<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 3
(Amending Part I - Item 1)
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended September 30, 1996
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 (IRS Employer Identification Number)
Incorporation or Organization)
6025 Shiloh Road
Alpharetta, Georgia 30005
----------------------------------------
(Address of Principal Executive Offices)
(770) 886-2600
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
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 report(s), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [ X ] No [ ]
There were 5,946,793 shares of the Registrant's $.001 par value Common Stock
outstanding as of November 14, 1996.
<PAGE> 2
CONTOUR MEDICAL, INC.
FORM 10-Q/A
INDEX
Part I. Financial Information
Item 1. Financial Statements Page
Consolidated Balance Sheets as of September 30, 1996
and June 30, 1996 3-4
Consolidated Statements of Operations for the Three
Months Ended September 30, 1996 and 1995 5
Consolidated Statements of Stockholders Equity 6-7
Three Months Ended September 30, 1996
Consolidated Statements of Cash Flows for the
Three Months Ended September 30, 1996 and 1995 8-9
Notes to Consolidated Financial Statements 10-16
Signature 17
-2-
<PAGE> 3
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
------------ ----------
(Unaudited)
<S> <C> <C>
ASSETS
Current:
Cash $ 400,489 $ 146,219
Accounts receivable - trade
Related parties (Note 4) 2,027,499 1,918,000
Other 7,459,147 2,527,676
Inventories (Note 5) 6,368,222 2,876,792
Refundable income taxes 21,406 21,406
Prepaid expenses and other 839,320 51,519
Due from parent (Note 4) 755,333 618,897
----------- -----------
Total Current Assets 17,871,416 8,160,509
----------- -----------
Property and Equipment, less
accumulated depreciation (Note 6) 1,823,880 1,223,195
----------- -----------
Other Assets:
Goodwill, net of accumulated amortization 10,468,043 1,286,165
Deposit on equipment 503,018 416,184
Other 130,188 172,215
----------- -----------
Total Other Assets 11,101,249 1,874,564
----------- -----------
$30,796,545 $11,258,268
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE> 4
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
------------- -----------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,345,228 $ 2,036,652
Accrued expenses 1,128,217 366,716
Current maturities of long-term
debt (Note 7) 11,099,183 1,825,193
----------- -----------
Total Current Liabilities 15,572,628 4,228,561
Long-term debt, less current
maturities (Note 7) 4,152,739 1,352,937
----------- -----------
Total Liabilities 19,725,367 5,581,498
----------- -----------
Convertible debentures, 9% interest
due monthly through July 1, 2003 5,000,000 --
----------- -----------
Stockholders' Equity:
Preferred stock - Series A conver-
tible, $.001 par value, shares
authorized 1,265,000; issued 600,000,
outstanding 185,000 and 600,000
respectively, at aggregate
liquidation preference 875,400 2,528,000
Common stock $.001 par - shares
authorized 76,000,000; issued and
outstanding 5,946,793 and 5,214,223
respectively, (net of $765 discount) 5,182 4,449
Additional paid-in capital 5,196,469 2,911,696
Retained earnings (deficit) (5,873) 232,625
----------- -----------
Total stockholders' equity 6,071,178 5,676,770
$30,796,545 $11,258,268
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE> 5
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended
(Unaudited)
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
SALES TO NON-RELATED PARTIES $11,076,530 $1,492,129
SALES TO RELATED PARTIES 1,836,000 746,000
----------- ----------
NET SALES 12,912,530 2,238,129
COST OF SALES 9,273,535 1,589,072
----------- ----------
GROSS PROFIT 3,638,995 649,057
OPERATING EXPENSES 3,184,083 489,601
OTHER INCOME (EXPENSE) (827,650) 3,088
----------- ----------
INCOME BEFORE INCOME TAXES (372,738) 162,544
INCOME TAX EXPENSE (BENEFIT) (141,640) 55,265
----------- ----------
NET INCOME (LOSS) $ (231,098) $ 107,279
NET INCOME PER COMMON SHARE (LOSS) $ (.04) $ .02
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES 5,716,891 4,571,677
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<PAGE> 6
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in
Shares Amount Capital
--------- ------ ----------
<S> <C> <C> <C>
Balance, June 30, 1996 5,214,223 $4,449 $2,911,696
Exercise of common stock
warrants 296,820 297 625,209
Conversions of preferred
stock 415,000 415 1,659,564
Conversion dividend 20,750 21
Preferred dividends in
arrears -- -- --
Net income -- -- --
Balance, September 30, 1996 5,946,793 $5,182 $5,196,469
</TABLE>
See accompanying notes to consolidated financial statements.
