UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
Date of Report (Date of earliest event reported) - February 7, 1997
HEALTH FITNESS PHYSICAL THERAPY, INC.
(Exact name of registrant as specified in its charter)
Minnesota 0-25064 41-1580506
(State or other Jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
3500 West 80th Street
Suite 130
Minneapolis, MN 55431
(Address of principal executive offices and zip code)
(612) 831-6830
(Registrant's telephone number, including area code)
The undersigned registrant hereby amends Item 7 of its Current Report on Form
8-K dated February 7, 1997 as set forth below:
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired. The following financial
statements of the business acquired are included at the following pages
(following the signature page) of this Current Report on Form 8-K:
Page #
Financial Statements of Isernhagen & Associates, Inc.:
- Independent Auditors' Report dated March 27, 1997..............5
- Balance Sheet dated December 31, 1996..........................6
- Statement of Income for year ended December 31, 1996...........7
- Statement of Changes in Retained Earnings for year
ended December 31,1996.........................................8
- Statement of Cash Flows for year ended December 31, 1996...... 9
- Notes to Financial Statements..............................10-11
Financial Statements of Isernhagen, Ltd.:
- Independent Auditors' Report dated March 27, 1997.............12
- Balance Sheet dated December 31, 1996.........................13
- Statement of Income and Retained Earnings for year ended
December 31, 1996.............................................14
- Statement of Cash Flows for year ended December 31, 1996......15
- Notes to Financial Statements.................................16
(b) Pro forma financial information. The following pro forma financial
information is included at the following pages (following the signature page) of
this Current Report on Form 8-K:
- Description of Transaction and Assumptions ................17-18
- Pro Forma Balance Sheet dated December 31, 1996...............19
- Pro Forma Income Statement for year ended
December 31, 1996 ............................................20
- Notes to Pro Forma Financial Statements ...................21-22
(c) Exhibits.
*2.1 Agreement of Purchase and Sale dated February 7, 1997
by and between Isernhagen & Associates, Inc. and
Health Fitness Rehab, Inc.. Upon request of the
Commission, the Registrant agrees to furnish a copy
of any of the following exhibits and schedules to the
Agreement and Purchase and Sale:
Exhibit A - Bill of Sale
Exhibit B - Furniture and Equipment
Exhibit C - Assignment and Assumption Agreement
Exhibit D - Consent to Use Name
2
Exhibit E - Convertible Subordinated Promissory Note
Exhibit F - Earn-Out Payments
Exhibit G - Permits, Certificates, Etc.
Exhibit H - Financial Statements
Exhibit I - Real Estate Lease
Exhibit J - Contracts, Agreements, Licenses, Etc.
Exhibit K - Employment Agreements
Exhibit L - List of Employees
Exhibit M - Employee Benefit Plans
Exhibit N - Patents, Trademarks, Etc.
Exhibit O - Litigation; Disputes
Exhibit P - Location of Business and Assets
Exhibit Q - Registration Agreement
Schedule I - Allocation of Purchase Price
Schedule II - Calculation of Contingent Stock
*2.2 Agreement of Purchase and Sale dated February 7, 1997
by and between Isernhagen Ltd. and Health Fitness
Rehab, Inc.. Upon request of the Commission, the
Registrant agrees to furnish a copy of any of the
following exhibits and schedules to the Agreement and
Purchase and Sale:
Exhibit A - Bill of Sale
Exhibit B - Consent to Use Name
Exhibit C - Convertible Subordinated Promissory Note
Exhibit D - Earn-Out Payments
Exhibit E - Permits, Certificates, Etc.
Exhibit F - Financial Statements
Exhibit G - Contracts, Agreements, Licenses, Etc.
Exhibit H - Compensation Agreements
Exhibit I - List of Employees
Exhibit J - Employee Benefit Plans
Exhibit K - Patents, Trademarks, Etc.
Exhibit L - Litigation
Exhibit M - Location of Business and Assets
Exhibit N - Registration Agreement
Schedule I - Allocation of Purchase Price
Schedule II - Calculation of Contingent Stock
23.1 Consent of Independent Certified Public Accountant
-------------
* Included in original Current Report on Form 8-K
3
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized.
