SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT TO APPLICATION OR REPORT
FILED PURSUANT TO SECTION 12,13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
MEDICAL INNOVATIONS, INC.
(Exact name of Registrant as specified in its charter)
AMENDMENT NO. 2
The undersigned Registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report on Form 8-K dated
May 19, 1995, as set forth below:
1. ITEM 7 FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired
The financial statements of Hospital HomeCare Corporation for the
year ended March 31, 1995, together with the independent auditor's
report thereon, are included herein on pages 3-11.
(b) Pro Forma Financial Information
Required pro forma financial information of the Registrant and the
acquired business is included herein on pages 12-16. The pro forma
information also reflects the acquisitions of STAT Specialty Home
Care, Inc. effective February 11, 1994, PRN Home Health Care, Inc.
and Affiliates effective April 1, 1994 and the Pensacola, Florida
branch operation of PharmaThera, Inc. effective February 1, 1995.
(c) Exhibits (Exhibit Index located on page 20)
Agreement and Plan of Reorganization, dated as of May 19, 1995, by
and among Medical Innovations, Inc., Hospital HomeCare
Corporation, Arthur L. Rice, Virginia F. Rice, Kenneth A. Rice,
Lucille Rice Roberts, Lauretta Rice Colvin and Angela Rice
McBride. The schedules to the Agreement, other than Schedule 2.2,
which sets forth the shares of common stock to be issued by the
Registrant pursuant to the Agreement, have been omitted and are as
described in the Agreement. The Registrant hereby agrees to
furnish supplementally a copy of any omitted schedule to the
Commission upon request.
Page 1 of 21
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
MEDICAL INNOVATIONS, INC.
(Registrant)
Dated: January 2, 1996 By: /S/MARK H. FISHER
Mark H. Fisher
President
Page 2 of 21
<PAGE>
HOSPITAL HOMECARE CORPORATION
FINANCIAL STATEMENTS
MARCH 31, 1995
Page 3 of 21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Hospital Homecare Corporation
In our opinion, the accompanying balance sheet and the related statements of
operations, stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Hospital Homecare Corporation at
March 31, 1995, and the results of its operations and its cash flows for the
year in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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 principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Houston, Texas
May 19, 1995
Page 4 of 21
<PAGE>
HOSPITAL HOMECARE CORPORATION
BALANCE SHEET
MARCH 31, 1995
ASSETS
Current assets:
Cash and cash equivalents ................................... $ 92,887
Accounts receivable, net of allowance for doubtful
accounts of $60,540 ........................................ 233,385
---------
Total current assets ................................... 326,272
Furniture and equipment, net ................................... 21,766
Other assets ................................................... 58,303
---------
Total assets ........................................... $ 406,341
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of notes payable to related party ........... $ 9,467
Accounts payable ............................................ 99,607
Accrued expenses ............................................ 126,882
Income taxes payable ........................................ 8,000
Deferred revenue ............................................ 23,000
---------
Total current liabilities .............................. 266,956
Notes payable to related party ................................. 17,041
Stockholders' equity:
Common stock, no par value, 10,000,000 shares
authorized, 90,000 shares issued and outstanding ........... 700,604
Accumulated deficit ......................................... (549,595)
Treasury stock .............................................. (28,665)
---------
Total stockholders' equity ............................. 122,344
---------
Commitments and contingencies (Note 5)
Total liabilities and stockholders' equity ............. $ 406,341
=========
The accompanying notes are an integral part of this statement.
Page 5 of 21
<PAGE>
HOSPITAL HOMECARE CORPORATION
STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 1995
Revenues ..................................................... $ 1,267,818
Costs and expenses:
Salaries and benefits ..................................... 924,619
Selling, general and administrative ....................... 223,419
Professional fees ......................................... 243,815
Provision for doubtful accounts ........................... 40,540
-----------
1,432,393
-----------
Operating loss ............................................... 164,575
Other:
Gain on sale of marketable securities ..................... (18,923)
Gain on sale of assets .................................... (4,762)
Interest expense on notes payable to related party ........ 1,870
Interest income ........................................... (10,805)
-----------
(32,620)
-----------
Loss before income taxes ..................................... 131,955
Provision for income taxes ................................... 8,000
-----------
Net loss ..................................................... $ 139,955
===========
The accompanying notes are an integral part of this statement.
