form S-1 Registration State-
Gehrand, relating to the Regis- ment (File No. 33-66024)
trant's office and manufacturing
space in St. Petersburg, Florida
10.3 Employment Agreement, dated Incorporated by reference to
January 1, 1993, between the Exhibit 10.3 to the Company's
Registrant and William J. Form S-1 Registration State-
Gabriele ment (File No. 33-66024)
10.4 Employment Agreement, dated Incorporated by reference to
January 1, 1993, between the Exhibit 10.4 to the Company's
Registrant and Rudolph J. Form S-1 Registration State-
Dallessandro ment (File No. 33-66024)
10.5 Employment Agreement, dated Incorporated by reference to
January 1, 1993, between the Exhibit 10.5 to the Company's
Registrant and Howard E. Hagon Form S-1 Registration State-
ment (File No. 33-66024)
10.6 Non-Qualified Employee Stock Incorporated by reference to
Bonus Plan Exhibit 10.6 to the Company's
Form S-1 Registration State-
ment (File No. 33-66024)
10.7 Employment Agreement by and Incorporated by reference to
between Contour Medical Fabrica- Exhibit 10.8 to the Company's
tors of Florida, Inc., Associa- Form S-1 Registration State-
ted Healthcare Industries, Inc. ment (File No. 33-66024)
and Gerald J. Flanagan, dated
July 1, 1993
10.8 Lease Agreement with William A. Incorporated by reference to
and Gerald Gehrand dated Exhibit 10.8 to the Company's
February 1, 1995, relating to Transition Report on Form
10-K
Registrant's warehouse space in for the period ended June 30,
St. Petersburg, Florida 1995
10.9 1996 Stock Option Plan Attached
21 Subsidiaries of the Registrant Incorporated by reference to
Exhibit 22 to the Company's
Form S-1 Registration State-
ment (File No. 33-66024)
23.1 Consent of Jon D. Sawyer, P.C. Included in Exhibit 5
23.2 Consent of BDO Seidman, LLP Attached
23.3 Consent of Pender Newkirk & Attached
Company
</TABLE>
All financial statement schedules have been omitted, as the required
information is inapplicable or the information is presented in the financial
statements or the notes thereto.
Item 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for indemni-
fication against such liabilities (other than the payment by the Registrant of
expenses incurred or paid by a Director, Officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such Director, Officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) For purpose of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the Registration Statement.
(4) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(5) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 1 to the Registration Statement
to be signed on its behalf by the undersigned thereunto duly authorized, in
the City of St. Petersburg, State of Florida, on the 27th day of February,
1996.
CONTOUR MEDICAL, INC.
By/s/ Gerald J. Flanagan
Gerald J. Flanagan, President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
Signature Title Date
/s/ Gerald J. Flanagan President, Treasurer February 27, 1996
Gerald J. Flanagan (Principal Financial and
Accounting Officer),
Chief Financial Officer
and Director
/s/ Chris Brogdon Director February 27, 1996
Chris Brogdon
/s/ Edward E. Lane Director February 27, 1996
Edward E. Lane
/s/ Darrell C. Tucker Director February 27, 1996
Darrell C. Tucker
WARRANT AGREEMENT
CONTOUR MEDICAL, INC., a Nevada corporation ("Company"), and AMERICAN
SECURITIES TRANSFER, INC. ("AST"), 1825 Lawrence Street, Suite 444, Denver,
Colorado 80202, a Colorado corporation ("Warrant Agent"), agree as follows:
1. PURPOSE. The Company proposes to publicly offer and issue 119,225
units ("Units"), each Unit consisting of (i) two (2) shares of the Company's
$.0001 par value common stock ("Shares") and (ii) one warrant permitting the
purchase of one (1) Share ("Warrant").
2. WARRANTS. Each Warrant will entitle the registered holder of a
Warrant ("Warrant Holder") to purchase from the Company one (1) Share at $4.50
per Share ("Exercise Price"). A Warrant Holder may exercise all or any number
of Warrants resulting in the purchase of a whole number of Shares.
3. EXERCISE PERIOD. The Warrants may be exercised at any time during
the period commencing July 15, 1994, and ending at 3:00 p.m., Denver,
Colorado, time on July 15, 1996 ("Expiration Date"), except as changed by
Section 12 of this Agreement. After the Expiration Date, any unexercised
warrants will be void and all rights of Warrant Holders shall cease.
4. NON-DETACHABILITY. A Warrant Certificate may not be detached from a
Share certificate contained in a Unit until after July 1, 1994. Until such
time a Warrant Certificate may be split up, combined, exchanged or transferred
on the books of the Warrant Agent only together with a Share certificate.
After July 1, 1994, a Warrant Certificate may be split up, combined, exchanged
or transferred on the books of the Warrant Agent.
5. CERTIFICATES. The Warrant Certificates shall be in registered form
only and shall be substantially in the form set forth in EXHIBIT A attached to
this Agreement. Warrant Certificates shall be signed by, or shall bear the
facsimile signature of, the President or a Vice President of the Company and
the Secretary or an Assistant Secretary of the Company and shall bear a
facsimile of the Company's corporate seal. If any person, whose facsimile
signature has been placed upon any Warrant Certificate as the signature of an
officer of the Company, shall have ceased to be such officer before such
Warrant Certificate is countersigned, issued and delivered, such Warrant
Certificate shall be countersigned, issued and delivered with the same effect
as if such person had not ceased to be such officer. Any Warrant Certificate
may be signed by, or made to bear the facsimile signature of, any person who
at the actual date of the preparation of such Warrant Certificate shall be a
proper officer of the Company to sign such Warrant Certificate even though
such person was not such an officer upon the date of this Agreement.