DATED: April 23, 1997 HEALTH FITNESS PHYSICAL THERAPY, INC.
(Registrant)
By: /s/ Don P. Cochran
Don P. Cochran, Chief Financial Officer
4
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Health Fitness Physical Therapy, Inc.
Minneapolis, Minnesota
We have audited the accompanying balance sheet of Isernhagen and Associates,
Inc. as of December 31, 1996, and the related statements of income, retained
earnings, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Isernhagen and Associates, Inc.
as of December 31, 1996, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
VIRCHOW, KRAUSE & COMPANY, LLP
/s/ Virchow, Krause & Company, LLP
Minneapolis, Minnesota
March 27, 1997
5
ISERNHAGEN AND ASSOCIATES, INC.
BALANCE SHEET
December 31, 1996
- ------------------------------------------------------------------------------
ASSETS
1996
----
CURRENT ASSETS
Cash $ 255,426
Accounts receivable 36,639
Inventories 13,492
---------
Total Current Assets 305,557
=========
PROPERTY AND EQUIPMENT - At Cost
Office equipment 69,471
Furniture and fixtures 23,568
---------
93,039
Less accumulated depreciation (89,295)
---------
Total Property and Equipment 3,744
---------
TOTAL ASSETS $ 309,301
=========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 25,029
Accrued payroll, taxes and benefits 41,128
Deferred revenue 18,100
---------
Total Current Liabilities 84,257
---------
STOCKHOLDER'S EQUITY
Common stock - no par value; 250,000 shares authorized;
1,000 shares issued and outstanding 1,000
Additional paid-in capital 8,672
Retained earnings 215,372
---------
Total Stockholder's Equity 225,044
---------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 309,301
=========
See accompanying notes to financial statements.
6
ISERNHAGEN AND ASSOCIATES, INC.
STATEMENT OF INCOME
Year Ended December 31, 1996
- ------------------------------------------------------------------------------
1996
----
REVENUES
Sales of instructional materials $ 795,980
Consulting and fee income 481,256
----------
Total Revenues 1,277,236
----------
COSTS OF REVENUES
Costs of sales 144,841
Costs of consulting and fee income 251,340
----------
Total Costs of Revenues 396,181
----------
Total Gross Profit 881,055
----------
OPERATING EXPENSES
Salaries, wages and employee benefits 406,743
Sales and promotional 64,086
Travel 63,321
Occupancy 22,066
General and administrative 93,472
----------
Total Operating Expenses 649,688
----------
OPERATING INCOME 231,367
OTHER INCOME
Interest income 4,778
----------
NET INCOME $ 236,145
==========
See accompanying notes to financial statements.
7
ISERNHAGEN AND ASSOCIATES, INC.
STATEMENT OF CHANGES IN RETAINED EARNINGS
Year Ended December 31, 1996
- -------------------------------------------------------------------------------
BALANCE - DECEMBER 31, 1995 -
INCOME TAX BASIS $ 210,888
Adjustments to reconcile retained earnings
on the income tax basis to generally
accepted accounting principles basis:
Accrued payroll, related taxes and withholdings (13,659)
Accrued liability for compensated absences (12,198)
Deferred revenue (19,250)
----------
RETAINED EARNINGS AT DECEMBER 31, 1995 -
AS RESTATED 165,781
Net income for the year 236,145
Distributions to stockholder (186,554)
----------
RETAINED EARNINGS AT DECEMBER 31, 1996 $ 215,372
==========
See accompanying notes to financial statements.
8
ISERNHAGEN AND ASSOCIATES, INC.
STATEMENT OF CASH FLOWS
Year Ended December 31, 1996
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 236,145
Adjustments to reconcile net income to net
cash used for operating activities:
Depreciation 19,053
Changes in operating assets and liabilities
Decrease in accounts receivable 159
Decrease in inventories 6,809
Increase in accounts payable 12,007
(Decrease) in deferred revenue (1,150)
Increase in accrued payroll, taxes and benefits 12,024
---------
Net Cash Provided by Operating Activities 285,047
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of office equipment, furniture and fixtures (21,965)
---------
Net Cash Used for Investing Activities (21,965)
---------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to stockholder (134,316)
---------
Net Cash Used for Financing Activities (134,316)
---------
CASH - Beginning of Year 126,660
---------
CASH - END OF YEAR $ 255,426
=========
Supplemental disclosure of cash flow information
Loan receivable applied as distribution to stockholder $ 52,238
=========
See accompanying notes to financial statements.