Page 6 of 21
<PAGE>
HOSPITAL HOMECARE CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
------------------------ ACCUMULATED -----------------------
SHARES AMOUNT DEFICIT SHARES AMOUNT TOTAL
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at April 1, 1994 ................... 90,000 $ 600,604 $(409,640) 10,000 $ (28,665) $ 162,299
Professional fees incurred
by principal stockholder .............. 100,000 100,000
Net loss ................................ (139,955) (139,955)
--------- --------- --------- --------- --------- ---------
Balance at March 31, 1995 .................. 90,000 $ 700,604 $(549,595) 10,000 $ (28,665) $ 122,344
========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
Page 7 of 21
<PAGE>
HOSPITAL HOMECARE CORPORATION
STATEMENT OF CASH FLOWS
YEAR ENDED MARCH 31, 1995
Operating activities:
Net loss ..................................................... $(139,955)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization ............................. 26,409
Professional fees incurred by principal stockholder ....... 100,000
Gain on sale of securities ................................ (18,923)
Gain on sale of assets .................................... (4,762)
Changes in operating assets and liabilities:
Accounts receivable ..................................... (30,736)
Accounts payable and accrued expenses ................... 87,742
Income taxes payable .................................... 8,000
Deferred revenue ........................................ (36,760)
---------
Net cash used in operating activities ................ (8,985)
---------
Investing activities:
Proceeds from sale of marketable securities .................. 51,733
Purchase of furniture and equipment .......................... (11,839)
Proceeds from sale of assets ................................. 5,656
---------
Net cash provided by investing activities ............ 45,550
---------
Financing activities:
Payments on notes payable .................................... (8,525)
Issuance of note payable ..................................... 11,209
---------
Net cash provided by financing activities ............ 2,684
---------
Net increase in cash and cash equivalents ....................... 39,249
Cash and cash equivalents at beginning of year .................. 53,638
---------
Cash and cash equivalents at end of year ........................ $ 92,887
=========
Supplemental disclosure of cash flow information:
Interest paid ................................................ $ 1,870
=========
The accompanying notes are an integral part of this statement.
Page 8 of 21
HOSPITAL HOMECARE CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Hospital Homecare Corporation (the Company) is a privately held Texas
corporation formed in 1985. The Company specializes in providing consulting and
management services for hospital-based extension programs in home healthcare and
for rural health clinics. These services are provided primarily in Texas,
Oklahoma and California.
REVENUE RECOGNITION
The Company's consulting, management and support services are provided based on
contractual arrangements generally ranging from one to two years but with some
longer-term contracts. Fees are billed and recorded in accordance with a
schedule stipulated in the contract and generally conform to the period in which
the services are provided. In those instances where a prebilling is rendered,
the related income is deferred and taken to income as services are provided.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all highly
liquid investments with original maturities of three months or less to be cash
equivalents.
FURNITURE AND EQUIPMENT
Furniture and equipment is stated at cost. Depreciation is provided using a
declining balance method over the estimated useful lives of the respective
assets, ranging from 3-5 years.
INCOME TAXES
Deferred taxes are recognized using the liability method. This method gives
consideration to the future tax consequences associated with differences between
financial accounting and tax bases of assets and liabilities and gives immediate
effect to changes in income tax laws upon enactment.
Page 9 of 21
NOTE 2 - FURNITURE AND EQUIPMENT:
Furniture and equipment as of March 31, 1995 is as follows:
Computer equipment ........................................ $ 24,766
Vehicles .................................................. 39,570
Furniture and fixtures .................................... 33,891
--------
98,227
Less - accumulated depreciation ........................... (76,461)
--------
$ 21,766
========
NOTE 3 - ACCRUED EXPENSES:
Accrued expenses at March 31, 1995 consist of the following:
Employee bonus and retirement plan contributions ............... $ 67,082
Accrued professional fees ...................................... 59,800
--------
$126,882
========
NOTE 4 - NOTES PAYABLE:
Notes payable at March 31, 1995 were issued to a family member of the principal
stockholder and are as follows:
8.5% Note due October 1, 1997, principal and
interest payable monthly .................................... $ 16,415
8.0% Note due November 10, 1997, principal
and interest payable monthly ................................ 10,093
26,508
Less - current portion ....................................... (9,467)
--------
Long-term portion ............................................ $ 17,041
========
NOTE 5 - LEASE COMMITMENTS:
Future minimum lease payments under noncancelable operating leases are $24,000
in each of the five years ended March 31, 2000 and $25,500 in the year ended
March 31, 2001.
