As filed with the Securities and Exchange Commission on June 26, 1996
SEC Registration No. 33-64977
SECURITIES AND EXCHANGE COMMISSION
AMENDMENT NO. 3
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)
Donald F. Fox, 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. _X_
<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, 125,186 $4.2857<F2> $ 536,512.50 $
185.00
$.001 Par Value<F1> Shares Per Share
Common Stock, 315,000 $4.2857<F4> $1,350,000.00 $
465.52
$.001 Par Value<F3> Shares Per Share
Common Stock, 630,000 $3.92857<F6> $2,475,000.00 $
853.45
$.001 Par Value<F5> Shares Per Share
Common Stock, 577,500 $2.078<F8> $1,200,000.00 $
413.79
$.001 Par Value<F7> Shares Per Share
Common Stock, 369,619 $5.25 <F10> $1,940,499.75 $
669.14
$.001 Par Value<F9> Shares Per Share
Total $7,502,012.25
$2,586.90<F11>
<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.
<FN9>
To be offered by a selling shareholder.
<FN10>
Estimated based on the closing price of the Registrant's Common Stock as
reported on the Nasdaq Small Cap Market on May 28, 1996.
<FN11>
Of this amount $1,917.76 was paid at the time of the initial filing and
$669.14 was paid with Amendment No. 2.
</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
Registration 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;
Selling Shareholder
6. Dilution Not Applicable
7. Selling Security Holders Selling Shareholder
8. Plan of Distribution Outside Front Cover Page;
Plan of Distribution;
Selling Shareholder
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 JUNE 26, 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.
125,186 Shares of Common Stock Issuable Upon
Exercise of Class B Warrants
315,000 Shares of Common Stock Issuable Upon
Exercise of Class C Warrants
630,000 Shares of Common Stock Issuable Upon
Conversion of Series A Convertible Preferred Stock
577,500 Shares of Common Stock Issuable
Upon Exercise of Consultants' Warrants
369,619 Shares of Common Stock Offered by
Selling Shareholder
Included in the securities offered hereby are 125,186 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 315,000 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 1.05 shares of Common Stock at
an exercise price of $4.50 until July 15, 1996, subject to earlier redemption
by the Company. Each Class C Warrant entitles the holder to purchase 1.05
shares of Common Stock at an exercise price of $4.50 through February 24,
1999, subject to earlier redemption by the Company. (See "DESCRIPTION OF
SECURITIES.")
Also included in the securities offered hereby are 630,000 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 1.05 shares of Common Stock, unless redeemed by the Company. (See
"DESCRIPTION OF SECURITIES.")
Also included in the securities offered hereby are 577,500 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 $1.4286
and $2.8571 per share. (See "DESCRIPTION OF SECURITIES.")
Also included in the securities offered hereby are 369,619 shares of
Common Stock being offered by a Selling Shareholder. None of the proceeds
from the sale of the Common Stock by the Selling Shareholder will be received
by the Company.
The Company's Common Stock currently trades in the Nasdaq Small Cap
Market under the symbol "CTMI", and on June 24, 1996, the closing price of the
Common Stock was $5-1/4. (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 $ 4.2857 -0- $ 4.2857
Total $ 536,512 -0- $ 536,512
_____________________________________________________________________________
Per Share on Exercise of
Class C Warrants $ 4.2857 -0- $ 4.2857
Total $1,350,000 -0- $1,350,000
_____________________________________________________________________________
Per Share on Exercise of
Consultants' Warrants<FN3> $ 2.078 -0- $ 2.078
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 its Michigan and Florida 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.
In March 1996, the Company acquired AmeriDyne Corporation ("AmeriDyne"),
a bulk medical supply company based in Jackson, Tennessee. AmeriDyne
distributes supplies to hospitals, clinics, physicians, pharmacies, nursing
homes and other health care providers in Tennessee, Arkansas, Mississippi,
Alabama, Illinois, Texas, Kentucky, Missouri and Virginia.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Outstanding 5,214,223 Shares<FN1>
Securities Offered Upon
Exercise of Class B Warrants 125,186 Shares of Common Stock
Securities Offered Upon
Exercise of Class C Warrants 315,000 Shares of Common Stock
Securities Offered Upon
Conversion of Series A
Convertible Preferred Stock 630,000 Shares of Common Stock
Securities Offered Upon
Exercise of Consultants'
Warrants 577,500 Shares of Common Stock
Common Stock Outstanding
After Offerings by Company 6,861,909 Shares<FN1>
Common Stock Offered by 369,619 Shares
Selling Shareholder
Nasdaq Small Cap Market
Symbol CTMI
__________________
<FN>
<FN1>
As of May 31, 1996. Does not include 415,275 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
Prospectus.
Balance Sheet Data:
At
March 31, At June 30, At December 31,
1996 1995 1994 1993
Current Assets $ 7,538,754 $4,351,326 $1,129,398 $1,224,496
Total Assets 10,560,542 5,176,426 1,484,568 1,878,465
Current Liabilities 3,502,493 1,377,578 410,162 829,200
Working Capital 4,036,261 2,973,748 719,236 395,296
Long-Term Debt 1,369,234 907,711 554,323 -0-
Shareholders' Equity 5,688,815 2,891,137 520,083 648,765
Statement of Income Data:
For the Nine Months For the Six Months
Ended March 31, Ended June 30,
1996 1995 1995 1994
Sales $8,529,915 $3,375,007 $3,568,459 $1,929,200
Net Income (Loss) 403,357 (58,655) 111,373 (478,798)
Net Income (Loss) Per
Common Share $ .07 $ (.01) $ .02 $ (.20)
Weighted Average Shares
and Share Equivalents
Outstanding 4,885,602 4,520,799 4,786,126 2,341,996
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 $ (.20) $ (.05) $ .07
Weighted Average Shares
and Share Equivalents
Outstanding 2,688,927 1,434,466 1,180,407
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. 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 March 31, 1996, the Company had advanced $613,563 to
Retirement Care on an interest-free basis. In addition, during the nine
months ended March 31, 1996, and the six months ended June 30, 1995, the
Company sold approximately $2,999,000 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 March 31,
1996, such facilities owed the Company $1,584,209 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.
2. ACQUISITION OF AMERIDYNE CORPORATION. On March 1, 1996, the Company
acquired AmeriDyne Corporation ("AmeriDyne"), a bulk medical supply company
based in Jackson, Tennessee. During the ten months ended February 29, 1996,
AmeriDyne had a net loss of approximately $92,000. There can be no assurance
that this acquisition will contribute to the profitability of the Company.
3. ARBITRARY 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 61.5% 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 Donald F. Fox, Gerald J. Flanagan and Scott F.
Lochridge. The Company has employment agreements with Mr. Flanagan and Mr.
Lochridge, but has no agreement with Mr. Fox. Further, the Company has not
obtained "key-man" insurance on any of these persons. The loss of the
services of any of these persons 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 30,000 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 889,003 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 2,100,000 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.
Retirement Care's beneficial ownership is currently 61.5%.
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
Exchange) 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.
On March 1, 1996, the Company acquired AmeriDyne Corporation ("AmeriDyne")
through a merger with a newly formed, wholly-owned subsidiary of the Company.
The Company issued 369,619 shares of its Common Stock and paid $250,000 to
Scott F. Lochridge, the sole shareholder of AmeriDyne, for his shares of
AmeriDyne in the merger. AmeriDyne is a bulk medical supply company based in
Jackson, Tennessee which has annual sales of approximately $10 million. Scott
F. Lochridge will continue to serve as the President of AmeriDyne which will
operate as a wholly-owned subsidiary of the Company. The shares issued to Mr.
Lochridge in the merger represent approximately 7.1% of the shares of the
Company's Common Stock outstanding after the transaction.
In July 1993 the Company effected a 1 for 13 reverse stock split and in
March 1996 the Company effected a 1.05 for 1 forward stock split. All
financial information and share data in this prospectus gives retroactive
effect to these stock splits.
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 represent prices at which actual transactions occurred.
<TABLE>
<CAPTION>
Bid<FN1>
Quarter Ended High Low
<S> <C> <C>
March 31, 1993 . . . . . . . . . . . . . $2.97 $0.87
June 30, 1993. . . . . . . . . . . . . . $2.60 $0.99
September 30, 1993 . . . . . . . . . . . $2.86 $0.25
December 31, 1993. . . . . . . . . . . . $2.14 $0.48
March 31, 1994 . . . . . . . . . . . . . $2.14 $0.95
June 30, 1994. . . . . . . . . . . . . . $1.90 $0.48
September 30, 1994 . . . . . . . . . . . $1.90 $1.67
December 31, 1994. . . . . . . . . . . . $4.76 $1.90
March 31, 1995 . . . . . . . . . . . . . $4.88 $3.38
June 30, 1995. . . . . . . . . . . . . . $5.24 $3.57
September 30, 1995 . . . . . . . . . . . $7.62 $4.17
December 31, 1995. . . . . . . . . . . . $5.95 $3.81
March 31, 1996 . . . . . . . . . . . . . $6.07 $4.05
___________________
<FN>
<FN1>
As restated to give retroactive affect to a 1 for 13 reverse stock split which
occurred in July 1993, and a 1.05 for 1 forward stock split which occurred in
March 1996.
</FN>
</TABLE>
A recent closing price for the Common Stock is set forth on the cover
page of this Prospectus. As of May 6, 1996, there were approximately 105
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 March 31, 1996 At June 30, 1995
Current Assets $ 7,538,754 $4,351,326
Total Assets 10,560,542 5,176,426
Current Liabilities 3,502,493 1,377,578
Working Capital 4,036,261 2,973,748
Long-Term Debt 1,369,234 907,711
Shareholders' Equity 5,688,815 2,891,137
At December 31,
1994 1993 1992 1991 1990
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
STATEMENT OF INCOME DATA:
For the Nine Months For the Six Months
Ended March 31, Ended June 30,
1996 1995 1995 1994
Sales $8,529,915 $3,375,007 $3,568,459 $1,929,200
Net Income (Loss) 403,357 (58,655) 111,373 (478,798)
Net Income (Loss)Per
Common Share $ .07 $ (.01) $ .02 $ (.20)
Weighted Average Shares
and Share Equivalents
Outstanding 4,885,602 4,520,799 4,786,126 2,341,996
Cash Dividends
Per Common Share -0- -0- -0- -0-
For the Year Ended December 31,
1994 1993 1992 1991 1990
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 $ (.20) $ (.05) $ .07 $ .03 $ .56
Weighted Average
Shares and Share
Equivalents Out-
standing 2,688,927 1,434,466 1,180,407 689,123 689,123
Cash Dividends
Per Common Share -0- -0- -0- -0- -0-
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:
Nine Months
Ended Six Months
March 31, Ended June 30, Year Ended December 31,
1996 1995 1995 1994 1994 1993 1992
Sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Sales 72.4% 63.5% 71.3% 73.8% 64.5% 57.0% 51.0%
Gross Profit 27.6% 36.5% 28.7% 26.2% 35.5% 43.0% 49.0%
Operating
Expenses 20.6% 36.9% 23.6% 34.1% 40.1% 44.9% 43.6%
Income (Loss)
Before Income
Taxes (Benefit) 7.2% (1.7%) 4.6% (24.8%) (13.4%) (3.5%) 3.0%
Income Taxes
(Benefit) 2.5 -- 1.5% -- -- (1.4%) 0.7%
Net Income (Loss) 4.7% (1.7%) 3.1% (24.8%) (13.4%) (2.0%) 2.3%
NINE MONTHS ENDED MARCH 31, 1996, COMPARED TO NINE MONTHS ENDED MARCH 31, 1995
As a result of the factors discussed below, for the nine months ended
March 31, 1996, the Company had net income of $403,357 compared to a net loss
of $(58,655) for the nine months ended March 31, 1995.
Sales increased $5,154,908 for the nine months ended March 31, 1996, as
compared to 1995. Approximately $690,000 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 and bulk
medical supplies to customers other than nursing homes, and approximately
$896,000 of the increase resulted from the AmeriDyne acquisition.
Approximately $2,999,000 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. Approximately $330,000 of these nursing home sales
represent sales of the pre-packaged kits and the remainder of $2,669,000
represents sales of bulk medical supplies to the nursing homes.
Gross profit for the nine months ended March 31, 1996, was $2,358,052 or
28% of sales, as compared to $1,231,686 or 37% 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 nine month period ending March 31, 1996, were
$1,760,156 as compared to $1,244,429 in 1995. The operating expenses
increased by approximately $348,900 as the result of higher administrative and
marketing costs due to the increased level of sales and overall business
activity, and approximately $166,800 of the increase resulted from the new
AmeriDyne subsidiary.
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 supplies.
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 March 31, 1996, the Company had $4,036,261 of working capital as
compared to $2,973,748 on June 30, 1995. The increase was primarily a result
of the acquisition of the AmeriDyne subsidiary.
Operating activities for the nine months ended March 31, 1996 provided
cash of $8,824 as compared to operating activities during the nine months
ended March 31, 1995, which provided cash of $40,205.
Inventories increased by approximately $234,000 from June 30, 1995 to
March 31, 1996 as a result of increased inventory levels needed to serve the
growing nursing home market. Accounts receivable and accounts payable have
increased due to the increased level of sales and inventories.
Cash flows from investing activities used cash of $315,976 during the
nine months ended March 31, 1996 as a result of the repayment of $555,338 from
the Company's parent which was offset by the use of $549,017 for the
acquisition of additional equipment and $322,297 for the AmeriDyne
acquisition.
Cash flow of $279,634 was provided from financing activities in fiscal
1996 versus $2,163,773 in 1995. During the nine months ended March 31, 1996,
$193,103 was provided from net 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.
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 $1,325,000 in lines of credit
with its banks for short-term working capital needs. As of March 31, 1996,
$1,097,200 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 to the Company.
The Company presently has no 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.
In March 1996 the Company acquired AmeriDyne Corporation ("AmeriDyne"), a
bulk medical supply company based in Jackson, Tennessee. AmeriDyne
distributes supplies to hospitals, clinics, physicians, pharmacies, nursing
homes and other health care providers in Tennessee, Arkansas, Mississippi,
Alabama, Illinois, Texas, Kentucky, Missouri and Virginia.