9
ISERNHAGEN & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
- -------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -------------------------------------------------------------------------------
Isernhagen and Associates, Inc. is a consulting company dedicated to the
prevention and management of work injuries. The Company provides this service
through consultation, seminars, and the sales of related literature. A summary
of the Company's significant accounting policies follows.
Basis of Accounting - The 1995 financial statements were prepared on the
accrual basis and reflect the accounting principles used for federal
income tax purposes. The 1996 financial statements are prepared on the
accrual basis and reflect generally accepted accounting principles.
Adjustments to reflect the application of generally accepted accounting
principles as of December 31, 1995 have been reflected in the financial
statements as restatement of retained earnings.
Accounts Receivable - The Company considers accounts receivable to be
fully collectible, accordingly, no allowance for doubtful accounts is
required. If accounts become uncollectible, they will be charged to
operations when that determination is made.
Inventories - Inventories consist of booklets, audio and video tapes, and
related printed literature. Inventories are stated at the lower of cost
or market value with cost determined using the first-in, first-out
method.
Property and Equipment - Property and equipment are carried at cost.
Depreciation expense is provided primarily using accelerated methods
over the estimated useful lives of the assets.
Income Tax - The Company has elected to be taxed as an S Corporation under
the Internal Revenue Code and related state statutes. Accordingly, the
stockholder is subject to federal and state income taxes on her
proportionate share of net income.
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts. Actual
results could differ from those estimates.
- -------------------------------------------------------------------------------
NOTE 2 - EMPLOYEE RETIREMENT PLAN
- -------------------------------------------------------------------------------
The Company has a 401(k) profit sharing plan for eligible employees. To become
eligible to participate in the plan, employees are required to complete a
minimum number of hours of service during a specified period. The Company
contributes to the plan matching amounts determined annually at its discretion.
Matching contributions for 1996 were $3,252.
- -------------------------------------------------------------------------------
NOTE 3 - LEASING ARRANGEMENTS
- -------------------------------------------------------------------------------
The Company occupies office space under an operating lease expiring June 1997
which requires lease payments of $825 monthly. Additional space is leased from
Isernhagen Clinics, Inc., a related corporation, on a month-to-month basis at
$754 monthly. Office space is shared with Isernhagen, LTD, another related
entity, which was charged rent of $1,893 during 1996.
10
ISERNHAGEN & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
- -------------------------------------------------------------------------------
NOTE 4 - CONCENTRATION OF CREDIT RISK
- -------------------------------------------------------------------------------
At December 31, 1996 the Company had demand deposits on hand in a reputable
local financial institution which exceeded federally insured limits.
- -------------------------------------------------------------------------------
NOTE 5 - SUBSEQUENT EVENT
- -------------------------------------------------------------------------------
On February 7, 1997, the Company sold its net assets to Health Fitness Physical
Therapy, Inc. for cash and other consideration.
11
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Health Fitness Physical Therapy, Inc.
Minneapolis, Minnesota
We have audited the accompanying balance sheet of Isernhagen, LTD. as of
December 31, 1996, and the related statements of income and retained earnings,
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Isernhagen, LTD. as of December
31, 1996, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
VIRCHOW, KRAUSE & COMPANY, LLP
/s/ Virchow, Krause & Company, LLP
Minneapolis, Minnesota
March 27, 1997
12
ISERNHAGEN, LTD.
BALANCE SHEET
December 31, 1996
- -------------------------------------------------------------------------------
ASSETS
1996
----
CURRENT ASSETS
Cash $ 79,750
Accounts receivable 31,075
--------
Total Current Assets 110,825
--------
OTHER ASSETS
Organizational cost, net of amortization 21
--------
TOTAL ASSETS $110,846
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 951
Accrued payroll, taxes and benefits 3,443
--------
Total Current Liabilities 4,394
--------
STOCKHOLDERS' EQUITY
Common stock - par value $.01; 5,000,000 shares authorized;
600,000 shares issued and outstanding 6,000
Retained earnings 100,452
--------
Total Stockholders' Equity 106,452
--------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $110,846
========
See accompanying notes to financial statements.
