SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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COMMISSION FILE NUMBER 0-16079
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AIR METHODS CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 84-0915893
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
7301 SOUTH PEORIA, ENGLEWOOD, COLORADO 80112
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(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (303) 792-7400
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Not Applicable
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.06 PAR VALUE PER SHARE (the "Common Stock")
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(Title of Class)
NASDAQ STOCK MARKET
- -----------------------------------------------------------------
(Name of each exchange on which registered)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by
non-affiliates of the Registrant as of March 7, 1996 was approximately
$22,986,599./1/ The number of outstanding shares of Common Stock as
of March 7, 1996, was 8,077,896.
DOCUMENTS INCORPORATED BY REFERENCE:
The Company's proxy statement for its Annual Meeting of
Stockholders to be held May 23, 1996 is hereby incorporated by
reference into Part III of this Report.
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/1/ Excludes 1,267,052 shares of Common Stock held by directors,
officers, and shareholders whose ownership exceeds five percent
of the shares outstanding at March 7, 1996. Exclusion of shares
held by any person should not be construed to indicate that such
person possesses the power, direct or indirect, to direct or
cause the direction of the management of policies of the
Registrant, or that such person is controlled by or under common
control with the Registrant.
TABLE OF CONTENTS
TO FORM 10-K
Page
----
PART I
ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . 1
General. . . . . . . . . . . . . . . . . . . . . . . . . 1
Competition. . . . . . . . . . . . . . . . . . . . . . . 2
Marketing Strategy . . . . . . . . . . . . . . . . . . . 3
Backlog. . . . . . . . . . . . . . . . . . . . . . . . . 3
Employees. . . . . . . . . . . . . . . . . . . . . . . . 3
Government Regulation. . . . . . . . . . . . . . . . . . 3
ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . 4
Facilities . . . . . . . . . . . . . . . . . . . . . . . 4
Equipment and Parts. . . . . . . . . . . . . . . . . . . 4
ITEM 3. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . 5
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . 5
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS. . . . . . . . . . . . . . . . . . . 6
ITEM 6. SELECTED FINANCIAL DATA. . . . . . . . . . . . . . . . . 7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. . . . . . . . . . . 8
Results of Operations. . . . . . . . . . . . . . . . . . 8
Liquidity and Capital Resources. . . . . . . . . . . . . 13
Outlook for 1996 . . . . . . . . . . . . . . . . . . . . 13
New Accounting Standards . . . . . . . . . . . . . . . . 13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. . . . . . . 14
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE. . . . . . . . . . . 14
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT . . . . . . . . . . . . . . . . . . . . . . . 15
ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . 15
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT . . . . . . . . . . . . . . . . . . . . . 15
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . 15
i
Page
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON
FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . IV-1
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-5
ii
PART I
ITEM 1. BUSINESS
GENERAL
Air Methods Corporation, a Delaware corporation ("Air
Methods" or "the Company"), was established in Colorado in 1982 and
now serves as one of the largest providers of aeromedical emergency
transport services and systems throughout North America. As of
December 31, 1995, the Company provided aeromedical transportation
services to hospitals located in 14 states under 19 operating
agreements with terms ranging from three to seven years. In addition
the Company designs, manufactures, and installs medical aircraft
interiors and other aerospace products.
The Company's Flight Services Division provides its hospital
clients with dedicated helicopters and airplanes equipped with FAA-
approved medical interiors to transport persons requiring intensive
medical care from either the scene of an accident or general care
hospitals to highly skilled trauma centers or tertiary care centers.
The Company conducts its operations using exclusively Instrument
Flight Rules ("IFR")-certified aircraft and IFR-rated pilots,
permitting a higher degree of operational flexibility, flight safety,
and navigational accuracy than is customarily available using more
limited Visual Flight Rules ("VFR")-certified equipment and pilots
without instrument ratings. Maintenance and operation of the aircraft
in accordance with Federal Aviation Regulations (FAR) Part 135
standards is the Company's responsibility. The hospital clients are
responsible for providing the medical personnel and all medical care.
Operating agreements with the hospitals typically provide that the
Company receives 70% of its revenue from a fixed monthly fee and 30%
from an hourly flight fee from the hospital, regardless of when, or
if, the hospital is reimbursed for these services by its patients,
their insurers, or the federal government. The fees are generally
subject to annual increases based on changes in the consumer price
index and in the Company's hull and liability insurance premiums.
Because the majority of the Company's flight revenue is generated from
fixed monthly fees, seasonal fluctuations in flight hours do not
significantly impact the Company's monthly revenue in total. The
Company has targeted hospital customers which by location and scope of
service qualify as regional care centers.
Although the loss of any one of the Company's 19 customers
would have an adverse impact on gross revenue, the loss would also
cause the elimination of related flight center, aircraft operating,
and aircraft ownership costs, making the net impact on the Company's
profitability less significant. The Company has never lost a hospital
contract to a competitor.
Internationally, the Company relies on developing business
relationships with strategic players in the medical industry within
other countries to expand its aeromedical transportation business.
The Company's first international franchise was established in 1995 in
Brazil with Unimed Air de Sao Paulo, a member of Brazil's largest
healthcare cooperative. The Company has assisted the franchise with
aircraft selection and acquisition, medical interior and avionics
installations, communications center consultation, and pilot and
medical personnel training. The franchise currently in effect
provides for an initial acquisition price payable over 10 years plus
annual royalties based upon a percentage of the venture's gross annual
revenues. Agreements to provide other services such as the
manufacture and installation of medical interiors or the procurement
of aircraft on behalf of the franchise are each negotiated and priced
independently of the franchise agreement.
The Company performs non-destructive dynamic component
testing, engine repair, and component overhaul at its headquarters in
Denver. The Company is designated a Service Center for Bell
Helicopter, Inc. and an FAA-certified Repair Station authorized to
perform airframe, avionics, and limited engine repair. In-house
repair, maintenance, and testing capabilities provide cost savings and
decrease aircraft down time by avoiding the expense and delay of
having this work performed by nonaffiliated vendors.
1
The Company operates its domestic contracts as well as its
international franchise under the service mark AIR LIFE[R] and has
defended the service mark against infringement actions in Colorado,
Kansas, and California. The service mark is identified in the
aeromedical transportation industry with the Company's exclusive use
of IFR-equipment and pilots and the high quality of its customer
support.
The medical interiors designed and manufactured by the
Company's Products Division vary from basic life support systems to
intensive care interiors. The Company has designed interiors which
serve exclusively as medical interiors, as well as modular units which
can be easily converted for other transport needs. Although medical
interiors have comprised the majority of the Products Division's
business, the combination of its engineering, manufacturing, and
certification capabilities has also allowed the Company to perform
systems integration for other aerospace products, such as aircraft
navigation systems, environmental control systems, and structural and
electrical systems. Manufacturing capabilities include equipment
fabrication, composites, machine and welding shops, upholstery, and
avionics engineering licensed and approved by the FAA. To optimize
the efficiency of the design phase, the engineering department uses
computer-aided design work stations and finite element analysis
software. The Company also offers quality assurance and certification
services pursuant to Parts Manufacturer Approvals ("PMA's").
The Products Division markets its services and products both
domestically and internationally to customers in the emergency medical
transport, search and rescue, and law enforcement fields. The Company
has signed marketing agreements with foreign representatives to
promote and distribute the Company's products internationally.
Generally, each interior or other project is custom designed in
accordance with specific customer contract requirements, although the
Company is developing interior components which can be sold to other
interior manufacturers. New products developed during the past year
include a multifunctional floor for an MD900 Explorer aircraft, an
articulating patient loading system, and a modular medical cabinet.
The Company maintains patents covering certain products and has
applied for patents covering the MD900 floor and the patient loading
system. The raw materials used in the manufacture of the interiors
and other products are generally widely available from several
different vendors.
On November 12, 1991, the Company, then a research and
development company doing business as Cell Technology, completed the
acquisition of Air Methods Corporation, a Colorado corporation ("Air
Methods - Colorado"). Air Methods - Colorado was merged into the
Company, and the Company changed its name to "Air Methods
Corporation." From its inception in 1982 until the completion of
this transaction, the Company had been engaged in the development of
biologic response modifiers, naturally occurring substances designed
to alter the body's immune system and its reaction to cancer and other
diseases. References herein to Air Methods and the Company refer to
Air Methods Corporation, a Delaware corporation formerly known as Cell
Technology, Inc., including its predecessor corporation, Air Methods -
Colorado, unless otherwise indicated by the context. Air Methods
Corporation is located at 7301 South Peoria, Englewood, Colorado
80112; the telephone number is (303) 792-7400.
COMPETITION
The Company believes that its competition in the aeromedical
transportation industry comes primarily from five national operators:
Corporate Jets, Inc.; Metro Aviation; OmniFlight, Inc.; Petroleum
Helicopters, Inc.; and Rocky Mountain Helicopters, Inc. The industry
also includes numerous smaller regional carriers. Operators generally
compete on the basis of price, safety record, accident prevention and
training, and the medical capability of the aircraft offered. Price
is becoming a more significant element of competition because of the
current economic and legislative environment in the healthcare
industry. The movement of many healthcare organizations toward
consolidation with other entities and toward strict cost containment
reflects the uncertainty concerning the future structure of healthcare
providers.
The Company's competition in the medical interior design and
manufacturing industry comes primarily from two companies based in the
United States and one European company. Competition is based mainly
on product features and performance, price, and weight of the product.
The Company believes that the Products Division competes favorably
with other companies within this industry.
2
MARKETING STRATEGY
The Company intends to maintain and appropriately grow its
traditional business as an aeromedical transportation operator through
responses to selected Requests for Proposal (RFP's) received from
healthcare centers; through business combinations such as joint
ventures, mergers and acquisitions; and through the development of
additional international programs. RFP's will be evaluated based on
the type of aircraft requested and the potential viability of the
program. The Company believes that consolidation within the
aeromedical transportation industry is necessary to realize economies
of scale and to spread the costs and risks of operation over a larger
customer base.
The Company also intends to continue developing its
relationships with domestic aeromedical operators to further
distinguish the Products Division as an independent provider of
interiors to all operators and to pursue opportunities to market its
engineering services. The government aeromedical industry is
considered a market of primary importance for 1996, both domestically
and internationally. The Products Division also is developing an
international marketing network and believes that modular, easy-
install products will continue to attract the most interest abroad.
BACKLOG
As of December 31, 1995, the Company was completing the
design of a medical interior for a Lockheed L-1011 aircraft and the
design and installation of an interior for an MD900 Explorer aircraft.
