<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No.1
(Amending Part II - Items 7, 8 and 9)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year ended: June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from:
Commission File No. 0-26288
CONTOUR MEDICAL, INC.
-----------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
NEVADA 77-0163521
- ------------------------------- -------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identi-
Incorporation or Organization) fication Number)
3340 Scherer Drive
St. Petersburg, Florida 33716
-----------------------------------------------------------
(Address of Principal Executive Offices, Including Zip Code)
Registrant's telephone number, including area code: (813) 572-0089
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.001 Par Value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
As of September 9, 1996, 5,946,793 shares of common stock were outstanding.
The aggregate market value of the common stock of the Registrant held by
nonaffiliates on that date was approximately $13,260,000.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
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PART II
ITEM 7. 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:
SIX
MONTHS
YEAR ENDED ENDED YEAR ENDED DECEMBER 31,
JUNE 30, JUNE 30, ---------------------------------
1996 1995 1994 1994 1993 1992
---------- -------- ------ ------ ------ ------
Sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Sales 72.1% 71.3% 73.8% 64.5% 57.0% 51.0%
Gross Profit 27.9% 28.7% 26.2% 35.5% 43.0% 49.0%
Operating Expenses 23.1% 23.6% 34.1% 40.1% 44.9% 43.6%
Net Income (Loss)
Before Income
Taxes (Benefit) 5.8% 4.6% (24.8%) (13.4%) (3.5%) 3.0%
Income Taxes
(Benefit) 2.1% 1.5% -- -- (1.4%) 0.7%
Net Income (Loss) 3.6% 3.1% (24.8%) (13.4%) (2.0%) 2.3%
YEAR ENDED JUNE 30, 1996 COMPARED TO THE TWELVE MONTHS ENDED JUNE 30, 1995
As a result of the factors discussed below, the Company had net income of
$527,034 for the year ended June 30, 1996, as compared to a net loss of $9,997
for the twelve months ended June 30, 1995.
Sales for the year ended June 30, 1996 increased to $14,542,421 as
compared to $5,585,004 for the twelve months ended June 30, 1995, due to
growth in sales volume of the existing product lines and the addition of the
Company's new product line, bulk medical supplies. Approximately $4,844,000
of the sales increase is attributable to sales of bulk medical supplies and
prepacked kits to nursing homes managed or operated by the Company's majority
shareholder; the AmeriDyne acquisition on March 1, 1996, resulted in
additional sales of bulk medical supplies of approximately $3,617,000. The
balance of the sales increase, or approximately $496,000, resulted from
increased sales of manufactured foam products and polyethylene bags.
Gross profit for the year ended June 30, 1996, was $4,051,318 or 27.8% of
sales as compared to $1,739,553 or 31.1% of sales for the twelve months ended
June 30, 1995. The gross profit percentage decreased in 1996 as compared to
the comparable period in 1995 because the sales mix for 1996 was substantially
higher in bulk medical supplies, which have a lower gross profit than the
manufactured products. Approximately $980,000 of the increase in gross profit
for the period ended June 30, 1996 was a result of the additional sales
generated from the AmeriDyne acquisition.
Operating expenses for the year ended June 30, 1996, increased to
$3,185,620 as compared to $1,632,015 for the same period in 1995. Total
operating expenses increased approximately $1,553,000 as a result of the
increased revenues, but as a percentage of sales they decreased to
approximately 23% of sales in 1996 versus 29% of sales in the same period in
1995. The AmeriDyne acquisition increased
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operating expenses by $635,000 for the year ended June 30, 1996. The largest
components of operating expenses are indirect labor (including sales salaries
and commissions), occupancy expense, depreciation and amortization, and
insurance. Operating expenses decreased as a percentage of sales due to the
Company's addition of bulk medical supplies to its product line. While the
distribution of these products produces lower gross margins, this enterprise
requires lower operating expenses to support revenues than the Company's
manufacturing business. As revenues from the sales of bulk medical supplies
have increased at a significantly faster rate than manufacturing (593% growth
in distribution revenues during the twelve months ended June 30, 1996 compared
to the twelve months ended June 30, 1995 versus 12% growth in manufacuturing
revenues during the same period), operating expenses as a percentage of total
revenues consequently has declined.
Other income and expenses are made up of interest expense, debts
recovered that were previously written off, service charge income, and gains
and losses on the disposition of assets. Interest expense for the year ended
June 30, 1996 was approximately $171,000 compared to $39,000 for the same
period in the previous year. Interest expense increased primarily as a result
of the AmeriDyne acquisition and an increase in the Company's line of credit
during the year from $250,000 to $500,000. Service charge income and
recoveries of bad debts were approximately $144,000 in the year ended June 30,
1996 compared to $22,000 in the same period the previous year. These
increases were primarily due to the acquisition of AmeriDyne.
For fiscal year ended June 30, 1996, the Company recorded an allowance
for bad debts of $410,000 when there had been no such allowance recorded in
prior periods primarily as a result of the AmeriDyne acquisition on March 1,
1996. AmeriDyne maintained an allowance for bad debts of $400,000 at the time
AmeriDyne was acquired by the Company.
Net income before taxes for the year ended June 30, 1996, was $839,200 as
compared to $44,721 for the twelve months ended June 30, 1995. The AmeriDyne
acquisition contributed approximately $295,000 to net income before taxes for
the year ended June 30, 1996.
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
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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.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had $3,931,948 of working capital as
compared to working capital of $2,973,748 at June 30, 1995. The increase in
working capital was primarily due to the AmeriDyne acquisition which was
completed during March, 1996.
Operating activities for the year ended June 30, 1996 utilized cash of
$124,047 as compared to operating activities during the six months ended June
30, 1995, which utilized cash of $1,030,398.
Inventories increased by approximately $1,579,000 from June 30, 1995 as a
result of increased inventory levels needed to serve the growing nursing home
market, and approximately $1,240,000 of the increase resulted from the
AmeriDyne acquisition. Accounts receivable and accounts payable have
increased due to the increased level of sales and inventories.
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Cash flows from investing activities used cash of $521,456 for the year
ended June 30, 1996 as a result of the repayment of $550,004 from the
Company's parent which was offset by the use of $749,163 for the acquisition
of additional equipment and $322,297 for the AmeriDyne acquisition.
Cash flow of $695,487 was provided from financing activities in fiscal
1996 versus $2,163,773 in 1995. For the year ended June 30, 1996, $608,956
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.
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.
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
and 1993, 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.