13
ISERNHAGEN, LTD.
STATEMENT OF INCOME AND RETAINED EARNINGS
Year Ended December 31, 1996
- -------------------------------------------------------------------------------
1996
----
REVENUES
Consulting and fee income $ 199,250
Cost of consulting and fee income 51,805
--------
Net Consulting and Fee Income 147,445
--------
OPERATING EXPENSES
Salaries, wages and employee benefits 9,924
Sales and promotional 686
Travel 3,620
Occupancy 2,537
General and administrative 9,572
--------
Total Operating Expenses 26,339
--------
OPERATING INCOME 121,106
OTHER INCOME
Interest income 1,646
--------
NET INCOME 122,752
RETAINED EARNINGS - Beginning of Year 13,796
Distributions to Stockholders (36,096)
--------
RETAINED EARNINGS - END OF YEAR $ 100,452
=========
See accompanying notes to financial statements.
14
ISERNHAGEN, LTD.
STATEMENT OF CASH FLOWS
Year Ended December 31, 1996
- -------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 122,752
Adjustments to reconcile net income to net
cash used for operating activities:
Amortization 247
Changes in operating assets and liabilities
Increase in accounts receivable (31,075)
Increase in accounts payable 951
Increase in accrued payroll, taxes and benefits 3,443
--------
Net Cash Provided by Operating Activities 96,318
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to stockholders (36,096)
--------
Net Cash Used for Financing Activities (36,096)
--------
CASH - Beginning of Year 19,528
--------
CASH - END OF YEAR $ 79,750
========
See accompanying notes to financial statements.
15
ISERNHAGEN, LTD.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
- -------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -------------------------------------------------------------------------------
Isernhagen, LTD. provides consulting services related to the prevention and
management of work injuries.
Accounts Receivable - The Company considers accounts receivable to be
fully collectible, accordingly, no allowance for doubtful accounts is
required. If accounts become uncollectible, they will be charged to
operations when that determination is made.
Income Tax - The Company has elected to be taxed as an S Corporation under
the Internal Revenue Code and related state statutes. Accordingly, the
stockholders are subject to federal and state income taxes on their
proportionate share of net income.
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts. Actual
results could differ from those estimates.
Concentrations - Approximately 89% of the Company's sales and 98% of its
receivables resulted from transactions with two customers in 1996.
- -------------------------------------------------------------------------------
NOTE 2 - RELATED PARTY TRANSACTIONS
- -------------------------------------------------------------------------------
The Company is charged office rent from Isernhagen & Associates, Inc., a related
company. The amount of rent paid to Isernhagen & Associates, Inc. during 1996
was $1,893.
- -------------------------------------------------------------------------------
NOTE 3 - SUBSEQUENT EVENTS
- -------------------------------------------------------------------------------
On February 7, 1997, the company sold its net assets to Health Fitness Physical
Therapy, Inc. for cash and other consideration.
16
HEALTH FITNESS PHYSICAL THERAPY, INC.
- --------------------------------------------------------------------------------
Description of transaction: On February 7, 1997, the Company completed the
acquisition of certain assets and assumed certain liabilities of two related and
closely-held companies: Isernhagen & Associates, Inc. and Isernhagen, LTD.
(Isernhagen). Isernhagen, Minnesota-based companies, provide comprehensive
programs and services to professionals who work in industrial rehabilitation and
work-injury services. The purchase agreement contained a noncompete provision
which covers a period of five years and prohibits the former owners from
directly or indirectly competing with the Company. In connection with the
acquisition, assets purchased, liabilities assumed, notes issued and
consideration paid were as follows:
Assets Acquired
Accounts receivable $ 67,714
Inventories 13,492
Property 3,744
Noncompete agreements 120,000
Excess of purchase price over net assets acquired 1,133,701
----------
1,338,651
----------
Liabilities Assumed
Accounts payable 25,980
Accrued salaries, wages and payroll taxes 44,571
Deferred revenue 18,100
----------
88,651
----------
Notes Issued 250,000
----------
Cash Consideration Paid $1,000,000
==========
The Company also agreed to issue common stock with a value of $500,000 on
February 7, 1999, provided the former owners of Isernhagen are employed by the
Company on that date.