These projects are scheduled for completion in April and June,
respectively, and remaining revenue is estimated at $1.3 million. As
of December 31, 1994, the Company's backlog for medical interiors and
other products was $920,000.
EMPLOYEES
As of December 31, 1995, the Company retained 212 full time
and 19 part time employees, comprised of 113 pilots; 84 aviation
machinists, A&P engineers and other manufacturing/maintenance
positions; and 34 business and administrative personnel. All of the
Company's pilots are IFR-rated and have completed an extensive ground
school and flight training program at the commencement of their
employment with the Company, as well as local area orientation and
annual training provided by the Company. All of the Company's
operating aircraft mechanics must possess FAA airframe and powerplant
licenses.
The Company's employees are not covered by any collective
bargaining agreements and management believes that its relations with
employees are satisfactory. The Company believes that the
compensation arrangements offered to its employees are competitive
with those of other providers of aviation services based on the
individual qualifications of employees and are sufficient to attract
and keep qualified personnel.
GOVERNMENT REGULATION
The Company is subject to the Federal Aviation Act of 1958,
as amended. All flight and maintenance operations of the Company are
regulated and actively supervised by the U.S. Department of
Transportation through the FAA. The Company holds a Part 135 Air
Carrier Certificate and Part 145 Repair Station (Maintenance and
Avionics) Certificates from the FAA.
The Company cannot predict the impact of new or changed laws
or regulations on the demand for aeromedical services in the future or
the costs of complying with such laws and regulations.
3
ITEM 2. PROPERTIES
FACILITIES
The Company leases its headquarters, consisting of
approximately 60,000 square feet of office and hangar space in
metropolitan Denver, Colorado at the Centennial Airport. The
Company's lease for the hangar space expires in December 1997 and in
February 1998 for the office space. The approximate annual rent is
$361,000. The Company has an option to extend these leases for an
additional ten years upon six months' advance written notice and
believes that these facilities are in good condition and suitable for
the Company's requirements.
EQUIPMENT AND PARTS
As of December 31, 1995, the Company managed a fleet of 29
aircraft, consisting of 26 helicopters and 3 airplanes. Of these
aircraft, the Company owns 18 helicopters and 1 airplane and leases 4
helicopters. The Company operates 4 helicopters and 2 airplanes owned
by client hospitals and other third parties in connection with
existing aeromedical contracts. One helicopter owned by the Company
has not yet been placed in service pending completion of its medical
interior and avionics installations. The composition of the Company's
helicopter and airplane fleets as of December 31, 1995 is as follows:
COMPANY OWNED AIRCRAFT<F1>
(Dollar amounts in thousands)
-----------------------------
Net Book
Type Number Cost Value
---- ------ ------- --------
Helicopters:
Bell 206 L-1 1 $ 663 $ 516
Bell 206 L-3 5 4,347 3,555
Bell 222A 1 1,883 1,473
Bell 222UT 8 14,056 12,039
Bell 412 2 5,209 4,044
BK 117 1 5,906 5,299
-- ------ ------
18 32,064 26,926
Airplanes:
Cessna 421B 1 251 156
-- ------ ------
TOTALS: 19 $32,315 $27,082
== ====== ======
COMPANY LEASED AIRCRAFT
(Dollar amounts in thousands)
-----------------------------
Remaining Total Rents Remaining
Type Number Term in Years Over Lease Life Payments
---- ------ ------------- --------------- --------
Helicopters:
Bell 206 L-3 1 2 $ 1,611 $ 100
Bell 412 2 6 9,759 6,148
Sikorsky S-76 1 3 2,100 560
-- ------ ------
TOTALS 4 $13,470 $6,808
== ====== =====
____________________
<FN>
<F1> Includes aircraft acquired under capital leases.
</FN>
4
The Company generally pays all insurance, taxes, and
maintenance expenses for each aircraft in its fleet. Because
helicopters are insured at replacement cost which usually exceeds
book value, the Company believes that helicopter accidents covered by
insurance will generally result in full reimbursement of any damages
sustained. In the ordinary course of business, the Company may from
time to time purchase and sell helicopters in order to best meet the
specific needs of its contracts.
The Company has experienced no significant difficulties in
obtaining required parts for its helicopters. Repair and replacement
components are purchased primarily through Bell Helicopter, since Bell
aircraft make up the majority of the Company's fleet. Bell Helicopter
is a major helicopter manufacturer with extensive links to the defense
industry, and the Company does not anticipate any interruption in
Bell's manufacturing of replacement parts and components in the near
future. Any termination of production by Bell Helicopter would
require the Company to obtain spare parts from other suppliers, which
are not currently in place.
ITEM 3. LEGAL PROCEEDINGS
In November 1992, a former employee brought a lawsuit
against the Company in the United States District Court for the
District of Minnesota alleging that the Company had wrongfully
discharged him. In September 1995 the District Court issued a directed
verdict in favor of the Company. The plaintiff appealed the case to
the Eighth Circuit of the U. S. Court of Appeals in November 1995.
Management of the Company believes the ultimate outcome of this action
will not have a material adverse impact on the Company's financial
position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders
during the quarter ended December 31, 1995.
5
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Since August 6, 1993, the Company's common stock has traded
on the NASDAQ Stock Market under the trading symbol "AIRM".
The following table shows, for the periods indicated, the
high and low closing prices for the Company's common stock. The
quotations for the common stock represent prices between dealers and
do not reflect adjustments for retail mark-ups, mark-downs or
commissions, and may not represent actual transactions.
YEAR ENDED DECEMBER 31, 1995
----------------------------
Common Stock High Low
---------------------------------------------------------
First Quarter. . . . . . . . . $ 4 1/8 $ 1 1/2
Second Quarter . . . . . . . . 3 1/4 2 1/4
Third Quarter. . . . . . . . . 5 3/4 2 5/16
Fourth Quarter . . . . . . . . 5 3/8 2 7/8
YEAR ENDED DECEMBER 31, 1994
----------------------------
Common Stock High Low
---------------------------------------------------------
First Quarter. . . . . . . . . $ 12 3/4 $ 5 3/8
Second Quarter . . . . . . . . 6 1 7/8
Third Quarter. . . . . . . . . 3 7/8 1 7/8
Fourth Quarter . . . . . . . . 3 1 3/8
As of March 18, 1996 there were approximately 514 holders
of record of the Company's common stock.
The Company has not paid any cash dividends since its
inception and intends to retain any future earnings to finance the
growth of the Company's business rather than to pay dividends.
Neither the declaration nor the payment of future cash dividends is
restricted by the Company's credit or financing arrangements.
6
ITEM 6. SELECTED FINANCIAL DATA
The following tables present selected financial information
of the Company which has been derived from the Company's audited
financial statements. Prior to June 30, 1992, the statements
reflected the Company's operations as a development stage
biotechnology company. This selected financial data should be read in
conjunction with the financial statements of the Company and notes
thereto appearing in Item 8 of this report.
SELECTED FINANCIAL DATA OF THE COMPANY
(Amounts in thousands except share and per share amounts)
Six Months Two Months
Year Ended Ended Year Ended June 30, Ended Year Ended
December 31, December 31, ------------------------------- June 30, April 30,
1995 1994 1994 1993 1992<F1> 1991 1991
---- ---- ---- ---- -------- ---- ----
STATEMENT OF OPERATIONS DATA:
Revenue . . . . . . . . . . . . . $30,122 13,871 27,898 25,340 12,747 -- --
Operating expenses:
Operating . . . . . . . . . . . 24,248 12,678 25,314 20,319 12,066 -- --
Research and development. . . . -- -- -- -- -- -- 2,315
General and administrative. . . 3,873 2,176 5,761 4,479 3,984 642 2,325
Restructuring and other
non-recurring . . . . . . . . -- -- 3,010 -- -- 338 1,915
Other income (expense), net . . . (1,042) (872) (888) (976) 704 87 857
Extraordinary gain (loss) . . . . -- -- (182) 173 -- -- --
-------- -------- -------- -------- ------- ------- ---------
Net income (loss) . . . . . . . $ 959 (1,855) (7,257) (261) (2,599) (893) (5,698)
======== ======== ======== ======== ======= ======= =========
Income (loss) per common share. . $ .12 (.23) (1.03) (.08) (1.42) (.63) (4.03)
======== ======== ======== ======== ======= ======= =========
Weighted average number of shares
of Common Stock outstanding . . . 8,071,010 8,023,225 7,056,445 3,453,111 1,829,456 1,420,148 1,413,775
========== ========== ========== ========= ========= ========== =========
As of
December 31, As of June 30,
------------ ------------------------------
1995 1994 1994 1993 1992
---- ----
BALANCE SHEET DATA:
Total assets. . . . . . . . . . $42,586 48,134 51,900 43,312 27,835
Long-term liabilities . . . . . 16,329 18,375 18,688 23,279 14,845
Stockholders' equity. . . . . . 19,062 18,031 19,818 14,181 5,893
____________________
<FN>
<F1> Includes results of the aeromedical operations for only the eight-month period from the completion of the
acquisition, i.e. November 1, 1991, through June 30, 1992.
</FN>
7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Year ended December 31, 1995 compared to 1994
In March 1995, the Company announced a change in its fiscal year
end from June 30 to December 31. The following table presents
operating results for the twelve months ended December 31, 1994 to
facilitate Management's Discussion and Analysis. All references to
the year ended December 31, 1994, in this section of Management's
Discussion and Analysis are to the balances shown in this schedule.
(Amounts in thousands)
Revenue:
Flight revenue. . . . . . . . . . . . . . . . . $26,107
Sales of medical interiors and products . . . . 1,264
International franchise revenue . . . . . . . . 0
Operating expenses:
Flight centers. . . . . . . . . . . . . . . . . 9,003
Aircraft operations . . . . . . . . . . . . . . 8,608
Aircraft rental . . . . . . . . . . . . . . . . 2,536
Cost of medical interiors and products sold . . 2,356
Depreciation and amortization . . . . . . . . . 2,486
General and administrative. . . . . . . . . . . 5,091
Loss on disposition of assets . . . . . . . . . 1,949
Restructuring and other nonrecurring charges. . 3,010
Other income (expense):
Interest expense. . . . . . . . . . . . . . . . (1,355)
Interest income . . . . . . . . . . . . . . . . 305
Other, net. . . . . . . . . . . . . . . . . . . (312)
Net loss. . . . . . . . . . . . . . . . . . . . . (9,030)
The Company reported net income of $959,000 for the year ended
December 31, 1995, compared to a net loss of $9,030,000 for the year
ended December 31, 1994. The year ended December 31, 1994 included
restructuring charges of $3,010,000 and net losses on the disposition
of assets and other non-recurring charges of $2,602,000, as well as
merger termination costs of $305,000. Without the restructuring
charges and other non-recurring items, the loss for the period would
have been $3,113,000. The improvement in operating results is
primarily the result of higher profits recognized in the Company's
Products Division and reductions in aircraft rental costs and general
and administrative expenses.