At June 30, 1996, the Company has a mortgage payable with Michigan
National Bank with an outstanding balance of $456,233, 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 $64,284 with monthly
principal payments of $1,190 and interest at prime plus .75% (9.0% at June 30,
1996); and a loan secured by equipment with a balance of $496,171, bearing
interest at prime plus .75% with monthly payments of $11,380 including
interest. The Company secured an equipment loan with Fidelity Bank with an
outstanding balance of $217,559 as of June 30, 1996, interest at prime plus 1%
(9.25% at June 30, 1996), principal of $5,000 plus interest, collateralized by
equipment. At June 30, 1996, the Company had a note payable with Republic
Bank with a balance of $60,436, interest at 8.75%, with principal and interest
of $1,282 due monthly, collateralized by accounts receivable, inventory and
equipment of the Florida subsidiary.
As of June 30, 1996, the Company maintained a total of $1,575,000 in
lines of credit with its banks for short-term working capital needs, and
$1,456,535 had been borrowed against these lines. On August 5, 1996, the
Company's line of credit with Republic Bank was increased from $500,000 to
$1,750,00. On September 20, 1996, the Company replaced all of its existing
lines of credit with a $7,000,000 revolving line of credit with Barnett Bank,
secured by inventory and accounts receivable and bearing interest at the
30-day LIBOR rate plus 2%. Management believes that the Company's working
capital, together with anticipated
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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
Retirement Care, the Company's majority shareholder, would pay down the amount
it owes to the Company.
The Company completed a $5 million debenture placement on July 12, 1996.
These debentures bear interest at 9% per annum and are to be repaid in monthly
installments beginning on July 1, 1999, with full payment due by July 1, 2003.
The debentures are convertible into shares of the Company's Common Stock. The
two debentures, each in the amount of $2.5 million, were purchased by
Renaissance U.S. Growth and Income Trust, PLC, a fund listed on the London
Stock Exchange, and by Renaissance Capital Growth & Income Fund III, Inc., a
closed-end, publicly traded fund that invests in emerging growth companies.
Both of these investment funds are managed by Renaissance Capital Group, Inc.,
of Dallas, Texas.
On August 6, 1996, the Company acquired all of the oustanding stock of
Atlantic Medical Supply Company, Inc. ("Atlantic Medical"), a distributor of
disposable medical supplies and a provider of third-party billing services to
the nursing home and home health care markets. The acquisition was made
effective retroactively to July 1, 1996. The Company paid $1,400,000 in cash
and promissory notes totaling $10,500,000 for the stock of Atlantic Medical.
The promissory notes bear interest at 7% per annum and are due in full on
January 10, 1997. In the event of a default in the payment of the promissory
notes, they are convertible into shares of common stock of Retirement Care
Associates, Inc., the Company's majority shareholder. The cash for this
transaction came from the $5 million debenture placement that was completed on
July 12, 1996. The Company intends to pay the promissory notes from the
proceeds of an offering of the Company's securities to be conducted by the
Company.
The Company presently does not anticipate any 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Independent Auditors' Reports appear at pages F-1 through F-3, and
the Financial Statements and Notes to Financial Statements appear at pages F-4
through F-33 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
In August 1997, the accounting firm of Coopers & Lybrand, L.L.P. resigned
as the Company's independent accountants and notified the Company that its
report on its audit of the Company's financial statements for the fiscal year
ended June 30, 1996 should no longer be relied upon.
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The Company engaged the accounting firm of Cherry, Bekaert & Holland,
L.L.P. to reaudit the Company's financial statements for the fiscal year ended
June 30, 1996.
These changes in the Company's independent accountants was previously
reported in a Current Report on Form 8-K dated August 21, 1997 (as amended by
an amendment to the Current Report on Form 8-K/A dated as of August 21, 1997)
and a Current Report on Form 8-K dated as of September 18, 1997.
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REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Contour Medical, Inc.
St. Petersburg, Florida
We have audited the accompanying consolidated balance sheet of Contour
Medical, Inc. (a subsidiary of Retirement Care Associates, Inc.) and
Subsidiaries (the Company) as of June 30, 1996, and the related statements of
operations, stockholders' equity, and cash flows for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Contour Medical,
Inc. and Subsidiaries as of June 30, 1996, and the consolidated results of its
operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
/s/ Cherry, Bekaert & Holland, L.L.P.
Cherry, Bekaert & Holland, L.L.P.
Greensboro, North Carolina
October 9, 1997
F-1
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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. (a subsidiary of Retirement Care Associates, Inc.) and
Subsidiaries as of June 30, 1995 and the related consolidated statements of
operations, stockholders' equity and cash flows for the six months ended June
30, 1995 and year ended December 31, 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 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 the results of their
operations and their cash flows for the six months ended June 30, 1995 and
year then ended December 31, 1994 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-2
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INDEPENDENT AUDITORS' REPORT
Board of Directors
Contour Medical, Inc.
St. Petersburg, Florida
We have audited the accompanying consolidated statements of operations,
changes in stockholders' equity and cash flows of Contour Medical, Inc. and
Subsidiaries for the year ended December 31, 1993. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statements of operations,
changes in stockholders' equity, and cash flows 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 consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Contour Medical, Inc. and Subsidiaries for the year ended December
31, 1993 in conformity with generlaly accepted accounting principles.
/s/ Pender Newkirk & Company
Certified Public Accountants
Tampa, Florida
January 21, 1994
100 South Ashley Drive, Suite 1650, Tampa, Florida 33602
813/229-2321
813/229-2359 FAX
PENDER NEWKIRK & COMPANY - CERTIFIED PUBLIC ACCOUNTANTS
Member of Private Companies Practice Section
and SEC Practice Section of American Institute
of Certified Public Accountants
F-3
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CONTOUR MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1996 and 1995
1996 1995
ASSETS ----------- ----------
Cash $ 146,219 $ 96,235
Accounts receivable:
Related parties 1,918,000 943,094
Trade, net of allowance for bad debts
of approximately $410,000 in 1996 2,527,676 760,703
Inventories 2,876,792 1,297,394
Refundable income taxes 21,406 10,680
Deferred income taxes 164,048 -
Prepaid expenses and other 51,519 74,319
Due from parent 618,897 1,168,901
----------- ----------
8,324,557 4,351,326
Property and equipment, less ----------- ----------
accumulated depreciation 1,223,195 592,243
----------- ----------
Other assets:
Deposit on equipment 416,184 228,282
Other 8,167 4,575
Goodwill, net of accumulated amorti-
ation of approximately $11,000 in 1996 1,286,165 0
----------- ----------
1,710,516 232,857
----------- ----------
$11,258,268 $5,176,426
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 1,825,193 $ 414,077
Accounts payable 2,036,652 882,524
Accrued expenses 366,716 80,977
----------- ----------
4,228,561 1,377,578
Long-term debt, less current maturities 1,352,937 907,711
----------- ----------
Total liabilities 5,581,498 2,285,289
----------- ----------
Stockholders' equity:
Preferred stock - Series A convertible;
$.001 par value, shares authorized -
1,265,000; issued and outstanding -
600,000 at aggregate liquidation
preference 2,528,000 2,400,000
Common stock; $.001 par value, shares
authorized - 76,000,000; issued and
outstanding 5,214,223 and 4,573,600,
respectively, (net of $765 discount) 4,449 3,808
Additional paid-in capital 2,911,696 781,738
Retained earnings (deficit) 232,625 (294,409)
----------- ----------
Total stockholders' equity 5,676,770 2,891,137
----------- ----------
$11,258,268 $5,176,426
The accompanying notes are an integral part of these financial statements.