Page 10 of 21
NOTE 6 - RELATED PARTY TRANSACTIONS:
Annual compensation of the Company's president and principal stockholder is
established and approved by the Board of Directors, of which the principal
stockholder is a member. The amount of such compensation approved and paid in
fiscal 1995 was approximately $408,000.
As more fully described in Note 4, the Company has borrowed certain amounts from
a family member of the Company's principal stockholder to finance the
acquisition of an automobile and other operating equipment.
In connection with the completed transaction described in Note 9, the Company
expensed $100,000 of professional fees in fiscal 1995 which have been incurred
by its principal stockholder and which have therefore been included in
stockholders' equity at March 31, 1995.
NOTE 7 - EMPLOYEE BENEFITS:
The Company provides retirement benefits under a plan in which eligible
employees may receive up to 15% of their annual compensation (to a maximum of
$22,500) in the form of deferred tax contributions to their individual
retirement accounts. Employees must have a minimum of three years of service
with the Company to be eligible. There were four employees eligible for the plan
at March 31, 1995. Contributions under the plan amounted to $36,878 in 1995.
NOTE 8 - INCOME TAXES:
The provision for income taxes consists of current federal income taxes. No
benefit for the loss generated by the Company has been taken and the Company has
provided a valuation allowance in full for a net deferred tax asset on the basis
of uncertainty of future realization.
NOTE 9 - SUBSEQUENT MERGER OF THE COMPANY:
Effective March 1, 1995, the Company entered into a letter of intent to merge
with Medical Innovations, Inc. (MI) by exchanging all of its outstanding shares
of common stock for previously unissued common stock of MI. The Company
finalized and executed the merger agreement on May 19, 1995.
Page 11 of 21
MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma
Medical Hospital Adjustments
Innovations, HomeCare Increase Pro Forma
Inc. Corporation (Decrease) Combined
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents .............................. $ 341,863 $ 92,887 -- $ 434,750
Short-term investments ................................. 201,000 -- -- 201,000
Accounts receivable, net ............................... 10,279,841 233,385 -- 10,513,226
Inventories ............................................ 301,292 -- -- 301,292
Deferred income taxes .................................. 489,049 -- -- 489,049
Other .................................................. 735,044 735,044 -- --
------------ --------- ----------- -----------
Total current assets .............................. 12,348,089 326,272 -- 12,674,361
Property and equipment, net ................................ 1,976,713 21,766 -- 1,998,479
Excess cost over net assets of acquired companies .......... 12,180,131 -- -- 12,180,131
Other, net ................................................. 1,340,188 58,303 -- 1,398,491
------------ --------- ----------- -----------
Total assets ...................................... $ 27,845,121 $ 406,341 -- $28,251,462
============ ========= =========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable and other debt ........................... $ 4,691,673 $ 9,467 -- $ 4,701,140
Accounts payable and accrued liabilities ............... 2,965,234 249,489 -- 3,214,723
Accrued compensation and benefits ...................... 2,497,379 -- -- 2,497,379
Reserve for government program settlements ............. 1,701,514 -- -- 1,701,514
Income taxes payable ................................... 249,939 8,000 -- 257,939
------------ --------- ----------- -----------
Total current liabilities ......................... 12,105,739 266,956 -- 12,372,695
Notes payable and other debt ............................... 6,763,643 17,041 -- 6,780,684
Other accrued liabilities .................................. 660,581 -- -- 660,581
Deferred income taxes ...................................... 45,100 -- -- 45,100
------------ --------- ----------- -----------
Total liabilities ................................. 19,575,063 283,997 -- 19,859,060
------------ --------- ----------- -----------
Stockholders' equity:
Common stock ........................................... 94,293 700,604 $ (676,135)(a) 118,762
Additional paid-in capital ............................. 6,707,581 647,470(a) 7,355,051
Retained earnings ...................................... 1,468,184 (549,595) -- 918,589
Treasury stock ......................................... (28,665) 28,665(a) --
------------ --------- ----------- -----------
Total stockholders' equity ......................... 8,270,058 122,344 -- 8,392,402
------------ --------- ----------- -----------
Commitments and contingencies .............................. -- -- -- --
------------ --------- ----------- -----------
Total liabilities and stockholders' equity ........ $ 27,845,121 $ 406,341 -- $28,251,462
============ ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of this pro forma financial
statement.