6. COUNTERSIGNING. Warrant Certificates shall be manually countersigned
by the Warrant Agent and shall not be valid for any purpose unless so
countersigned. The Warrant Agent hereby is authorized to countersign and
deliver to, or in accordance with the instructions of, any Warrant Holder any
Warrant Certificates which is properly issued.
7. REGISTRATION OF TRANSFERS AND EXCHANGES. Subject to the provisions
of Section 4, the Warrant Agent shall from time to time register the transfer
of any outstanding Warrant Certificates upon records maintained by the Warrant
Agent for such purpose upon surrender of such Warrant Certificate to the
Warrant Agent for transfer, accompanied by appropriate instruments of transfer
in form satisfactory to the Company and the Warrant Agent and duly executed by
the Warrant Holder or a duly authorized attorney. Upon any such registration
of transfer, a new Warrant Certificate shall be issued in the name of and to
the transferee and the surrendered Warrant Certificate shall be cancelled.
8. EXERCISE OF WARRANTS.
(a) Any one Warrant or any multiple of one Warrant evidenced by any
Warrant Certificate may be exercised upon any single occasion on or after the
Exercise Date, and on or before the Expiration Date. A Warrant shall be
exercised by the Warrant Holder by surrendering to the Warrant Agent the
Warrant Certificate evidencing such Warrant with the exercise form on the
reverse of such Warrant Certificate duly completed and executed and delivering
to the Warrant Agent, by good check or bank draft payable to the order of the
Company, the Exercise Price for each Share to be purchased.
(b) Upon receipt of a Warrant Certificate with the exercise form
thereon duly executed together with payment in full of the Exercise Price for
the Shares for which Warrants are then being exercised, the Warrant Agent
shall requisition, from any transfer agent for the Shares, and upon receipt
shall make delivery of, certificates evidencing the total number of whole
Shares for which Warrants are then being exercised in such names and
denominations as are required for delivery to, or in accordance with the
instructions of, the Warrant Holder. Such certificates for the Shares shall
be deemed to be issued, and the person to whom such Shares are issued of
record shall be deemed to have become a holder of record of such Shares, as of
the date of the surrender of such Warrant Certificate and payment of the
Exercise Price, whichever shall last occur, provided that if the books of the
Company with respect to the Shares shall be deemed to be issued, and the
person to whom such Shares are issued of record shall be deemed to have become
a record holder of such Shares, as of the date on which such books shall next
be open (whether before, on or after the Expiration Date) but at the Exercise
Price, whichever shall have last occurred, to the Warrant Agent.
(c) If less than all of the Warrant evidenced by a Warrant
Certificate are exercised upon a single occasion, a new Warrant Certificate
for the balance of the Warrant not so exercised shall be issued and delivered
to, or in accordance with, transfer instructions properly given by the Warrant
Holder until the Expiration Date.
(d) All Warrant Certificates surrendered upon exercise of Warrants
shall be cancelled.
(e) Upon the exercise, or conversion of any warrant, the Warrant
Agent shall promptly deposit the payment into an escrow account established by
mutual agreement of the Issuer and the Warrant Agent at a federally insured
commercial bank. All funds deposited in the escrow account will be disbursed
on a weekly basis to the issuer once they have been determined by the Warrant
Agent to be collected funds. Once the funds are determined to be collected,
the Warrant Agent shall cause the share certificate(s) representing the
exercised warrants to be issued.
(f) Expenses incurred by American Securities Transfer, Inc. while
acting in the capacity as Warrant Agent shall be paid by the Company. These
expenses, including delivery of exercised share certificates to the
shareholder, will be deducted from the exercise fee submitted prior to
distribution of funds to the Issuer. A detailed accounting statement relating
to the number of shares exercised, names of registered warrant holder and the
net amount of exercised funds remitted shall be given to the Issuer with the
payment of each exercise amount.
(g) At the time of exercise of the warrant(s), the transfer fee is
to be paid by the warrant holder. In the event the shareholder must pay the
fee and fails to remit same, the fee will be deducted from the proceeds prior
to the distribution to the Company.
9. TAXES. The Company will pay all taxes attributable to the initial
issuance of Shares upon exercise of Warrants. The Company shall not, however,
be required to pay any tax which may be payable in respect to any transfer
involved in any issue of Warrant Certificates or in the issue of any
certificates of Shares in the name other than that of the Warrant Holder upon
the exercise of any Warrant.
10. MUTILATED OR MISSING WARRANT CERTIFICATES. If any Warrant
Certificate is mutilated, lost, stolen or destroyed, the Company and the
Warrant Agent may, on such terms as to indemnify or otherwise as they may in
their discretion impose (which shall, in the case of a mutilated Warrant
Certificate, include the surrender thereof), and upon receipt of evidence
satisfactory to the Company and the Warrant Agent of such mutilation, loss,
theft or destruction, issue a substitute Warrant Certificate of like
denomination and tenor as the Warrant Certificate so mutilated, lost, stolen
or destroyed. Applicants for substitute Warrant Certificates shall comply
with such other reasonable regulations and pay any reasonable charges as the
Company or the Warrant Agent may prescribe.