F-4
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CONTOUR MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED DECEMBER 31,
JUNE 30, JUNE 30, ------------------------
1996 1995 1994 1993
----------- ---------- ---------- -----------
Sales $14,542,421 $3,568,459 $3,945,745 $3,618,359
Cost of sales 10,491,103 2,544,376 2,545,925 2,061,250
----------- ---------- ---------- ----------
Gross profit 4,051,318 1,024,083 1,399,820 1,557,109
Selling, general and
administrative expenses 3,185,620 841,275 1,550,385 1,538,465
Litigation settlements 0 0 30,000 85,000
----------- ---------- ---------- ----------
Income (loss) from
operations 865,698 182,808 (180,565) (66,356)
----------- ---------- ---------- ----------
Other income (expenses):
Offering costs 0 0 (305,731) 0
Interest (170,951) (39,098) (53,627) (63,758)
Other 144,453 22,381 10,741 4,789
----------- ---------- ---------- ----------
(26,498) (16,717) (348,617) (58,969)
----------- ---------- ---------- ----------
Income (loss) before taxes
on income (benefit) 839,200 166,091 (529,182) (125,325)
Taxes on income (benefit) 312,166 54,718 0 (51,789)
----------- ---------- ---------- ----------
Net income (loss) $ 527,034 $ 111,373 $ (529,182) $ (73,536)
=========== ========== ========== ==========
Earnings (loss) per
common share $ 0.09 $ 0.02 $ (0.20) $ (0.05)
=========== ========== ========== ==========
Weighted average common
shares and share
equivalents outstanding 4,804,292 4,786,126 2,688,927 1,434,466
=========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements.
F-5
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CONTOUR MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SUBSCRIBED
COMMON STOCK COMMON STOCK ADDITIONAL
-------------------- ---------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
---------- -------- -------- ------ ---------
Balance, January 1, 1993 6,900 $ 6,900 0 $ 0 $ 0
Acquisition of CMI 16,315,034 16,315 150,000 75 517,939
Recapitalization (6,900) (23,215) 0 (75) (517,939)
Issuance of stock 180,045 33 (150,000) 0 4,967
Contribution of stock 0 0 0 0 0
1-for-13 reverse stock
split (15,226,227) (30) 0 0 30
Conversion of Class A
preferred stock 365,704 366 0 0 27,226
Conversion of Class C
preferred stock 846,669 847 0 0 404,356
Issuance of Class E
preferred stock in
exchange for common
stock (172,986) (87) 0 0 (295,656)
Net loss 0 0 0 0 0
----------- -------- -------- ------ ---------
Balance, December 31,
1993 2,308,239 1,129 0 0 140,923
Conversion of Class A
preferred stock 219,182 220 0 0 39,557
Conversion of Class B
preferred stock 33,333 33 0 0 (33)
Converson of Class D
preferred stock and
warrants 238,450 238 0 0 75,212
Conversion of Class E
preferred stock 172,986 173 0 0 295,569
Conversion of Class One
preferred stock 2,000,000 2,000 0 0 370,844
Net loss 0 0 0 0 0
----------- -------- -------- ------ ---------
Balance, December 31,
1994 4,972,190 3,793 0 0 922,072
Issuance of Series A
preferred stock 0 0 0 0 (214,997)
Exercise of common
stock options 15,385 15 0 0 19,985
Correction of Class A
preferred stock conver-
sion 255 0 0 0 0
Redemption of Class A
warrants 0 0 0 0 (40)
Tax benefit from utiliza-
tion of net operating
loss carryforward 0 0 0 0 54,718
Retirement of treasury
stock (414,230) 0 0 0 0
Net income 0 0 0 0 0
----------- -------- -------- ------ ---------
F-6
<PAGE>
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, CONTINUED
SUBSCRIBED
COMMON STOCK COMMON STOCK ADDITIONAL
-------------------- ---------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
---------- -------- -------- ------ ----------
Balance, June 30, 1995 4,573,600 3,808 0 0 781,738
Issuance of stock 352,018 353 0 0 2,045,753
Exercise of common stock
options 25,000 25 0 0 49,975
1.05-for-1 forward stock
split 247,601 247 0 0 (247)
Correction of preferred
stock 16,004 16 0 0 (16)
Short-swing liability from
a shareholder 0 0 0 0 36,531
Preferred dividends in
arrears 0 0 0 0 (128,000)
Tax benefit from utiliza-
tion of net operating
loss carryforward 0 0 0 0 125,962
Net income 0 0 0 0 0
----------- -------- -------- ------ ----------
Balance, June 30, 1996 5,214,223 $ 4,449 0 $ 0 $2,911,696
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, CONTINUED
CONVERTIBLE
PREFERRED STOCK
RETAINED TREASURY STOCK SERIES A
EARNINGS ----------------- -----------------
(DEFICIT) SHARES AMOUNT SHARES AMOUNT
----------- --------- ------ ------- --------
Balance, January 1, 1993 $ 287,099 0 $ 0 0 $ 0
Acquisition of CMI (1,039,673) 0 0 0 0
Recapitalization 1,039,673 0 0 0 0
Issuance of stock 0 0 0 0 0
Contribution of stock 0 5,385,000 0 0 0
1-for-13 reverse stock
split 0 (4,970,770) 0 0 0
Conversion of Class A
preferred stock (27,592) 0 0 0 0
Conversion of Class C
preferred stock 0 0 0 0 0
Issuance of Class E
preferred stock in
exchange for common
stock 0 0 0 0 0
Net loss (73,536) 0 0 0 0
----------- --------- ----- ------- ---------
Balance, December 31, 1993 185,971 414,230 0 0 0
Conversion of Class A
preferred stock (14,777) 0 0 0 0
Conversion of Class B
preferred stock 0 0 0 0 0
Converson of Class D
preferred stock
and warrants (47,794) 0 0 0 0
Conversion of Class E
preferred stock 0 0 0 0 0
Conversion of Class One
preferred stock 0 0 0 0 0
Net loss (529,182) 0 0 0 0
----------- --------- ----- ------- ---------
Balance, December 31, 1994 (405,782) 414,230 0 0 0
Issuance of Series A
preferred stock 0 0 0 600,000 2,400,000
Exercise of common
stock options 0 0 0 0 0
Correction of Class A
preferred stock
conversion 0 0 0 0 0
Redemption of Class A
warrants 0 0 0 0 0
Tax benefit from utili-
zation of net operating
loss carryforward 0 0 0 0 0
Retirement of treasury
stock 0 (414,230) 0 0 0
Net income 11,373 0 0 0 0
--------- --------- ----- ------- ---------
F-8
<PAGE>
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, CONTINUED
CONVERTIBLE
PREFERRED STOCK
RETAINED TREASURY STOCK SERIES A
EARNINGS ----------------- -----------------
(DEFICIT) SHARES AMOUNT SHARES AMOUNT
----------- --------- ------ ------- --------
Balance, June 30, 1995 (294,409) 0 0 600,000 2,400,000
Issuance of stock 0 0 0 0 0
Exercise of common stock
options 0 0 0 0 0
1.05-for-1 forward stock
split 0 0 0 0 0
Correction of preferred
stock 0 0 0 0 0
Short-swing liability
from a shareholder 0 0 0 0 0
Preferred dividends in
arrears 0 0 0 0 128,000
Tax benefit from utili-
zation of net operating
loss carryforward 0 0 0 0 0
Net income 527,034 0 0 0 0
---------- --------- ----- ------- ---------