Page 12 of 21
<PAGE>
MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma
Medical Pharma- Hospital Adjustments
Innovations, Thera HomeCare Increase Pro Forma
Inc. Branch Corporation (Decrease) Combined
----------- --------- --------- ------------- -----------
(b) (c)
<S> <C> <C> <C> <C> <C>
Revenues ........................................ $15,927,991 $ 95,604 $ 243,255 -- $16,266,850
Costs and expenses:
Direct patient care ........................ 9,868,757 77,053 -- -- 9,945,810
Selling, general and administrative ........ 5,343,929 14,551 223,654 4,509 (e) --
-- -- -- (68,378)(f) --
-- -- -- 4,731 (h) 5,522,996
Provision for doubtful accounts ............ 150,634 9,593 16,279 -- 176,506
----------- --------- --------- ------------- -----------
Total costs and expenses ............... 15,363,320 101,197 239,933 (59,138) 15,645,312
----------- --------- --------- ------------- -----------
Income (loss) from operations ................... 564,671 (5,593) 3,322 59,138 621,538
Net interest expense (income) ................... 242,472 -- (5,731) 4,304 (i) 241,045
----------- --------- --------- ------------- -----------
Income (loss) before income taxes ............... 322,199 (5,593) 9,053 54,834 380,493
Provision for income taxes ...................... 60,808 -- 3,078 16,742 (j) 80,628
----------- --------- --------- ------------- -----------
Net income ...................................... $ 261,391 $ (5,593) $ 5,975 $ 38,092 $ 299,865
=========== ========= ========= ============= ===========
Net income per common and
common equivalent share ...................... $ 0.02 -- -- -- $ 0.02
=========== ========= ========= ============= ===========
Weighted average common and
common equivalent shares outstanding ......... 14,324,131 -- -- 1,507,453 (k) 15,831,584
=========== ========= ========= ============= ===========
</TABLE>
The accompanying notes are an integral part of these pro forma financial
statements.
Page 13 of 21
<PAGE>
MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
PRN Home STAT
Medical Hospital Pro Forma Health Care, Specialty Pharma-
Innovations, HomeCare Combined Inc. and Home Thera
Inc. Corporation (pooled) Affiliates Care, Inc. Branch
----------- ----------- ----------- ----------- ------- -----------
(c) (b) (b) (b)
<S> <C> <C> <C> <C> <C> <C>
Revenues ............................... $59,110,330 $ 1,267,818 $60,378,148 $ 2,872,604 $65,180 $ 1,108,850
Costs and expenses:
Direct patient care ............... 37,749,829 -- 37,749,829 2,175,184 42,400 882,194
Selling, general and administrative 18,487,214 1,368,168 19,855,382 669,508 22,780 170,232
-- -- -- -- -- --
-- -- -- -- -- --
-- -- -- -- -- --
Provision for doubtful accounts ... 892,611 40,540 933,151 -- -- 96,323
----------- ----------- ----------- ----------- ------- -----------
Total costs and expenses ...... 57,129,654 1,408,708 58,538,362 2,844,692 65,180 1,148,749
----------- ----------- ----------- ----------- ------- -----------
Income (loss) from operations .......... 1,980,676 (140,890) 1,839,786 27,912 -- (39,899)
Gain on sale of minority interest ...... 128,500 -- 128,500 -- -- --
Net interest expense (income) .......... 868,680 (8,935) 859,745 (842) -- --
----------- ----------- ----------- ----------- ------- -----------
Income (loss) before income taxes ...... 1,240,496 (131,955) 1,108,541 28,754 -- (39,899)
Provision for income taxes ............. 436,470 8,000 444,470 -- -- --
----------- ----------- ----------- ----------- ------- -----------
Net income ............................. $ 804,026 $ (139,955) $ 664,071 $ 28,754 $65,180 $ (39,899)
=========== =========== =========== =========== ======= ===========
Net income per common and
common equivalent shares ............. $ 0.06 -- $ 0.04 -- -- --
=========== ----------- =========== ----------- ------- -----------
Weighted average common and
common equivalent shares
outstanding .......................... 14,423,499 3,051,483(k) 17,474,982 -- -- --
=========== =========== =========== =========== ======= ===========
</TABLE>
Pro Forma
Adjustments Total
Increase Pro Forma
(Decrease) Combined
----------- ----------
Revenues ............................... $43,000(d) $64,467,782
Costs and expenses:
Direct patient care ............... -- 40,849,607
Selling, general and administrative 75,536 (e) --
(358,000)(f) --
(178,265)(g) --
18,923 (h) 20,276,096
Provision for doubtful accounts ... -- 1,029,474
----------- ----------
Total costs and expenses ...... (441,806) 62,155,177
----------- ----------
Income (loss) from operations .......... 484,806 2,312,605
Gain on sale of minority interest ...... -- 128,500
Net interest expense (income) .......... 83,172 (i) 942,075
----------- ----------
Income (loss) before income taxes ...... 401,634 1,499,030
Provision for income taxes ............. 84,071 (j) 528,541
----------- ----------
Net income ............................. $ 317,563 $ 970,489
=========== ==========
Net income per common and
common equivalent shares ............. -- $ 0.06
----------- ==========
Weighted average common and
common equivalent shares
outstanding .......................... 95,238 (l) 17,570,220
=========== ==========
The accompanying notes are an integral part of these pro forma financial
statements.