11. RESERVATION OF SHARES. For the purpose of enabling the Company to
satisfy all obligation to issue Shares upon exercise of Warrants, the Company
will at all times reserve and keep available free from preemptive rights, out
of the aggregate of its authorized but unissued shares, the full number of
shares which may be issued upon the exercise of Warrants will upon issue be
fully paid and nonassessable by the Company and free from all taxes, liens,
charges and security interests with respect to the issue thereof.
12. GOVERNMENTAL RESTRICTIONS. If any Shares issuable upon the exercise
of Warrants require registration or approval of any governmental authority,
the Company will endeavor to secure such registration or approval; provided
that in no event shall such Shares be issued, and the Company shall have the
authority to suspend the exercise of all Warrants, until such registration or
approval shall have been obtained; but all Warrants, the exercise of which is
requested during any such suspension, shall be exercisable at the Exercise
Price. If any such period of suspension continues past the Expiration Date,
all Warrants, the exercise of which have been requested on or prior to the
Expiration Date, shall be exercisable upon the removal of such suspension
until the close of business on the business day immediately following the
expiration of such suspension.
13. ADJUSTMENTS. If prior to the exercise of any Warrants the Company
shall have effected one or more stock split-ups, stock dividends or other
increases or reductions of the number of shares of its $.0001 par value common
stock outstanding without receiving compensation therefor in money, services
or property, the number of shares of common stock subject to the Warrant
granted shall, (i) if a net increase shall have been effected in the number of
outstanding shares of the Company's common stock, be proportionately
increased, and the cash consideration payable per share shall be
proportionately reduced, and, (ii) if a net reduction shall have been effected
in the number of outstanding shares of the Company's common stock, be
proportionately reduced and the cash consideration payable per share be
proportionately increased.
14. NOTICE TO WARRANT HOLDERS. Upon any adjustment as described in
Section 13, the Company within 20 days thereafter shall (i) cause to be filed
with the Warrant Agent a certificate signed by a Company officer setting forth
the details of such adjustment, the method of calculation and the facts upon
which such calculation is based, which certificates shall be conclusive
evidence of the correctness of the matters set forth therein, and (ii) cause
written notice of such adjustments to be given to each Warrant Holder as of
the record date applicable to such adjustment. Also, if the Company proposes
to enter into any reorganization, reclassification, sale of substantially all
of its assets, consolidation, merger, dissolution, liquidation or winding up,
the Company shall give notice of such fact at least 20 days prior to such
action to all Warrant Holders which notice shall set forth such facts as
indicate the effect of such action (to the extent such effect may be known at
the date of such notice) on the Exercise Price and the kind and amount of the
shares or other securities and property deliverable upon exercise of the
Warrants. Without limiting the obligation of the Company hereunder to provide
notice to each Warrant Holder, failure of the Company to give notice shall not
invalidate corporate action taken by the Company.
15. NO FRACTIONAL WARRANTS OR SHARES. The Company shall not be required
to issue fractions of Warrants upon the reissue of Warrants, any adjustments
as described in Section 13 or otherwise; but the Company in lieu of issuing
any such fractional interest, shall round up or down to the nearest full
Warrant. If the total Warrants surrendered by exercise would result in the
issuance of a fractional share, the Company shall not be required to issue a
fractional share but rather the aggregate number of shares issuable will be
rounded up or down to the nearest full share.
16. RIGHTS OF WARRANT HOLDERS. No Warrant Holder, as such, shall have
any rights of a shareholder of the Company, either at law or equity, and the
rights of the Warrant Holders, as such, are limited to those rights expressly
provided in this Agreement or in the Warrant Certificates. The Company and
the Warrant Agent may treat the registered Warrant Holder in respect of any
Warrant Certificate as the absolute owner thereof for all purposes
notwithstanding any notice to the contrary.
17. WARRANT AGENT. The Company hereby appoints the Warrant Agent to act
as the agent of the Company and the Warrant Agent hereby accepts such
appointment upon the following terms and conditions by all of which the
Company and every Warrant Holder, by acceptance of his Warrants, shall be
bound:
(a) Statements contained in this Agreement and in the Warrant
Certificates shall be taken as statements of the Company. The Warrant Agent
assumes no responsibility for the correctness of any of the same except such
as described the Warrant Agent or for actions taken or to be taken by the
Warrant Agent.
(b) The Warrant Agent shall not be responsible for any failure of
the Company to comply with any of the Company's covenants contained in this
Agreement or in the Warrant Certificates.
(c) The Warrant Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company) and the Warrant Agent
shall incur no liability or responsibility to the Company or to any Warrant
Holder in respect of any action taken, suffered or omitted by it hereunder in
good faith and in accordance with the opinion or the advice of such counsel,
provided the Warrant Agent shall have exercised reasonable care in the
selection and continued employment of such counsel.
(d) The Warrant Agent shall incur no liability or responsibility to
the Company or to any Warrant Holder for any action taken in reliance upon any
notice, resolution, waiver, consent, order, certificate or other paper,
document or instrument believed by it to be genuine and to have been signed,
sent or presented by the proper party or parties.