Flight revenue increased $114,000 or 0.4% from $26,107,000 for
the year ended December 31, 1994, to $26,221,000 for the year ended
December 31, 1995. The increase was primarily attributable to
$460,000 earned from the short-term lease of one of the Company's
aircraft; in addition, one contract added in May 1994 contributed
$340,000 more in revenue in 1995 than in 1994. These increases were
partially offset by the discontinuation of the Company's air charter
operations and three fixed wing contracts during the year ended
December 31, 1994; revenue for these activities totaled $1,149,000 in
1994. The remainder of the increase in revenue is due to annual
increases for the majority of the Company's contracts based on changes
in the Consumer Price Index (CPI). Flight hours were 12,800 and
13,500 for the years ended December 31, 1995 and 1994, respectively;
the decrease is due mainly to the discontinuation of the contracts as
noted above. The elimination of the fixed wing contracts and charter
operations also contributed to the 8.6% decrease in flight center
costs for the year ended December 31, 1995. Flight center costs
consist mainly of pilot and mechanics salaries and fringe benefits and
generally vary with the number of customer bases.
Sales of medical interiors increased by $2,537,000 or 200.7% from
$1,264,000 for the year ended December 31, 1994, to $3,801,000 for the
year ended December 31, 1995. In 1995 the Company recognized revenue
of $1,469,000 from the design of a medical interior for a Lockheed
L-1011 aircraft and $723,000 from the sale of passenger oxygen
systems. The Company also earned revenue from the sale of a medical
interior for a Bell 206
8
helicopter to a Brazilian customer, the sale of a medical interior for
a Bell 412 helicopter, the installation of an advanced navigational
and weather detection system, and the refurbishment of an interior for
a hospital customer. In the previous year the Company recognized
revenue of $234,000 from the manufacture of a medical interior for a
South American customer and $450,000 from the sale of a medical
interior to one of the Company's client hospitals. In addition, the
year ended December 31, 1994, included revenue from the manufacture
and installation of five medical interiors for Bell Helicopter, Inc.
The cost of medical interiors also increased by 32.1% for the year
ended December 31, 1995 as compared to the previous year, reflecting
the increase in the number of interiors and other products sold. The
increase in the cost of sales is less than the increase in sales
primarily because of higher margins earned on the work performed in
1995 compared to 1994. Cost of sales also includes Products Division
overhead costs, including facilities rent and management salaries,
which do not vary with the volume of products completed. In addition,
the cost of medical interiors for the year ended December 31, 1994,
included $653,000 of payments for work on a medical interior that the
Company had subcontracted to an outside vendor. The work done by the
subcontractor was subsequently determined to be unsatisfactory and was
reperformed by the Company.
The Company recognized $100,000 of international franchise
revenue during 1995 which represented the first installment of a ten-
year franchise agreement signed in February 1995 with a Brazilian
company. Under the exclusive franchise agreement, the Brazilian
company purchased the right to use the trademarks and expertise of the
Company in providing air medical services in Brazil, in exchange for
an acquisition price of $2,250,000 plus annual royalties based on
gross revenues.
Aircraft operating expenses remained basically unchanged for the
year ended December 31, 1995, in comparison to the same period in
1994. The effect of a 17% increase in hull and liability insurance
rates and the addition of 3 aircraft to the Company's fleet in May and
June of 1994 was offset by the elimination of operating expenses for 4
airplanes which were removed from the Company's fleet when the
associated contracts were discontinued. Aircraft operating expenses
consist of fuel, insurance, and maintenance costs and generally are a
function of the size of the fleet, the type of aircraft flown, and the
number of hours flown.
Aircraft rental expense decreased by 34.4% for the year ended
December 31, 1995, as compared to 1994. The Company has eliminated
seven leased aircraft from its fleet which had been in operation
during all or part of the year ended December 31, 1994. An eighth
previously leased aircraft was purchased by one of the Company's
hospital customers during 1995, and is still operated by the Company.
Lease expense recognized on these aircraft in the year ended December
31, 1994, totaled $1,137,000. This decrease was offset in part by
$217,000 incurred to rent a backup helicopter during the refurbishment
of one of the Company's aircraft.
Depreciation and amortization expense increased by 6.8% for the
year ended December 31, 1995. The Company has increased its
depreciable asset base by $1.3 million, or 3.7%, since December 31,
1994, as a result of the acquisition of rotable and other shop
equipment. These types of equipment are generally depreciated over a
five- to seven-year estimated useful life.
The 23.9% decrease in general and administrative expenses for the
year ended December 31, 1995, reflects the effects of the Company's
restructuring plan which was implemented in the quarters ended
March 31 and June 30, 1994. The restructuring plan included a
reduction in the administrative work force and a decreased reliance on
outside professional services, resulting in a decline in
administrative expense of approximately $482,000 and $97,000,
respectively, in the year ended December 31, 1995. The Company's
Board of Directors has met quarterly in the current year as compared
to monthly during the restructuring, causing a decrease of $160,000 in
costs for the year ended December 31, 1995. In addition, in the year
ended December 31, 1994, the Company incurred expenses of almost
$296,000 associated with the development of a proposed joint venture
to provide air medical services in Mexico and the pursuit of other
manufacturing and service contracts. Costs for similar activities in
1995 totaled $60,000.
Operating expenses for the year ended December 31, 1994, included
$1,949,000 of valuation allowances and losses on the disposition of
aircraft and $3,010,000 of restructuring expenses. The Company did
not incur any similar costs in the year ended December 31, 1995.
The increase of 3.0% in interest expense for the year ended
December 31, 1995 is due to interest incurred on a note to finance the
acquisition of an aircraft which was placed into service late in May
1994. This increase was
9
almost entirely offset by the elimination of interest on notes which
were retired when the two airplanes which were financed under these
notes were sold in September and December 1994.
Other expenses for the year ended December 31, 1994, included
$305,000 for merger termination expenses. These expenses represent
primarily legal and professional fees incurred in the due diligence
process conducted to determine the feasibility of a business
combination between the Company and Rocky Mountain Helicopters, Inc.
(RMHI). The Company ultimately declined to submit a final bid for the
assets of RMHI.
Six months ended December 31, 1994 compared to 1993
The following table presents operating results for the six months
ended December 31, 1993 to facilitate Management's Discussion and
Analysis. All references to the six months ended December 31, 1993,
in this section of Management's Discussion and Analysis are to the
balances shown in this schedule.
(Amounts in thousands)
Revenue:
Flight revenue. . . . . . . . . . . . . . . . . $12,320
Sales of medical interiors and products . . . . 2,078
Gain on disposition of assets . . . . . . . . . 922
Operating Expenses:
Flight centers. . . . . . . . . . . . . . . . . 4,050
Aircraft operations . . . . . . . . . . . . . . 4,025
Aircraft rental . . . . . . . . . . . . . . . . 1,373
Cost of medical interiors and products sold . . 1,546
Depreciation and amortization . . . . . . . . . 982
General and administrative. . . . . . . . . . . 2,846
Other income (expense):
Interest expense. . . . . . . . . . . . . . . . (608)
Interest income . . . . . . . . . . . . . . . . 46
Other, net. . . . . . . . . . . . . . . . . . . 163
Extraordinary item -- loss on early
extinguishment of debt. . . . . . . . . . . . . (181)
Net loss. . . . . . . . . . . . . . . . . . . . . (82)
The Company reported a net loss of $1,855,000 for the six
months ended December 31, 1994, compared to a net loss of $82,000 for
the six months ended December 31, 1993. The six months ended
December 31, 1994 included a loss of $1,023,000 incurred by the
Company's Products Division and merger termination expenses of
$305,000 related to the Company's proposed acquisition of RMHI.
Flight revenue increased $761,000 or 6.2% from $12,320,000
for the six months ended December 31, 1993, to $13,081,000 for the six
months ended December 31, 1994. The increase was primarily
attributable to revenues of $1,246,000 from contracts added in
November 1993 and July 1994 and to annual increases in established
contracts based on changes in the consumer price index. Flight hours
were 6,500 and 6,800 for the six months ended December 31, 1994 and
1993, respectively. The decrease in flight hours is due mainly to the
discontinuation of the Company's air charter operations and three
fixed wing contracts during the six months ended December 31, 1994.
Flight center costs also increased 9.3% for the six months ended
December 31, 1994 and were affected by the same factors as flight
revenue.
Sales of medical interiors decreased by $1,288,000 or 62.0%
from $2,078,000 for the six months ended December 31, 1993, to
$790,000 for the six months ended December 31, 1994. In 1994 the
Company recognized revenue of $234,000 from the manufacture of a
medical interior for a South American customer and $450,000 from the
sale of a medical interior to one of the Company's client hospitals.
In the comparable six-month period in 1993 the Company recognized
revenue from the manufacture of five emergency medical interiors for
Bell Helicopters, Inc. for use outside the United States. The cost of
medical interiors also decreased by 15.7% for the six months ended
December 31, 1994 as compared to the previous year because of the
decrease in the number of interiors sold. The cost of medical
interiors exceeded the proceeds from the sales of interiors for the
period primarily because of a loss of
10
approximately $380,000 on the interior sold to the Company's client
hospital. The loss reflected significant engineering and design work
which accounted for 25% of the interior cost.
Aircraft operating expenses increased by 10.4% for the six
months ended December 31, 1994, in comparison to the same period in
1993. The increase is primarily attributable to an increase of
approximately 17.3% in hull and liability insurance rates as well as
the addition of 3 aircraft with insured hull values totaling $11.3
million to the Company's fleet in May and June of 1994. This increase
was partially offset by the elimination of operating expenses for 4
airplanes which were removed from the Company's fleet subsequent to
December 31, 1993.
Aircraft rental expense decreased by 27.6% for the six
months ended December 31, 1994, as compared to 1993. Subsequent to
December 31, 1993, the Company eliminated four leased aircraft from
its fleet, resulting in a decrease of $208,000 in lease costs.