Page 14 of 21
<PAGE>
MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1993
(UNAUDITED)
<TABLE>
<CAPTION>
Medical Hospital
Innovations HomeCare Pro Forma
Inc. Corporation Combined
----------- ----------- -----------
(c)
<S> <C> <C> <C>
Revenues ..................................................... $33,482,504 $ 1,094,700 $34,577,204
Costs and Expenses:
Direct patient care ....................................... 21,411,834 -- 21,411,834
Selling, general and administrative ....................... 9,713,604 1,172,393 10,885,997
Provision for doubtful accounts ........................... 622,536 24,500 647,036
----------- ----------- -----------
Total costs and expenses ............................ 31,747,974 1,196,893 32,944,867
Income (loss) from operations ................................ 1,734,530 (102,193) 1,632,337
Interest expense ............................................. 419,375 419,375
----------- ----------- -----------
Income (loss) before income taxes ............................ 1,315,155 (102,193) 1,212,962
Provision for income taxes ................................... 469,465 469,465
----------- ----------- -----------
Net income (loss) ............................................ $ 845,690 $ (102,193) $ 743,497
=========== =========== ===========
Net income per common and
common equivalent share ................................... $ 0.07 -- $ 0.05
=========== =========== ===========
Weighted average common and
common equivalent shares outstanding ...................... 13,263,197 2,748,804(k) 16,012,001
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these pro forma financial
statements.
Page 15 of 21
<PAGE>
MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1992
(UNAUDITED)
<TABLE>
<CAPTION>
Medical Hospital Pro Forma
Innovations, HomeCare Combined
Inc. Corporation (Pooled)
----------- ----------- ------------
(c)
<S> <C> <C> <C>
Revenues ............................... $ 9,042,859 $ 915,086 $ 9,957,945
Costs and expenses:
Direct patient care ............... 5,505,562 -- 5,505,562
Selling, general and administrative 3,455,313 889,982 4,345,295
Provision for doubtful accounts ... 463,216 12,792 476,008
----------- ----------- ------------
Total costs and expenses ...... 9,424,091 902,774 10,326,865
----------- ----------- ------------
Income (loss) from operations .......... (381,232) 12,312 (368,920)
Interest expense (income) .............. 94,030 (1,475) 92,555
----------- ----------- ------------
Income (loss) before income taxes ...... (475,262) 13,787 (461,475)
Provision (benefit) for income taxes ... (161,963) 7,714 (154,249)
----------- ----------- ------------
Net income (loss) ...................... $ (313,299) $ 6,073 $ (307,226)
=========== =========== ============
Net loss per common and
common equivalent share ............. $ (0.04) -- $ (0.03)
=========== =========== ============
Weighted average common and common
equivalent shares outstanding ....... 7,187,652 3,262,473(k) 10,450,125
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these pro forma financial
statements.
Page 16 of 21
MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
The accompanying Unaudited Pro Forma Combined Balance Sheet as of March 31, 1995
and the related Unaudited Pro Forma Combined Statements of Operations for the
three months ended March 31, 1995 and for the years ended December 31, 1994,
1993 and 1992 have been prepared based on the historical financial statements of
Medical Innovations, Inc. (the "Registrant"), STAT Specialty Home Care, Inc.