(e) The Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the execution
of this Agreement, to reimburse the Warrant Agent for all expenses, taxes and
governmental charges and all other charges of any kind in nature incurred by
the Warrant Agent in the execution of this Agreement and to indemnify the
Warrant Agent and save it harmless against any and all liabilities, including
judgments, costs and counsel fees, for this Agreement except as a result of
the Warrant Agent's negligence or bad faith.
(f) The Warrant Agent shall be under no obligation to institute any
action, suit or legal proceeding or to take any other action likely to involve
expense unless the Company or one or more Warrant Holders shall furnish the
Warrant Agent with reasonable security and indemnity for any costs and
expenses which may be incurred in connection with such action, suit or legal
proceeding, but this provision shall not effect the power of the Warrant Agent
to take such action as the Warrant Agent may consider proper, whether with or
without any such security or indemnity. All rights of action under this
Agreement or under any of the Warrants may be enforced by the Warrant Agent
without the possession of any of the Warrant Certificates or the production
thereof at any trial or other proceeding relative thereto, and any such
action, suit or proceeding instituted by the Warrant Agent shall be brought in
its name as Warrant Agent, and any recovery of judgment shall be for the
ratable benefit of the Warrant Holders as their respective rights or interests
may appear.
(g) The Warrant Agent and any shareholder, director, officer or
employee of the Warrant Agent may buy, sell or deal in any of the Warrants or
other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or lend
money to the Company or otherwise act as fully and freely as though it were
not Warrant Agent under this Agreement. Nothing herein shall preclude the
Warrant Agent from acting in any other capacity for the Company or for any
other legal entity.
18. SUCCESSOR WARRANT AGENT. Any corporation into which the Warrant
Agent may be merged or converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or consolidation to which
the Warrant Agent shall be a party, or any corporation succeeding to the
corporate trust business of the Warrant Agent, shall be the successor to the
Warrant Agent hereunder without the execution or filing of any paper or any
further act of a party or the parties hereto. In any such event or if the
name of the Warrant Agent is changed, the Warrant Agent or such successor may
adopt the countersignature of the original Warrant Agent and may countersign
such Warrant Certificates either in the name of the predecessor Warrant Agent
or in the name of the successor Warrant Agent.
19. CHANGE OF WARRANT AGENT. The Warrant Agent may resign or be
discharged by the Company from its duties under this Agreement by the Warrant
Agent or the Company, as the case may be, giving notice in writing to the
other, and by giving a date when such resignation or discharge shall take
effect, which notice shall be sent at least 30 days prior to the date so
specified. If the Warrant Agent shall resign, be discharged, or shall
otherwise become incapable of acting, the Company shall appoint a successor to
the Warrant Agent. If the Company shall fail to make such appointment within
a period of 30 days after it has been notified in writing of such resignation
or incapacity by the resigning or incapacitated Warrant Agent or by any
Warrant Holder or after discharging the Warrant Agent, then any Warrant Holder
may apply to the District Court for Denver County, Colorado, for the
appointment of a successor to the Warrant Agent. Pending appointment of a
successor to the Warrant Agent, either by the Company or by such Court, the
duties of the Warrant Agent shall be carried out by the Company. Any
successor Warrant Agent, whether appointed by the Company or by such Court,
shall be a bank or a trust company, in good standing, organized under
the laws of the State of Colorado or of the United States of America, having
its principal office in Denver, Colorado and having at the time of its
appointment as Warrant Agent, a combined capital and surplus of at least four
million dollars. After appointment, the successor Warrant Agent shall be
vested with the same powers, rights, duties and responsibilities as if it had
been originally named as Warrant Agent without furhter act or deed and the
former Warrant Agent shall deliver and transfer to the successor Warrant Agent
any property at the time held by it thereunder, and execute and deliver any
furhter assurance, conveyance, act or deed necessary for effecting the
delivery or transfer. Failure to give any notice provided for in this section,
however, or any defect therein, shall not affect the legality or validity of
the resignation or removal of the Warrant Agent or the appointment of the
successor Warrant Agent, as the case may be.
20. NOTICES. Any notice or demand authorized by this Agreement to be
given or made by the Warrant Agent or by any Warrant Holder to or upon the
Company shall be sufficiently given or made if sent by mail, first class,
certified or registered, postage prepaid, addressed (until another address is
filed in writing by the Company with the Warrant Agent), as follows:
Any notice or demand authorized by this Agreement to be given or made by any
Warrant Holder or by the Company to or on the Warrant Agent shall be
sufficiently given or made if sent by mail, first class, certified or
registered, postage prepaid, addressed (until another address is filed in
writing by the Warrant Agent with the Company ) as follows:
American Securities Transfer, Inc.
1825 Lawrence Street, #444
Denver, Colorado 80202
Any distribution, notice or demand required or authorized by this Agreement to
be given or made by the Company or the Warrant Agent to or on the Warrant
Holders shall be sufficiently given or made if sent by mail, first class,
certified or registered, postage prepaid, addressed to the Warrant Holders at
their last known addresses as they shall appear on the registration books for
the Warrant Certificates maintained by the Warrant Agent.