Depreciation and amortization expense fluctuates with the
size and value of the Company's fleet, as reflected by an increase of
29.5% for the six months ended December 31, 1994. The Company has
increased its depreciable asset base by $7.9 million since December
31, 1993, as a result of the acquisition of additional aircraft and
the manufacture and installation of medical interiors to service
hospital contracts.
The 23.5% decrease in general and administrative expenses
for the six-month period ended December 31, 1994, reflects the effects
of the Company's restructuring plan which was implemented in the
quarters ended March 31 and June 30, 1994. The restructuring plan
included a reduction in the administrative work force and a decreased
reliance on outside contractors and other professional services,
resulting in a decline in administrative expense of approximately
$130,000 and $160,000, respectively, in the six months ended December
31, 1994. The Company also realized a reduction of $50,000 in
telephone and communications expense due to a change in long-distance
carriers.
The increase of 17.9% in interest expense for the six months
ended December 31, 1994 is due to interest incurred on a note to
finance the acquisition of an aircraft which was placed into service
late in May 1994. This increase was partially offset by the
elimination of interest on notes which were retired when the two
airplanes which were financed under these notes were sold in September
and December 1994.
Net losses on the disposition of assets for the six months
ended December 31, 1994 included a reduction of $340,000 in the basis
of one of the aircraft held for sale by the Company. Due to
significant design and engineering costs incurred in the completion of
this aircraft, the Company determined that an additional evaluation
allowance was necessary to properly reflect the net realizable value
of the aircraft as of December 31, 1994. This valuation allowance was
partially offset by a gain of approximately $57,000 on the sale of one
of the Company's aircraft and a gain of $131,000 on the sale of Golden
Eagle Charters, Inc. ("Golden Eagle"), the Company's air charter
subsidiary. The Company completed the sale of all of the outstanding
shares of common stock of Golden Eagle to a company on September 21,
1994, in exchange for $10,000 and the assumption of certain
liabilities. The Company's decision to discontinue air charter
operations was part of the restructuring plan approved in 1994 and was
due to the significant losses incurred by this line of business. In
the six months ended December 31, 1993, the Company recognized a
$922,000 gain on the sale of two aircraft. The loss on early
extinguishment of debt in the six months ended December 31, 1993,
resulted from the retirement of a note secured by one of the aircraft
sold; no comparable prepayment penalties were incurred in the six
months ended December 31, 1994.
Interest and dividend income increased 254.3% in the six-
month period ended December 31, 1994 compared to the same period in
the prior year due to interest earned on two promissory notes received
as a portion of the proceeds from the sale of certain Company-owned
aircraft in December 1993.
Other income for the six months ended December 31, 1993,
included revenue recognized on the outlicensing of a biologic response
modifier, a naturally occurring substance designed to alter the body's
immune system and its reaction to cancer and other diseases, developed
by the Company when doing business as Cell Technology, Inc., a
research and development company. The Company recognized no
comparable revenue in 1994.
During the quarter ended September 30, 1994, the Company
discussed the feasibility of a business combination of the emergency
air medical transport business of the Company and RMHI. The Company
ultimately
11
declined to submit a final bid for the assets of RMHI. The expenses
incurred as part of the due diligence process consist primarily of
legal and professional fees and comprise the balance of the merger
termination expense recognized in the six months ended December 31,
1994.
Year ended June 30, 1994 compared to 1993
The Company reported a loss of $7,257,000 for the year ended
June 30, 1994, as compared to a loss of $261,000 for the year ended
June 30, 1993. The operating results for fiscal 1994 included a loss
on the disposition of assets of $790,000, restructuring charges of
$3,010,000, and other non-recurring charges and a loss on the early
retirement of debt of $1,061,000. The net loss for the year,
excluding the effect of these transactions, was $2,396,000.
In the fourth quarter of 1994 the Company completed a
restructuring plan for the Company's continuing air medical flight and
manufacturing operations designed to reduce costs and improve
operating efficiencies. The restructuring plan included the
discontinuation of substantially all of the airplane charter
operations of Golden Eagle, an 18% overall reduction in personnel, a
reduction in officers' salaries, and the disposal of selected under-
utilized aircraft. In addition, the Company canceled a proposed debt
refinancing and public preferred stock offering. The reductions in
personnel were primarily in the manufacturing and administrative
functions and did not significantly affect the Company's maintenance
and air medical flight capabilities. Restructuring charges totaled
$3,010,000 for the year ended June 30, 1994 and, with the exception of
approximately $614,000 in severance pay and $149,000 for certain
placement fees for the proposed preferred stock offering, consisted of
the write-off of previously recorded assets and other non-cash
charges.
Flight revenue increased $3,878,000 or 18.1% from
$21,468,000 for the year ended June 30, 1993, to $25,346,000 for the
year ended June 30, 1994, primarily as a result of the addition of
three new hospital contracts which contributed revenues of $1,517,000
in fiscal 1994. In addition, revenue increased by $883,000 in fiscal
1994 under three contracts which had been added during the year ended
June 30, 1993. Flight revenue under established hospital contracts
was not significantly affected by changes in either pricing or volume
of flight hours. The majority of the Company's contracts with its
hospital customers is also subject to an annual increase based on the
consumer price index. Flight center expenses, which include pilot and
mechanic salaries, benefits, and training, also increased by 22.9% in
1994, and were affected by the same factors as flight revenue.
Aircraft operating expenses increased by 49.3% from 1993 to
1994 primarily because of the addition of 4 helicopters and 6
airplanes to the Company's fleet since the end of fiscal 1993 and the
operation of 2 airplanes in the executive air charter service from
September 1993 to April 1994, as well as an approximately 30% increase
in hull and liability insurance rates. The increase in insurance
rates is related to overall increases experienced by the aviation
industry as a whole.
Depreciation and amortization expense also fluctuates with
the size of the Company's fleet, as reflected by the 52.7% increase in
1994. The Company placed aircraft and related medical interiors
totaling $10 million into service during fiscal 1994.
Sales of medical interiors decreased by $1,320,000 or 34.1%
from $3,872,000 in fiscal year 1993 to $2,552,000 in fiscal 1994. In
1994 the Company sold five medical interiors to Bell Helicopter for
aircraft for use outside the United States. In 1993 sales consisted
of three medical interiors for Bell Helicopter and one for the U.S.
Army. The decrease in the cost of medical interiors over the same
period mirrored the decrease in sales. The cost of medical interiors
for fiscal year 1994 also included $653,000 of payments for work on a
medical interior that the Company subcontracted to an outside vendor.
The medical interior was for the Company's internal use, and therefore
no corresponding revenue was recognized. The work done by the
subcontractor was subsequently determined to be unsatisfactory and was
reperformed by the Company.
Operating expenses in the year ended June 30, 1994, also
included net losses of $790,000 on the disposition of assets. Gains
of $1,851,000 recognized on the disposition of four of the Company's
aircraft were offset by valuation allowances of $2,641,000 established
for seven aircraft designated for disposal as part of the Company's
restructuring plan. There were no comparable gains or losses in
fiscal 1993.
12
The 28.6% increase in general and administrative expenses in
1994 reflected the additional support necessary for the Company's
expanded operations as well as increased legal and professional fees
incurred as the Company aggressively pursued new business
opportunities including the acquisition of Golden Eagle Aviation and
the proposed joint venture with Medica Movil, S.A. de C.V.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $2,699,000 and
a working capital deficit of $638,000 as of December 31, 1995, as
compared to cash and cash equivalents of $696,000 and a working
capital deficit of $1,892,000 at December 31, 1994. The increase in
cash and cash equivalents and the improvement in the working capital
position in the year ended December 31, 1995, is primarily due to the
sale of one of the Company's aircraft which generated approximately
$700,000 in cash after the retirement of the related debt and to the
positive cash flow generated by the Company's two operating divisions.
In the year ended December 31, 1995, operations generated a positive
cash flow of $4,626,000. The positive cash flow from operations is a
result of both increased business in the Products Division and cost
containment measures taken since the restructuring in 1994. During
the six months ended December 31, 1994 the Company used $629,000 to
fund its operations.
The Company's usual arrangements with its hospital clients
have involved substantial capital commitments by the Company for the
aircraft and related equipment required to furnish the emergency air
medical transport services to the hospitals. The Company believes,
however, that it may be advantageous to both its client hospitals and
the Company from time to time for aircraft to be purchased by the
hospitals, thus permitting reduced capital and long-term borrowing
commitments by the Company. The Company has pursued and intends to
continue to pursue this type of contracting arrangement whenever it
appears beneficial to the parties to the arrangement.
As of December 31, 1995, the Company holds unencumbered
notes receivable of $1.2 million and aircraft with a net book value of
at $7.4 million which could be utilized as collateral for borrowing
funds as an additional source of working capital if necessary. The
Company believes that these borrowing resources coupled with continued
favorable results of operations will allow the Company to meet its
obligations in the coming year. In the first quarter of 1996, the
Company signed a $2.5 million note payable collateralized by a
previously unencumbered aircraft with a net book value of $1.8 million
and an aircraft purchased subsequent to December 31, 1995.
OUTLOOK FOR 1996
As of December 31, 1995, the Company was completing the
design of a medical interior for a Lockheed L-1011 aircraft and the
design and installation of an interior for an MD900 Explorer aircraft.
In the first quarter of 1996, the Company signed an agreement to
install a medical interior in a Bell 412 helicopter. Revenue from
these three projects is expected to total approximately $2.1 million
in 1996. Operating agreements with eight hospital clients are due for
renewal in 1996. The Company has historically negotiated renewals
with its existing customers under favorable terms and expects
successful renewals for all eight of these contracts. One agreement
renewed in the first quarter of 1996 provided for an upgrade in the
type of aircraft servicing the contract. The Company also continues
to pursue an aggressive marketing strategy for its medical interiors
and other products. There can be no assurance that the Company will
successfully renew the operating agreements expiring in 1996 or will
generate new profitable contracts for the Products Division. However,
based on the backlog of projects for the Products Division and the
anticipated contract renewals with hospital customers, the Company
expects to continue profitable operations in 1996.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets to Be Disposed Of
(SFAS 121) was issued in March, 1995, by the Financial Accounting
Standards Board. It requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may
13
not be recoverable. SFAS 121 is required to be adopted for fiscal
years beginning after December 15, 1995. Adoption of this statement
by the Company is not expected to have a significant effect on the
consolidated financial statements.
Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (SFAS 123), was issued by the
Financial Accounting Standards Board in October, 1995. SFAS 123
establishes financial accounting and reporting standards for stock-
based employee compensation plans as well as transactions in which an
entity issues its equity instruments to acquire goods or services from
non-employees. This statement defines a fair value method of
accounting for employee stock options or similar equity instruments,
and encourages all entities to adopt that method of accounting for all
of their employee stock compensation plans. However, it also allows
an entity to continue to measure compensation cost for those plans
using the intrinsic value method of accounting prescribed by APB
Opinion No. 25, Accounting for Stock Issued to Employees (Opinion 25).
Entities electing to remain with the accounting in Opinion 25 must
make pro forma disclosures of net income and, if presented, earnings
per share, as if the fair value method of accounting defined by SFAS
123 had been applied. SFAS 123 is applicable to fiscal years
beginning after December 15, 1995. The Company currently accounts for
its equity instruments using the accounting prescribed by Opinion 25.
The Company does not currently expect to adopt the accounting
prescribed by SFAS 123; however, the Company will include the
disclosures required by SFAS 123 in future consolidated financial
statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Consolidated Financial Statements attached hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
14
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by
reference from the Company's Proxy Statement to be filed on or prior
to April 29, 1996, for the Annual Meeting of Stockholders to be held
May 23, 1996.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by
reference from the Company's Proxy Statement to be filed on or prior
to April 29, 1996, for the Annual Meeting of Stockholders to be held
May 23, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item is incorporated by
reference from the Company's Proxy Statement to be filed on or prior
to April 29, 1996, for the Annual Meeting of Stockholders to be held
May 23, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by
reference from the Company's Proxy Statement to be filed on or prior
to April 29, 1996, for the Annual Meeting of Stockholders to be held
May 23, 1996.
15
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(a) Documents filed as part of the report:
1. Financial Statements included in Item 8 of this report:
Independent Auditors' Report.
Consolidated Balance Sheets, December 31, 1995 and
1994.
Consolidated Statements of Operations for the year
ended December 31, 1995, the six months ended
December 31, 1994 and years ended June 30, 1994 and
1993.
Consolidated Statements of Stockholders' Equity for the
year ended December 31, 1995, the six months ended
December 31, 1994 and years ended June 30, 1994 and
1993.
Consolidated Statements of Cash Flows for the year
ended December 31, 1995, the six months ended
December 31, 1994 and years ended June 30, 1994 and
1993.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedules included in Item 8 of
this report:
All supporting schedules have been omitted because the
information required is included in the financial
statements or notes thereto or have been omitted as not
applicable or not required.
3. Exhibits:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
3.1 Certificate of Incorporation/1/
3.2 Amendments to Certificate of Incorporation/2/
3.3 By-Laws as Amended/12/
4.1 Specimen Stock Certificate/2/
4.2 Warrant Agreement, and First and Second Amendment to
Warrant Agreement, and form of Warrant Certificate/3/
4.3 Third Amendment to Warrant Agreement/10/
4.4 Warrant Agreement, dated February 2, 1993, between the
Company and Sands Brothers & Co., Ltd. ("Sands
Brothers") covering Warrants issued to Sands
Brothers/3/
4.5 Form of Sands Brothers Warrant/3/
4.6 Warrant Agreement, dated April 6, 1993, between the
Company and C.C.R.I. Corporation/10/
4.7 Warrant Agreement dated February 14, 1994, between the
Company and CCRI Corporation/11/
IV-1
4.8 Form of Reissued Warrant Agreement, dated May 3, 1995
between the Company and Americas Partners, concerning
warrants originally issued December 28, 1993/14/
4.9 Form of Reissued Warrant Agreement, dated May 3, 1995
between the Company and Americas Partners, concerning
warrants originally issued February 21, 1994/14/
10.1 Air Methods Corporation Employee Stock Option Plan, as
amended/13/
10.2 Nonemployee Director Stock Option Plan, as amended/10/
10.3 Restricted Stock Bonus Plan, as amended/10/
10.4 Equity Compensation Plan for Nonemployee Directors,
adopted March 12, 1993/4/
10.5 Amended and Restated Warrant Agreement, dated as of
October 10, 1990, by and between the Company and
Fritzsche Pambianchi & Associates, Inc./7/
10.6 Option Agreement, dated June 12, 1990, between the
Company and Lowell D. Miller/8/
10.7 Option Agreement, dated December 28, 1990, between the
Company and Lowell D. Miller/8/
10.8 Option Agreement, dated July 18, 1991, between the
Company and Lowell D. Miller/10/
10.9 Form of Option Agreement between the Company and Alfred
Bjorseth/10/
10.10 Form of Option Agreement between the Company and Marlis
E. Smith/10/
10.11 Warrant Agreements, dated April 29, 1993, between the
Company and Bart Gutekunst/10/
10.12 Warrant Agreement, dated April 28, 1993, between the
Company and Gerald Grayson/10/
10.13 Exchange Agreement and Plan of Reorganization, dated
November 12, 1991, by and among the Company and the
shareholders of Air Methods-Colorado (excluding
schedules)/9/
10.14 Form of Consulting Agreement, dated November 30, 1994,
between the Company and Roy L. Morgan/14/
10.15 Employment Agreement, dated November 12, 1991, between
the Company and Maurice L. Martin, Jr./2/
10.16 Employment Agreement, dated June 1, 1994, between the
Company and George Belsey/12/
10.17 Employment Agreement, dated November 30, 1993, between
the Company and Michael Prieto/12/
10.18 Employment Agreement, dated November 12, 1991, between
the Company and Marius Burke, Jr./2/
IV-2
10.19 Research, Clinical Development and Option Agreement,
dated February 12, 1992, between the Company and
Oncotech, Inc./2/
10.20 Research and Licensing Agreement, dated December 6,
1993, between the Company and Phylomed/12/
10.21 Equipment Leases, and Warrant Agreements, dated July
25, 1992, between the Company and Ventana Leasing, Inc.
or Praktikerfinans AB/2/
10.22 Exchange Agreement, dated September 10, 1993 by and
among the Company and the shareholders of Golden Eagle
Aviation, Inc./5/
10.23 Stock Purchase Agreement, dated September 21, 1994 by
and between the Company and Centennial Express
Airlines, Inc./14/
10.24 Employment Agreement dated July 10, 1995 between the
Company and Aaron D. Todd/15/
23 Consent of KPMG Peat Marwick, LLP
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company during the
quarter ended December 31, 1995.
____________________
/1/ Filed as an exhibit to the Company's Registration Statement on
Form S-1 (Registration No. 33-15007), as declared effective on
August 27, 1987, and incorporated herein by reference.
/2/ Filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1992, and incorporated herein
by reference.
/3/ Filed as an exhibit to the Company's Registration Statement on
Form S-3 (Registration No. 33-59690), as declared effective on
April 23, 1993, and incorporated herein by reference.
/4/ Filed as an exhibit to the Company's Registration Statement on
Form S-8 (Registration No. 33-65370), filed with the Commission
on July 1, 1993, and incorporated herein by reference.
/5/ Filed as an exhibit to the Company's current Report on Form 8-K
dated September 10, 1993, and incorporated herein by reference.
/6/ Filed as an exhibit to the Company's Registration Statement on
Form S-1 (Registration No. 33-27883), as declared effective on
June 13, 1989, and incorporated herein by reference.
/7/ Filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended April 30, 1991, and incorporated herein
by reference.
/8/ Filed as an exhibit to Post-Effective Amendment No. 4 to the
Company's Registration Statement on Form S-1 (Registration
No. 33-27883) filed with the Commission on August 12, 1991, and
incorporated herein by reference.
/9/ Filed as an exhibit to the Company's Current Report on Form 8-K
dated November 12, 1991, and incorporated herein by reference.
/10/ Filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1993, and incorporated herein
by reference.
IV-3
/11/ Filed as an exhibit to the Company's Registration Statement on
Form S-3 (Registration No. 33-75744) filed with the Commission on
February 25, 1994 and incorporated herein by reference.
/12/ Filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1994, and incorporated herein
by reference.
/13/ Filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1995, and incorporated
herein by reference.
/14/ Filed as an exhibit to the Company's Annual Report on Form 10-K
for the transitional fiscal year ended December 31, 1994 and
incorporated herein by reference.
/15/ Filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1995 and incorporated
herein by reference.
IV-4
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AIR METHODS CORPORATION
Date: March 26, 1996 By: George W. Belsey
--------------------- ---------------------------------------
George W. Belsey
Chairman of the Board, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the date indicated.
George W. Belsey Chairman of the Board March 26, 1996
- ----------------------- Chief Executive Officer
George W. Belsey
Roy L. Morgan Director March 25, 1996
- -----------------------
Roy L. Morgan
Joseph E. Bernstein Director March 26, 1996
- -----------------------
Joseph E. Bernstein
Ralph J. Bernstein Director March 26, 1996
- -----------------------
Ralph J. Bernstein
Samuel H. Gray Director March 26, 1996
- -----------------------
Samuel H. Gray
Lowell D. Miller, Ph.D. Director March 26, 1996
- -----------------------
Lowell D. Miller, Ph.D.
Donald R. Segner Vice-Chairman of the Board March 25, 1996
- -----------------------
Donald R. Segner
Morad Tahbaz Director March 26, 1996
- -----------------------
Morad Tahbaz
IV-5
AIR METHODS CORPORATION
AND SUBSIDIARY
TABLE OF CONTENTS
______________________________________________________________________
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . F-1
Consolidated Financial Statements
- ---------------------------------
CONSOLIDATED BALANCE SHEETS,
December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . F-2
CONSOLIDATED STATEMENTS OF OPERATIONS,
Year Ended December 31, 1995, Six Months Ended December 31,
1994 and Years Ended June 30, 1994 and 1993 . . . . . . F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY,
Year Ended December 31, 1995, Six Months Ended December 31,
1994 and Years Ended June 30, 1994 and 1993 . . . . . . F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS,
Year Ended December 31, 1995, Six Months Ended December 31,
1994 and Years Ended June 30, 1994 and 1993 . . . . . . F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS,
December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . F-8
All supporting schedules are omitted because they are inapplicable,
not required, or the information is presented in the consolidated
financial statements or notes thereto.