("STAT"), PRN Home Health Care, Inc. and Affiliates ("PRN"), the Pensacola,
Florida branch operation of PharmaThera, Inc. ("PharmaThera Branch") and
Hospital HomeCare Corporation ("HHCC"). Such financial statements have been
adjusted to give effect to (i) the acquisition of STAT effective February 11,
1994, (ii) the acquisition of PRN effective April 1, 1994, (iii) the acquisition
of the PharmaThera Branch effective February 1, 1995, and (iv) the merger with
HHCC, the acquired company, completed on May 19, 1995.
The unaudited pro forma financial statements should be read in conjunction with
the historical financial statements, including notes thereto, of the Registrant
(Form 10-K for year ended December 31, 1994 and Form 10-Q for three months ended
March 31, 1995), PRN (Form 8-K dated June 29, 1994) and HHCC (included herein).
The Pro Forma financial data is provided for comparative purposes only, and does
not purport to be indicative of the results which actually would have been
obtained if the acquisitions had been effected on the dates indicated, or of the
results which may be obtained in the future.
The Unaudited Pro Forma Combined Balance Sheet has been presented as if the
merger with HHCC occurred on March 31, 1995. The Registrant's historical balance
sheet as of March 31, 1995 includes the balances of STAT, PRN and the
PharmaThera Branch.
The unaudited Pro Forma Combined Statements of Operations have been presented as
if the acquisitions of STAT, PRN and the PharmaThera Branch occurred on January
1, 1994. The Registrant's historical results of operations include those of
STAT, PRN, and the PharmaThera Branch since their respective acquisition dates.
The Registrant exchanged 3,262,473 shares of its common stock, valued at
$4,700,000, for all of the outstanding shares of common stock of HHCC. Since
this transaction will be accounted for as a "pooling of interests," the
Registrant's historical financial statements will be restated to include the
accounts of HHCC for all periods presented.
The Registrant acquired certain assets, consisting primarily of inventory,
equipment, provider contracts and a customer base, of the PharmaThera Branch for
cash of approximately $56,000 and two notes. The notes carry obligations
totalling approximately $574,000 and are subject to reductions of up to $117,500
based primarily on certain performance criteria of the post acquisition
PharmaThera Branch operations. The price paid for the provider contracts and
customer base, together with related acquisition costs, was allocated to
purchased contracts which are amortized over ten years.
The acquisition of PRN has been accounted for under the purchase method of
accounting. Accordingly, the Registrant has allocated its total purchase price
of approximately $3,628,000 to the assets and liabilities of PRN based on their
estimated fair values. The Pro Forma Combined Statements of Operations reflect
the amortization over forty years of the excess purchase price over net assets
acquired.
The Registrant paid cash in the amount of $285,000 for certain assets of STAT,
of which approximately $119,000 has been allocated to purchased contracts and
which are amortized over ten years.
Page 17 of 21
MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION (CONTINUED)
PRO FORMA COMBINED FINANCIAL STATEMENT ADJUSTMENTS
(a) To reclassify HHCC stockholders' equity balances to give effect to the
Registrant's common stock issued in the acquisition accounted for as a
pooling.
(b) Acquisition accounted for under the purchase method. Results of
operations of the acquired entity are reflected for the period through
the effective date of the acquisition.
(c) The merger with HHCC is accounted for as a pooling of interests.
Accordingly, the results of operations of HHCC are included for all
periods presented. Prior to the merger with the Registrant, HHCC's
fiscal year ended on March 31. The 1995 fiscal year of HHCC has been
subsequently changed to conform with that of the Registrant (December
31). HHCC's operations for the twelve months ended March 31, 1995, 1994
and 1993 are combined with the Registrant's 1994, 1993 and 1992
statements of operations. For pro forma purposes only, HHCC's
operations (before pooling costs) for the three month period ended
March 31, 1995 are combined with the Registrant's statement of
operations for the three months ended March 31, 1995. As a result, the
operations of HHCC for the three month period ended March 31, 1995 are
included in the Registrant's pro forma combined statements of
operations for both the year ended December 31, 1994 and the three
months ended March 31, 1995.
(d) To reflect increased Medicare reimbursement as a result of the STAT and
PRN acquisitions. Under the Medicare rules, the combination of the
Registrant with STAT and PRN allowed additional corporate costs of the
Registrant to be allocated to the Medicare program and recovered as
additional reimbursement; such adjustment is based on specific
application of such rules as of the beginning of the period.