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 September 1996. At March 31, 1996,
approximately $335,000 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 30,000 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.
AMERIDYNE CORPORATION
In March 1996, the Company acquired AmeriDyne Corporation ("AmeriDyne")
through a merger of that company with a newly-formed wholly-owned subsidiary
of the Company. AmeriDyne is a bulk medical supply company based in Jackson,
Tennessee, which distributes supplies to hospitals, clinics, physicians,
pharmacies, nursing homes and other health care providers in Tennessee,
Arkansas, Mississippi, Alabama, Illinois, Texas, Kentucky, Missouri and
Virginia.
AmeriDyne's product line includes approximately 3,500 items maintained in
stock and over 150,000 additional items available from over 200 manufacturers.
AmeriDyne's sales efforts have emphasized supplies for home health care such
as gloves, urological products, wound care products, sponges, etc. However,
AmeriDyne's wide range of products also includes medical furniture and
equipment such as examination tables, cabinets and carts; diagnostic equipment
such as vision and hearing testing equipment, stethoscopes and blood pressure
testing equipment; laboratory testing equipment such as microscopes,
incubators, blood chemistry analysis and centrifuges; surgical products such
as scissors, forceps, scalpels and lasers; and physical therapy and
convalescent care equipment such as crutches, walkers, wheelchairs and
bathroom safety aids.
AmeriDyne has had only one customer which has represented over 10% of its
sales during the last three years. Sales to Jackson - Madison County General
Hospital represented 16%, 17% and 28% of AmeriDyne's sales during the ten
months ended February 29, 1996 and its fiscal years ended April 30, 1995 and
1994, respectively.
AmeriDyne is not dependent on any of the suppliers of the products it
distributes.
Marketing of AmeriDyne's products is handled through a fully dedicated,
full time sales staff selling in Tennessee, Arkansas and Mississippi and the
distribution of catalogs.
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.
AmeriDyne competes with a number of large medical products distributors.
In the home healthcare market, its primary competitors include Gulf South,
National Medical and Southland. In this market, AmeriDyne competes by
offering customized ordering programs and other specialized services not
offered by larger competitors. AmeriDyne competes with Gulf South, Metro
Medical and Redline in the nursing home market, emphasizing AmeriDyne's high
level of service in this market. AmeriDyne now also offers Medicare
reimbursed Enteral and Wound Management products to stay competitive in the
nursing home market.
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 May 1, 1996, the Company had approximately 121 employees, including
66 full-time, including management, and 55 hourly, part-time employees, and
AmeriDyne had approximately 33 full-time employees. None of the Company's or
AmeriDyne's employees are represented by unions. Management considers its
employee labor relations to be good.
FACILITIES
The Company owns a 30,000 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 65,000 square feet under a lease from an unaffiliated lessor,
for which it currently pays $24,521 per month. Beginning on July 1, 1997, the
rent will be increased based on changes in the Consumer Price Index on an
annual basis. The lease expires on June 30, 2000. The Company believes these
facilities are adequate for the Company's present and planned operations.
AmeriDyne's offices and warehouse facilities are located in Jackson,
Tennessee. AmeriDyne leases approximately 33,000 square feet of space at this
location including approximately 4,500 square feet of office space, for which
it pays a base rent of $8,750 per month. The lease expires on March 31, 1999,
but AmeriDyne has an option to extend this lease an additional two years at a
rental rate adjusted for changes in the Consumer Price Index.
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
Donald F. Fox 47 President, Treasurer and Chief
Financial Officer
Gerald J. Flanagan 53 President of Michigan and Florida
Subsidiaries
Scott F. Lochridge 43 President of AmeriDyne Subsidiary
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:
Donald F. Fox - President, Treasurer and Chief Financial Officer. Mr.
Fox has been employed by the Company as its President, Treasurer and Chief
Financial Officer since April 1996, and served as a consultant to the Company
from December 1995 to April 1996. From August 1995 to December 1995, he was a
consultant to the City of Roswell, Georgia. From May 1987 to August 1995 he
was Chief Financial officer of Argenbright Holdings Limited (US) and The ADI
Group Limited (UK). In this capacity Mr. Fox managed the growth of these
security and transportation businesses from approximately $11 million in
annual sales to approximately $160 million in annual sales during this time
period. From March 1986 to May 1987, he was Chief Executive Officer of
Juiceco Distributors, Inc., a food service distribution company in Atlanta,
Georgia. From November 1982 to March 1986, Mr. Fox was Vice President -
Finance of RTM, Inc. which was engaged in restaurant operations. Mr. Fox
received a Bachelor's Degree in Business Administration from Georgia State
University in 1972 and an MBA Degree from Wharton Graduate School, University
of Pennsylvania in 1974.
Gerald J. Flanagan - President of Michigan and Florida subsidiaries. Mr.
Flanagan has been employed by the Company since July 1993, and from July 1993
to April 1996 was President, Treasurer, Chief Financial Officer and a Director
of the Company. 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.
Scott F. Lochridge - President of AmeriDyne Subsidiary. Since 1991, Mr.
Lochridge has been President of AmeriDyne Corporation, which has been a
wholly-owned subsidiary of the Company since March 1, 1996. He received a
Bachelor's Degree in Business from Texas Christian University in 1975.
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 Management Company, Inc. ("Capitol
Care"), a wholly-owned subsidiary of Retirement Care, since July, 1990. 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<FN1> 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<FN2> 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)<FN2>
Howard H. Hagon, 1994 $ 82,200 -0- -0-
Executive Vice Presi- 1993 $100,000 -0- -0-
dent (Operations)<FN2> 1992 $ 63,000 $ 65,000 -0-
<FN>
<FN1>
Mr. Flanagan relinquished his title as President of the Company in April 1996.
<FN2>
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<FN1> 1994 -- -- -- -0-
1993 -- 262,500 -- -0-
William J. Gabriele, 1994 -- -- -- -0-
Chief Executive 1993 -- -- -- -0-
Officer<FN2> 1992 -- -- -- -0-
Rudolf J. Dallessandro, 1994 -- -- -- -0-
Executive Vice Presi- 1993 -- -- -- -0-
dent (Sales & Market- 1992 -- -- -- -0-
ing)<FN2>
Howard H. Hagon, 1994 -- -- -- -0-
Executive Vice Presi- 1993 -- -- -- -0-
dent (Operations)<FN2> 1992 -- -- -- -0-
<FN>
<FN1>
Mr. Flanagan relinquished his title as President of the Company in April 1996.
<FN2>
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 16,154 $64,617 175,000 / 87,500
$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.
Scott F. Lochridge, President of the Company's AmeriDyne subsidiary, has
a two-year employment agreement with AmeriDyne which became effective on March
1, 1996. Under this agreement, Mr. Lochridge will receive a base salary of
$150,000 during the first year and $165,000 during the second year. He will
also be entitled to performance-based bonuses under a plan to be agreed upon
which would allow him to earn up to 30% of his annual salary as additional
compensation. Mr. Lochridge is also entitled to a $500,000 term life
insurance policy, the beneficiary of which is to be named by him, and a $500
per month automobile allowance.
Donald F. Fox, who became President of the Company in April 1996,
presently has no employment agreement with the Company. He currently receives
a salary of $120,000 per year.
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 1,050,000 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 262,500 shares granted to Gerald J.
Flanagan in July 1993, exercisable at $1.905 per share; an option to purchase
105,000 shares granted to R. Scott Williams in October 1994, exercisable at
$2.143 per share; and options to purchase an aggregate of 52,500 shares
granted to two employees in May 1995, exercisable at $3.714 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
315,000, 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 89,250 shares of Common Stock subject to
shareholder approval of the 1996 Plan. All of the options are exercisable at
$4.643 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 26,250 shares each, and non-qualified
stock options granted to Phillip M. Rees, Secretary of the Company, to
purchase 10,500 shares.
SECURITY OWNERSHIP OF
MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The following table sets forth, as of May 1, 1996, 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> 3,290,878 <FN2> 61.5%
6000 Lake Forrest Drive, Suite 200
Atlanta, GA 30328
Donald F. Fox -0- <FN3> --
3340 Scherer Drive
St. Petersburg, FL 33716
Gerald J. Flanagan 268,155 <FN4> 4.9%
3340 Scherer Drive
St. Petersburg, FL 33716
R. Scott Williams 78,077 <FN5> 1.5%
3340 Scherer Drive
St. Petersburg, FL 33716
Chris Brogdon -0- <FN6> --
6000 Lake Forrest Drive, Suite 200
Atlanta, GA 30328
Edward E. Lane 9,450 <FN6> 0.2%
6000 Lake Forrest Drive, Suite 200
Atlanta, GA 30328
Darrell C. Tucker 5,250 <FN6> 0.1%
6000 Lake Forrest Drive, Suite 200
Atlanta, GA 30328
Scott F. Lochridge 369,619 7.1%
231 Bobick Drive
Jackson, TN 39301
All Directors and Executive Officers 730,551 13.2%
as a Group (7 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 44,625 shares underlying Class C Warrants held by Retirement Care
Associates, Inc. and 89,250 shares of Common Stock into which shares of Series
A Convertible Preferred Stock held by Retirement Care Associates, Inc. may be
converted.
<FN3>
Does not include shares underlying stock options held by Mr. Fox under the
1996 Stock Option Plan because the options are contingent on shareholder
approval of such plan.
<FN4>
Represents 31,905 shares of Common Stock held by Mr. Flanagan and 236,250
shares issuable upon the exercise of currently exercisable stock options held
by Mr. Flanagan.
<FN5>
Includes 8,077 shares of Common Stock held directly by Mr. Williams and 70,000
shares issuable upon the exercise of currently exercisable stock options held
by him.
<FN6>
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 nine months ended March 31, 1996, 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 $2,999,000 and
$1,426,000, respectively, in bulk medical supplies from the Company. The
sales made to these facilities are at the same prices the Company would
receive from non-affiliated persons. As of March 31, 1996, such facilities
owed the Company $1,584,209 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 March 31, 1996, $248,800 had been drawn on this
line of credit.
Retirement Care has also guaranteed loans and lines of credit of the
Company's AmeriDyne subsidiary totaling approximately $1,255,000. As of March
31, 1996, approximately $1,040,000 was outstanding under these obligations.
Scott F. Lochridge, the President of AmeriDyne, holds a promissory note
from AmeriDyne dated March 1, 1996, in the principal amount of $176,419. The
note bears interest at 10% per annum and is payable in 36 equal monthly
installments of $5,693 commencing April 1, 1996.
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, 1.05 shares 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 $4.52 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, 1.05 shares 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 1.05 shares 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 315,000 shares of Common
Stock at $1.4286 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 210,000 shares of Common Stock at
$2.857 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 52,500 shares of Common Stock at $2.857 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 1.05
shares 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 1.05
shares 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 210,000 $2.857 October 31,1999
JDK & Associates, Inc.
and Assigns 315,000 $1.4286 October 9, 1997
Daniel Duquette 52,500 $2.857 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 1.05 shares 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.
SELLING SHAREHOLDER
Included in the securities being offered by this Prospectus are 369,619
shares of Common Stock ("Shares") being offered by Scott F. Lochridge (the
"Selling Shareholder"). Mr. Lochridge received the Shares in a transaction in
which AmeriDyne Corporation ("AmeriDyne") was merged with a wholly-owned
subsidiary of the Company. Mr. Lochridge was the sole shareholder of
AmeriDyne, and continues to serve as the President of AmeriDyne (see
"Management"). The Shares represent approximately 7.1% of the Company's
Common Stock now outstanding.
The Selling Shareholder represented that he purchased the Shares for
investment and with no present intention of distribution or reselling such
Shares. However, in recognition of the fact that a holder of restricted
securities may wish to be legally permitted to sell his Shares when he deems
appropriate, the Company has filed with the Commission under the Securities
Act a Form S-1 Registration Statement of which this Prospectus is a part with
respect to the resale of the Shares from time to time in the over-the-counter
market or in privately negotiated transactions.
The Company has advised the Selling Shareholder that he and any
securities broker-dealers or others who may be deemed to be statutory
underwriters will be subject to the Prospectus delivery requirements under the
Securities Act of 1933. The Company has also advised the Selling Shareholder
that in the event of a "distribution" of his shares, the Selling Shareholder,
any "affiliated purchasers," or any broker-dealer or other person who
participates in such distribution may be subject to Rule 10b-6 under the
Securities Exchange Act of 1934 ("1934 Act") until his or its participation in
that distribution is completed. A "distribution" is defined in Rule
10b-6(c)(5)
as an offering of securities "that is distinguished from ordinary
trading transactions by the magnitude of the offering and the presence of
special selling efforts and selling methods." The Company has also advised
the Selling Shareholder that Rule 10b-7 under the 1934 Act prohibits any
"stabilizing bid" or "stabilizing purchase" for the purpose of pegging, fixing
or stabilizing the price of the common Stock in connection with this offering.
Rule 10b-6 makes it unlawful for any person who is participating in a
distribution to bid for or purchase stock of the same class as is the subject
of the distribution. If Rule 10b-6 applies to the offer and sale of any of
the Shares, then participating broker-dealers will be obligated to cease
market making activities nine business days prior to their participation in
the offer and sale of such Shares and may not recommence market making
activities until their participation in the distribution has been completed.
If Rule 10b-6 applies to one or more of the principal market makers in the
Company's Common Stock, the market price of such stock could be adversely
affected.
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 of the Company 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 of the Company 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.
The financial statements of AmeriDyne Corporation included in this
Prospectus and in the Registration Statement, to the extent and for the
periods set forth in their reports appearing elsewhere herein, have been
audited by Cowart & Rich, Certified Public Accountants and are included herein
in reliance on the authority of such firm as experts in accounting and
auditing.
The financial statements of AmeriDyne Corporation included in this
Prospectus and in the Registration Statement, to the extent and for the
periods set forth in their reports appearing elsewhere herein, have been
audited by Laney, Boteler & Killinger, 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)
CONTOUR MEDICAL, INC.