-6-
<PAGE> 7
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
<TABLE>
<CAPTION>
Convertible
Preferred Stock
----------------- Retained
Shares Amount Earnings
-------- -------- -----------
<S> <C> <C> <C>
Balance, June 30, 1996 600,000 $2,528,000 $ 232,625
Exercise of common stock
warrants -- -- --
Conversions of preferred
stock (415,000) (1,660,000) --
Preferred dividends in
arrears 7,400 (7,400)
Net (loss) (231,098)
Balance, September 30, 1996 185,000 $ 875,400 $ (5,873)
</TABLE>
See accompanying notes to consolidated financial statements.
-7-
<PAGE> 8
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
(Unaudited)
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (231,098) $ 107,279
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation and Amortization 163,661 33,076
Tax benefit from NOL -- 55,265
(Increase) decrease in accounts
receivable (5,040,970) (123,127)
(Increase) decrease in inventories (3,491,430) (204,788)
(Increase) decrease in other
current assets and other assets (9,927,652) (84,713)
Increase (decrease) in accounts
payable 1,308,576 (16,227)
Increase (decrease) in accrued
expenses and other liabilities 761,501 15,103
------------ -----------
Net cash provided by operating
activities (16,457,412) (218,132)
CASH FLOW FROM INVESTING ACTIVITIES:
Deposit on equipment (86,834) --
Acquisition of equipment (720,106) (95,921)
Decrease (increase) in due
from parent (136,436) 150,000
------------- -----------
Net cash provided(used) by
investing activities (943,376) $ 54,079
</TABLE>
See accompanying notes to consolidated financial statements.
-8-
<PAGE> 9
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
(Unaudited)
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Acquisition Notes Issued $ 10,850,000 $ --
Convertible Debentures Issued 5,000,000 --
Net borrowing on loans 1,179,552 126,135
Exercise of warrants 625,506 50,000
------------ -----------
Net cash provided (used) by
financing activities 17,655,058 176,135
------------ -----------
NET INCREASE (DECREASE) IN CASH 254,270 12,082
CASH BEGINNING OF PERIOD 146,219 96,235
------------ -----------
CASH END OF PERIOD $ 400,489 $ 108,317
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION AND NON-CASH
ACTIVITIES:
Cash paid for interest $ 199,255 $ 28,890
</TABLE>
See accompanying notes to consolidated financial statements.
-9-
<PAGE> 10
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, 1996, audited financial statements for Contour Medical, Inc. The
results of operations for the periods ended September 30, 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. and its wholly-owned subsidiaries, Contour Fabricators, Inc. ("CFI"),
Contour Fabricators of Florida, Inc. ("CFFI") and, since March 1, 1996,
AmeriDyne Corporation ("AmeriDyne"), and effective July 1, 1996 Atlantic
Medical Supply Company, Inc. ("Atlantic") collectively referred to as the
Company. All material intercompany accounts and transactions have been
eliminated. The Company 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.
On August 6, 1996, the Company acquired all of the outstanding stock of
Atlantic, 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 (the "Atlantic Notes") for
all of the outstanding stock of Atlantic. The Atlantic 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 Atlantic Notes, they are convertible into shares of common
stock of Parent.
In addition, on August 9, 1996, the Company acquired the remaining minority
interest of Facility Supply, Inc., a majority owned subsidiary of Atlantic. The
acquisition was made retroactively to July 1, 1996. The Company paid $50,000 in
cash and $350,000 in promissory notes (the "Facility Notes") for the remaining
outstanding stock of Facility Supply, Inc. The Facility 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 Facility Notes, they are convertible into shares of
common stock of Parent.