Balance, June 30, 1996 $ 232,625 0 $ 0 600,000 $2,528,000
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, CONTINUED
REDEEMABLE CUMULATIVE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK
CLASS D CLASS ONE
-------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
--------- --------- --------- ---------
Balance, January 1, 1993 0 $ 0 0 $ 0
Acquisition of CMI 1,000,000 0 0 0
Recapitalization 0 0 0 0
Issuance of stock 74,176 400,500 0 0
Contribution of stock 0 0 0 0
1-for-13 reverse stock split 0 0 0 0
Conversion of Class A
preferred stock 0 0 0 0
Issuance of Class E preferred stock
in exchange for common stock 0 0 0 0
Net loss 0 0 0 0
--------- --------- --------- --------
Balance, December 31, 1993 1,074,176 400,500 0 0
Conversion of Class A
preferred stock 0 0 0 0
Conversion of Class B
preferred stock 0 0 0 0
Converson of Class D preferred
stock and warrants (1,074,176) (400,500) 2,000,000 372,844
Conversion of Class E
preferred stock 0 0 0 0
Conversion of Class One
preferred stock 0 0 (2,000,000) (372,844)
Net loss 0 0 0 0
--------- --------- --------- ---------
Balance, December 31, 1994 0 0 0 0
Issuance of Series A
preferred stock 0 0 0 0
Exercise of common stock options 0 0 0 0
Correction of Class A
preferred stock conversion 0 0 0 0
Redemption of Class A warrants 0 0 0 0
Tax benefit from utilization of
net operating loss carryforward 0 0 0 0
Retirement of treasury stock 0 0 0 0
Net income 0 0 0 0
--------- --------- --------- --------
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, CONTINUED
REDEEMABLE CUMULATIVE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK
CLASS D CLASS ONE
-------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
--------- --------- --------- ---------
Balance, June 30, 1995 0 0 0 0
Issuance of stock 0 0 0 0
Exercise of common stock options 0 0 0 0
1.05-for-1 forward stock split 0 0 0 0
Correction of preferred stock 0 0 0 0
Short-swing liability from
a shareholder 0 0 0 0
Preferred dividends in arrears 0 0 0 0
Tax benefit from utilization of
net operating loss carryforward 0 0 0 0
Net income 0 0 0 0
--------- --------- --------- --------
Balance, June 30, 1996 0 $ 0 0 $ 0
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, CONTINUED
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK
CLASS A CLASS B
------------------------ ---------------------
SHARES AMOUNT SHARES AMOUNT
--------- ---------- --------- ---------
Balance, January 1, 1993 0 $ 0 0 $ 0
Acquisition of CMI 36,325 33,919 2 100,000
Recapitalization 0 (33,919) 0 (100,000)
Issuance of stock 334,319 25,000 0 0
Contribution of stock 0 0 0 0
1-for-13 reverse stock
split 0 0 0 0
Conversion of Class A
preferred stock (271,119) 0 0 0
Issuance of Class E
preferred stock in
exchange for common stock 0 0 0 0
Net loss 0 0 0 0
--------- -------- --------- --------
Balance, December 31, 1993 99,525 25,000 2 0
Conversion of Class A
preferred stock (99,525) (25,000) 0 0
Conversion of Class B
preferred stock 0 0 (2) 0
Converson of Class D
preferred stock and
warrants 0 0 0 0
Conversion of Class E
preferred stock 0 0 0 0
Conversion of Class
One preferred stock 0 0 0 0
Net loss 0 0 0 0
--------- -------- --------- --------
Balance, December 31, 1994 0 0 0 0
Issuance of Series A
preferred stock 0 0 0 0
Exercise of common stock
options 0 0 0 0
Correction of Class A
preferred stock conversion 0 0 0 0
Redemption of Class A
warrants 0 0 0 0
Tax benefit from utiliza-
tion of net operating
loss carryforward 0 0 0 0
Retirement of treasury stock 0 0 0 0
Net income 0 0 0 0
--------- -------- --------- --------
F-12
<PAGE>
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, CONTINUED
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK
CLASS A CLASS B
------------------------ ---------------------
SHARES AMOUNT SHARES AMOUNT
--------- ---------- --------- ---------
Balance, June 30, 1995 0 0 0 0
Issuance of stock 0 0 0 0
Exercise of common stock
options 0 0 0 0
1.05-for-1 forward stock
split 0 0 0 0
Correction of preferred
stock 0 0 0 0
Short-swing liability from
a shareholder 0 0 0 0
Tax benefit from utiliza-
tion of net operating
loss carryforward 0 0 0 0
Net income 0 0 0 0
--------- -------- --------- --------
Balance, June 30, 1996 0 $ 0 0 $ 0
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE>
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, CONTINUED
CONVERTIBLE CUMULATIVE CLASS C
PREFERRED STOCK PREFERRED STOCK
CLASS C SERIES E
----------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
--------- ---------- --------- ---------
Balance, January 1, 1993 0 $ 0 0 $ 0
Acquisition of CMI 666,669 0 325,000 0
Recapitalization 0 (74,797) 0 0
Issuance of stock 0 0 0 0
Issuance of stock in
satisfaction of loans 180,000 480,000 0 0
Conversion of Class A
preferred stock 0 0 0 0
Conversion of Class C
preferred stock (846,669) (405,203) 0 0
Issuance of Class E
preferred stock in
exchange for common stock 0 0 0 0
Acquisition and retirement
of stock 0 0 (325,000) 0
Net loss 0 0 0 0
--------- ---------- --------- --------
Balance, December 31, 1993 0 0 0 0
Conversion of Class A
preferred stock 0 0 0 0
Conversion of Class B
preferred stock 0 0 0 0
Converson of Class D
preferred stock and warrants 0 0 0 0
Conversion of Class E
preferred stock 0 0 0 0
Conversion of Class One
preferred stock 0 0 0 0
Net loss 0 0 0 0
--------- ---------- --------- --------
Balance, December 31, 1994 0 0 0 0
Issuance of Series A
preferred stock 0 0 0 0
Exercise of common stock
options 0 0 0 0
Correction of Class A
preferred stock conversion 0 0 0 0
Redemption of Class A
warrants 0 0 0 0
Tax benefit from utilization
of net operating loss
carryforward 0 0 0 0
Retirement of treasury stock 0 0 0 0
Net income 0 0 0 0
--------- ---------- --------- -------
F-14
<PAGE>
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, CONTINUED
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK
CLASS A CLASS B
------------------------ ---------------------
SHARES AMOUNT SHARES AMOUNT
--------- ---------- --------- ---------
Balance, June 30, 1995 0 0 0 0
Issuance of stock 0 0 0 0
Exercise of common stock
options 0 0 0 0
1.05-for-1 forward stock
split 0 0 0 0
Correction of preferred
stock 0 0 0 0
Short-swing liability from
a shareholder 0 0 0 0
Preferred dividends in
arrears 0 0 0 0
Tax benefit from utiliza-
tion of net operating loss
carryforward 0 0 0 0
Net income 0 0 0 0
--------- ---------- --------- ------
Balance, June 30, 1996 0 $ 0 0 $ 0
The accompanying notes are an integral part of these financial statements.