Consolidated Balance Sheets as of March 31, 1996
(Unaudited) and June 30, 1995. . . . . . . . . . . . . . . . . . .F-1, F-2
Consolidated Statements of Operations for the nine months
ended March 31, 1996 and 1995 (Unaudited). . . . . . . . . . . . . F-3
Consolidated Statement of Stockholders' Equity for the
nine months ended March 31, 1996 (Unaudited) . . . . . . . . . . . F-4
Consolidated Statements of Cash Flows for the nine months
ended March 31, 1996 and 1995 (Unaudited). . . . . . . . . . . . .F-5, F-6
Notes to Consolidated Financial Statements (Unaudited) . . . . . .F-7 to F-10
Reports of Independent Certified Public Accountants. . . . . . . .F-11, F-12
Consolidated Balance Sheets as of June 30, 1995, and
the years ended December 31, 1994 and 1993 . . . . . . . . . . . .F-13, F-14
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-15
Consolidated Statements of Stockholders' Equity for the six
months ended June 30, 1995 and 1994, and the years ended
December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . F-16 to F-21
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-22, F-23
Notes to Consolidated Financial Statements . . . . . . . . . . . F-24 to F-32
AMERIDYNE CORPORATION
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . F-33
Balance Sheet as of February 29, 1996. . . . . . . . . . . . . . .F-34, F-35
Statement of Loss and Retained Earnings for the ten months
ended February 29, 1996. . . . . . . . . . . . . . . . . . . . . . . F-36
Statement of Cash Flows for the ten months ended
February 29, 1996. . . . . . . . . . . . . . . . . . . . . . . . . . F-37
Notes to Financial Statements. . . . . . . . . . . . . . . . . . F-38 to F-42
Independent Auditor's Report . . . . . . . . . . . . . . . . . . . . F-43
Balance Sheet as of April 30, 1995 . . . . . . . . . . . . . . . .F-44, F-45
Statement of Income and Expenses for the twelve months
ended April 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . F-46
Statement of Retained Earnings for the twelve months
ended April 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . F-47
Statement of Cash Flows for the twelve months ended
April 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . .F-48, F-49
Notes to Financial Statements. . . . . . . . . . . . . . . . . . F-50 to F-55
Supplementary Information. . . . . . . . . . . . . . . . . . . . . . F-56
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . F-57
Statement of Income and Retained Earnings for the
year ended April 30, 1994. . . . . . . . . . . . . . . . . . . . . . F-58
Statement of Cash Flows for the year ended
April 30, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . F-59
Notes to Financial Statements. . . . . . . . . . . . . . . . . . F-60 to F-64
PRO FORMA FINANCIAL INFORMATION
Proforma Consolidated Financial Statements . . . . . . . . . . . . . F-65
Pro Forma Consolidated Balance Sheet as of December 31,
1995 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . .F-66, F-67
Pro Forma Consolidated Statement of Income for the six
months ended December 31, 1995 (Unaudited) . . . . . . . . . . . . . F-68
Pro Forma Consolidated Statement of Income for the
twelve months ended June 30, 1995 (Unaudited). . . . . . . . . . . . F-69
Notes to Proforma Consolidated (Unaudited) Financial
Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-70
<PAGE>
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, June 30,
1996 1995
------------ ----------
(Unaudited)
ASSETS
Current:
Cash $ 68,717 $ 96,235
Accounts receivable - trade
Related parties (Note 4) 1,584,209 943,094
Other 2,324,721 760,703
Inventories (Note 5) 2,792,021 1,297,394
Refundable income taxes 10,680 10,680
Prepaid expenses and other 144,843 74,319
Due from parent (Note 4) 613,563 1,168,901
----------- ----------
Total Current Assets 7,538,754 4,351,326
Property and Equipment, less
accumulated depreciation (Note 6) 1,012,150 592,243
Other Assets:
Goodwill 1,351,321 --
Deposit on equipment 355,454 228,282
Other 302,863 4,575
----------- ----------
Total Other Assets 2,009,638 232,857
$10,560,542 $5,176,426
See accompanying notes to consolidated financial statements.
F-1
<PAGE>
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, June 30,
1996 1995
------------- -----------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable to banks -
credit lines (Note 7) $ 1,097,200 $ 245,600
Accounts payable 1,842,547 882,524
Accrued expenses 266,903 80,977
Current maturities of long-term
debt (Note 8) 295,843 168,477
---------- ----------
Total Current Liabilities 3,502,493 1,377,578
Long-term debt, less current
maturities (Note 8) 1,369,234 907,711
---------- ----------
Total Liabilities 4,871,727 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
5,214,223 and 4,802,280 (net of
$765 discount) 4,449 4,037
Additional paid-in capital 3,175,418 781,509
Retained earnings (Deficit) 108,948 (294,409)
---------- ----------
Total stockholders' equity 5,688,815 2,891,137
$10,560,542 $5,176,426
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Nine Months Ended
March 31, March 31,
1996 1995
---------- ----------
(Unaudited) (Unaudited)
SALES $8,529,915 $3,375,007
COST OF SALES 6,171,863 2,143,321
GROSS PROFIT 2,358,052 1,231,686
---------- ----------
OPERATING EXPENSES 1,760,156 1,244,429
OTHER INCOME (EXPENSE) 13,251 (45,912)
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES 611,147 (58,655)
INCOME TAX EXPENSE 207,790 --
---------- ----------
NET INCOME (LOSS) $ 403,357 $ (58,655)
NET INCOME (LOSS) PER COMMON SHARE $ .07 $ (.01)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES 4,885,602 4,520,799
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
(Unaudited)
Additional Retained
Common Stock Paid-in Earnings
Shares Amount Capital (Deficit)
--------- ------ ---------- ---------
Balance, June 30, 1995 4,802,350 $4,037 $ 781,509 ($294,409)
Exercise of common stock
options 26,250 26 49,974 --
Correction of prior conver-
sions of preferred stock 16,004 16 (16) --
Gain on sale of stock owned
by stockholder (Note 4) -- -- 36,531 --
Acquisition of AmeriDyne
Corporation 369,619 370 2,099,630 --
Tax benefit from utilization
of net operating loss
carryforward -- -- 207,790 --
Net income -- -- -- 403,357
Balance, March 31, 1996 5,214,223 $4,449 $3,175,418 $108,948
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended
March 31, March 31,
1996 1995
---------- ----------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 403,357 $ (58,655)
Adjustments to reconcile net income
(loss) to net cash provided (used) by
operating activities:
Depreciation 111,863 79,484
Tax benefit from NOL 207,790 --
Changes in assets and liabilities
net of effects from acquisition
of AmeriDyne:
(Increase) decrease in accounts
receivable (825,785) (325,238)
(Increase) decrease in inventories (234,060) (159,058)
(Increase) decrease in other
current assets and other assets (5,837) 91,245
Increase (decrease) in accounts
payable 290,257 471,735
Increase (decrease) in accrued
expenses and other liabilities 61,239 (59,308)
----------- ----------
Net cash provided by operating
activities 8,824 40,205
CASH FLOW FROM INVESTING ACTIVITIES:
Acquisition of equipment (549,017) (196,471)
Decrease in due from parent 555,338 (165,000)
Acquisition of AmeriDyne, net of
cash acquired (322,297) --
----------- ---------
Net cash used by investing
activities (315,976) (361,471)
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended
March 31, March 31,
1996 1995
------------ ------------
(Unaudited) (Unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES:
Deferred offering costs $ -- $ (55,767)
Net borrowing (payments) on loans 193,103 (32,254)
Proceeds from exercise of options 50,000 47,794
Payment of short-swing liability
by shareholder (Note 4) 36,531 --
Proceeds from issuance of stock -- 2,204,000
---------- ----------
Net cash provided by financing
activities 279,634 2,163,773
---------- ----------
NET INCREASE (DECREASE) IN CASH (27,518) 1,842,507
CASH BEGINNING OF PERIOD 96,235 56,998
---------- ----------
CASH END OF PERIOD $ 68,717 $1,899,505
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION AND NON-CASH
ACTIVITIES:
Cash paid for interest $ 109,168 $ 37,938
Cash paid for income tax $ 930 $ --
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
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. The results of operations for the periods ended March
31, 1996 and 1995 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"), Contour Fabricators of Florida, Inc. ("CFFI") and, since March
1, 1996, AmeriDyne Corporation ("AmeriDyne"), 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").
On March 1, 1996,Contour Medical, Inc. acquired AmeriDyne through a
merger which was accounted for as a purchase. The Company issued 369,619
shares of its common stock and paid $250,000 to the sole stockholder of
AmeriDyne in connection with this purchase.
2. EARNINGS (LOSS) PER SHARE
-------------------------
Earnings (loss) per common share are based on the weighted average number
of common shares outstanding during each period after giving effect to a 1.05-
for-1 forward stock split which occurred in March 1996. Common stock
equivalents have not been included since the effect would be antidilutive.
Cumulative dividends in arrears of $24,000, $72,000 and $8,000 related to the
Company's Series A preferred stock have been deducted from net income for the
three months ended March 31, 1996, nine months ended March 31, 1996 and three
and nine months ended March 31, 1995, respectively.
3. CHANGE IN YEAR END
------------------
The Company changed its fiscal year end from December 31 to June 30
during 1995.
4. 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 $1,582,000 for the three month period ended March 31,
1996, and $3,235,000 for the nine month period then ended. Trade accounts
receivable of $1,584,209 and $943,094 were outstanding as of March 31, 1996
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 $613,563 and $1,168,901 as of March 31, 1996 and June
30, 1995, respectively, which is due on demand with no stated interest rate.
F-7
<PAGE>
In October 1995, Winter Haven Homes, Inc., which is owned one-half by the
wife of Chris Brogdon, the Company's Chairman of the Board and a Director, and
one-half by Edward E. Lane, a Director of the Company, received a profit of
$36,531 from the sale of shares of the Company's Common Stock held by it for
less than six months. Under Section 16 of the Securities Exchange Act of
1934, as amended, and the rules adopted thereunder, the Company was entitled
to receive this short-swing profit, and it was promptly paid to the Company by
Winter Haven Homes, Inc.
5. INVENTORIES
-----------
Inventories are summarized as follows:
March 31, 1996 June 30, 1995
-------------- -------------
Raw Materials $ 297,281 $ 259,952
Work in process 100,986 58,704
Finished goods 2,393,754 978,738
---------- ----------
$2,792,021 $1,297,394
All inventories are pledged as collateral (see Notes 7 and 8).
6. PROPERTY AND EQUIPMENT
----------------------
Property and equipment consist of the following:
Useful Lives March 31, 1996 June 30, 1995
------------ -------------- -------------
Land -- $ 50,000 $ 50,000
Building 5-45 years 596,247 596,247
Machinery and equipment 3-7 years 1,574,756 1,034,568
Furniture and fixtures 5-7 years 129,107 124,651
Leasehold improvements 5 years 181,422 13,923
Vehicles 3-5 years 58,745 9,109
---------- ----------
2,590,277 1,828,498
Less accumulated depreciation 1,578,127 1,236,255
---------- ----------
$1,012,150 $ 592,243
All property and equipment are pledged as collateral (see Notes 7 and 8).
7. NOTES PAYABLE TO BANKS
----------------------
Notes payable to banks consists of the following:
March 31, June 30,
1996 1995
---------- ---------
Borrowings under CMI's and CFFI's $350,000
lines of credit, interest at prime plus 1%
(10% and 9.75% at June 30 and March 31, 1996,
respectively), payable monthly, collateral-
ized by accounts receivable and inventory $ 328,800 $245,600
Borrowings under AmeriDyne's credit line of
$975,000, interest at the bank's prime plus
1.25% (9.5% at March 31, 1996), payable
monthly, collateralized by all the Company's
assets 768,400 --
---------- --------
$1,097,200 $245,600
F-8
<PAGE>
8. LONG-TERM DEBT
--------------
Long-term debt consists of the following:
March 31, June 30,
1996 1995
---------- ----------
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 $ 402,678 $ 491,622
Mortgage payable to bank, interest at prime
plus .75% (9.75% and 9.5% at June 30, 1995
and March 31, 1996, respectively), principal
of $1,190 plus interest due monthly through
2000, collateralized by accounts receivable,
inventory, equipment and real property 69,047 78,571
Note payable to bank, interest at prime plus
.75% (9.75% and 9.5% at June 30, 1995 and
March 31, 1996, respectively), principal and
interest of $3,044 due monthly through May
2000, collateralized by accounts receivable,
inventory, equipment and real property 465,365 182,622
Note payable to bank, interest at prime plus
1% (10% and 9.75% at June 30, 1995 and
March 31, 1996, respectively), principal of
$5,000 plus interest due monthly through
June 2000, collateralized by equipment 255,000 300,000
Note payable to bank, interest at prime plus
1% (10% and 9.75% at June 30, 1995 and March
31, 1996, respectively), principal and
interest of $1,667 due monthly through
August 1996, collateralized by accounts
receivable, inventory and equipment 10,000 23,333
Union Planters Bank of Jackson, Tennessee
payable in monthly installments of $3,600
including interest at 9.0% and maturing May
15, 1997. Collateralized by all of the
Company's assets 48,696 --
Union Planters Bank of Jackson, Tennessee
payable in monthly installments of $5,266
including interest at 9.0% and maturing
October 12, 1997. Collateralized by all of
the Company's assets 223,349 --
Capital lease-G.E. Capital payable in
monthly installments of $205, plus sales
tax. Interest imputed at 5.39% and
maturing April 1996. Collateralized by
Canon copier. 204 --
F-9
<PAGE>
Capital lease-Eaton Financial Corporation
payable in monthly installments of $309,
plus sales tax. Interest imputed at 14.6%
and maturing June 1997. Collateralized by
computer equipment. 3,744 --
Delta Handling Materials, Inc. note payable
in 36 monthly installments of $533 including
interest at 11.0% and maturing December 1997.
Collateralized by Clark lift truck. 10,575 --
Note payable-stockholder Scott F. Lochridge.
Payable in 36 monthly installments of $5,693
including interest at 10.0%. Unsecured. 176,419 --
---------- ----------
1,665,077 1,076,18?
Less current portion 295,843 168,477
---------- ----------
Total long-term debt $1,369,234 $ 907,711
The net book value of property and equipment collateralized under the
above debt agreements was $1,012,150 and $592,243 as of March 31, 1996 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
evels and satisfy current and debt-to-net-worth ratios. The Company was in
compliance with all debt covenants as of March 31, 1996 and June 30, 1995.