21. SUPPLEMENTS AND AMENDMENTS. The Company and the Warrant Agent may
from time to time supplement or amend this Agreement without the approval of
any Warrant Holders in order to cure any ambiguity or to correct or supplement
any provision contained herein which may be defective or inconsistent with any
other provisions herein, or to make any other provisions in regard to matters
or questions arising hereunder which the Company and the Warrant Agent may
deem necessary or desirable.
22. SUCCESSORS. All the covenants and provisions of this Agreement by
or for the benefit of the Company or the Warrant Agent shall bind and inure to
the benefit of their respective successors and assigns hereunder.
23. TERMINATION. This Agreement shall terminate at the close of
business on the Expiration Date or such earlier date upon which all Warrants
have been exercised; provided, however, that if exercise of the Warrants is
suspended pursuant to Section 12 and such suspension continues past the
Expiration Date, this Agreement shall terminate at the close of business on
the business day immediately following the expiration of such suspension. The
provisions of Section 17 shall survive such termination.
24. GOVERNING LAW. This Agreement and each Warrant Certificate issued
hereunder shall be deemed to be a contract made under the laws of the State of
Colorado and for all purposes shall be construed in accordance with the laws
of said State.
25. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to given any person or corporation other than the Company, the
Warrant Agent and the Warrant Holders any legal or equitable right, remedy or
claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company, the Warrant Agent and the Warrant Holders.
26. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of such counterparts shall for all purposes be deemed to be
an original and all such counterparts shall together constitute but one and
the same instrument.
Date: June 30, 1994
Contour Medical, Inc.
A Nevada Corporation
By: /s/ Gerald J. Flanagan
Gerald J. Flanagan, President
SEAL
ATTEST
/s/ R. J. Dallessandro
R. J. Dallessandro, Secretary
American Securities Transfer, Inc.
A Colorado Corporation
By: /s/ Gregory D. Tubbs
Gregory D. Tubbs, Vice President
SEAL
ATTEST:
/s/ Bruce E. Hall
Bruce E. Hall, Secretary
CONTOUR MEDICAL, INC.
1996 STOCK OPTION PLAN
This Stock Option Plan was adopted this 1st day of February 1996, by
Contour Medical, Inc., a Nevada corporation, upon the following terms and
conditions:
1. DEFINITIONS. Except as otherwise expressly provided in this Plan,
the following capitalized terms shall have the respective meanings hereafter
ascribed to them:
a. "Board" shall mean the Board of Directors of the Corporation;
b. "Code" shall mean the Internal Revenue Code of 1986, as
amended;
c. "Consultant" shall mean a person who provides services to the
Corporation as an independent contractor;
d. "Corporation" means Contour Medical, Inc. and each and all of
any present and future subsidiaries;
e. "Date of Grant" shall mean, for each participant in the Plan,
the date on which the Board approves the specific grant of stock options to
that participant;
f. "Employee" shall be an employee of the Corporation or any
subsidiary of the Corporation;
g. "Grantee" shall mean the recipient of an Incentive Stock Option
under the Plan;
h. "Incentive Stock Option" shall refer to a stock option which
qualifies under Section 422 of the Code.
i. "Non-statutory Option" shall mean an option which is not an
Incentive Stock Option.
j. "Shares" shall mean the Corporation's common stock, $.0001 par
value;
k. "Shareholders" shall mean owners of record of any Shares; and
l. "Tandem Stock Option" shall mean any arrangement whereby two
options, an Incentive Stock Option and a Non-statutory Option, are issued and
the exercise of one option affects the right to exercise the other.
2. PURPOSE. The purpose of this Stock Option Plan (the "Plan") is
two-fold. First, the Plan will further the interests of the Corporation and
its shareholders by providing incentives in the form of stock options to
employees who contribute materially to the success and profitability of the
Corporation. Such stock options will be granted to recognize and reward
outstanding individual performances and contributions and will give selected
employees an interest in the Corporation parallel to that of the shareholders,
thus enhancing their proprietary interest in the Corporation's continued
success and progress. This program also will enable the Corporation to
attract and retain experienced employees. Second, the Plan will provide the
Corporation flexibility and the means to reward directors and consultants who
render valuable contributions to the Corporation.
3. ADMINISTRATION. This Plan will be administered by the Board. The
Board has the exclusive power to select the participants in this Plan, fix the
awards to each participant, and make all other determinations necessary or
advisable under the Plan, to determine whether the performance of an eligible
employee warrants an award under this Plan, and to determine the amount and
duration of the award. The Board has full and exclusive power to construe and
interpret this Plan, to prescribe, amend and rescind rules and regulations
relating to this Plan, and to take all actions necessary or advisable for this
Plan's administration. The Board shall have full power and authority to
determine, and at the time such option is granted shall clearly set forth,
whether the option shall be an Incentive Stock Option or a Non-statutory
Option. However, the Board may not issue a Tandem Stock Option. Any such
determination made by the Board will be final and binding on all persons. A
member of the Board will not be liable for performing any act or making any
determination required by or pursuant to the Plan, if such act or
determination is made in good faith.
4. PARTICIPANTS. Any employee, officer, director or consultant that
the Board, in its sole discretion, designates is eligible to participate in
this Plan. However, only key employees of the Corporation shall be eligible
to receive grants of Incentive Stock Options. The Board's designation of a
person as a participant in any year does not require the Board to designate
that person to receive an award under this Plan in any other year or, if so
designated, to receive the same award as any other participant in any year.