F-15
<PAGE>
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, CONTINUED
SUBSCRIBED CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK
CLASS A CLASS E
------------------------ -------------------
SHARES AMOUNT SHARES AMOUNT
--------- ---------- --------- -------
Balance, January 1, 1993 0 $ 0 0 $ 0
Acquisition of CMI 309,319 289,728 0 0
Recapitalization 0 (289,728) 0 0
Issuance of stock (309,319) 0 0 0
Issuance of stock in
satisfaction of loans 0 0 0 0
Conversion of Class A
preferred stock 0 0 0 0
Conversion of Class C
preferred stock 0 0 0 0
Issuance of Class E
preferred stock in
exchange for common stock 0 0 172,986 295,742
Acquisition and retirement
of stock 0 0 0 0
Net loss 0 0 0 0
--------- ---------- --------- -------
Balance, December 31, 1993 0 0 172,986 295,742
Conversion of Class A
preferred stock 0 0 0 0
Conversion of Class B
preferred stock 0 0 0 0
Converson of Class D
preferred stock and warrants 0 0 0 0
Conversion of Class E
preferred stock 0 0 (172,986) (295,742)
Conversion of Class One
preferred stock 0 0 0 0
Net loss 0 0 0 0
--------- ---------- --------- -------
Balance, December 31, 1994 0 0 0 0
Issuance of Series A
preferred stock 0 0 0 0
Exercise of common stock
options 0 0 0 0
Correction of Class A
preferred stock conversion 0 0 0 0
Redemption of Class A
warrants 0 0 0 0
Tax benefit from utilization
of net operating loss
carryforward 0 0 0 0
Retirement of treasury stock 0 0 0 0
Net income 0 0 0 0
--------- ---------- --------- --------
F-16
<PAGE>
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, CONTINUED
SUBSCRIBED CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK
CLASS A CLASS E
------------------------ -------------------
SHARES AMOUNT SHARES AMOUNT
--------- ---------- --------- -------
Balance, June 30, 1995 0 0 0 0
Issuance of stock 0 0 0 0
Exercise of common stock
options 0 0 0 0
1.05-for-1 forward stock
split 0 0 0 0
Correction of preferred
stock 0 0 0 0
Short-swing liability from
a shareholder 0 0 0 0
Tax benefit from utilization
of net operating loss
carryforward 0 0 0 0
Net income 0 0 0 0
--------- ---------- --------- ------
Balance, June 30, 1996 0 $ 0 0 $ 0
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE>
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED DECEMBER 31,
JUNE 30, JUNE 30 ---------------------
1996 1995 1994 1993
----------- ---------- ---------- ----------
Cash flows from operating
activities:
Net income (loss) $ 527,034 $ 111,373 $(529,182) $ (73,536)
Adjustments to reconcile
net income (loss) to net cash
used in operating activities:
Depreciation and amortization 255,757 51,670 98,684 53,397
Offering costs 0 0 305,731 0
Tax benefit from utilization
of net operating loss
carryforward 207,990 54,718 0 0
Cash provided by (used in):
Accounts receivable (1,364,353)(1,123,856) (34,558) (12,505)
Inventories (318,832) (908,317) 33,978 50,654
Refundable income taxes (10,726) (2,500) 90,941 (99,121)
Prepaid expenses and other 32,059 (61,325) (6,189) (6,805)
Accounts payable 402,534 767,004 23,263 (74,444)
Accrued expenses 144,490 80,835 (10,801) (46,924)
---------- ---------- ---------- ---------
Net cash used in operating
activities (124,047)(1,030,398) (28,133) (209,284)
---------- ---------- ---------- ---------
Cash flows from investing
activities:
Purchases of property and
equipment (749,163) (304,762) (46,181) (123,917)
Cash acquired from acquisition 0 0 0 778
Decrease (increase) in due
from parent 550,004 (1,168,901) 0 0
Deposit on equipment 0 (228,282) 0 0
Decrease (increase) in
other assets 0 0 555 (1,055)
Acquisition of AmeriDyne,
net of cash acquired (322,297) 0 0 0
---------- ---------- ---------- ---------
Net cash used in investing
activities (521,456)(1,701,945) (45,626) (124,194)
---------- ---------- ---------- ---------
Cash flows from financing
activities:
Deferred offering costs 0 0 (59,990) (138,136)
Proceeds from issuance of notes
payable to bank 1,295,635 0 0 80,000
Proceeds (repayments) on notes
payable to bank (686,679) 189,671 (42,177) 100,000
Increase (decrease) in due to
parent 0 (165,000) 165,000 0
F-18
<PAGE>
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, CONTINUED
SUBSCRIBED CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK
CLASS A CLASS E
------------------------ -------------------
SHARES AMOUNT SHARES AMOUNT
--------- ---------- --------- -------
Proceeds from issuance of
long-term debt 0 482,622 0 0
Payments of long-term debt 0 (34,328) 0 0
Payments on loans to
stockholder 0 0 0 (23,420)
Proceeds from issuance of
stock 0 0 0 430,500
Proceeds from issuance of
preferred stock, net of
offering costs 0 2,196,447 0 0
Exercise of stock options 50,000 20,000 0 0
Redemption of Class A
warrants 0 (40) 0 0
Payment of short-swing
liability by a shareholder 36,531 0 0 0
-------- ------------- ---------- --------
Net cash provided by
financing activities 695,487 2,689,372 62,833 448,944
-------- ------------- ---------- --------
Net increase (decrease)
in cash 49,984 (42,971) (10,926) 115,466
Cash, beginning of period 96,235 139,206 150,132 34,666
-------- ------------- ---------- --------
Cash, end of period $146,219 $ 96,235 $ 139,206 $150,132
The accompanying notes are an integral part of these financial statement.