F-10
<PAGE>
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, except for the stock split
discussed in Note 10 which is as of March 15, 1996
F-11
<PAGE>
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 Subsidiaries 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
F-12
<PAGE>
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1995 1994 1993
Assets
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
F-13
<PAGE>
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1995 1994 1993
Liabilities and Stockholders' Equity
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
4,802,350, 4,972,190 and 2,308,239
(net of $765 discount) 4,037 3,793 1,129
Additional paid-in capital 781,509 922,072 140,923
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
See accompanying notes to consolidated financial statements.
F-14
<PAGE>
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)
(Note 1)
<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 $ (.20) $ (.20) $ (.05) $
.07
Weighted average common
shares outstanding 4,786,126 2,341,996 2,688,927 1,434,466
1,180,407
</TABLE>
See accompanying notes to consolidated financial statements.
F-15
<PAGE>
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) - - - -
1.05-for-1 forward stock split 228,750 229 - -
(229)
Net income - - - - -
Balance, June 30, 1995 4,802,350 $ 4,037 - $ -
$781,509
</TABLE>
See accompanying notes to consolidated financial statements.
F-16
<PAGE>
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Convertible
Retained Preferred
Stock
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.
F-17
<PAGE>
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 - - -
-
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE>
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>
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.
F-19
<PAGE>
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Convertible Class C
Cumulative Preferred Subscribed
Convertible
Preferred Stock 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 - - - - - - -
-
</TABLE>
See accompanying notes to consolidated financial statements.
F-20
<PAGE>
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Convertible Class C
Cumulative Preferred Subscribed
Convertible
Preferred Stock 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>
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.
F-21
<PAGE>
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 operating
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) -
</TABLE>
See accompanying notes to consolidated financial statements.
F-22
<PAGE>
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>
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.
F-23
<PAGE>
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.
F-24
<PAGE>
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:
F-25
<PAGE>
June 30, December 31,
1995 1994 1993
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:
Useful June 30, December 31,
Lives 1995 1994 1993
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:
June 30, December 31,
1995 1994 1993
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:
F-26
<PAGE>
June 30, December 31,
1995 1994 1993
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:
F-27
<PAGE>
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:
Six months ended
June 30, Year ended December 31,
1995 1994 1994 1993 1992
(unaudited)
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
F-28
<PAGE>
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 1,050,000 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:
Option Price
Shares per Share
Balance, December 31, 1991 - $ -
Granted 16,155 $1.24
Balance, December 31, 1992 16,155 $1.24
Granted 262,500 $1.90
Balance, December 31, 1993 278,655 $1.24-$1.90
Granted 105,000 $2.14
F-29
<PAGE>
Balance, December 31, 1994 383,655 $1.24-$2.14
Granted 52,500 $3.71
Exercised (16,154) $1.24
Canceled (1) $1.24
Balance, June 30, 1995 420,000 $1.90-$3.71
All of the above options were granted above fair market value. In addition,
210,000 options were exercisable at June 30, 1995. In addition, 1,033,846
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. In February 1996, the
Board of Directors authorized a 1.05-for-1 forward stock split effective March
15, 1996. All common shares and per share amounts have been retroactively
adjusted to give effect to the reverse and forward stock splits.
STOCK WARRANTS
At June 30, 1995, the Company had 965,186 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 125,186 1 $4.29
- June 1997 315,000 1 $1.43
Class C May 1999 315,000 1 $4.29
- October 1999 210,000 1 $2.86
The exercise price of the Class C warrants will be reduced by $.95 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, 650,186 were exercisable at
June 30, 1995. In addition, 965,186 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
F-30
<PAGE>
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 1.05 shares 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, 1,328,250 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.
F-31
<PAGE>
SHARES RESERVED
At June 30, 1995, the Company has reserved common stock for future issuance
under all of the above arrangements amounting to 3,327,282 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
Six months ended
June 30, Year ended December 31,
1995 1994 1994 1993 1992
(unaudited)
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)
F-32
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of AmeriDyne Corporation
Jackson, Tennessee
We have audited the accompanying balance sheet of AmeriDyne Corporation as of
February 29, 1996, and the related statements of loss, retained earnings, and
cash flows for the ten months then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AmeriDyne Corporation as of
February 29, 1996, and the results of operations and cash flows for the ten
months then ended in conformity with generally accepted accounting principles.
/s/ Laney, Boteler & Killinger
- ------------------------------
LANEY, BOTELER & KILLINGER
Atlanta, Georgia
April 4, 1996
F-33
<PAGE>
AMERIDYNE CORPORATION
BALANCE SHEET
February 29, 1996
ASSETS
Current assets
Cash $ 52,703
Accounts receivable - trade
net of allowance for doubtful
accounts of $400,000 1,355,600
Other receivables 23,748
Inventory 1,260,567
Prepaid insurance 2,496
Prepaid income taxes 58,121
Note receivable - current 50,670
Total current assets 2,803,905
Property and equipment
Equipment 121,970
Office furniture and equipment 165,634
Vehicles 49,636
337,240
Less accumulated depreciation 227,315
109,925
Other Assets
Deposits 7,689
Note receivable 83,999
Deferred tax benefit 160,000
251,688
$3,165,518
See notes to financial statements.
F-34
<PAGE>
AMERIDYNE CORPORATION
BALANCE SHEET
February 29, 1996
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable $ 669,766
Accrued payroll and related taxes 87,448
Accrued taxes payable - other 33,389
Accrued interest payable 3,850
Note payable - credit line 777,000
Current portion of long-term debt 334,886
Total current liabilities 1,906,339
Long-term debt
Notes payable 7,512
Note payable - stockholder 127,988
135,000
Total liabilities 2,041,839
Stockholder's equity
Common stock - no par value, 1,000 shares
authorized and issued, 510 shares out-
standing 7,500
Additional paid-in capital 60,500
Retained earnings 1,112,979
1,180,979
Less: Treasury stock, 490 shares, at cost 57,300
Total stockholder's equity 1,123,679
$3,165,518
See notes to financial statements.
F-35
<PAGE>
AMERIDYNE CORPORATION
STATEMENT OF LOSS AND RETAINED EARNINGS
Ten Months Ended February 29, 1996
Sales $8,637,514
Cost of sales 6,665,757
Gross profit 1,971,757
Other expenses
Salaries and commissions 933,216
Payroll taxes and benefits 118,615
Freight-out 242,103
Rent 108,335
Bad debts 460,429
Interest expense 110,118
Depreciation 50,355
Other operating expenses 172,123
2,195,294
Loss from operations (195,537)
Other income
Interest income 9,272
Royalty income 13,112
Service charge income 39,076
Other income 3,052
64,512
Loss before income taxes (159,025)
Income tax provision (benefit)
Current 13,129
Deferred (80,000)
(66,871)
Net loss (92,154)
Retained earnings, April 30, 1995 1,205,133
Retained earnings, February 29, 1996 $1,112,979
See notes to financial statements.
F-36
<PAGE>
AMERIDYNE CORPORATION
STATEMENTS OF CASH FLOWS
Ten Months Ended February 29, 1996
Cash flows from operating activities
Net loss $ (92,154)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 50,355
Provision for doubtful accounts 200,000
Loss from sale of assets 1,145
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable - trade 263,412
Other receivables 15,206
Inventory (118,340)
Prepaid insurance 1,718
Prepaid income taxes (58,121)
Deferred tax benefit (80,000)
Increase (decrease) in liabilities:
Accounts payable 82,507
Accrued payroll and related taxes 41,002
Accrued taxes other 111
Accrued income taxes (317,197)
Accrued interest 1,936
Net cash used in operating activities (8,420)
Cash flows from investing activities
Note receivable collections 39,246
Decrease in cash surrender value -
officer's life insurance 9,269
Purchase of property and equipment (11,100)
Proceeds on sale of property and equipment 9,000
Net cash provided by investing
activities 46,415
Cash flows from financing activities
Payment of long-term debt (89,291)
Net borrowings under line of credit 102,000
Net cash provided by
financing activities 12,709
Net increase in cash 50,704
Cash, beginning of period 1,999
Cash, end of period $ 52,703
See notes to financial statements.
F-37
<PAGE>
AMERIDYNE CORPORATION
NOTES TO FINANCIAL STATEMENT
February 29, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITIES
AmeriDyne Corporation (Company) was incorporated in 1980 to manufacture and
distribute bed pans and similar plastic products to hospitals and other users
in the medical community, primarily within the State of Tennessee. The
Company expanded its line of products over the years by reselling items
purchased from other manufacturers to the same market. Sales from the resale
line of business surpassed the sales of items manufactured by the Company. In
June 1993, AmeriDyne sold the assets of its manufacturing division and is now
engaged exclusively in the resale and distribution of medical supplies to
doctors' offices, hospitals, nursing homes, home health agencies and other
customers in the medical field.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to
be cash equivalents.
ACCOUNTS RECEIVABLE
The Company uses the reserve method for uncollectible accounts. During the
ten months ended February 29, 1996, the allowance for doubtful accounts was
increased from $200,000 to $400,000 to allow for delinquent accounts which may
be uncollectible. For tax purposes, bad debt expense is deducted when they
are deemed uncollectible.
INVENTORIES
Inventories are stated at the lower of average cost or market. At February
29, 1996, the Company adjusted the inventory by $75,000 as a reserve for
slow-moving or obsolete inventory.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Maintenance and repairs of
property and equipment are charged to operations and major improvements are
capitalized. Upon retirement, sale or other disposition of property and
equipment, the cost and accumulated depreciation are eliminated from the
accounts and any gain or loss is included in operations.
Depreciation is computed using accelerated methods over the estimated useful
lives of the assets of three to ten years.
Included in property and equipment are assets acquired under capital lease.
At February 29, 1996, cost and accumulated depreciation for these assets
totaled $41,660 and $37,708, respectively. Amortization of these leased
assets is included in depreciation expense for the period ended February 29,
1996 and totaled $2,469.
F-38
<PAGE>
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to the use of allowance for doubtful accounts for book
purposes. The deferred tax assets represent the future tax consequences of
those differences, which will be deductible when the assets are recovered
(Note 6).
ACCRUED PAYROLL
Statement of Financial Standards No. 43, "Accounting for Compensated
Absences", requires the accrual of vacation pay that has been earned but not
taken. Accordingly, the Company has accrued $25,870 and $1,979 for unpaid
vacation and the related FICA expense, respectively as of February 29, 1996.
This amount is included in accrued payroll reflected on the Company's balance
sheet at February 29, 1996.
NOTE 2 - NOTE AND ROYALTIES RECEIVABLE
On June 2, 1993, AmeriDyne Corporation sold its manufacturing division to MCP
Industries, Inc. (MCP). In connection with the sale, AmeriDyne received a
note from MCP in the amount of $245,000 to be paid in sixty monthly
installments of $4,968 including interest at 8.0%. AmeriDyne also receives a
2% royalty on all of MCP's sales to AmeriDyne's customers as of June 2, 1993
for five years. During the year ended April 30, 1995, MCP sold its operations
to another company, Maxxim Medical, which has assumed the obligations due to
AmeriDyne. During the period ended February 29, 1996, interest income and
royalty income received was $9,272 and $13,112, respectively.
Scheduled maturities of notes receivable at February 29, 1996 are as follows:
Year Ended February 28, Amount
1997 $ 50,670
1998 54,876
1999 29,123
$134,669
NOTE 3 - NOTE PAYABLE-CREDIT LINE
The Company has a $975,000 operating line of credit with Union Planters Bank
of Jackson, Tennessee. Interest is payable monthly at the bank's prime rate
plus 1.25%. The interest rate at February 29, 1996 was 9.50%. Principal is
due on demand, but no later than July 30, 1996. Collateral for the line of
credit consists of substantially all the Company's assets, including but not
limited to accounts receivable, inventory, furniture, fixtures, equipment,
machinery and bank accounts. The loan is also secured by the guarantees of
Scott (100% shareholder of the Company) and Constance Lochridge, and life
insurance policies on the lives of Scott Lochridge and Bill Farmer.
In connection with the notes payable-credit line and notes payable to the bank
referred to in Note 4, the Company executed a loan agreement containing
certain covenants regarding the maintenance of minimum financial ratios
regarding debt and working capital requirements. The current assets to
current liabilities ratio of the Company as of February 29, 1996, was less
than the minimum required by the loan agreements and the Company was
technically in default on the bank debt at that date. As a result of the
technical default, the notes payable to the bank have been classified as
current although no demand for payment has been made. The loan agreement also
restricts payment of dividends and capital acquisitions by the Company. The
whole life insurance policy on the life of Scott Lochridge for $500,000 has
been assigned to the bank to secure the bank loans. The corresponding cash
value of this policy was $17,095 at February 29, 1996.
F-39
<PAGE>
On March 1, 1996, the personal guarantees of Scott and Constance Lochridge
were replaced by a guarantee from Retirement Care Associates, Inc. (Note 9).
NOTE 4 - LONG-TERM DEBT
Long-term debt consists of the following:
Union Planters Bank of Jackson, Tennessee payable in
monthly installments of $3,600 including interest at 9.0%
and maturing May 15, 1997. Collateral for the note is the
same as for the note payable-credit line (Note 3). $ 52,005
Union Planters Bank of Jackson, Tennessee payable in
monthly installments of $5,266 including interest at 9.0%
and maturing October 12, 1997. Collateral for the note
is the same as for the note payable-credit line (Note 3). 226,969
Capital lease-G.E. Capital payable in monthly installments
of $205, plus sales tax. Interest imputed at 5.39% and
maturing April 1996. Collateralized by Canon copier. 407
Capital lease-Eaton Financial Corporation payable in
monthly installments of $309, plus sales tax. Interest
imputed at 14.6% and maturing June 1997. Collateralized by
computer equipment. 4,011
Delta Handling Materials, Inc. note payable in 36 monthly
installments of $533 including interest at 11.0% and maturing
December 1997. Collateralized by Clark lift truck. 10,575
Note payable-stockholder Scott F. Lochridge. Payment of
interest and principal on demand. Unsecured. Effective
March 1, 1996, this note was modified to be paid in 36
monthly installments of $5,693 including interest at 10.0%. 176,419
---------
470,386
Less current portion 334,886
---------
$135,500
Principal maturities of long-term debt at February 29, 1996, are as follows:
Year ending February 28, Amount
1997 $334,886
1998 65,638
1999 64,217
2000 5,686
$470,386
NOTE 5 - COMMITMENTS
The Company began leasing office and warehouse facilities at 231 Bobrick Drive
in Jackson, Tennessee in July 1994 for $7,639 per month. The lease was
modified in August 1995 to increase the monthly rent to $7,917 and was
modified again in February to be effective April 1, 1996 and expiring March
31, 1999 and increased the monthly rent to $8,750. The rate increases are due
to modifications at the facility to combine two locations into one.