The Board may consider such factors as it deems pertinent in selecting
participants and in determining the amount of their respective awards,
including, but without being limited to: (a) the financial condition of the
Corporation; (b) expected profits for the current or future years; (c) the
contributions of a prospective participant to the profitability and success of
the Corporation; and (d) the adequacy of the prospective participant's other
compensation. The Board, in its discretion, may grant benefits to a
participant under this Plan, even though stock, stock options, stock
appreciation rights or other benefits previously were granted to him under
this or another plan of the Corporation, whether or not the previously granted
benefits have been exercised, but the participant may hold such options only
on the terms and subject to the restrictions hereafter set forth. The Board
may not issue a Tandem Stock Option under this Plan or in conjunction with any
other stock option or compensation plan to any Participant. Subject to the
foregoing limitation, a person who has participated in another benefit plan of
the Company may also participate in this Plan.
5. KINDS OF BENEFITS. Awards under this Plan, if any, will be granted
in options to acquire Shares as described below.
6. OPTIONS; EXPIRATION; LIMITATIONS. Any Incentive Stock Option
granted under this Plan shall automatically expire ten years after the Date of
Grant or at such earlier time as may be described in Article 9 or directed by
the Board in the grant of the option. Notwithstanding the preceding sentence,
no Incentive Stock Option granted to a Shareholder who owns, as of the Date of
Grant, stock possessing more than ten percent of the total combined voting
power of all classes of stock of the Corporation shall, in any event, be
exercisable after the expiration of five years from the Date of Grant. For
the purpose of determining under any provision of this Plan whether a
shareholder owns stock possessing more than ten percent of the total combined
voting power of all classes of stock of the Corporation, such Shareholder
shall be considered as owning the stock owned, directly or indirectly, by or
for his brothers and sisters (whether by the whole or half blood), spouse,
ancestors and lineal descendants, and stock owned, directly or indirectly, by
or for a corporation, partnership, estate or trust shall be considered as
being owned proportionately by or for its shareholders, partners or
beneficiaries.
Upon the exercise of an option, the Corporation shall deliver to the
participant certificates representing authorized but unissued Shares. The
cumulative total number of shares which may be subject to options issued and
outstanding pursuant to this Plan is limited to 300,000 shares. This amount
automatically will be adjusted in accordance with Article 21 of this Plan. If
an option is terminated, in whole or in part, for any reason other than its
exercise, the Board may reallocate the shares subject to that option (or to
the part thereof so terminated) to one or more other options to be granted
under this Plan.
7. OPTION EXERCISE PRICE. Each option shall state the option price,
which shall be not less than 100% of the fair market value of the Shares on
the Date of Grant or the par value thereof whichever is greater.
Notwithstanding the preceding sentence, in the case of a grant of an Incentive
Stock Option to an employee who, as of the Date of Grant, owns stock
possessing more than ten percent of the total combined voting power of all
classes of stock of the Corporation or its Parent or Subsidiaries, the option
price shall not be less than 110% of the fair market value of the Shares on
the Date of Grant or the par value thereof, whichever is greater.
During such time as the Shares are not traded in any securities
market, the fair market value per share shall be determined by a good faith
effort of the Board, using its best efforts and judgment. During such time as
the Shares are traded in a securities market but not listed upon an
established stock exchange, the fair market value per share shall be the mean
between dealer "bid" and "ask" prices in the securities market in which it is
traded on the Date of Grant, as reported by the National Association of
Securities Dealers, Inc. If the Shares are listed upon an established stock
exchange or exchanges such fair market value shall be deemed to be the highest
closing price on such stock exchange or exchanges on the Date of Grant, or if
no sale of any Shares shall have been made on any stock exchange on that day,
on the next preceding day on which there was such a sale. Subject to the
foregoing, the Board shall have full authority and discretion in fixing the
option price and shall be fully protected in doing so.
8. MAXIMUM OPTION EXERCISE. The aggregate fair market value
(determined as of the Date of Grant) of the stock with respect to which
Incentive Stock Options are exercisable for the first time by a grantee during
any calendar year (under all such plans of the Corporation and its parent or
subsidiary, if any) shall not exceed $100,000. For purposes of this Article
8, the value of stock acquired through the exercise of Non-statutory Options
shall not be included in the computation of the aggregate fair market value.
9. EXERCISE OF OPTIONS.
a. No stock option granted under this Plan may be exercised before
the Grantee's completion of such period of services as may be specified by the
Board on the Date of Grant. Furthermore, the timing of the exercise of any
option granted under this Plan may be subject to a vesting schedule based upon
years of service or an expiration schedule as may be specified by the Board on
the Date of Grant. Thereafter, or if no such period is specified subject to
the provisions of subsections (c), (d), (e), (f) and (g) of this Article 9,
the Grantee may exercise the option in full or in part at any time until
expiration of the option.