The notes issued are convertible, subordinated promissory notes, bear interest
at 8% and are due May 7, 1998, unless converted earlier. The convertible,
subordinated promissory notes and accrued interest are convertible at the option
of the holders after August 6, 1997, at a conversion price of the lesser of 85%
of the average bid price per share of the Company's common stock over the
immediately preceding ten days or $4.00 per share.
The purchase agreement requires the Company to make annual cash payments of 50%
of net income from operations in excess of 25% of revenues, as defined, for each
of the five fiscal years ending February 28, 1998 through 2002.
The purchase agreement also required the Company to enter into employment
agreements with certain key employees of Isernhagen for a term of five years.
These agreements provide for minimum aggregate annual salaries of $195,000.
The Company also granted stock options to purchase up to 70,000 shares of the
Company's common stock at $4.00 per share in connection with the employment
agreements.
This acquisition has been accounted for using the purchase method of accounting,
and the excess of purchase price over net assets acquired is being amortized
over 15 years using the straight-line method.
The following pro forma financial statements are based upon the audited
financial statements of the Company, Isernhagen & Associates, Inc. and
Isernhagen, LTD., as of December 31, 1996 and for the year then ended.
17
HEALTH FITNESS PHYSICAL THERAPY, INC.
- -------------------------------------------------------------------------------
Significant assumptions in developing the pro forma financial statements
include:
1. Noncompete agreements with the former owners of Isernhagen are being
amortized over five years using the straight-line method.
2. The excess of the purchase price over net assets acquired is being
amortized over 15 years using the straight-line method.
3. The pro forma financial statements reflect the minimum aggregate annual
salaries of certain key employees of Isernhagen totaling $195,000.
4. Accrued vacation pay for Isernhagen employees remains intact and is
reflected in the combined pro forma financial statements. Accrued sick
pay for Isernhagen employees was not assumed and, therefore, is not
reflected in the pro forma financial statements.
5. Earn-out payments, defined above, are based upon a December 31 fiscal
year for 1996 through 2001. For the year ended December 31, 1996, no
earn-out payment was due.
6. Interest on the convertible, subordinated notes was accrued for six
months. Interest on funds borrowed to finance the acquisition was
accrued for the entire year.
7. The convertible, subordinated notes were converted July 1, 1997 at a
price of $2.39 per share.
8. The Company has assumed that stock options to purchase up to 70,000
shares of the Company's common stock at $4.00 per share issued in
connection with the employment agreements were not exercised. Pro forma
earnings per share data is based on the weighted average number of
shares outstanding during 1996 to give effect had the options been
exercised January 1, 1996.
9. The weighted average number of common and common equivalent shares for
the year ended December 31, 1996 includes 166,667 contingent shares
assumed to be issued to the sellers of Isernhagen. The Company is
obligated to issue the contingent shares to the sellers of Isernhagen on
February 7, 1999 so that the value of the common stock issued on
February 7, 1999 equals $500,000, provided the sellers are employed by
the Company on that date. Options and warrants were not included as
common stock equivalents for the year ended December 31, 1996 due to
their antidilutive effect.
10. The Company's provision for income taxes was adjusted to reflect the
income of Isernhagen and other pro forma adjustments.
11. The former owners of Isernhagen were employed by the Company as of and
for the year ended December 31, 1996.
The Company does not feel there are any significant uncertainties about the
assumptions used to develop the pro forma financial statements.
The following pro forma financial statements should be read in conjunction with
the historical financial statements used in preparing the pro forma financial
statements.
The following unaudited pro forma condensed financial statements reflect the
combined operations of the Company and Isernhagen during the year ended December
31, 1996, as if the acquisition had occurred January 1, 1996. The unaudited pro
forma condensed financial statements may not necessarily reflect the actual
operations of the Company which would have resulted had the acquisition occurred
as of the date presented. The unaudited pro forma information is not necessarily
indicative of future results of operations for the combined companies.
18
HEALTH FITNESS PHYSICAL THERAPY, INC.