F-19
<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), Contour Fabricators of Florida, Inc. (CFFI),
and AmeriDyne Corporation (AmeriDyne), collectively referred to as "the
Company." All material intercompany accounts and transactions have been
eliminated in the consolidation. CMI is a majority owned subsidiary of
Retirement Care Associates, Inc. (Parent Company).
Inventories - Inventories are valued at the lower of cost (first-in,
first-out) or market. AmeriDyne inventories are valued at the lower of
average cost or market.
Property and Equipment - 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.
Goodwill - The Company has classified as goodwill the cost in excess of fair
value of the net assets (including tax attributes) of AmeriDyne acquired in a
purchase transaction. Goodwill is being amortized on the straight-line method
over 40 years. Amortization charged to continuing operations amounted to
$11,261 for the year ended June 30, 1996. The Company periodically reviews
goodwill to assess recoverability, and any impairment would be recognized in
operating results if a permanent diminution in value were to occur.
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
9, were charged against the proceeds therefrom in 1995.
Change in Method of Accounting for Income Taxes - 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, and the
1.05-for-1 forward stock split which occurred in 1996. Common stock
equivalents for 1996, 1995, 1994 and 1993 have not been included, since the
effect would be antidilutive. Cumulative dividends in arrears of $96,000 and
$32,000 related to the Company's Class A preferred stock (see Note 9) have
been deducted from 1996 and 1995 net income for the calculation of earnings
per common share, respectively.
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES, Continued:
Change in Year-End - 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.
Use of Estimates - The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of
consolidated assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements. Estimates
also affect the reported amounts of consolidated revenues and expenses during
the reporting period. Actual results could differ from those estimates.
New Pronouncements - The Financial Accounting Standards Board has released
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." SFAS No.121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. This standard would be effective for the
company's fiscal year ended June 30, 1997.
The Financial Accounting Standards Board also released SFAS No. 123,
"Accounting for Stock Based Compensation." SFAS No. 123 encourages, but does
not require, companies to recognize compensation expense based on the fair
value of grants of stock, stock options, and other equity investments to
employees. Although expense recognition for employee stock-based compensation
is not mandatory, SFAS No. 123 requires that companies not adopting must
disclose pro forma net income and earnings per share. The Company will
continue to apply the prior accounting rules and make pro forma disclosures.
This standard would be effective for the Company's fiscal year ending June 30,
1997.
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 consolidated
financial statements since January 1, 1993.
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. ORGANIZATION AND BUSINESS ACQUISITION, Continued:
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 Parent Company. Sales to these facilities
approximated $5,456,000 for the year ended June 30, 1996, and $1,426,000 for
the six-month period ended June 30, 1995. Trade accounts receivable of
approximately $1,918,000 and $943,000 related to these health care facility
sales are outstanding as of June 30, 1996 and 1995, respectively.
Additionally, the Company had an outstanding loan receivable due from its
Parent Company of approximately $619,000 and $1,169,000 as of June 30, 1996
and 1995, respectively, which is due on demand with no stated interest rate.
4. INVENTORIES:
Inventories at June 30, 1996 and 1995 consisted of the following:
1996 1995
Raw materials $ 330,699 $ 259,952
Work in process 96,647 58,704
Finished goods 2,449,446 978,738
$ 2,876,792 $ 1,297,394
All inventories are pledged as collateral (see Note 6).
5. PROPERTY AND EQUIPMENT:
Property and equipment at June 30, 1996 and 1995 consisted of the following:
Useful Lives 1996 1995
Land $ 50,000 $ 50,000
Building 5-45 yrs. 596,247 596,247
Machinery and equipment 3-7 yrs. 1,798,520 1,034,568
Furniture and fixtures 5-7 yrs. 146,536 124,651
Leasehold improvements 5 yrs. 251,352 13,923
Vehicles 3-5 yrs. 72,245 9,109
2,914,900 1,828,498
Less accumulated depreciation 1,691,705 1,236,255
$ 1,223,195 $ 592,243
All property and equipment are pledged as collateral (see Note 6).
6. NOTES PAYABLE:
Notes payable at June 30, 1996 and 1995 consisted of the following:
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
6. NOTES PAYABLE, Continued:
1996 1995
Note payable to bank, interest at prime
plus 1% (9.25% at June 30, 1996), principal
of $5,000 plus interest due monthly
through June 2000, collateralized by
equipment $ 217,559 $ 300,000
Note payable to bank, interest at prime plus
.75% (9.00% at June 30, 1996) principal of
$7,605 plus interest due monthly through
May 2000, collateralized by accounts
receivable, inventory, equipment and real
property 496,171 182,622
Mortgage payable to bank, bearing interest
at 8.58%, principal and interest of $6,793
due monthly through December 2003,
collateralized by accounts receivable,
inventory, equipment and real property 456,233 491,662
Mortgage payable to bank, interest at
prime plus .75% (9.00% at June 30,
1996), principal of $1,190 plus interest
due monthly through December 2000,
collateralized by accounts receivable,
inventory, equipment and real property 64,284 78,571
Borrowings under $100,000 line of credit,
interest at prime plus .75% (9.00% at
June 30, 1996), payable monthly,
collateralized by accounts receivable,
inventory, equipment, and real property 65,000 0
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, collateralized by accounts
receivable, inventory and equipment 0 23,333
Note payable to bank, interest at 8.75%,
principal and interest at $1,282 due
monthly through April 2001, collateralized
by equipment 60,436 0
Borrowings under $250,000 line of credit,
interest at prime plus 1% (10% at June 30,
1995) payable monthly, collateralized by
accounts receivable and inventory 0 245,600
Borrowings under $500,000 line of credit,
interest at prime plus .25% (8.5% at June 30,
1996) payable monthly, collateralized by
accounts receivable, inventory and equipment,
and guarantees by Retirement Care Associates, Inc. 433,535 0
F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
6. NOTES PAYABLE, Continued:
Note payable to leasing institution, interest
at 14.6%, monthly installments of $309 plus
sales tax. Matures June 1997, collateralized
by computer equipment 2,924 0
Note payable to equipment company, interest at
11%, monthly installments of $533 including
interest. Matures December 1997,
collateralized by equipment 8,805 0
Note payable to stockholder, interest at 10%,
principal and interest of $5,693, due monthly
through March 1999. $ 163,646 $ 0
Note payable to bank, interest at 9%,
principal and interest of $3,600 due monthly
through May 1997, collateralized by accounts
receivable, inventory, furniture, fixtures,
equipment, machinery, bank accounts, and
guarantees of Retirement Care Associates, Inc. 38,924 0
Note payable to bank, interest at 9%,
principal and interest of $5,266 due monthly
through October 1997, collateralized by accounts
receivable, inventory, furniture, fixtures,
equipment, machinery, bank accounts, and
guarantees of Retirement Care Associates, Inc. 212,613 0
Borrowings under $975,000 line of credit,
interest at prime plus 1.25% (9.5% at June 30,
1996). Principal is due on demand but no later
than May 15, 1997. Collateralized by accounts
receivable, inventory, furniture, fixtures,
equipment, machinery, bank accounts, and
guarantees of Retirement Care Associates, Inc. 958,000 0
3,178,130 1,321,788
Less current maturities (1,825,193) (414,077)
$ 1,352,937 $ 907,711
Certain of the above agreements contain financial and operating covenants,
including requirements that the Company maintain certain net worth levels, and
current and debt-to-net worth ratios. The Company was in compliance with all
debt covenants as of June 30, 1996.