IV-6
Independent Auditors' Report
----------------------------
BOARD OF DIRECTORS AND STOCKHOLDERS
AIR METHODS CORPORATION
We have audited the accompanying consolidated financial statements of
Air Methods Corporation and subsidiary as listed in the accompanying
table of contents. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of Air Methods Corporation and subsidiary as of December 31, 1995 and
1994, and the results of their operations and their cash flows for the
year ended December 31, 1995, the six months ended December 31, 1994
and each of the years in the two-year period ended June 30, 1994, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Denver, Colorado
February 9, 1996
F-1
AIR METHODS CORPORATION
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- ----------------------------------------------------------------------
Assets 1995 1994
- ------ ------------ -------
Current assets:
Cash and cash equivalents $ 2,699 696
Current installments of notes receivable 356 324
Receivables, net (note 4):
Trade 881 900
Insurance proceeds 249 49
Other 367 65
------ ------
1,497 1,014
Inventories (note 4) 1,263 1,522
Work-in-process on medical interior contracts 131 240
Assets held for sale (notes 3 and 4) -- 4,529
Prepaid insurance 236 1,221
Other prepaid expenses 375 290
------ ------
Total current assets 6,557 9,836
------ ------
Equipment and leasehold improvements (notes 4 and 5):
Flight and ground support equipment 37,228 36,221
Furniture and office equipment 1,326 1,161
------ ------
38,554 37,382
Less accumulated depreciation and amortization (7,138) (4,667)
------ ------
Net equipment and leasehold improvements 31,416 32,715
------ ------
Excess of cost over the fair value of net assets acquired, net of
accumulated amortization of $405 and $308 at December 31, 1995 and
1994, respectively (notes 2 and 3) 2,022 2,119
Notes receivable, less current installments 1,843 2,197
Patent application costs and other assets, net of accumulated amortization
of $510 and $424 at December 31, 1995 and 1994, respectively (note 4) 748 1,267
------ ------
Total assets $42,586 48,134
====== ======
(Continued)
F-2
AIR METHODS CORPORATION
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS, CONTINUED
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- ----------------------------------------------------------------------
1995 1994
---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Notes payable (note 4) $ 693 2,278
Current installments of long-term debt (note 4) 1,435 4,870
Current installments of obligations under capital leases
(note 5) 751 722
Accounts payable 974 746
Accrued overhaul and parts replacement costs 1,407 804
Deferred revenue 724 10
Billings in excess of costs and estimated earnings on uncompleted
contracts 328 --
Accrued restructuring expenses (note 3) -- 114
Other accrued liabilities 883 2,184
------ ------
Total current liabilities 7,195 11,728
------ ------
Long-term debt, less current installments (note 4) 6,671 7,569
Obligations under capital leases, less current installments
(note 5) 4,552 5,302
Accrued overhaul and parts replacement costs 4,329 4,559
Other liabilities 777 945
------ ------
Total liabilities 23,524 30,103
------ ------
Stockholders' equity (notes 2 and 6):
Preferred stock, $1 par value. Authorized 5,000,000
shares, none issued -- --
Common stock, $.06 par value. Authorized 16,000,000
shares; issued 8,103,502 and 8,051,765 shares at
December 31, 1995 and 1994, respectively 486 482
Additional paid-in capital 49,640 49,572
Accumulated deficit (31,063) (32,022)
Treasury stock, 25,606 shares at December 31, 1995 and 1994 (1) (1)
------ ------
Total stockholders' equity 19,062 18,031
------ ------
Commitments and contingencies (notes 5 and 12)
Total liabilities and stockholders' equity $42,586 48,134
====== ======
See accompanying notes to consolidated financial statements.
F-3
AIR METHODS CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
- ----------------------------------------------------------------------
Six Months
Year Ended Ended Year Ended June 30,
December 31, December 31, --------------------
1995 1994 1994 1993
------------ ------------ ---- ----
Revenue:
Flight revenue (note 7) $ 26,221 13,081 25,346 21,468
Sales of medical interiors and products 3,801 790 2,552 3,872
International franchise revenue 100 -- -- --
------ ------ ------ ------
30,122 13,871 27,898 25,340
------ ------ ------ ------
Operating expenses:
Flight centers 8,227 4,427 8,626 7,017
Aircraft operations 8,503 4,445 8,188 5,483
Aircraft rental (note 5) 1,663 994 2,915 3,153
Cost of medical interiors and products sold 3,113 1,303 2,599 3,228
Depreciation and amortization 2,656 1,272 2,196 1,438
General and administrative 3,873 2,176 5,761 4,479
Loss on disposition of assets (notes 2 and 3) 86 237 790 --
Restructuring and other non-recurring expenses
(note 3) -- -- 3,010 --
------ ------ ------ ------
28,121 14,854 34,085 24,798
------ ------ ------ ------
Operating income (loss) 2,001 (983) (6,187) 542
Other income (expense):
Interest expense (1,396) (717) (1,246) (1,082)
Interest and dividend income 289 163 188 121
Merger termination expense (note 10) -- (305) -- (272)
Other, net 65 (13) 170 257
------ ------ ------ ------
Income (loss) before extraordinary item 959 (1,855) (7,075) (434)
Extraordinary item -- gain (loss) on early
extinguishment of debt (notes 4 and 5) -- -- (182) 173
Net income (loss) $ 959 (1,855) (7,257) (261)
====== ====== ====== ======
Income (loss) per common share before extraordinary
item $ .12 (.23) (1.00) (.13)
Gain (loss) on early extinguishment of debt per
common share -- -- (.03) .05
------ ------ ------ ------
Income (loss) per common share $ .12 (.23) (1.03) (.08)
====== ====== ====== ======
Weighted average number of common shares outstanding 8,071,010 8,023,225 7,056,445 3,453,111
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
F-4
AIR METHODS CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1995, SIX MONTHS ENDED DECEMBER 31, 1994 AND
YEARS ENDED JUNE 30, 1994 AND 1993
(AMOUNTS IN THOUSANDS EXCEPT SHARE AMOUNTS)
- ----------------------------------------------------------------------
Common Stock Treasury stock Additional Total stock-
------------------ ---------------- paid-in Accumulated holders'
Shares Amount Shares Amount capital deficit equity
------ ------ ------ ------ ------- ------- ------
BALANCES AT JULY 1, 1992 2,132,976 $ 128 93,843 $ (6) 28,420 (22,649) 5,893
Issuance of common shares for options
exercised and services rendered 5,030 -- -- -- 53 -- 53
Issuance of common shares in private
offering, net of syndication costs of
$1,470 (note 6) 2,386,839 144 -- -- 5,547 -- 5,691
Issuance of common shares under the
Restricted Stock Plan (note 6) 102,907 6 -- -- (6) -- --
Amortization of deferred compensation
expense (note 6) -- -- -- -- 191 -- 191
Retirement of unvested shares and
options forfeited under the Restricted
Stock Plan (note 6) (1,770) -- -- -- (1) -- (1)
Issuance of common shares for
warrants exercised, net of solicitation
costs of $250 (note 6) 636,148 38 -- -- 2,577 -- 2,615
Net loss -- -- -- -- -- (261) (261)
---------- ------- ------- ------ ------- -------- -------
BALANCES AT JUNE 30, 1993 5,262,130 316 93,843 (6) 36,781 (22,910) 14,181
Issuance of common shares for options
exercised and services rendered 533,798 18 -- -- 1,306 -- 1,324
Issuance of common shares for
warrants exercised, net of solicitation
costs of $429 (note 6) 1,272,626 90 -- -- 5,411 -- 5,501
Issuance of common shares in private
offering (note 6) 1,011,190 61 -- -- 5,669 -- 5,730
Issuance of common shares in
acquisition (note 2) 55,617 3 -- -- 437 -- 440
Amortization of deferred compensation
expense (note 6) -- -- -- -- 218 -- 218
Retirement of unvested shares and
options forfeited under the Restricted
Stock Plan (note 6) -- -- -- -- (8) -- (8)
In-kind tax withholding elected by
employees under the Restricted Stock
Plan (note 6) -- -- 25,606 (1) (310) -- (311)
Cancellation of treasury shares (93,843) (6) (93,843) 6 -- -- --
Net loss -- -- -- -- -- (7,257) (7,257)
---------- ------- ------- ------ ------- -------- -------
BALANCES AT JUNE 30, 1994 8,041,518 482 25,606 (1) 49,504 (30,167) 19,818
Issuance of common shares for options
exercised and services rendered 10,247 -- -- -- 60 -- 60
Amortization of deferred compen-
sation expense (note 6) -- -- -- -- 10 -- 10
Retirement of unvested shares and
options forfeited under the Restricted
Stock Plan (note 6) -- -- -- -- (2) -- (2)
Net loss -- -- -- -- -- (1,855) (1,855)
---------- ------- ------- ------ ------- -------- -------
BALANCES AT DECEMBER 31, 1994 8,051,765 482 25,606 (1) 49,572 (32,022) 18,031
Issuance of common shares for options
exercised and services rendered 51,737 4 -- -- 72 -- 76
Amortization of deferred compen-
sation expense (note 6) -- -- -- -- 6 -- 6
Retirement of unvested shares and
options forfeited under the
Restricted Stock Plan (note 6) -- -- -- -- (10) -- (10)
Net income -- -- -- -- -- 959 959
---------- ------- ------- ------ ------- -------- -------
BALANCES AT DECEMBER 31, 1995 8,103,502 $ 486 25,606 $ (1) 49,640 (31,063) 19,062
========= ======= ======= ====== ======= ======== =======
See accompanying notes to consolidated financial statements.