F-40
<PAGE>
Future minimum lease payments as of February 29, 1996, are as follows:
Year ended February 29, Amount
1997 $104,169
1998 105,002
1999 105,002
2000 8,750
$322,923
In connection with the merger with Contour Merger Sub, Inc. (Note 9),
employment agreements were signed effective March 1, 1996, with the officers
of the Company. The current president and sole stockholder's agreement is for
a period of two years at an initial annual salary of $150,000, increasing to
$165,000 during the second year, plus an annual bonus of up to 30% of salary.
The current vice-president of operation's agreement is for a period of three
years at an initial annual salary of $75,000 with annual increases of 7.0%
plus a bonus of $50,000 upon signing the agreement. The bonus was paid in
March 1996.
NOTE 6 - INCOME TAXES
Income taxes are based on financial reporting income or loss. Differences
between loss for financial and income for income tax reporting relate
primarily to the allowance for doubtful accounts.
At February 29, 1996, the Company has deferred tax assets of $160,000 and
prepaid income taxes of $58,121. Deferred tax assets are related to the
$400,000 allowance for doubtful accounts not deductible for income tax
purposes until the accounts are actually written-off as uncollectible.
Prepaid income taxes are the excess of estimated income tax payments made
during the year over the accrued taxes currently payable.
NOTE 7 - RELATED PARTY TRANSACTIONS
Rent expense of $30,000 was paid during the period for the use of the
Company's premises at 4450 Highway 45 North to Lochridge-Tanner Properties, a
general partnership 50% owned by Scott F. Lochridge, President and sole
stockholder of AmeriDyne Corporation.
During the ten months ended February 29, 1996, interest payments totaling
$17,590 were paid on the note payable to the stockholder (Note 4).
NOTE 8 - CONCENTRATION OF CREDIT RISK AND ECONOMIC DEPENDENCE
AmeriDyne Corporation sells medical supplies and equipment to hospitals,
nursing homes, home health care agencies and other customers in the medical
field. Most of these customers are highly dependent on receipts from Medicare
and/or Medicaid for revenue from which to pay their expenses and suppliers,
including AmeriDyne. Any changes to the Medicare/Medicaid programs, or
violations of regulations by their customers could have a material effect on
the collectibility of AmeriDyne's accounts receivable.
Included in accounts receivable at February 29, 1996 is $460,422 due from
Century Home Health Services and its subsidiaries of Murfreesboro, Tennessee.
This represented 22% of the Company's entire accounts receivable.
AmeriDyne's sales to the Jackson-Madison County General Hospital and related
entities were $1,386,800 or 16% of the Company's sales and 5% of the Company's
gross profits for the ten months ended February 29, 1996.
F-41
<PAGE>
NOTE 9 - SUBSEQUENT EVENTS
On March 1, 1996, the Company merged with Contour Merger Sub, Inc., a
Tennessee corporation wholly-owned by Contour Medical, Inc., a Nevada
corporation, with AmeriDyne Corporation as the surviving corporation. Each
share of AmeriDyne treasury stock was cancelled and all of the remaining
issued and outstanding shares, 100% owned by Scott F. Lochridge, were
converted into the right to receive shares of Contour Medical, Inc. common
stock, $.001 par value per share, having an aggregate value equal to
$2,100,000, plus $250,000 in cash. Each share of Contour Merger Sub, Inc.,
$.01 par value, issued and outstanding on March 1, 1996, was converted into
one share, no par value, common stock of AmeriDyne Corporation.
In connection with the merger, Retirement Care Associates, Inc. (RCA)
guaranteed all of the debt owed to Union Planters Bank of Jackson, Tennessee,
replacing the guarantees of Scott F. and Constance Lochridge (Note 3). RCA
owns a majority interest and/or voting control interest of Contour Medical,
Inc.
F-42
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of AmeriDyne Corporation
We have audited the accompanying balance sheet of AmeriDyne Corporation as of
April 30, 1995, and the related statements of income, retained earnings, and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AmeriDyne Corporation as of
April 30, 1995, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ Cowart & Rich
- -------------------------------------------------
COWART & RICH, CERTIFIED PUBLIC ACCOUNTANTS, P.C.
Jackson, Tennessee
July 21, 1995
F-43
<PAGE>
AMERIDYNE CORPORATION
BALANCE SHEET
April 30, 1995
(See Independent Auditor's Report)
ASSETS
CURRENT ASSETS:
Cash on Hand and in Bank (Note 2) $ 1,999.
Accounts Receivable - Trade
(Notes 1C & 7) $2,019,012.
Less Allowance for Doubtful
Accounts (Note 1C & 7) <200,000.> 1,819,012.
Royalty Income Receivable (Note 5) 1,822.
Purchase Rebates & Incentives Due
From Vendors 35,973.
Inventory (Note 1D) 1,142,227.
Deferred Taxes (Note 1F) 80,000.
Accrued Interest Receivable 1,159.
Prepaid Insurance 4,214.
Total Current Assets $3,086,406.
PROPERTY AND EQUIPMENT:
At Cost, Net of Accumulated
Depreciation (Note 1E) 159,325.
OTHER ASSETS:
Deposits 7,689.
Note Receivable - MCP Industries,
Inc. (Note 5) 173,915.
Cash Surrender Value - Officers'
Life Insurance (Note 2) 9,269.
Total Other Assets 190,873.
TOTAL ASSETS $3,436,604.
The accompanying notes are an integral part of these financial statements.
F-44
<PAGE>
AMERIDYNE CORPORATION
BALANCE SHEET
April 30, 1995
(See Independent Auditor's Report)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 587,259.
Accrued Payroll (Note 1G) 46,446.
Income Taxes Payable (Note 1F)
Federal $256,608.
State 60,589. 317,197.
Accrued Taxes Payable - Other 33,278.
Notes Payable - Credit Line (Note 2) 675,000.
Notes Payable Due Within One Year (Note 3) 327,021.
Accrued Interest Payable 1,914.
Total Current Liabilities $1,988,115.
LONG-TERM LIABILITIES:
Long-Term Portion of Notes Payable (Note 3) 232,656.
COMMITMENTS (Note 4):
TOTAL LIABILITIES 2,220,771.
STOCKHOLDERS' EQUITY:
Common Stock - No Par Value, 1,000 Shares
Authorized and Issued, 510 Shares
Outstanding $ 7,500.
Paid - In Capital 60,500.
Retained Earnings 1,205,133.
1,273,133.
Less 490 Shares Held in Treasury - At Cost <57,300.>
Total Stockholders' Equity 1,215,833.
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,436,604.
The accompanying notes are an integral part of these financial statements.
F-45
<PAGE>
AMERIDYNE CORPORATION
STATEMENT OF INCOME AND EXPENSES
For the Twelve Months Ended April 30, 1995
(See Independent Auditor's Report)
INCOME
Sales $10,564,054.
COST OF GOODS SOLD 7,906,859.
GROSS PROFIT 2,657,195.
OPERATING EXPENSES - SCHEDULE I 1,930,354.
INCOME FROM OPERATIONS 726,841.
OTHER INCOME - SCHEDULE II 147,712.
INCOME BEFORE TAXES 874,553.
PROVISION FOR INCOME TAXES
Current $401,789.
Deferred <72,936.> 328,853.
NET INCOME $ 545,700.
The accompanying notes are an integral part of these financial statements.
F-46
<PAGE>
AMERIDYNE CORPORATION
STATEMENT OF RETAINED EARNINGS
For the Twelve Months Ended April 30, 1995
(See Independent Auditor's Report)
Retained Earnings Balance - April 30, 1994 $ 659,433.
Net Income For the Year Ended April 30, 1995 545,700.
Retained Earnings Balance - April 30, 1995 $ 1,205,133.
The accompanying notes are an integral part of these financial statements.
F-47
<PAGE>
AMERIDYNE CORPORATION
STATEMENT OF CASH FLOWS
For the Twelve Months Ended April 30, 1995
(See Independent Auditor's Report)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 545,700.
Adjustments to Reconcile Net Income to Cash
Provided by Operating Activities:
Depreciation and Amortization (Note E) $ 63,717.
Changes in Assets and Liabilities:
Increase in Accounts Receivable <604,906.>
Increase in Royalty Income Receivable <1,822.>
Decrease in Purchase Rebates and Incentives
Due From Vendors 16,893.
Increase in Inventory <277,033.>
Increase in Deferred Taxes <72,936.>
Increase in Accrued Interest Receivable <1,159.>
Decrease in Prepaid Insurance 290.
Increase in Accounts Payable 103,446.
Decrease in Accrued Payroll <6,987.>
Increase in Income Taxes Payable 204,613.
Increase in Accrued Taxes Payable - Other 4,775.
Increase in Accrued Interest Payable 1,477.
Total Adjustments <569,632.>
NET CASH USED BY OPERATING ACTIVITIES <23,932.>
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in Deposits $ <7,689.>
Decrease in Note Receivable - MCP Industries, Inc. 40,263.
Increase in Cash Surrender Value - Officers'
Life Insurance <9,269.>
Capital Expenditures for Property and Equipment <167,224.>
CASH USED BY INVESTING ACTIVITIES <143,919.>
The accompanying notes are an integral part of these financial statements.
F-48
<PAGE>
AMERIDYNE CORPORATION
STATEMENT OF CASH FLOWS
For the Twelve Months Ended April 30, 1995
(See Independent Auditor's Report)
CASH FLOWS FROM FINANCING ACTIVITIES
Loans to Finance Property Acquisitions $ 16,289.
Repayment of Bank and Equipment Loans <99,767.>
Loan from Stockholder 76,000.
Repayment of Loan to Stockholder <83,081.>
Net Borrowings Under Lines of Credit Agreements 150,000.
Loan from Bank for Operations 280,000.
CASH PROVIDED BY FINANCING ACTIVITIES 339,441.
INCREASE IN CASH & CASH EQUIVALENTS 171,590.
CASH & CASH EQUIVALENTS AT BEGINNING OF YEAR:
Cash on Hand $ 69.
Bank Overdrafts <169,660.> <169,591.>
CASH & CASH EQUIVALENTS AT END OF YEAR:
Cash on Hand and in Bank $ 1,999.
CASH PAID DURING THE YEAR FOR:
Interest $ 96,580.
Income Taxes $203,835.
The accompanying notes are an integral part of these financial statements.
F-49
<PAGE>
AMERIDYNE CORPORATION
NOTES TO FINANCIAL STATEMENTS
April 30, 1995
BUSINESS ACTIVITIES
AmeriDyne Corporation (the Company) was incorporated in 1980 to manufacture
and distribute bedpans and similar plastic products to hospitals and other
users in the medical community, primarily within the State of Tennessee. The
Company expanded its line of products over the years, by reselling items
purchased from other manufacturers to the same market. Sales from the resale
line of business outgrew the sales of items manufactured by the Company.
During the year ended April 30, 1994 AmeriDyne sold the assets of its
manufacturing division, and is now engaged exclusively in the resale and
distribution of medical supplies to doctors' offices, hospitals, nursing
homes, home health agencies and other customers in the medical field.
NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of AmeriDyne Corporation is
presented to assist in understanding the Company's financial statements. The
financial statements and notes are representations of the Company's
management, who are responsible for their integrity and objectivity. The
accounting policies conform to generally accepted accounting principles, and
have been consistently applied in the preparation of the financial statements.
(A) METHOD OF ACCOUNTING
The Company recognizes revenue, costs and expenses on the accrual basis of
accounting, with income being recorded when earned and costs and expenses
recorded when incurred.
(B) CASH
For purposes of the statement of cash flows, the Company considers all
short-term debt instruments purchased with a maturity of three months or less
to be cash equivalents.
(C) ACCOUNTS RECEIVABLE
An allowance for doubtful accounts has been established to absorb unforeseen
losses from delinquent accounts, with a corresponding charge to Bad Debt
Expense on the books. Bad Debts are deducted on the Company's federal income
tax return when they are deemed uncollectible.
(D) INVENTORIES
Inventories are stated at the lower of average cost or market.
(E) PROPERTY AND EQUIPMENT
The cost of property and equipment is depreciated over the estimated useful
lives of the respective assets using accelerated depreciation methods.
Expenditures for major renewals and betterments that extend the useful lives
of property and equipment are capitalized. Expenditures for maintenance and
repairs are charged to expense as incurred. Details related to the property
and equipment at April 30, 1995 are as follows:
F-50
<PAGE>
Equipment $ 115,094.
Vehicles 70,191.
Office furniture and equipment 161,090.
Leasehold improvements 319.
Total cost $ 346,694.
Accumulated depreciation <187,369.>
$ 159,325.
Certain of the Company's assets were acquired under capital leasing
arrangements and are included in property and equipment at April 30, 1995:
Accumulated
Cost Depreciation
Equipment $ 8,418. $ 8,418.
Office furniture and equipment 28,847. 22,322.
Total $37,265. $ 30,740.
Amortization of these leased assets was $4,621 for the year and is included in
depreciation expense.
(F) INCOME TAXES
Deferred income taxes are provided for differences between financial statement
assets and liabilities and income tax reporting basis of assets and
liabilities in accordance with Financial Accounting Standard No. 109. The
difference for the year ended April 30, 1995 resulted from the use of the
allowance for bad debt expense in the Company's financial statements, not
deductible for income tax purposes:
Net Income Per Books $ 545,700.
Permanent differences:
Federal income tax expense per books 270,781.
Nondeductible entertainment expense 2,785.
Nondeductible life insurance premiums 166.
Deferred state taxes per books <10,222.>
Nondeductible penalties 6,659.
Nondeductible bad debts 165,000.
Rounding <1.>
Tax return taxable income $ 980,868.