The aggregate maturities of long-term debt are as follows as of June 30, 1996:
1997 $ 1,825,193
1998 468,665
1999 303,777
2000 491,884
2001 83,674
F-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
6. NOTES PAYABLE, Continued:
SFAS No. 107, "Disclosure About Fair Value of Financial Instruments," requires
that the Company disclose estimated fair values for its financial instruments.
Fair value is defined as the price at which a financial instrument could be
liquidated in an orderly manner over a reasonable time period under present
market conditions. The rates of the Company's fixed obligations approximate
those rates of the adjustable loans. Therefore, the fair value of these loans
has been estimated to be approximately equal to their carrying value.
7. COMMITMENTS AND CONTINGENCIES:
The Company is obligated under various noncancelable leases for equipment and
office space. Future minimum lease commitments under operating leases were as
follows as of June 30, 1996.
1997 $ 389,974
1998 412,224
1999 385,974
2000 307,224
2001 305,062
Total rental expense was approximately $349,600, $145,500, $203,000, and
$189,500 for the year ending June 30, 1996, the six-month period ended June
30, 1995, and the years ended December 31, 1994 and 1993, 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.
8. INCOME TAXES:
Income taxes are provided based on the liability method of accounting pursuant
to Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes."
The components of the provisions for income taxes for the year ended June 30,
1996 are as follows:
F-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. INCOME TAXES, Continued:
Current:
Federal $ 161,951
State 28,101
Total current 190,052
Deferred:
Federal 104,266
State 17,848
Total deferred 122,114
Total tax provision $ 312,166
Deferred tax assets for the year ended June 30, 1996 are as follows:
Deferred tax assets:
Allowance for bad debts $ 164,048
Net operating losses 355,108
Total gross deferred tax assets 519,158
Less valuation allowance (355,108)
Net deferred tax assets $ 164,048
As of June 30, 1996, the Company had net operating loss carryforwards for tax
purposes, expiring during the years 2007 and 2009, of approximately $944,000,
which includes approximately $516,000 attributable to Contour Medical, inc.
(CMI) for the period prior to January 1, 1993. Due to certain change of
ownership requirements of Section 382 of the Internal Revenue Code,
utilization of the Company's operating losses is expected to be limited to
approximately $414,000 per year. The deferred tax asset related to the tax
benefit of these losses has been offset by a valuation allowance due to
uncertainty of realization. The valuation allowance decreased approximately
$112,000 during 1996.
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 1996, the income tax benefit of utilization of net
operating losses attributable to CMI of approximately $126,000 were credited
to paid-in capital.
The following summary reconciles differences from taxes at the federal
statutory rate with the effective rate:
F-26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. INCOME TAXES, Continued:
Six
Year Months
Ended Ended
June 30, June 30, Year Ended December 31,
1996 1996 1994 1993
Taxes on Income (benefit)
at statutory rate 34.00% 34.00% (34.00)% (34.00)%
State income taxes, net of
federal tax benefit 3.60% 3.10% 0 1.00%
Carryforward of net
operating loss 0 (9.90)% 0 0
Carryback of net
operating loss 0 0 0 (8.30)%
Losses not available for
carryback 0 0 34.00% 0
Other (0.04)% 5.00% 0 0
37.56% 32.20% 0.00% (41.30)%
9. CAPITAL STOCK:
Stock Bonus Plan - In March 1993, the Company adopted a non-qualified employee
stock bonus plan. The Plan provides for the granting of up to 1,000,000
options for the purchase of the Company's common stock to eligible employees
at purchase prices of at least $.01 per share. Options awarded under the Plan
vest over a three-year period from the date of grant and are exercisable over
a five-year period from the date of grant.
Changes in options outstanding are summarized as follows:
Option Price
Shares per Share
Balance, January 1, 1993 15,386 $1.30
Granted 250,000 $2.00
Balance, December 31, 1993 265,386 $1.30-$2.00
Granted 100,000 $2.25
Balance, December 31, 1994 365,386 $1.30-$2.25
Granted 50,000 $3.90
Exercised (15,385) $1.30
Canceled (1) $1.30
Balance, June 30, 1995 400,000 $2.00-$3.90
Granted 45,000 $4.11
Exercised (25,000) $2.00
Stock split 23,500
Balance, June 30, 1996 443,500 $1.88-$4.11
All of the above options were granted with an exercise price above fair market
value at the date of grant. In addition, 351,249 options were exercisable at
June 30, 1996. In addition, 959,615 common shares are reserved for future
issuance under this plan.
F-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
9. CAPITAL STOCK, Continued:
Stock Option Plan - In February 1996, the Company adopted the 1996 Stock
Option Plan (the "1996 Plan"). The 1996 Plan must be approved by the
Company's shareholders within 12 months of February 1, 1996. The 1996 Plan
allows the Board of Directors to grant stock options from time to time to
employees, officers and directors of the Company and consultants to the
Company. The Board of Directors has the right to determine, at the time of
option, whether the option will be an Incentive Stock Option or an option
which is not an Incentive Stock Option. Vesting provisions are determined by
the Board of Directors at the time the options are granted. The 1996 Plan
provides for the granting of up to 315,000 options for the purchase of the
Company's common stock.