A Grantee cannot exercise an Incentive Stock Option granted
under this Plan unless, at the time of exercise, he has been continuously
employed by the Corporation since the date the option was granted. The Board
may decide in each case to what extent bona fide leaves of absence for
illness, temporary disability, government or military service, or other
reasons will not be deemed to interrupt continuous employment.
b. Unless an Option specifically provides to the contrary, all
options granted under this Plan shall immediately become exercisable in full
in the event of the consummation of any of the following transactions:
(i) A merger or acquisition in which the Company is not the
surviving entity;
(ii) The sale, transfer or other disposition of all or
substantially all of the assets of the Company; or
(iii) Any merger in which the Company is the surviving entity
but in which fifty percent (50%) or more of the Company's outstanding voting
stock is issued to holders different from those who held the stock immediately
prior to such merger.
c. Except as provided in subsections (d), (e) and (f) of this
Article 9, a Grantee cannot exercise an Incentive Stock Option after he ceases
to be an employee of the Corporation, unless the Board, in its sole
discretion, grants the recipient an extension of time to exercise the
Incentive Stock Option after cessation of employment. The extension of time
of exercise that may be granted by the Board under this subsection (c) shall
not exceed three months after the date on which the Grantee ceases to be an
employee and in no case shall extend beyond the stated expiration date of the
option.
d. If the employment of a Grantee is terminated by the Corporation
for a cause as defined in subsection (i) of this Article 9, all rights to any
stock option granted under this Plan shall terminate, including but not
limited to the ability to exercise such stock options.
e. If a Grantee ceases to be an employee as a result of retirement,
he may exercise the Incentive Stock Option within three months after the date
on which he ceases to be an employee (but no later than the stated expiration
date of the option) to the extent that the Incentive Stock Option was
exercisable when he ceased to be an employee. An employee shall be regarded
as retired if he terminates employment after his sixty-fifth birthday.
f. If a Grantee ceases to be an employee because of disability
(within the meaning of Section 105(d)(4) of the Code), or if a Grantee dies,
and if at the time of the Grantee's disability or death he was entitled to
exercise an Incentive Stock Option granted under this Plan, the Incentive
Stock Option can be exercised within 12 months after his death or termination
of employment on account of disability (but no later than the stated
expiration date of the option), by the Grantee in the case of disability or,
in case of death, by his personal representative, estate or the person who
acquired by gift, bequest or inheritance his right to exercise the Incentive
Stock Option. Such options can be exercised only as to the number of shares
for which they could have been exercised at the time the Grantee died or
became disabled.
g. With respect to Non-statutory Options granted to Board members,
the Board may provide on the Date of the Grant that such options will expire a
specified number of days after such Board member ceases to be a member of the
Board. In the absence of any such provision, the option will expire on the
stated expiration date of the option.
h. Any stock option granted under the Plan will terminate, as a
whole or in part, to the extent that, in accordance with this Article 9, it no
longer can be exercised.
i. For purposes of this Article 9, "cause" shall mean the
following:
i. Fraud or criminal misconduct;
ii. Gross negligence;
iii. Willful or continuing disregard for the safety or
soundness of the Corporation;
iv. Willful or continuing violation of the published rules of
the Corporation.
10. METHOD OF EXERCISE. Each option granted under this Plan will be
deemed to be exercised when the holder of it indicates his decision to do so
in writing delivered to the Corporation and concurrently tenders to the
Corporation full payment in cash or by certified check for the shares to be
purchased pursuant to the exercise of the option and complies with such other
reasonable requirements as the Board establishes pursuant to this Plan. No
person, personal representative, estate or other entity will have the rights
of a shareholder with respect to shares subject to an option granted under
this Plan until a certificate or certificates for the shares have been
delivered to the person exercising the option.
Any option granted under this Plan may be exercised as to any lesser
number of shares than the full amount for which such option has been granted.
A partial exercise of an option will not affect the Grantee's rights to
exercise the option from time to time in accordance with this Plan as to the
remaining shares subject to the option.
11. TAXES; COMPLIANCE WITH LAW; APPROVAL OF REGULATORY BODIES. The
Corporation, if necessary or desirable, may pay or withhold the amount of any
tax attributable to any amount payable or shares deliverable under this Plan
and the Corporation may defer making payment on delivery until it is
indemnified to its satisfaction for that tax. Stock options are exercisable,
and shares can be delivered under this Plan, only in compliance with all ap-
plicable federal and sate laws and regulations, including, without limitation,
state and federal securities laws, and the rules of all stock exchanges on
which the Corporation's shares are listed at any time. Any certificate issued
pursuant to options granted under this Plan shall bear such legends and
statements as the Board deems advisable to assure compliance with federal and
state laws and regulations. No option may be exercised, and shares may not be
issued under this Plan, until the Corporation has obtained the consent or
approval of every regulatory body, federal or state, having jurisdiction over
such matters as the Board deems advisable.
Specifically, in the event that the Corporation deems it necessary
or desirable to file a registration statement with the Securities and Exchange
Commission or any State Securities Commission, no option granted under the
Plan may be exercised, and shares may not be issued, until the Corporation has
obtained the consent or approval of such Commission.
In the case of the exercise of an option by a person or estate
acquiring by bequest or inheritance the right to exercise such option, the
Board may require reasonable evidence as to the ownership of the option and
may require such consents and releases of taxing authorities as the Board
deems advisable.
12. ASSIGNABILITY. Each option granted under this Plan is not
transferable other than by will or the laws of descent and distribution. Each
option is exercisable during the life of the Grantee only by him.