(e) To reflect the amortization of the acquisition price allocated to
excess cost over net assets of acquired companies for PRN and purchased
contracts for STAT and PharmaThera Branch, detailed as follows:
NUMBER
COST PERIOD OF MONTHS TOTAL
YEAR ENDED 12/31/94: -------- ------ --------- ---------
PRN Nevada - excess cost
over net assets acquired ..... $3,269,760 40 yr. 3 $ 20,436
STAT - purchased contracts ..... 119,040 10 yr. 1 992
PharmaThera Branch -
purchased contracts ............ 541,080 10 yr. 12 54,108
----------
Total Adjustment ............... $ 75,536
==========
THREE MONTHS ENDED 3/31/95:
PharmaThera Branch -
purchased contracts ............ $ 541,080 10 yr. 1 $ 4,509
==========
Page 18 of 21
MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION (CONTINUED)
(f) To reflect the compensation of HHCC's president and principal
stockholder at the post-transaction level. Such adjustment is based on
the compensation to be paid under the executive's three-year employment
agreement entered into at the date of the merger, as if such employment
agreement were in effect for the entire 1994.
(g) To eliminate investment banking and advisory fees and other transaction
costs directly related to the HHCC pooling transaction.
(h) To eliminate HHCC nonrecurring gain on sale of marketable securities.
(i) To reflect additional interest expense related to the portions of the
PRN and Pharma-Thera Branch acquisition price which has been financed,
as applicable for the periods presented, detailed as follows:
<TABLE>
<CAPTION>
NUMBER
PRINCIPAL RATE OF MONTHS AMOUNT
<S> <C> <C> <C> <C>
YEAR ENDED 12/31/94:
PRN Nevada ................................... $2,675,000 6.00%* 3 $ 40,125
PharmaThera Branch ........................... 73,956 7.50%** 12 5,547
500,000 7.50%*** 12 37,500
----------
Total Adjustment ............................. $ 83,172
==========
THREE MONTHS ENDED 3/31/95:
PharmaThera Branch ........................... $ 73,956 9.00%* 1 $ 554
500,000 9.00%*** 1 3,750
----------
Total Adjustment $ 4,304
==========
</TABLE>
* Floating interest rate based on the prime rate as specified in the
loan agreement.
** Floating interest rate based on the prime rate as specified in the
loan agreement. The rate was a weighted average resulting from
fluctuations during the year ended December 31, 1994.
*** Non interest bearing notes. The rates were estimated for
discounting purposes.
(j) To adjust the income tax provision for the effects of the Pro Forma
adjustments other than the non-deductible amortization of excess cost
over net assets acquired, to include a tax provision for PRN and the
PharmaThera Branch which would be necessary on a Pro Forma basis when
combined with the Registrant, and to recognize the realization of the
tax benefit from the loss incurred by HHCC, as applicable for the
periods presented.
Page 19 of 21
MEDICAL INNOVATIONS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION (CONTINUED)
(k)To give effect to the 3,262,473 common shares issued in the merger with
HHCC. The issuance of the HHCC shares increased the 20% limit on the
number of shares which could be repurchased pursuant to per share
calculation guidelines, with any excess applied to retirement of debt
to reduce after-tax interest expense. No adjustment was necessary in
1992 as a result of losses incurred. In 1993 and 1994, the shares
issued in the HHCC transaction have been reduced by 513,669 and
210,990, respectively, which was less than the full 20% due principally
to changes in the Company's stock price. For the three months ended
March 31, 1995, the HHCC shares have been reduced by 1,755,020, the
total number of common stock equivalents included in the Company's
original weighted average share computation, since such share
equivalents were antidilutive after giving pro forma effect to the HHCC
transaction.
(l) To give effect to the common shares issued in the acquisition of PRN.
Of the 380,952 shares issued in the PRN transaction, 95,238 shares have
been added to give pro forma effect to the additional shares for the
three months of 1994 prior to the acquisition.
Page 20 of 21
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
2.1 Agreement and Plan of Reorganization, dated as of May 19,
1995, by and among Medical Innovations, Inc., Hospital
HomeCare Corporation, Arthur L. Rice, Virginia F. Rice,
Kenneth A. Rice, Lucille Rice Roberts, Lauretta Rice
Colvin and Angela Rice McBride. The schedules to the
Agreement, other than Schedule 2.2, which sets forth the
shares of common stock to be issued by the Registrant
pursuant to the Agreement, have been omitted and are as
described in the Agreement. The Registrant hereby agrees
to furnish supplementally a copy of any omitted schedule
to the Commission upon request (previously filed).
Page 21 of 21