In return for the Parent's guarantee of the Atlantic and Facility Notes, with
which the Company could not have completed the Atlantic acquisition, the
Company has agreed to compensate the Parent $500,000, such amount to be
satisfied by the issuance of 100,000 shares of Contour Common Stock valued at
$5.00 per share. The Company believes this valuation represents market value
and approximates the average trading price of Contour Common Stock during the
time the Atlantic acquisition was negotiated.
2. RESTATEMENT:
During Contour's fiscal year 1997 year-end audit, certain adjustments to
Contour's previously issued financial statements were discovered to be
necessary. These adjustments, together with additional amounts, have been
applied to the financial statements of Contour for the quarter ended September
30, 1996 as restatements and corrections. The following table gives a brief
description of such restatements and corrections:
<TABLE>
<CAPTION>
Description: Amount:
- ------------ -------
<S> <C>
Additional provision for
uncollectible accounts $ 446,925
Additional financing expense
for RCA's guarantee fee $ 500,000
Accrual of interest on Atlantic
Medical Acquisition Notes $ 122,934
Less: Adjustment to Income Taxes $(407,032)
Decrease in Net Income: $ 662,827
Decrease in Net Income per Share: $ .11
</TABLE>
-10-
<PAGE> 11
3. CHANGE IN METHOD OF ACCOUNTING FOR TAXES AND INCOME
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," 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 carry forwards. Measurement of
deferred income tax assets being reduced by available tax benefits not expected
to be realized.
4. CHANGE IN YEAR END
The Company changed its fiscal year end from December 31 to June 30 during
1995. Atlantic also changed its fiscal year end from December 31 to June 30
during 1996.
5. 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 $1,836,000 for the three month period ended September 30, 1996,
and $746,000 in 1995. Trade accounts receivable of $2,027,000 and $1,918,000
were outstanding as of September 30, 1996 and June 30, 1996, respectively, as
related to health care facility sales to the Parent. Additionally, the Company
had an outstanding loan receivable due from its Parent of approximately
$755,000 at September 30, 1996, which is due within 45 days of advance with
interest at prime and $619,000 at June 30, 1996, which is due on demand with no
stated interest rate.
6. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
------------- ----------
<S> <C> <C>
Raw Materials $ 284,463 $ 330,699
Work in process 70,604 96,647
Finished goods 6,013,155 2,449,446
----------- ----------
$ 6,368,222 $2,876,792
</TABLE>
All inventories are pledged as collateral.
-11-
<PAGE> 12
7. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
September 30, June 30,
Useful Lives 1996 1996
------------ ------------- ----------
<S> <C> <C> <C>
Land & Land Improvements -- 59,842 $ 50,000
Building 5-45 years 596,247 596,247
Computer Equipment 3-7 years $1,010,445 --
Machinery and equipment 3-7 years 2,208,217 1,798,520
Furniture and fixtures 5-7 years 222,920 146,536
Leasehold improvements 5 years 290,563 251,352
Vehicles 3-5 years 188,202 72,245
---------- ----------
4,576,436 2,914,900
Less accumulated depreciation 2,752,556 1,691,705
---------- ----------
$1,823,880 $1,223,195
</TABLE>
Certain property and equipment are pledged as collateral (see Notes 8 and 9).