F-5
AIR METHODS CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
- ----------------------------------------------------------------------
Six Months Year Ended
Year Ended Ended June 30,
December 31, December 31, ----------------
1995 1994 1994 1993
------------ ------------ ------ ------
Cash flows from operating activities:
Net income (loss) $ 959 (1,855) (7,257) (261)
Adjustments to reconcile net income (loss) to net cash provided
(used) by operating activities:
Provision for restructuring and other non-recurring expenses -- -- 2,218 --
Depreciation and amortization expense 2,656 1,272 2,196 1,438
Common stock and options issued for services and in
connection with employee stock compensation agreements,
net of forfeitures 72 69 (94) 243
Loss (gain) on disposition of assets 86 237 790 (12)
Loss (gain) on early extinguishment of debt -- -- 182 (173)
Changes in operating assets and liabilities, net of
acquisitions:
Decrease (increase) in receivables (438) 36 2,043 (1,121)
Decrease (increase) in inventories 260 (193) (53) (1,166)
Decrease (increase) in prepaid expenses and other current
assets 900 844 (180) 295
Decrease (increase) in work-in-process on medical interior
contracts 71 274 (153) (81)
Decrease in accounts payable, other accrued liabilities, and
accrued restructuring expenses (1,187) (716) (189) (376)
Increase (decrease) in accrued overhaul and parts
replacement costs 373 404 860 (432)
Increase (decrease) in deferred revenue, billings in excess of
costs, and other liabilities 874 (1,001) 676 95
------- ------- ------- -------
Net cash provided (used) by operating activities 4,626 (629) 1,039 (1,551)
------- ------- ------- -------
Cash flows from investing activities:
Net cash used in acquisition of Golden Eagle Aviation, Inc. -- -- (451) --
Acquisition of equipment and leasehold improvements (1,169) (981) (16,101) (6,561)
Proceeds from retirement and sale of equipment and assets held
for sale 4,430 790 618 2,093
Decrease (increase) in notes receivable, patent application
costs, and other assets 755 425 (307) (654)
Proceeds from sale or maturity of short-term investments -- 21 504 1,378
Purchase of short-term investments -- -- -- (472)
------- ------- ------- -------
Net cash provided (used) by investing activities 4,016 255 (15,737) (4,216)
------- ------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock -- -- 12,898 10,026
Payments for syndication and solicitation costs -- -- (1,252) (1,720)
Net repayments under short-term notes payable (1,585) (856) (117) (268)
Proceeds from long-term debt 582 -d- 7,851 4,049
Payments of long-term debt (4,915) (1,141) (4,007) (2,318)
Payments of capital lease obligations (721) (354) (1,882) (473)
------- ------- ------- -------
Net cash provided (used) by financing activities (6,639) (2,351) 13,491 9,296
------- ------- ------- -------
Increase (decrease) in cash and cash equivalents 2,003 (2,725) (1,207) 3,529
Cash and cash equivalents at beginning of period 696 3,421 4,628 1,099
------- ------- ------- -------
Cash and cash equivalents at end of period $ 2,699 696 3,421 4,628
======= ======= ======= =======
Interest paid in cash during the period $ 1,395 718 1,243 1,158
======= ======= ======= =======
(Continued)
F-6
AIR METHODS CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
- ----------------------------------------------------------------------
Noncash investing and financing transactions:
Capital lease obligations of $19,000 and $7,085,000 were assumed to
acquire equipment during the years ended June 30, 1994 and 1993,
respectively.
Notes receivable of $2,790,000 were received as partial consideration
for the sale of two aircraft during the year ended June 30, 1994.
Notes payable of $2,347,000 were issued to finance the Company's
annual hull and liability, workers' compensation, and directors' and
officers' insurance policies during the six months ended December 31,
1994.
See accompanying notes to consolidated financial statements.
F-7
AIR METHODS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
- ----------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Financial Statement Presentation and Business
Air Methods Corporation, a Delaware corporation ("Air Methods" or
"the Company") serves as one of the largest providers of
aeromedical emergency transport services and systems throughout
North America. The Company also designs, manufactures, and
installs medical aircraft interiors and other aerospace products
for domestic and international customers. As discussed more
fully in note 3, in September 1994 the Company sold all of the
outstanding shares of common stock of Golden Eagle Charters, Inc.
("Golden Eagle"), formerly a wholly owned subsidiary of the
Company. During fiscal year 1993, Cell Technology Biosciences,
Inc., another wholly owned subsidiary, was dissolved. All
significant intercompany balances and transactions have been
eliminated in consolidation.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the
Company considers all highly liquid instruments with original
maturities of three months or less to be cash equivalents. Cash
equivalents of $2,062,000 and $565,000 at December 31, 1995 and
1994, respectively, consist of short-term money market funds.
Inventories
Inventories are comprised primarily of expendable aircraft parts
which are recorded at the lower of cost (average cost) or market.
Work-in-Process on Medical Interior Contracts
Work-in-process on medical interior contracts represents costs of
the installation of medical equipment and modification of
aircraft for third parties. Certain medical interior contracts
provide for reimbursement of all costs plus an incremental
amount. Revenue on these contracts is recorded as costs are
incurred. In addition, when the total cost to complete a medical
interior under a fixed fee contract can be reasonably estimated,
revenue is recorded as costs are incurred using the percentage of
completion method of accounting.
F-8
AIR METHODS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ----------------------------------------------------------------------
If the total cost to complete a medical interior cannot be
reasonably estimated, revenue relating to fixed fee contracts is
recognized using the completed contract method of accounting. A
contract is considered complete when all costs except
insignificant items have been incurred and the installation is
operating according to specification. If the modified aircraft
is leased by the Company in its operations, the revenue is
deferred and recognized over the term of the lease.
Assets Held for Sale
Assets held for sale consisted primarily of aircraft designated
for disposal within one year and were valued at the lower of cost
or estimated net realizable value. Net realizable value was
determined primarily by individual market studies; estimated
carrying costs of the assets prior to disposal were included in
the calculation of net realizable value. Depreciation was
discontinued when an asset was designated for disposal. Debt
collateralized by assets held for sale was classified as a
current liability in the consolidated financial statements.
Equipment and Leasehold Improvements
Hangar, equipment, and leasehold improvements are recorded at
cost. Maintenance and repairs are expensed when incurred. Major
modifications and costs incurred to place aircraft in service are
capitalized. Improvements to helicopters and airplanes leased
under operating leases are included in flight and ground support
equipment in the accompanying financial statements. Depreciation
is computed using the straight-line method over the following
useful lives:
Description Lives Residual value
----------- ----- --------------
Hangar 40 years 10%
Helicopters, including medical equipment 8-25 years 25%
Airplanes, including medical equipment 8-20 years 0-10%
Ground support equipment 5-10 years 0-10%
Furniture and office equipment 3-10 years --
Leasehold improvements to hangar and office space are amortized
using the straight-line method over the terms of the leases.
Excess of Cost Over the Fair Value of Net Assets Acquired
Excess of cost over the fair value of net assets acquired, or
goodwill, is being amortized using the straight-line method over
25 years. Periodically the Company evaluates the recoverability
of goodwill based upon undiscounted earnings forecasts. Events
that may indicate a need to assess recoverability include
significant changes in business conditions, continuing losses, or
a forecasted
F-9
AIR METHODS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ----------------------------------------------------------------------
inability to achieve at least break-even results over an extended
period. Should an impairment in value be indicated, the carrying
value of goodwill will be adjusted accordingly.
Fleet Integration Costs
Costs related to the integration of new types of aircraft into
the Company's fleet are deferred and amortized over a period of
five years. Such costs are included in other assets in the
accompanying financial statements.
Patent Application Costs
The Company capitalizes legal costs associated with new patent
applications and the defense of existing patents. At such time
as patents are granted, these costs will be amortized over the
estimated useful economic life of the patents. Costs relating to
unsuccessful patent applications are charged to operations.
Engine and Airframe Overhaul Costs
The Company uses the accrual method of accounting for major
engine and airframe overhauls whereby the cost of the next
overhaul is estimated and accrued based on usage of the aircraft
over the period between overhauls.
Revenue Recognition and Uncollectible Receivables
Fixed fee revenue under the Company's operating agreements with
hospitals is recognized monthly over the term of the agreements.
Revenue relating to emergency flights is recognized upon
completion of the services. International franchise revenue is
recognized when payment is received.
Uncollectible trade receivables are charged to operations using
the allowance method. The allowance for uncollectible
receivables was not significant at December 31, 1995 and 1994.
Income Taxes
The Company accounts for income taxes using the asset and
liability method of Statement of Financial Accounting Standard
No. 109, Accounting for Income Taxes (Statement 109). Deferred
tax assets and liabilities are recognized for the future income
tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred income tax assets and liabilities of a change in
rates is recognized in income in the period that includes the
enactment date.
F-10
AIR METHODS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ----------------------------------------------------------------------
Income (loss) Per Share
Income (loss) per common share is calculated using the weighted
average number of common shares outstanding for each period.
Outstanding common stock options and common stock purchase
warrants have not been included in the calculations since the
effect would be antidilutive.
(2) ACQUISITION AND SALE OF SUBSIDIARY
On September 10, 1993, the Company entered into an Exchange
Agreement (the "Agreement") with Golden Eagle and Golden Eagle's
shareholders (the "Shareholders") whereby the Company issued an
aggregate of 25,908 shares of its common stock valued at
approximately $188,000 to the Shareholders in exchange for all of
the issued and outstanding shares of Golden Eagle. On the same
date, in a related transaction contemplated by the Agreement, the
Company issued an aggregate of 29,709 shares of its restricted
common stock, valued at approximately $252,000 to shareholders
and related parties of Golden Eagle, in exchange for the transfer
to the Company of an interest in a jet airplane. In connection
with the Agreement, the Company assumed approximately $2,781,000
in debt and other liabilities of Golden Eagle and the
Shareholders for an aggregate consideration of $3,221,000.
The composition of the purchase price was as follows (amounts in
thousands):
Equipment and leasehold improvements $ 1,923
Receivables 105
Accounts payable and other liabilities (2,781)
Excess of cost over the fair value of net assets acquired 1,193
-------
Total purchase price $ 440
=======
The transaction was accounted for using the purchase method of
accounting. Accordingly, the results of operations of Golden
Eagle were included with those of the Company from the effective
date of the Agreement.
As discussed more fully in note 3, in the third quarter of fiscal
1994, the Company discontinued substantially all of the
unprofitable airplane charter operations of Golden Eagle and
wrote off the balance of goodwill related to the purchase of
Golden Eagle as part of the restructuring. Losses from Golden
Eagle's charter operations from the date of acquisition through
June 30, 1994 totaled $677,000. On September 21, 1994, the
Company sold all of the outstanding shares of common stock of
Golden Eagle to a company in exchange for $10,000 and the
assumption of certain liabilities of Golden Eagle. The Company
recorded a gain of $126,000 on the sale.
F-11
AIR METHODS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ----------------------------------------------------------------------
(3) BUSINESS RESTRUCTURING
During fiscal 1994, the Company implemented a restructuring plan
for the Company's continuing air medical flight and manufacturing
operations designed to reduce costs and improve operating
efficiencies. The restructuring plan included the
discontinuation of substantially all of the airplane charter
operations of Golden Eagle, a reduction in the Company's work
force, and the disposal of selected assets. Also included in the
restructuring was the cancellation of a proposed debt refinancing
and public preferred stock offering in the third quarter of 1994.
With the exception of severance pay related to the reduction in
the work force and certain placement fees for the proposed
preferred stock offering, the restructuring expenses consisted of
non-cash charges including the write-off of previously recorded
assets. Valuation allowances established for assets designated
for disposal are classified with other gains and losses on the
disposition of assets in the accompanying financial statements.