As it is more likely than not that all future tax benefits will be realized,
no valuation allowance has been recorded for the deferred tax assets. There
was no prior balance in the valuation allowance, and therefore, there was no
change in the valuation allowance for the year ended April 30, 1995.
The components of the provision for income taxes for the year ended December
31, 1995 are as follows:
Current
Federal $ 333,495.
State 68,294.
Current Income Tax $ 401,789.
Deferred <Tax benefit>
Federal <62,714.>
State <10,222.>
Deferred Income Tax <Benefit> <72,936.>
Total Income Tax $ 328,853.
F-51
<PAGE>
(G) ACCRUED PAYROLL
Statement of Financial Standards No. 43, "Accounting for Compensated
Absences", requires the accrual of vacation pay that has been earned but not
taken. Accordingly, the Company has made the following accruals at April 30,
1995 for unpaid vacation and the related FICA expense:
Accrued Payroll Salaries and Wages Expense $ 18,127.
Payroll Taxes Withheld and Accrued Taxes-Payroll 1,387.
$ 19,514.
This amount is included in accrued payroll of $46,446 reflected on the
Company's balance sheet at April 30, 1995.
NOTE 2-NOTES PAYABLE-CREDIT LINE
Due to Union Planters Bank of Jackson, Tennessee. Interest is payable monthly
at the bank's prime rate + 1.25%. The interest rate at April 30, 1995 was
10.25%. Principal is due on demand. Collateral for the line of credit
consists of substantially all the Company's assets, including but not limited
to Accounts Receivable, Inventory, Furniture, Fixtures, Equipment, Machinery,
and bank accounts. The loan is also secured by the guaranties of Scott and
Constance Lochridge, and life insurance policies on the lives of Scott
Lochridge and Bill Farmer. In connection with the Notes Payable-Credit Line
and Notes Payable to the Bank referred to in Note 3, the Company executed a
Loan Agreement containing certain covenants regarding the maintenance of
minimum financial ratios regarding debt and working capital requirements. The
working capital of the Company as of April 30, 1995 was less than the minimum
required by the Loan Agreements, and the Company was technically in default on
the bank debt at that date. The loan agreement also restricts payment of
dividends and capital acquisitions by the Company. The insurance policy on
the life of Scott Lochridge for $500,000 has been assigned to the bank to
secure the bank loans. The corresponding cash value of this policy - $9,269
at April 30, 1995 - was assigned to the bank as well.
NOTE 3-LONG-TERM DEBT
Long-term debt consists of the following:
Union Planters Bank of Jackson, Tennessee-payable
monthly in installments of $3,000.00 principal plus
interest. The interest rate is adjustable at 2% + the
bank's prime rate. The current interest rate at April
30, 1995 was 11.00%. Collateral for the note is the
same as for the Note Payable-Credit Line (See Note 2). $ 16,000.
Union Planters Bank of Jackson, Tennessee-payable
in monthly installments of $3,600.00 at 9.25% interest.
Collateral for the note is the same as for the Note
Payable-Credit Line (See Note 2). 79,767.
Union Planters Bank of Jackson, Tennessee-payable in
monthly installments of $5,265.76 until 10-12-97 when
the balance is due in full. Interest rate of 9.00%.
Collateral for the note is the same as for the Note Payable-
Credit Line (See Note 2). 260,815.
Capital Lease-G.E. Capital-secured by Canon copier and
attachments, payable in monthly installments of $205.00
plus sales tax. Interest rate of 5.39%. 2,392.
F-52
<PAGE>
Ford Motor Credit-secured by 1992 Ford E-350 van, payable
in monthly installments of $640.57. Interest rate
of 11.00%. 3,037.
Capital Lease-Eaton Financial Corporation- payable in
monthly installments of $308.83 plus sales tax. Interest
rate of 14.6%. Secured by computer equipment. 6,520.
Delta Handling Materials, Inc.-Note payable in 36
installments of $533.24 at 11.00%, beginning
February 2, 1995. Secured by Clark lift truck. 14,727.
Note Payable-Shareholder-Due to Scott F. Lochridge.
Payment of interest and principal due in full on
demand. Interest rate of 12%. Unsecured. 176,419.
Total obligations $ 559,677.
Less amounts due within one year <327,021.>
Total long-term portion of notes payable $ 232,656.
At April 30, 1995 installments of principal were scheduled to mature in the
following years:
Year ending April 30, 1996 $ 327,021.
1997 54,349.
1998 178,307.
After 1998 0.
Total $ 559,677.
NOTE 4-COMMITMENTS
(A) Lochridge-Tanner Properties, a general partnership, rents to the Company
its premises located at 4450 Highway 45 North, for a current rental of $3,000
per month. There is no written lease agreement between the Company and the
lessor.
(B) The Company leases a Canon copier for use at its premises at 231 Bobrick
Drive. The lease expires in September, 1996. The monthly lease amount is for
$217.50 per month. There were seventeen payments remaining at April 30, 1995,
due as follows:
Year ending April 30, 1996 $ 2,610.
1997 1,088.
Total $ 3,698.
(C) On July 11, 1994, the Company leased additional office and warehouse
facilities located at 231 Bobrick Drive for a one year term ending September
14, 1995. The monthly rent under this lease is $7,639.04 per month. There
were four monthly payments remaining on this lease at April 30, 1995,
totalling $30,556.16.
(D) The Company leases a TMC forklift truck under an operating lease. This
lease expires in May, 1995. There was one payment remaining under this lease
at April 30, 1995 in the amount of $412.13.
(E) On November 22, 1991 the Company executed a Non-Competition Agreement and
a Consulting Agreement with a former shareholder. The Non-Competition
Agreement obligates the Company for 48 monthly payments of $2,916.66,
beginning December 1, 1991. The Consulting Agreement obligates the Company
for 48 monthly payments of $500.00, beginning on the same date. Payments
remaining at April 30, 1995 were as follows:
Year ending April 30, 1996 $ 23,917.
Total $ 23,917.
F-53
<PAGE>
NOTE 5-MCP INDUSTRIES/MAXXIM MEDICAL
On May 31, 1993 AmeriDyne Corporation discontinued its manufacturing
operations (Plastics Division) and sold substantially all the related assets
to MCP Industries, Inc. The agreement included the assumption by MCP
Industries of certain notes payable, accounts payable and other obligations,
the payment of cash, and the execution of a note to AmeriDyne in the amount of
$245,000.00. This note is payable in 60 monthly installments of $4,967.72 at
8.00% interest. MCP Industries received certain of the Company's accounts
receivable and other assets, and agreed to pay a 2% Royalty to AmeriDyne on
sales of certain products to specified customers during the five years
following May 31, 1993. For the year ended April 30, 1995 the royalties
received from MCP Industries by AmeriDyne were $26,044.
During the year ended April 30, 1995 MCP Industries sold its operations to
another company, Maxxim Medical, who has assumed the obligations for the note
and royalty payments to AmeriDyne.
NOTE 6-RELATED PARTY TRANSACTIONS
(A) Rent Expense of $36,200.00 was paid during the year for the use of the
Company's premises at 4450 Highway 45 North to Lochridge-Tanner Properties, a
general partnership 50% owned by Scott F. Lochridge, President and sole
shareholder of AmeriDyne Corporation.
(B) Equipment Lease Expense of $8,736.00 was paid between May and December,
1994 to Scott Lochridge for the use of the Company's computer operating
software. In January, 1995 the Company purchased this software from Mr.
Lochridge for $41,500.00.
NOTE 7-ACCOUNTS RECEIVABLE/CONCENTRATION OF CREDIT RISK
(A) AmeriDyne Corporation sells medical supplies and equipment to hospitals,
nursing homes, home health care agencies and other customers in the medical
field. Most of these customers are highly dependent on receipts from Medicare
and/or Medicaid for revenue from which to pay their expenses and suppliers,
including AmeriDyne. Any changes to the Medicare/Medicaid programs, or
violations of regulations by their customers could have a material effect on
the collectibility of AmeriDyne's accounts receivable.
(B) The Company's aged accounts receivable trial balance at April 30, 1995 is
summarized as follows:
Invoices not yet due $ 165,379. 8.2%
Invoices within current credit terms 779,511. 38.6
Invoices 1-30 days past due 362,005. 17.9
Invoices 31-60 days past due 166,060. 8.2
Invoices 61-90 days past due 144,330. 7.1
Invoices more than 90 days past due 401,727. 20.0
Total $2,019,012. 100.0%
The Company's management has established an allowance for doubtful accounts in
the amount of $200,000.
Management feels that all of the accounts receivable above this $200,000 are
collectible in full.
F-54
<PAGE>
(C)CONCENTRATION OF CREDIT RISK
(1)Century Home Health Services and its subsidiaries, of Murfreesboro,
Tennessee owed AmeriDyne Corporation $426,819 on open account at April 30,
1995. This represented 21.1% of the Company's entire accounts receivable.
Century's aged accounts receivables are summarized as follows:
At April 30, 1995
Invoices not yet due $ 27,866. 6.5%
Invoices within current credit terms 75,673. 17.7
Invoices 30-60 days past due 79,357. 18.6
Invoices 60-90 days past due 42,187. 9.9
Invoices 90-120 days past due 37,525. 8.8
Invoices more than 120 days past due 164,211. 38.5
Total $ 426,819. 100.0%
AmeriDyne grants Century 45 day credit terms. AmeriDyne's management feels
that all of the Century accounts are collectible in full.
Sales to Century Home Health Services and its subsidiaries for the year ended
April 30, 1995 were $768,157.
(2)At April 30, 1995 the Company's checking account balance at Union Planters
Bank per the bank statement was $136,234. This amount is in excess of the
$100,000 Federal Deposit Insurance Corporation insurance limit, leaving
$36,234 in uninsured deposits.
NOTE 8-ECONOMIC DEPENDENCE
AmeriDyne Corporation's sales to its five largest customers, and the
percentage to the Company's total net sales for the year ended April 30, 1995
were as follows:
Customer
Jackson Madison County General Hospital $1,811,231. 17.1%
Fairchild Medical 980,793. 9.3%
Century Home Health Services 768,157. 7.3%
Top RX 499,028. 4.7%
Trinity Healthcare 353,337. 3.3%
NOTE 9-SUBSEQUENT EVENTS
Scott F. Lochridge, the president and sole shareholder of AmeriDyne
Corporation, is currently negotiating to sell all of his common stock in the
Company to another party.
F-55
<PAGE>
AMERIDYNE CORPORATION
SCHEDULE I - OPERATING EXPENSES
For the Twelve Months Ended April 30, 1995
(See Independent Auditor's Report)
Advertising $ 5,298.
Office Supplies 17,655.
Educational Materials 1,046.
Utilities 9,269.
Salaries & Wages (Note 1G) 1,008,260.
Maintenance 4,832.
Rent 112,632.
Freight Out 298,847.
Travel 6,937.
Entertainment 5,570.
Depreciation 63,717.
Commissions 4,413.
Bank Charges 2,467.
Delivery Expense 9,587.
Insurance - General 26,652.
Insurance - Employees 57,331.
Insurance - Officers' Lives 166.
Interest 98,057.
Temporary Labor 48,623.
Legal & Accounting Fees 11,104.
Subscriptions & Dues 8,000.
Charitable Contributions 600.
Taxes - Payroll (Note 1G) 77,540.
Tax Penalties 6,659.
Taxes and Licenses - Other 10,603.
Factory Supplies and Expense 18,503.
Equipment Lease 17,710.
Telephone 53,534.
Professional Fees 3,620.
Postage 6,346.
Computer Service Contracts 5,612.
Payments Under Non-Competition
Agreement (Note 4E) 35,000.
Consulting Fees (Note 4E) 6,000.
Sales Expense 4,543.
Bad Debt Expense 165,000.
Miscellaneous Expenses 4,829.
Less: Overhead Absorbed by Cost of Goods Sold <286,208.>
Total Operating Expenses $ 1,930,354.
AMERIDYNE CORPORATION
SCHEDULE II - OTHER INCOME
For the Twelve Months Ended April 30, 1995
(See Independent Auditor's Report)
Delivery Income - Standard Register and Custom Medical $ 61,616.
Service Charge Income on Accounts Receivable 39,946.
Interest Income 15,542.
Royalties (Note 5) 26,044.
Sales Tax Incentive and Miscellaneous Other Income 4,564.
$ 147,712.
F-56
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of AmeriDyne Corporation
Jackson, Tennessee
We have audited the accompanying statements of income, retained earnings and
cash flows of AmeriDyne Corporation for the year ended April 30, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of income and retained
earnings is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement
of income and retained earnings. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the statements of income,
retained earnings and cash flows. We believe that our audit provides a
reasonable basis for our opinion.
The financial statements of AmeriDyne Corporation as of April 30, 1994 were
audited by other auditors whose report dated July 1994, expressed an
unqualified opinion on the balance sheet and disclaimed an opinion on the
statements of income, retained earnings and cash flows because they did not
observe the physical inventory as of April 30, 1993, and were unable to
satisfy themselves regarding the inventory by means of other auditing
procedures. They also were not able to satisfy themselves regarding the
reconciled cash balance as of April 30, 1993. We performed additional
auditing procedures regarding the cash and inventory amounts as of April 30,
1993 and, accordingly, our opinion on the statements of income, retained
earnings and cash flows, as presented herein, is different from that expressed
by the other auditors.
In our opinion, the statements of income, retained earnings and cash flows
referred to above present fairly, in all material respects, the results of
operations and cash flows of AmeriDyne Corporation for the year ended April
30, 1994, in conformity with generally accepted accounting principles.