8. NOTES PAYABLE
Notes payable at September 30, 1996 and June 30, 1996 consisted of the
following:
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
----------- -----------
<S> <C> <C>
Note payable to sellers of Atlantic Medical
Supply Company, Inc. at 7%, principal and
interst due on January 10, 197, in event
of default convertible into common stock
of Parent $ 10,500,000 --
Note payable to sellers of Facility
Supply, inc. at 7%, principal and
interest due on January 10, 1997, in
event of default convertible into common
stock of Parent 350,000 --
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 203,750 $ 217,559
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 equipment and
real property 480,899 496,171
Mortgage payable to bank, bearing interest
at 8.58%, principal and interest of $6,793,
due monthly through December 2003,
collateralized by equipment and real property 445,677 456,233
</TABLE>
-12-
<PAGE> 13
<TABLE>
<S> <C> <C>
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 equipment
and real property 59,522 64,284
Borrowings under $7,000,000 line of credit,
interest at 30 day libor plus 200bp (7.44%
at September 30, 1996), payable monthly,
collateralized by accounts receivable, and
inventory. Principal due October 31, 1997 2,994,105 --
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
Note payable to bank, interest at 8.75%
principal and interest at $1,282 due monthly
through April 2001, collateralized by equipment 57,903 60,436
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
Note payable to leasing institution,
interest at 14.6%, monthly installments of
$309 plus sales tax. Matures June 1997,
collateralized by computer equipment 2,079 2,924
Note payable to equipment company, interest at
11%, monthly installments of $533 including
interest. Matures December 1997,
collateralized by equipment 7,436 8,805
Note payable to stockholder, interest at 10%,
principal and interest of $5,693, due monthly
through March 1999 150,551 163,646
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
Parent -- 38,924
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 Parent -- 212,613
</TABLE>
-13-
<PAGE> 14
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 Parent -- 958,000
----------- ----------
$15,251,922 $3,178,130
Less current maturities 11,099,183 1,825,193
----------- ----------
$ 4,152,739 $1,352,937
Certain of the above agreements contain 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 September 30, 1996.
The aggregate maturities of long-term debt are as follows as of September 30,
1996:
<TABLE>
<S> <C>
1997 $ 11,099,183
1998 3,273,405
1999 303,777
2000 491,884
2001 83,674
</TABLE>
Statement of Financial Accounting Standards 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 those loans has been estimated to be approximately
equal to their carrying value.
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 September 30, 1996.
<TABLE>
<S> <C>
1997 $ 389,974
1998 412,224
1999 385,974
2000 307,224
2001 305,062
</TABLE>
EMPLOYMENT AGREEMENT - The Company has entered into an employment agreement
with a key executive for a five-year period ending June 1998. The agreement
provides for annual base compensation of $100,000.
-14-
<PAGE> 15
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.
9. 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."
10. ACQUISITION:
Effective March 1, 1996, the Company acquired all of the outstanding common
stock of 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.
On August 6, 1996, the Company acquired all of the outstanding stock of
Atlantic. The acquisition was made retroactively to July 1, 1996. The Company
paid $1.4 million in cash and $10.5 million in promissory notes (the "Atlantic
Notes") for all of the outstanding stock of Atlantic. The Atlantic Notes bear
interest at 7% per annum and are due in full on January 10, 1997. In the event
of a default on the payment of the Atlantic Notes, they are convertible into
shares of common stock of Parent.
In addition, on August 9, 1996, the Company acquired the remaining minority
interest of Facility Supply, Inc., a majority owned subsidiary of Atlantic. The
acquisition was made retroactively to July 1, 1996. The Company paid $50,000 in
cash and $350,000 in promissory notes (the "Facility Notes") for the remaining
outstanding stock of Facility Supply, Inc. The Facility 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 Facility Notes, they are convertible into shares of
common stock of Parent.
In return for the Parent's guarantee of the Atlantic and Facility Notes,
without which the Atlantic acquisition could not have been completed by the
Company, the Company agreed to pay Parent $500,000, such payment to be
satisfied with the issuance of 100,000 shares of the Company's common stock to
Parent.
-15-
<PAGE> 16
The following unaudited pro forma consolidated results of operations presents
information as if the acquisitions had occurred at the beginning of the fiscal
year in 1995. 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.
<TABLE>
<CAPTION>
Unaudited Unaudited
Three Months Ended Year Ended
September 30, 1995 June 30, 1996
------------------ -------------
<S> <C> <C>
Sales $ 10,430,697 $ 34,333,727
Net Income 590,841 $ 585,784*
Per share 0.13 $ 0.10
</TABLE>
* Full year earnings reflect a write down of approximately $1.1 million
recorded in Atlantic's historical financial statements for events occurring
prior to July 1, 1995.
-16-
<PAGE> 17
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: March 11, 1998 By: /s/ Donald F. Fox
--------------------------------------------
Donald F. Fox, President, Treasurer and
Chief Financial Officer
-17-