13. TENURE. A participant's right, if any, to continue to serve the
Corporation as an officer, employee or otherwise, will not be enlarged or
otherwise affected by his designation as a participant under this Plan, and
such designation will not in any way restrict the right of the Corporation to
terminate at any time the employment or affiliation of any participant for
cause or otherwise.
14. AMENDMENT AND TERMINATION OF PLAN. The Board may alter, amend or
terminate this Plan from time to time without approval of the shareholders.
However, without the approval of the shareholders, no amendment will be
effective that:
a. materially increases the benefits accruing to participants under
the Plan;
b. increases the cumulative number of shares that may be delivered
upon the exercise of options granted under the Plan or the aggregate fair
market value of options which a participant may exercise in any calendar year;
c. materially modifies the eligibility requirements for
participation in the Plan; or
d. amends the requirements of paragraphs (a)-(c) of this Article
14.
Any amendment, whether with or without the approval of shareholders,
that alters the terms or provisions of an option granted before the amendment
will be effective only with the consent of the participant to whom the option
was granted or the holder currently entitled to exercise it, except for
adjustments expressly authorized by this Plan.
15. EXPENSES OF PLAN. The expenses of the Plan will be borne by the
Corporation.
16. DURATION OF PLAN. Options may only be granted under this Plan
during the ten years immediately following the earlier of the adoption of the
Plan or its approval by the Shareholders. Options granted during that ten
year period will remain valid thereafter in accordance with their terms and
the provisions of this Plan.
17. OTHER PROVISIONS. The option agreements authorized under the Plan
shall contain such other provisions including, without limitation,
restrictions upon the exercise of the option, as the Board shall deem
advisable. Any such option agreements, which are intended to be "Incentive
Stock Options" shall contain such limitations and restrictions upon the
exercise of the option as shall be necessary in order that such option will be
an "Incentive Stock Option" as defined in Section 422 of the Code.
18. INDEMNIFICATION OF THE BOARD. In addition to such other rights of
indemnification as they may have as directors, the members of the Board shall
be indemnified by the Corporation against the reasonable expenses, including
attorneys' fees actually and necessarily incurred in connection with the
defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan or any option
granted thereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Corporation) or paid by them in satisfaction of a judgment in any such
action, suit or proceeding, except in relation to matters as to which it shall
be adjudged in such action, suit or proceeding that such director is liable
for negligence or misconduct in the performance of his duties; provided that
within 60 days after the institution of any such action, suit or proceeding a
director shall in writing offer the Corporation the opportunity, at its own
expense, to handle and defend the same.
19. APPLICATION OF FUNDS. The proceeds received by the Corporation from
the sale of stock pursuant to options granted under this Plan will be used for
general corporate purposes.
20. NO OBLIGATION TO EXERCISE OPTION. The granting of an option shall
impose no obligation upon the Grantee to exercise such option.
21. ADJUSTMENT UPON CHANGE OF SHARES. If a reorganization, merger,
consolidation, reclassification, recapitalization, combination or exchange of
shares, stock split, stock dividend, rights offering, or other event affecting
shares of the Corporation occurs, then the number and class of shares to which
options are authorized to be granted under this Plan, the number and class of
shares then subject to options previously granted under this Plan, and the
price per share payable upon exercise of each option outstanding under this
Plan shall be equitably adjusted by the Board to reflect such changes.
22. NUMBER AND GENDER. Unless otherwise clearly indicated in this Plan,
words in the singular or plural shall include the plural and singular,
respectively, where they would so apply, and words in the masculine or neuter
gender shall include the feminine, masculine or neuter gender where
applicable.
23. APPLICABLE LAW. The validity, interpretation and enforcement of
this Plan are governed in all respects by the laws of Nevada.
24. EFFECTIVE DATE OF PLAN. This Plan shall not take effect until
adopted by the Board. This Plan shall terminate if it is not approved by the
holders of a majority of the outstanding shares of the capital stock of the
Corporation, which approval must occur within the period beginning twelve
months before and ending twelve months after the Plan is adopted by the Board.
CONTOUR MEDICAL, INC.
By /s/ Gerald J. Flanagan
Gerald J. Flanagan, President
I hereby certify that the foregoing Stock Option Plan was approved by the
Board of Directors of Contour Medical, Inc. the 1st day of February 1996.
By /s/ Phillip M. Rees
Phillip M. Rees, Secretary
I hereby certify that the foregoing Stock Option Plan was approved by the
Shareholders of Contour Medical, Inc. the ____ day of ________, 199__.
__________________________________________
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Contour Medical, Inc.
St. Petersburg, Florida
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated August 18, 1995 relating to the
consolidated financial statements of Contour Medical, Inc. and subsidiaries
which is contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Orlando, Florida
February 27, 1996
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in the Prospectus constituting part of the
Registration Statement on Form S-1, and any amendments thereto, to be filed by
Contour Medical, Inc. of our Auditors' Opinion dated January 21, 1994,
accompanying the Financial Statements of Contour Medical, Inc. as of December
31, 1993 and 1992, and to the use of our name under the caption "Experts" in
the Prospectus.
/s/ Pender Newkirk & Company
Pender Newkirk & Company
Certified Public Accountants
Tampa, Florida
February 27, 1996