/s/ Laney, Boteler & Killinger
- ------------------------------
LANEY, BOTELER & KILLINGER
Atlanta, Georgia
June 20, 1996
F-57
<PAGE>
AMERIDYNE CORPORATION
STATEMENT OF INCOME AND RETAINED EARNINGS
For the year Ended April 30, 1994
Sales $7,981,571
Cost of sales 6,131,467
Gross profit 1,850,104
Other expenses
Salaries and commissions 928,476
Payroll taxes and benefits 121,075
Advertising 48,080
Provision for bad debts 45,697
Interest 72,988
Non-compete expense 37,583
Rent 66,800
Depreciation 41,020
Other operating expenses 397,949
1,759,668
Income from operations 90,436
Other income
Delivery service income 46,325
Interest 17,186
Royalty 15,836
Other income 5,593
84,940
Income from continuing operations
before income taxes 175,376
Income tax provision (benefit)
Current 84,813
Deferred (7,064)
77,749
Income from continuing operations 97,627
Discontinued operations
Loss from operations of Plastics Division,
net of income tax benefit of $9,078 (16,814)
Gain on sale of Plastics Division,
net of income tax provision of $73,443 136,039
119,225
Net income 216,852
Retained earnings, beginning of year 442,581
Retained earnings, end of year $ 659,433
F-58
<PAGE>
AMERIDYNE CORPORATION
STATEMENT OF CASH FLOWS
For the Year Ended April 30, 1994
Cash flows from operating activities:
Net income $ 216,852
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 85,529
Provision for doubtful accounts 35,000
Gain on sale of assets (212,310)
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable - trade (183,488)
Other receivables 8,147
Inventory 245,296
Prepaid insurance (3,259)
Prepaid income taxes 18,907
Deferred tax benefit (7,064)
Increase (decrease) in liabilities:
Accounts payable (407,599)
Accrued payroll 17,056
Accrued taxes other 7,779
Accrued income taxes 107,081
Accrued interest 437
---------
Net cash used in operating activites (71,636)
Cash flows from investing activities:
Increase in note receivable $ (214,178)
Purchase of property and equipment (25,641)
Proceeds on sale of property and equipment 534,875
---------
Net cash provided by investing activities 295,056
Cash flows from financing activities:
Decrease in bank overdrafts $ (99,123)
Proceeds from long-term debt 7,380
Repayment of long-term debt (450,723)
Net increase in stockholder loans 33,500
Net borrowings under line of credit agreements 285,348
---------
Net cash used in financing activities (223,618)
Net decrease in cash (198)
Cash, beginning of year 267
---------
Cash, end of year $ 69
---------
See notes to financial statements.
F-59
<PAGE>
AMERIDYNE CORPORATION
NOTES TO FINANCIAL STATEMENT
April 30, 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITIES
AmeriDyne Corporation (Company) was incorporated in 1980 to manufacture and
distribute bed pans and similar plastic products to hospitals and other users
in the medical community, primarily within the State of Tennessee. The
Company expanded its line of products over the years by reselling items
purchased from other manufacturers to the same market. Sales from the resale
line of business surpassed the sales of items manufactured by the Company. In
June 1993, AmeriDyne sold the assets of its manufacturing division and is now
engaged exclusively in the resale and distribution of medical supplies to
doctors' offices, hospitals, nursing homes, home health agencies and other
customers in the medical field.
ACCOUNTS RECEIVABLE
The Company uses the reserve method for uncollectible accounts. During the
year ended April 30, 1994, a provision of $35,000 was recorded to allow for
delinquent accounts which may be uncollectible. For tax purposes, bad debt
expense is deducted when they are deemed uncollectible.
INVENTORIES
Inventories are stated at the lower of average cost or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Maintenance and repairs of
property and equipment are charged to operations and major improvements are
capitalized. Upon retirement, sale or other disposition of property and
equipment, the cost and accumulated depreciation are eliminated from the
accounts and any gain or loss is included in operations.
Depreciation is computed using accelerated methods over the estimated useful
lives of the assets of three to ten years.
Included in property and equipment are assets acquired under capital lease.
At April 30, 1994, cost and accumulated depreciation for these assets totaled
$41,660 and $30,752, respectively. Amortization of these leased assets is
included in depreciation expense for the period ended April 30, 1994 and
totaled $12,710.
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to the use of allowance for doubtful accounts for book
purposes. The deferred tax assets represent the future tax return
consequences of those differences, which will be deductible when the assets
are recovered (Note 6).
F-60
<PAGE>
ACCRUED PAYROLL
Statement of Financial Standards No. 43, "Accounting for Compensated
Absences", requires the accrual of vacation pay that has been earned but not
taken. Accordingly, the Company has accrued $15,873 and $1,214 for unpaid
vacation and the related FICA expense, respectively, as of April 30, 1994.
NOTE 2 - DISCONTINUED OPERATIONS AND NOTE AND ROYALTIES RECEIVABLE
On June 2, 1993, AmeriDyne Corporation sold its manufacturing division to MCP
Industries, Inc. (MCP) (Note 9). In connection with the sale, AmeriDyne
received a note from MCP in the amount of $245,000 to be paid in sixty monthly
installments of $4,968 including interest at 8.0%. AmeriDyne also receives a
2% royalty on all of MCP's sales to AmeriDyne's customer base as of June 2,
1993 for a period of five years. During the year ended April 30, 1994,
interest income and royalty income received was $17,186 and $15,836,
respectively.
Scheduled maturities of notes receivable at April 30, 1994 are as follows:
Year Ended April 30, Amount
1995 $ 44,071
1996 47,729
1997 51,690
1998 55,981
1999 14,707
$214,178
NOTE 3 - NOTE PAYABLE - CREDIT LINE
The Company was obligated under a fully drawn $525,000 operating line of
credit with Union Planters Bank of Jackson, Tennessee. Interest is payable
monthly at the bank's prime rate plus 1.25%. The interest rate at April 30,
1994 was 8.50%. Principal is due on demand. Collateral for the line of
credit consists of substantially all the Company's assets, including but not
limited to accounts receivable, inventory, furniture, fixtures, equipment,
machinery and bank accounts. The loan is also collateralized by the
guaranties of Scott (100% shareholder of the Company) and Constance Lochridge,
and life insurance policies on the lives of Scott Lochridge and Bill Farmer.
In connection with the notes payable-credit line and notes payable to the bank
referred to in Note 4, the Company executed a loan agreement containing
certain covenants regarding the maintenance of minimum financial ratios
regarding debt and working capital requirements. The current assets to
current liabilities ratio of the Company as of April 30, 1994 was less than
the minimum required by the loan agreements and the Company was technically in
default on the bank debt at that date. The loan agreement also restricts
payment of dividends and capital acquisitions by the Company.
Subsequent to April 30, 1994, the line of credit was periodically increased to
$975,000 as of February 29, 1996. On March 1, 1996, the personal guarantees
of Scott and Constance Lochridge were replaced by a guarantee from Retirement
Care Associates, Inc. (Note 10).
NOTE 4 - LONG-TERM DEBT
Long-term debt consists of the following:
F-61
<PAGE>
Union Planters Bank of Jackson, Tennessee payable in
monthly installments of $3,600 including interest at
9.0% and maturing May 15, 1997. Collateral for the note
is the same as for the note payable-credit line (Note 3). $111,119
Union Planters Bank of Jackson, Tennessee payable in
monthly installments of $3,000 plus interest at the
bank's prime rate plus 2.0% (9.25% at April 30, 1994)
and maturing August 1995. Collateral for the note is
the same as for the note payable-credit line (Note 3). 52,000
Capital lease-G.E. Capital payable in monthly install-
ments of $205, plus sales tax. Interest imputed at 5.39%
and maturing April 1996. Collateralized by Canon copier. 4,474
Capital lease-Eaton Financial Corporation payable in
monthly installments of $309, plus sales tax. Interest
imputed at 14.6% and maturing June 1997. Collateralized by
computer equipment. 9,137
Ford Motor Credit note payable in 36 monthly installments
of $641 including interest at 11.0% and maturing September
1995. Collateralized by Ford van. 10,006
Note payable-stockholder Scott F. Lochridge. Payment of
interest and principal due on demand. Interest rate of
12%. Unsecured. Effective March 1, 1996, this note was
modified to be paid in 36 monthly installments of $5,693
including interest at 10.0%. 183,500
--------
370,236
Less current portion 265,717
--------
$104,519
Principal maturities of long-term debt at April 30, 1994 are as follows:
Year ending April 30, Amount
1995 $265,717
1996 61,950
1997 42,569
$370,236
NOTE 5 - COMMITMENTS
The Company leases a forklift under an operating lease payable $419 per month.
The lease expires in April 1995. There were twelve payments remaining under
this lease at April 30, 1994, totaling $5,028.
The Company leases its computer operating software from Scott F. Lochridge for
a monthly rental of $1,092 (Note 7). In January 1995, the Company acquired
the software for $41,500.
Lochridge-Tanner Properties (Note 7), a general partnership, rents to the
Company its premises located at 4450 Highway 45 North, for a monthly rental of
$3,800. There is no written lease agreement between the Company and its
landlord.
F-62
<PAGE>
On November 22, 1991, the Company executed a non-competition agreement and a
consulting agreement with a former shareholder. The non-competition agreement
obligates the Company for forty-eight monthly payments of $2,917, beginning
December 1, 1991. The consulting agreement obligates the Company for
forty-eight monthly payments of $500, beginning on the same date. Payments
remaining at April 30, 1994 were as follows:
Year ending April 30, 1995 $41,000
Year ending April 30, 1996 23,917
$64,917
NOTE 6 - INCOME TAXES
Income taxes are based on financial reporting income or loss. Differences
between income and loss for financial and income tax reporting relate
primarily to allowance for doubtful accounts.
At April 30, 1994, the Company has deferred tax assets of $7,064. Deferred
tax assets are related to the $35,000 allowance for doubtful accounts not
deductible for income tax purposes until the accounts are actually written-off
as uncollectible.
Income taxes payable at April 30, 1994, of $112,584 represent current income
taxes payable in excess of estimated payments already paid.
NOTE 7 - RELATED PARTY TRANSACTIONS
Rent expense of $49,400 was paid during the period for the use of the
Company's premises at 4450 Highway 45 North to Lochridge-Tanner Properties, a
general partnership 50% owned by Scott F. Lochridge, President and sole
stockholder of AmeriDyne Corporation (Note 5).
During the year ended April 30, 1994, payments totaling $14,196 were paid on
the computer software lease with the stockholder (Note 5).
NOTE 8 - CONCENTRATION OF CREDIT RISK AND ECONOMIC DEPENDENCE
AmeriDyne Corporation sells medical supplies and equipment to hospitals,
nursing homes, home health care agencies and other customers in the medical
field. Most of these customers are highly dependent on receipts from Medicare
and/or Medicaid for revenue from which to pay their expenses and suppliers,
including AmeriDyne. Any changes to the Medicare/Medicaid programs, or
violations of regulations by their customers could have a material effect on
the collectibility of AmeriDyne's accounts receivable.
AmeriDyne's sales to the Jackson-Madison County General Hospital and related
entities were $2,228,675 or 28% of the Company's sales and 12% of the
Company's gross profits for the year ended April 30, 1994.
NOTE 9 - DISCONTINUED OPERATIONS
On May 31, 1993, AmeriDyne Corporation discontinued its manufacturing
operations (Plastics Division) and sold substantially all the related assets
to MCP Industries, Inc. (MPC). The agreement included the assumption by MCP
of certain notes payable, accounts payable and other obligations, the payment
of cash, and the execution of a note to AmeriDyne in the amount of $245,000
(Note 2). MCP received certain of the Company's accounts receivable and other
assets, and agreed to pay a 2% royalty to Ameridyne on sales of certain
products to specified customers during the five years following May 31, 1993.
F-63
<PAGE>
For the year ended April 30,1994, the royalties earned from MCP by AmeriDyne
were $15,836 and are included in Continuing Operations on the Statement of
Income and Expenses. Operating revenues of the Plastics Division for the year
were $112,694 and are included in the Loss from Operations of the Discontinued
Operations on the Statement of Income and Expenses.
NOTE 10 - SUBSEQUENT EVENTS
On March 1, 1996, the Company merged with Contour Merger Sub, Inc., a
Tennessee corporation wholly-owned by Contour Medical, Inc., a Nevada
corporation, with AmeriDyne Corporation as the surviving corporation. Each
share of AmeriDyne treasury stock was cancelled and all of the remaining
issued and outstanding shares, 100% owned by Scott F. Lochridge, were
converted into the right to receive shares of Contour Medical, Inc. common
stock, $.001 par value per share, having an aggregate value equal to
$2,100,000, plus $250,000 in cash. Each share of Contour Merger Sub, Inc.,
$.01 par value, issued and outstanding on March 1, 1996, was converted into
one share, no par value, common stock of AmeriDyne Corporation.
In connection with the merger, Retirement Care Associates, Inc. (RCA)
guaranteed all of the debt owed to Union Planters Bank of Jackson, Tennessee
replacing the guarantees of Scott F. and Constance Lochridge. RCA owns a
majority interest and/or voting control interest of Contour Medical, Inc.
F-64
<PAGE>
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
PROFORMA CONSOLIDATED FINANCIAL STATEMENTS
As discussed elsewhere herein, on March 1, 1996, the Company acquired all of
the issued and outstanding shares of the common stock of AmeriDyne Corporation
for payment of $300,000 cash and 369,619 shares of the Company's common stock
(which has been valued at $5.6815 per share for purposes of the proforma
financial statements). The Company obtained the funds for the acquisition
from Retirement Care Associates, Inc., the parent company of Contour Medical,
Inc., through the repayment of funds advanced to Retirement Care Associates,
Inc. by the Company.
The acquisition has been accounted for as a purchase, with assets acquired and
liabilities assumed recorded at fair value, and the results of AmeriDyne
Corporation's operations included in the Company's consolidated financial
statements from the date of acquisition.
The accompanying consolidated financial statements illustrate the effect of
the acquisition ("Proforma") on the Company's financial position and results
of operations. The consolidated balance sheet as of December 31, 1995, is
based on the historical balance sheets of the Company and AmeriDyne
Corporation as of December 31, 1995, and October 31, 1995, respectively, and
assumes the acquisition took place on that date. The consolidated statements
of income for the year ended June 30, 1995, and the six months ended December
31, 1995, are prepared based on the historical statements of income of the
Company and AmeriDyne Corporation for the year ended June 30, 1995, and April
30, 1995, and the six months ended December 31, 1995, and October 31, 1995,
respectively. The proforma consolidated statements of income assume the
acquisition took place as of July 1, 1994.
On February 29, 1996, the Company authorized a 1.05-for-1 forward stock split
of its common stock effective March 15, 1996. All common shares and per share
amounts in the proforma consolidated financial statements reflect the forward
stock split.