Pro Forma Balance Sheet
December 31, 1996
- -------------------------------------------------------------------------------
Health
Fitness
Physical Total Pro Pro
Therapy, Before Forma Forma
Inc. Isernhagen Adjustments Adjustments Combined
ASSETS
CURRENT ASSETS
Cash and cash equivalents $335,176 $ 335,176 ($ 335,176)
Trade accounts receivable, less allowance
for doubtful accounts $ 4,656,876 67,714 4,724,590 $ 4,724,590
Inventories 454,254 13,492 467,746 467,746
Prepaid expenses and other 433,413 433,413 433,413
----------- ----------- ----------- ------------- -----------
Total Current Assets 5,544,543 416,382 5,960,925 (335,176) 5,625,749
PROPERTY, Net 2,185,335 3,744 2,189,079 2,189,079
OTHER ASSETS
Goodwill, less accumulated amortization 9,376,367 9,376,367 1,058,121 10,434,488
Noncompete agreement, less accumulated
amortization 346,976 346,976 96,000 442,976
Trade accounts receivable not expected to
be collected within one year, less
allowance for doubtful accounts 640,000 640,000 640,000
Other 85,676 21 85,697 (21) 85,676
------------ ------------ ---------- ---------- ----------
TOTAL ASSETS $18,178,897 $420,147 $18,599,044 $ 818,924 $19,417,968
============ =========== ========== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Checks written in excess of bank balances $ 94,643 $ 94,643 $ 55,936 $ 150,579
Notes payable 2,090,000 2,090,000 1,000,000 3,090,000
Trade accounts payable 1,662,077 $ 25,980 1,688,057 1,688,057
Accrued salaries, wages, and payroll taxes 1,302,770 44,571 1,347,341 (10,000) 1,337,341
Other accrued liabilities 622,182 622,182 147,700 769,882
Current portion of long-term debt 281,278 281,278 281,278
Deferred revenue 1,577,186 18,100 1,595,286 1,595,286
----------- ----------- ----------- ----------- -----------
Total Current Liabilities 7,630,136 88,651 7,718,787 1,193,636 8,912,423
----------- ----------- ----------- ----------- -----------
LONG-TERM DEBT, Less Current Portion 576,490 576,490 576,490
----------- ----------- ----------- ----------- -----------
DEFERRED LEASE OBLIGATION 80,183 80,183 80,183
------------ ----------- ----------- ----------- ------------
STOCKHOLDERS' EQUITY
Common stock 71,733 7,000 78,733 (5,912) 72,821
Additional paid-in capital 11,693,617 8,672 11,702,289 296,632 11,998,921
Retained earnings (accumulated deficit) (1,795,689) 315,824 (1,479,865) (665,432) (2,145,297)
----------- ---------- ------------ ----------- -----------
9,969,661 331,496 10,301,157 (374,712) 9,926,445
Stockholder notes and interest receivable (77,573) (77,573) (77,573)
----------- ----------- ------------- ----------- -----------
9,892,088 331,496 10,223,584 (374,712) 9,848,872
----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $18,178,897 $420,147 $18,599,044 $ 818,924 $19,417,968
=========== =========== =========== ========== ===========
See accompanying notes to pro forma financial statements.
19
HEALTH FITNESS PHYSICAL THERAPY, INC.