Changes in options outstanding are summarized as follows:
Option Price
Shares per Share
Balance, June 30, 1995 - -
Granted 160,000 $4.643-$5.75
Stock split 4,250
Balance, June 30, 1996 164,250 $4.643-$5.75
All of the above options were granted with an exercise price above fair market
value at the time of grant. In addition, none of the options were exercisable
at June 30, 1996 and 315,000 common shares are reserved for future issuance
under this plan.
Stock Split - In March 1993, the Board of Directors authorized a 1-for-13
reverse stock split of its common stock effective June 30, 1993. All common
shares and per share amounts have been retroactively adjusted to give effect
to the reverse stock split. In February 1996, the Board of Directors
authorized a 1.05-for-1 forward stock split of its common stock effective
March 1996. All common shares and per share amounts have been retroactively
adjusted to give effect to the forward stock split.
Stock Warrants - At June 30, 1996, the Company had 969,225 stock warrants
outstanding. Information relating to these warrants is summarized as follows:
Number of
Common Exercise
Expiration Number of Shares Per Price Per
Type Date Warrants Warrant Warrant
Class B July 1996 119,225 1.05 $4.50
Class C Feb. 1999 300,000 1.05 $4.50
Consultant Oct. 1997 300,000 1.05 $1.50
Consultant Oct. 1999 200,000 1.05 $3.00
Consultant Oct. 1997 50,000 1.05 $3.00
The Class B warrants are redeemable by the Company under certain
circumstances. Of the total outstanding warrants, 969,225 were exercisable at
June 30, 1996. In addition, 1,017,686 common shares are reserved for future
issuance related to these warrants.
F-28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
9. CAPITAL STOCK, Continued:
Change of Control - On September 30, 1994, Retirement Care Associates, Inc.
(Retirement Care) acquired 889,002 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 2,100,000 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 1.05 shares of
the Company's common stock. All 2,000,000 shares of Class One Preferred Stock
were converted into 2,100,000 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 230,141 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 35,000 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 250,354 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 2,100,000 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 181,635 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, 1996, cumulative dividends in arrears related
to the Series A Preferred Stock amounted to $128,000 ($.21 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.
F-29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
9. CAPITAL STOCK, Continued:
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
889,002 shares of common stock in 1993.
Shares Reserved - At June 30, 1996, the Company has reserved common stock for
future issuance under all of the above arrangements amounting to 3,620,551.
10. MAJOR CUSTOMERS:
Sales to significant customers were as follows:
Year ending December 31, Number of Customers Sales Volume
1994 1 $ 531,000
1993 2 692,000
As a result of the increased sales volume due to sales to related parties of
approximately $5,456,000 and $1,426,000 (see Note 3), there were no sales to
significant other customers during the year ended June 30, 1996 and the six-
month period ended June 30, 1995, respectively.
F-30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
11. SUPPLEMENTAL CASH FLOW INFORMATION:
Six
Year Months
Ended Ended
June 30, June 30, Year Ended December 31,
1996 1996 1994 1993
Cash paid for interest $ 170,951 $39,065 $ 53,627 $ 65,251
Cash paid for income taxes $ 930 $ 2,500 $ 5,000 $ 40,054
Noncash financing and
investing activities:
Issuance of 369,618
shares of common stock
for purchase of Ameri-
Dyne Corporation (see
Note 12) $2,100,000 $ 0 $ 0 $ 0
Conversion of 1,074,176
shares of Class D pre-
ferred stock and
995,012 Class D
Warrants into 250,372
shares of common stock
and 2,000,000 shares of
Class One preferred
stock (see Note 9) 0 0 400,500 0
Issuance of 180,000
shares of Class C pre-
ferred stock as payment
of stockholder loans
(see Note 9) 0 0 0 480,000
Deferred offering costs
charged to additional
paid-in capital as an
offset to private
placement offering
proceeds (see Note 9) 0 11,444 0 0
$2,100,000 $11,444 $400,500 $480,000
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-31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
12. AMERIDYNE ACQUISITION:
Effective March 1, 1996, the Company acquired all of the outstanding common
stock of AmeriDyne Corporation (AmeriDyne) for approximately $2.475 million
in cash and stock. AmeriDyne distributes medical supplies to hospitals,
clinics, physicians, pharmacies, nursing homes and other health care
providers.
The purchase price exceeded the fair value of the net assets acquired by
approximately $1.3 million. The acquisition was accounted for as a purchase.
The resulting goodwill is being amortized on the straight-line basis over 40
years. The consolidated statement of income includes the results of
operations of AmeriDyne for the period from March 1, 1996 through June 30,
1996.
The following unaudited pro forma consolidated results of operations presents
information as if the acquisition had occurred at the beginning of the fiscal
year. The pro forma information is provided for information purposes only.
It is based on historical information and does not necessarily reflect the
actual results that would have occurred nor is it necessarily indicative of
future results of operations of the combined enterprise.
Unaudited Year Ended
June 30, 1996
Sales $ 21,406,882
Net income $ 348,880
Per share $ 0.05
13. SUBSEQUENT EVENTS:
On July 12, 1996, the Company completed a $5 million debenture placement.
These debentures bear interest at 9% per annum and are to be repaid in monthly
installments beginning on July 1, 1999, with full payment due by July 1, 2003.
The debentures are convertible into shares of the Company's common stock.
On September 20, 1996, the Company replaced all of its existing lines of
credit with a $7 million revolving line of credit, secured by inventory and
accounts receivable, and bearing interest at the 30-day LIBOR rate plus 2%.
On August 6, 1996, the Company acquired all of the outstanding stock of
Atlantic Medical Supply Company, Inc. (Atlantic Medical), a distributor of
disposable medical supplies and a provider of third-party billing services to
the nursing home and home health care markets. The acquisition was made
retroactively to July 1, 1996. The Company paid $1.4 million in cash and
$10.5 million in promissory notes for all of the outstanding stock of Atlantic
Medical. The promissory notes bear interest at 7% per annum and are due in
full on January 10, 1997. In the event of a default in the payment of the
promissory notes, they are convertible into shares of common stock of the
Parent Company.
The following unaudited pro forma consolidated results of operations presents
information as if the acquisition had occurred at the beginning of the fiscal
year. The pro forma information is provided for information purposes only.
It is based on historical information and does not necessarily reflect the
results that would have occurred nor is it necessarily indicative of future
results of operations of the combined enterprise.
F-32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
13. SUBSEQUENT EVENTS, Continued:
Unaudited
Year Ended
June 30, 1996
Sales $ 34,333,727
Net Income $ 585,784
Per share $ 0.10
F-33
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONTOUR MEDICAL, INC.
Date: October 14, 1997 By:/s/ Donald F. Fox
Donald F. Fox, President,
Treasurer and Chief Financial Officer