The proforma consolidated financial statements may not be indicative of the
actual results of the acquisition. In particular, the proforma consolidated
financial statements are based on management's current estimate of the
allocation of the purchase price, the actual allocations of which may differ.
The accompanying consolidated proforma financial statements should be read in
conjunction with the historical financial statements of the Company and
AmeriDyne Corporation included elsewhere herein.
F-65
<PAGE>
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
PROFORMA CONSOLIDATED BALANCE SHEET
December 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
CONTOUR PROFORMA
MEDICAL ADJUSTMENTS FOR
PROFORMA
INC. AND AMERIDYNE PURCHASE ACQUISITION
CONSOLIDATED
SUBSIDIARIES CORPORATION DR CR
TOTAL
<S> <C> <C> <C> <C>
<C>
ASSETS
Cash $ 42,593 $ 205 $ 300,000(2) $ 300,000(1)
$ 42,798
Accounts receivable 2,126,170 1,974,712
4,100,882
Inventory 1,635,673 1,209,371
2,845,044
Prepaid expenses 153,833 90,239
244,072
Due from parent 941,563 300,000(2)
641,563
4,899,832 3,274,527 300,000 600,000
7,874,359
Property and equipment 807,121 140,346
947,467
Other assets:
Deposit on equipment 355,454 7,689
363,143
Goodwill 985,639(4)
985,639
Notes receivable 146,718
146,718
Other assets 4,575 9,270
13,845
360,029 163,677 985,639 0
1,509,345
$6,066,982 $3,578,550 $1,285,639 $ 600,000
$10,331,171
</TABLE>
See accompanying notes to proforma consolidated statements.
F-66
<PAGE>
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
PROFORMA CONSOLIDATED BALANCE SHEET
December 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
CONTOUR PROFORMA
MEDICAL ADJUSTMENTS FOR
PROFORMA
INC. AND AMERIDYNE PURCHASE ACQUISITION
CONSOLIDATED
SUBSIDIARIES CORPORATION DR CR
TOTAL
<S> <C> <C> <C> <C>
<C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 303,800 $ 327,021 $
630,821
Current maturities of
long-term debt 168,477 763,200
931,677
Accounts payable 1,070,648 721,357
1,792,005
Accrued expenses 136,973 179,183
316,156
Total current
liabilities 1,679,898 1,990,761 0 0
3,670,659
Long-term debt 1,061,130 173,428
1,234,558
Total liabilities $2,741,028 $2,164,189 0 0
4,905,217
SHAREHOLDER'S EQUITY:
Preferred stock 2,400,000 0
2,400,000
Common stock 4,079 7,500 7,500(3) 370(1)
4,449
Additional paid-in
capital 986,415 60,500 60,500(3) 2,099,630(1)
3,086,045
Retained earnings
(deficit) (64,540) 1,403,661 1,403,661(3)
(64,540)
Treasury stock 0 (57,300) 57,300(3)
0
3,325,954 1,414,361 1,471,661 2,157,300
5,425,954
$6,066,982 $3,578,550 $1,471,661 $2,157,300
$10,331,171
</TABLE>
See accompanying notes to proforma consolidated statements.
F-67
<PAGE>
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
PROFORMA CONSOLIDATED STATEMENT OF INCOME
For Six Months Ended December 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
CONTOUR
MEDICAL PROFORMA
PROFORMA
INC. AND AMERIDYNE PROFORMA ADJUST-
CONSOLIDATED
SUBSIDIARIES CORPORATION SUBTOTAL MENTS
TOTAL
<S> <C> <C> <C> <C>
<C>
Sales $4,750,349 $5,167,006 $9,917,355
$9,917,355
Cost of sales 3,420,339 3,924,598 7,344,937
7,344,937
Gross profit 1,330,010 1,242,408 2,572,418 0
2,572,418
Operating expenses 984,944 989,911 1,974,855 24,641(5)
1,999,496
Other income 3,220 83,384 86,604
86,604
Income (loss) before
income tax 348,286 335,881 684,167 (24,641)
659,526
Income taxes 118,417 137,351 255,768 (9,600)(6) $
246,168
Net income $ 229,869 $ 198,530 $ 428,399 $(15,041) $
413,358
Net income per common
and common equivalent
share $0.05 $ 0.09 $
0.08
Weighted average
shares outstanding 4,844,533 4,844,533 369,619
5,214,152
</TABLE>
See accompanying notes to proforma consolidated financial statements.
F-68
<PAGE>
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
PROFORMA CONSOLIDATED STATEMENT OF INCOME
For Twelve Months Ended June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
CONTOUR
MEDICAL PROFORMA
PROFORMA
INC. AND AMERIDYNE PROFORMA ADJUST-
CONSOLIDATED
SUBSIDIARIES CORPORATION SUBTOTAL MENTS
TOTAL
<S> <C> <C> <C> <C>
<C>
Sales $5,585,004 $10,564,054 $16,149,058
$16,149,058
Cost of sales 3,666,601 7,906,859 11,573,460
11,573,460
Gross profit 1,918,403 2,657,195 4,575,598 0
4,575,598
Operating expenses 1,764,461 1,930,354 3,694,815 49,282(5)
3,744,097
Other income (loss) (38,235) 147,712 109,477
109,477
Income (loss) before
income tax 115,707 874,553 990,260 (49,282)
940,978
Income taxes 54,718 328,853 383,571 (19,220)(6) $
364,351
Net income $ 60,989 $ 545,700 $ 606,689 $ (30,062) $
576,627
Net income per common
and common equivalent
share $0.01 $ 0.13 $
0.11
Weighted average shares
outstanding 4,786,126 4,786,126 369,619
5,155,745
</TABLE>
See accompanying notes to proforma consolidated financial statements.
F-69
<PAGE>
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
NOTES TO PROFORMA CONSOLIDATED (UNAUDITED) FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
Reference is made to the "Introduction" at page F-48.
NOTE B - PROFORMA ADJUSTMENTS
The proforma adjustments to the consolidated balance sheet are as follows:
(1) To record the purchase of 100% of the outstanding common stock of
AmeriDyne Corporation for a purchase price consisting of $300,000 cash and
369,619 common shares of Contour Medical with a fair market value of
$2,100,000.
(2) To record the receipt of $300,000 from Retirement Care Associates,
Inc., the parent company of Contour Medical.
(3) To record the elimination of AmeriDyne Corporation shareholder equity.
(4) To record goodwill of $985,639 which is the difference between the
purchase price of $2,400,000 consisting of common stock and cash; and the
net assets of AmeriDyne Corporation of $1,414,361. The goodwill will be
amortized over a 20 year life.
The proforma adjustment to the consolidated statements of income are as
follows:
(5) To record amortization of goodwill of $985,639 over a 20 year period.
(6) To record income tax changes for proforma adjustments at a 39%
effective tax rate.
F-70
<PAGE>
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 or any person to whom it is unlawful to make
such offer or solicitation in such jurisdiction.
TABLE OF CONTENTS
Page
Prospectus Summary
Risk Factors
The Company
Price Range of Common Stock
Dividend Policy
Selected Financial Information
Management's Discussion and Analysis
of Financial Condition and Results
of Operations
Use of Proceeds
Business
Management
Security Ownership of Management
and Principal Shareholders
Certain Transactions
Description of Securities
Plan of Distribution
Selling Shareholder
Legal Matters
Experts
Index to Financial Statements
CONTOUR MEDICAL, INC.
125,186 Shares of Common Stock Issuable
Upon Exercise of Class B Warrants
315,000 Shares of Common Stock Issuable
Upon Exercise of Class C Warrants
630,000 Shares of Common Stock Issuable
Upon Conversion of Series A
Convertible Preferred Stock
577,500 Shares of Common Stock Issuable
Upon Exercise of Consultant's
Warrants
369,619 Shares of Common Stock Offered
By Selling Shareholder
PROSPECTUS
_______________, 1996
<PAGE>
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
arrangement 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
II-1
<PAGE>
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 set forth below. The following information gives retroactive
effect to a 1 for 13 reverse stock split which occurred in July 1993 and a
1.05 for 1 forward stock split which occurred in March 1996.
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
II-2
<PAGE>
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 $0.95238
(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 614,130.
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 $5.714 per
share liquidation value plus accrued dividends plus the number of warrants
held times $1.4286
II-3
<PAGE>
and dividing the sum by the proposed $5.714 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 $.19, as follows:
<TABLE>
<CAPTION>
Number of
Date(s) Name Shares Amount Paid
<S> <C> <C> <C>
4/18/92, 5/12/92, Frank Bauco 50,483 $80,000
6/4/92 & 8/28/92
5/7/92, 5/15/92 Anthony LaMura 14,540 $28,000
& 8/28/92
5/14/92, 5/15/92 William Miller 45,442 $65,884
& 7/7/92
5/15/92 & 9/8/92 George W. David 4,039 $ 6,000
5/25/92 Frank Caimano 4,039 $ 5,000
6/19/92, 11/16/91 Walter James<FN1> 22,836 $46,540
1/3/92, 1/24/92 &
4/23/92
6/21/92 & 9/1/92 Lillian Munter 8,051 $14,950
9/8/92 Wing Mark 3,387 $ 6,290
9/8/92 Tom Walsh 2,666 $ 4,950
9/10/92 Sam Cohen 8,078 $15,000
9/11/92 Brian David 1,616 $ 3,000
9/11/92 Dominic/Vito Deleonardis 8,078 $15,000
9/23/92 Bob Wine 8,078 $15,000
12/18/92 Dr. George Brennan 8,078 $12,000
1/19/93 Sam & Carol J. Piazza 2,666 $ 5,000
12/10/91, 1/17/92, Carmen Russell<FN1> 21,732 $54,517
1/22/92, 2/5/92,
4/3/92 & 4/7/92
2/7/92 Jim Kowalczyic<FN1> 8,962 $22,189
II-4
<PAGE>
3/13/92 Robert Cramer<FN1> 3,604 $ 8,922
7/1/92 Damon Cozzolino 8,886 $11,000
7/1/92 Robert Sweets<FN2> 8,078 $10,000
7/1/92 Scott Williams<FN2> 8,078 $10,000
7/1/92 Robert James<FN2> 8,078 $10,000
7/1/92 Jerry Weinger 8,078 Services valued
at $10,000
11/3/92 Don Tomlin 8,078 Services valued
at $10,000
4/1/93 Paul Cornell 4,039 Services valued
at $5,000
2/20/92 Joseph L. DuRant 145,385 Services valued
at $18,000
2/20/92 Edwin B. Salmon, Jr.<FN3> 218,078 Services valued
at $27,000
5/14/93 William J. Gabriele<FN4> 403,789 1,153,683
shares
Charitable Remainder
Unitrust
5/14/93 Howard Hagon<FN4> 118,704 339,153 shares
Charitable Remainder
Unitrust
5/14/93 Rudolph J. Dallessandro<FN4>142,510 408,172 shares
Charitable Remainder
Unitrust
5/14/93 & 5/28/93 R. J. Dallessandro<FN4> 87,500 235,000 shares
5/28/93 W. J. Gabriele<FN4> 136,500 345,000 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
1.05-for-1 basis 180
II-5
<PAGE>
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
1.05-for-1 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 2,100,000 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.
K. On March 1, 1996, the Company issued 369,619 shares of its Common
Stock to Scott F. Lochridge as part of the consideration paid for his
ownership of all of the outstanding stock of AmeriDyne Corporation
("AmeriDyne") in a transaction in which AmeriDyne was merged with a wholly-
II-6
<PAGE>
owned subsidiary of the Company. Mr. Lochridge continues to serve as
President of AmeriDyne.
With respect to this sale, the Company relied on Section 4(2) of
the Securities Act of 1933, as amended. Mr. Lochridge, an accredited
investor, was given access to complete information concerning the
Registrant. Mr. Lochridge 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)
II-7
<PAGE>
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 Included with Amendment No. 1
Warrants to this filing
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
II-8
<PAGE>
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
Registrant's warehouse space in 10-K for the period ended
St. Petersburg, Florida June 30, 1995
10.9 1996 Stock Option Plan Included with Amendment No.1
to this filing
10.10 Agreement and Plan of Merger by Incorporated by reference to
and among Contour Medical, Inc. Exhibit 10 to the Company's
Contour Merger Sub, Inc., Scott F. Current Report on Form 8-K
Lochridge and AmeriDyne Dated March 1, 1996
Corporation
10.11 Employment Agreement with Scott F. Included with Amendment No.2
Lochridge to this filing
10.12 Promissory Note from AmeriDyne Included with Amendment No.2
Corporation to Scott F. Lochridge to this filing
21 Subsidiaries of the Registrant Included with Amendment No.2
to this filing
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
23.4 Consent of Cowart & Rich, Certified Attached
Public Accountants, P.C.
23.5 Consent of Laney, Boteler & Attached
Killinger
</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
indemnification 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.
II-9
<PAGE>
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.
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment No. 3 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 24th day of June, 1996.
CONTOUR MEDICAL, INC.
By /s/ Donald F. Fox
Donald F. Fox, President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 3 to the Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
Signature Title Date
/s/ Donald F. Fox President, Treasurer June 24, 1996
Donald F. Fox (Principal Financial and
Accounting Officer), and
Chief Financial Officer
/s/ Chris Brogdon Director June 24, 1996
Chris Brogdon
/s/ Edward E. Lane Director June 24, 1996
Edward E. Lane
/s/ Darrell C. Tucker Director June 24, 1996
Darrell C. Tucker
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, except for the
stock split discussed in Note 10 which is as of March 15, 1996, 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
June 25, 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
June 25, 1996
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement of Contour
Medical, Inc. on Form S-1 of our reports dated July 21, 1995, on the financial
statements of AmeriDyne Corporation. We also consent to the reference to our
Firm under the caption "Experts" in the Prospectus.
/s/ Cowart & Rich, Certified Public Accountants, P.C.
COWART & RICH, CERTIFIED PUBLIC ACCOUNTANTS, P.C.
June 25, 1996
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement of Contour
Medical, Inc. on Form S-1 of our reports dated April 4, 1996, and June 20,
1996 on the financial statements of AmeriDyne Corporation. We also consent to
the reference to our Firm under the caption "Experts" in the Prospectus.
/s/ Laney, Boteler & Killinger
LANEY, BOTELER & KILLINGER
June 25, 1996