Pro Forma Income Statement
December 31, 1996
- -------------------------------------------------------------------------------
Health
Fitness
Physical Total Pro Pro
Therapy, Before Forma Forma
Inc. Isernhagen Adjustments Adjustments Combined
REVENUES
Preventative healthcare $21,789,983 $ 680,506 $22,470,489 $22,470,489
Rehabilitative healthcare 6,724,361 6,724,361 6,724,361
Sales of materials 795,980 795,980 795,980
----------- --------- ----------- ----------- -----------
28,514,344 1,476,486 29,990,830 29,990,830
----------- --------- ---------- ----------- ----------
COSTS OF REVENUES
Salaries 15,686,183 15,686,183 $ 14,487 15,700,670
Equipment 4,414,273 4,414,273 4,414,273
Support 1,386,472 303,145 1,689,617 1,689,617
Occupancy 1,326,961 1,326,961 1,326,961
Cost of sales 144,841 144,841 144,841
---------- --------- ----------- ----------- -----------
22,813,889 447,986 23,261,875 14,487 23,276,362
---------- --------- ---------- ----------- ----------
Gross Profit 5,700,455 1,028,500 6,728,955 (14,487) 6,714,468
OPERATING EXPENSES
Salaries 1,749,498 416,667 2,166,165 73,341 2,239,506
Selling, general and administrative 2,679,227 259,360 2,938,587 109,280 3,047,867
---------- --------- ----------- ----------- -----------
4,428,725 676,027 5,104,752 182,621 5,287,373
---------- --------- ----------- ----------- -----------
1,271,730 352,473 1,624,203 (197,108) 1,427,095
INTEREST INCOME 26,272 6,424 32,696 32,696
INTEREST EXPENSE (292,421) (292,421) (152,500) (444,921)
----------- ---------- ----------- ---------- -----------
NET INCOME $ 1,005,581 $ 358,897 $ 1,364,478 ($349,608) $ 1,014,870
=========== ========== =========== ========== ===========
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARES $0.14 $0.14
==== ====
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING 7,155,800 7,376,995
========= =========
See accompanying notes to pro forma financial statements.
20
HEALTH FITNESS PHYSICAL THERAPY, INC.
- -------------------------------------------------------------------------------
NOTES TO PRO FORMA FINANCIAL STATEMENTS
Note 1 - Cash and cash equivalents of Isernhagen were retained by the
sellers. The Company has not assigned a value to the unamortized amount
of intangible assets of Isernhagen.
Note 2 - Pro forma adjustments related to noncompete agreements are:
Value assigned $ 120,000
Amortization (24,000)
-----------
$ 96,000
===========
Note 3 - Pro forma adjustments related to goodwill are:
Value assigned $ 1,133,701
Amortization (75,580)
-----------
$ 1,058,121
===========
Note 4 - Checks written in excess of bank balances was adjusted by $55,936 to
reflect an increase in minimum salaries paid to certain key employees
of Isernhagen and related payroll taxes.
Note 5 - Pro forma adjustments relating to notes payable are:
Funds borrowed to finance acquisition $ 1,000,000
Convertible, subordinated notes issued 250,000
Conversion of convertible, subordinated notes (250,000)
-----------
$ 1,000,000
===========
Note 6 - Pro forma adjustments relating to accrued salaries, wages and payroll
taxes are:
Recognition of accrued salaries $ 2,507
Adjustment of accrued sick pay (12,507)
-----------
$ (10,000)
===========
Note 7 - Pro forma adjustments relating to other accrued liabilities are:
Accrue interest on convertible, subordinated notes $ 10,000
Conversion of accrued interest to equity (10,000)
Accrued interest on funds borrowed to finance
acquisition 142,500
Adjust income tax provision for Isernhagen earnings
and other pro forma adjustments 5,200
-----------
$ 147,700
===========
Note 8 - Pro forma adjustments relating to common stock are:
Eliminate common stock of Isernhagen ($ 7,000)
Conversion of convertible, subordinated noted 1,088
----------
($ 5,912)
===========
Note 9 - Pro forma adjustments relating to additional paid-in capital are:
Eliminate additional paid-in capital of Isernhagen ($ 8,672)
Additional paid-in capital from conversion of
convertible, subordinated notes 305,304
-----------
$ 296,632
===========
21
HEALTH FITNESS PHYSICAL THERAPY, INC.
- -------------------------------------------------------------------------------
Note 10 - Pro forma adjustments relating to salaries are:
Adjustment of salaries of certain key Isernhagen
employees to aggregate minimum $ 53,493
Adjustment of accrued sick pay (12,507)
Recognition of stock-based compensation related
to conversion of notes and interest 46,392
-----------
$ 87,828
===========
The above adjustments relating to salaries are
reflected in the pro forma income statement as:
Costs of revenues - salaries $ 14,487
Operating expenses - salaries 73,341
----------
$ 87,828
===========
Note 11 - Pro forma adjustments relating to selling, general and administrative
expenses are:
Amortization of noncompete agreements $ 24,000
Amortization of goodwill 75,580
Accrue payroll taxes related to salary adjustments 4,500
Adjustment of provision for income taxes 5,200
----------
$ 109,280
===========
22