The restructuring and other non-recurring charges for the year
ended June 30, 1994, consist of the following (amounts in
thousands):
Write-off of costs associated with proposed debt refinancing $ 335
Write-off of costs associated with proposed public
preferred stock offering 571
Write-off of goodwill related to the acquisition of Golden Eagle 1,459
Severance pay 614
Other 31
------
$ 3,010
======
Accrued restructuring expenses as of December 31, 1994, consist
of severance pay.
F-12
AIR METHODS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ----------------------------------------------------------------------
(4) NOTES PAYABLE AND LONG-TERM DEBT
Notes payable consist of the following at December 31, 1995 and
1994 (amounts in thousands):
1995 1994
---- ----
Borrowings under a note with a company with interest
at prime rate. The note was cancelled in 1995. $ -- 267
Borrowings under a $2 million line of credit with
interest at prime rate (8.5% at December 31, 1995),
collateralized by certain receivables and inventories 500 500
Borrowings under an unsecured note with a company
with interest at 5.73%. Paid in full in 1995 -- 1,249
Borrowings under an unsecured note with a company
with interest at 7.25%. Paid in full in 1995 -- 128
Borrowings under an unsecured note with a company
with interest at 6.58%, due in monthly installments of
principal and interest through June 1, 1996 104 --
Other 89 134
----- -----
$ 693 2,278
===== =====
F-13
AIR METHODS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ----------------------------------------------------------------------
Long-term debt consists of the following at December 31, 1995 and
1994 (amounts in thousands):
1995 1994
---------- ----------
Notes payable to one lender with interest at 9.94%,
due in monthly payments of principal and interest
through August 2001, collateralized by equipment,
receivables, inventories, and other intangible assets $ 4,348 4,893
Notes payable to one lender with interest at 8.5%,
due in monthly payments of principal and interest
through September 2000, collateralized by flight
equipment 2,139 2,505
Note payable to a company with interest at 9.25%,
due in monthly payments of principal and interest
through December 2001, collateralized by a hangar 227 253
Note payable to a company with monthly interest
payments at prime rate plus 1%. Paid in full in 1995 -- 3,819
Note payable to a company with interest at 11%, due in
monthly payments of principal and interest through
February 2002, collateralized by equipment 536 594
Note payable to a company with interest at 10%, due in
monthly payments of principal and interest through May
2000, collateralized by flight equipment 285 334
Note payable to a company with interest at 6.25%, due in
monthly payments of principal and interest through
October 1997, collateralized by a note receivable (net of
discount of $16,000 based on imputed interest rate of
9.5%) 537 --
Other 34 41
8,106 12,439
Less current installments (1,435) (4,870)
------- -------
$ 6,671 7,569
======= =======
All debt collateralized by assets held for sale was classified as
current.
F-14
AIR METHODS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ----------------------------------------------------------------------
Aggregate maturities of long-term debt are as follows (amounts in
thousands):
Year ending December 31:
1996 $ 1,435
1997 1,547
1998 1,389
1999 1,528
2000 1,380
Thereafter 827
------
$ 8,106
======
In 1993, the Company retired debt totaling $642,000 prior to the
scheduled maturities and recognized gains of $173,000 on the
early extinguishment of the debt.
Total interest expense incurred by the Company on notes, long-
term debt, and capital leases during the year ended December 31,
1995 was $1,458,000, of which $62,000 was capitalized.
(5) LEASES
The Company leases hangar and office space under noncancelable
operating leases and leases certain equipment and aircraft under
noncancelable operating and capital leases. As of December 31,
1995, future minimum lease payments under capital and operating
leases are as follows (amounts in thousands):
Capital Operating
leases leases
---------- ----------
Year ending December 31:
1996 $ 1,123 1,760
1997 1,123 1,758
1998 1,123 1,297
1999 719 1,037
2000 537 1,036
Thereafter 2,128 965
------- ------
Total minimum lease payments 6,753 $ 7,853
======
Less amounts representing interest (1,450)
-------
Present value of minimum capital lease payments 5,303
Less current installments (751)
$ 4,552
=======
F-15
AIR METHODS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ----------------------------------------------------------------------
Rent expense relating to operating leases totaled $2,061,000,
$1,234,000, $3,434,000 and $3,462,000 for the year ended
December 31, 1995, the six months ended December 31, 1994 and the
years ended June 30, 1994 and 1993, respectively.
On July 25, 1992, the Company entered into two equipment leases
with Ventana Leasing, Inc. ("Ventana") for the lease of two
helicopters. A former director of the Company is a 50% owner of
Ventana. In December 1993 the Company retired one of the Ventana
capital lease obligations for a total of $1,167,000 and recorded
a loss of $182,000 on the early extinguishment of this
obligation.
The remaining capital lease with Ventana is for a term of seven
years at an annual cost to the Company of approximately $301,000.
Lease payments are fixed for the first five years of the lease
term, after which Ventana may increase the lease payments within
certain limits to account for any increases in Ventana's debt
servicing costs on the leased aircraft. The lease provides that
the Company will pay Ventana $337,500 upon termination of the
lease to purchase the aircraft.
At December 31, 1995 and 1994, leased property held under capital
leases included in equipment, net of accumulated depreciation,
totaled $9,509,000 and $10,359,000, respectively.
(6) STOCKHOLDERS' EQUITY
(A) WARRANTS
In connection with various offerings of common stock and
other transactions by the Company, the following warrants to
purchase the Company's common stock were issued and are
outstanding as of December 31, 1995:
Number of warrants Exercise price per share Expiration Date
------------------ ------------------------ ---------------
30,000 $ 4.00 March 12, 1996
67,938 5.10 Various, 1997
4,000 3.00 February 2, 1998
126,592 4.00 February 2, 1998
20,000 4.13 March 12, 1998
75,000 4.50 April 6, 1998
50,000 3.00 December 29, 1998
150,000 6.88 February 14, 1999
150,000 3.00 February 21, 1999
-------
673,530
=======
F-16
AIR METHODS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ----------------------------------------------------------------------
In June 1993, 840,368 warrants were exercised at $3.41 per
warrant to purchase 636,148 common shares for total proceeds
of $2,865,000.
(B) STOCK OPTION PLANS
The Company has a Stock Option Plan (the Plan) which, as
amended in October 1993 and February 1995, provides for the
granting of incentive stock options (ISOs) and nonqualified
stock options (non-ISOs), stock appreciation rights, and
supplemental stock bonuses. Under the Plan, 1,500,000
shares of common stock are reserved for options. The
Company also grants non-ISOs outside of the Plan.
Generally, the options granted under the Plan have an
exercise price equal to the fair market value on the date of
grant, become exercisable in three equal installments
beginning one year from the date of grant, and expire five
years from the date of grant.
The Nonemployee Director Stock Option Plan authorizes the
grant of nonstatutory stock options to purchase an aggregate
of 300,000 shares of common stock to nonemployee directors
of the Company. Each nonemployee director completing one
fiscal year of service will receive a five-year option to
purchase 5,000 shares, exercisable at the then current fair
market value of the Company's common stock.
At December 31, 1995, options issued to a consulting group
to purchase 6,667 shares of common stock at an exercise
price of $6.25 per share were outstanding. A director of
the Company is the chief executive officer and a 50% owner
of the consulting group.
The following is a summary of option activity, including
options granted and outstanding outside of the Plan, during
the year ended December 31, 1995, the six months ended
December 31, 1994 and the years ended June 30, 1994 and
1993:
F-17
AIR METHODS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ----------------------------------------------------------------------
ISOs Non-ISOs Total
---- -------- -----
Outstanding at July 1, 1992 198,926 247,084 446,010
Granted 113,474 90,864 204,338
Canceled (11,702) (2,916) (14,618)
---------- ---------- ----------
Outstanding at June 30, 1993 300,698 335,032 635,730
Granted 854,349 87,666 942,015
Canceled (445,064) (72,496) (517,560)
Exercised (62,141) (2,222) (64,363)
---------- ---------- ----------
Outstanding at June 30, 1994 647,842 347,980 995,822
Granted 65,773 342,857 408,630
Canceled (515,691) -- (515,691)
Exercised (41) (4,348) (4,389)
---------- ---------- ----------
Outstanding at December 31, 1994 197,883 686,489 884,372
Granted 214,729 360,000 574,729
Canceled (16,061) (36,666) (52,727)
Exercised (2,560) -- (2,560)
---------- ---------- ----------
Outstanding at December 31, 1995 393,991 1,009,823 1,403,814
========== ========== ==========
Exercise prices $1.75 to 12.13 1.75 to 13.50
============= =============
As of December 31, 1995, exercisable options totaled
739,538. A total of 360,000 options have been granted by
the Board of Directors under the Plan which are subject to
shareholder approval at the Annual Meeting of Stockholders
to be held in 1996.
(C) RESTRICTED STOCK PLAN
Effective December 3, 1992, the Company established a
restricted stock plan authorizing the issuance of up to
300,000 shares of common stock to employees. Under this
plan, participating employees elected to reduce their
compensation by 2% to 20% for the period from January 9,
1993 to January 8, 1994. For each $3 by which employees
reduced their compensation, the Company issued one share of
stock and one option to purchase one share of stock for $3.
The Company issued 101,137 shares under this plan to
employees and
F-18
AIR METHODS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ----------------------------------------------------------------------
recorded deferred compensation for the value of the options
issued and for the excess of the market value of the shares
issued on the effective date over the face value of $3 per
share. The shares issued under the plan vested over one
year; the associated options vested over three years. The
Company recorded $6,500, $10,000, $218,000 and $191,000 of
compensation expense under the plan for the year ended
December 31, 1995, the six months ended December 31, 1994
and the years ended June 30, 1994 and 1993, respectively.
In January 1994 employees who received shares under this
compensation plan were allowed to elect to have the Company
retain sufficient shares to provide for the payment of their
withholding taxes. The Company withheld a number of shares
equivalent in value to the taxes owed from the shares issued
to employees and placed these shares in treasury stock.
(D) NONEMPLOYEE COMPENSATION PLAN
In February 1993, the Board of Directors adopted the Air
Methods Corporation Equity Compensation Plan for Nonemployee
Directors which was subsequently approved by the Company's
stockholders on March 12, 1993. Under this compensation
plan, 150,000 shares of common stock are reserved for
issuance to non-employee directors. As of December 31,
1995, the Company had issued 35,161 shares under this plan.
(E) PRIVATE PLACEMENT
In February 1993, the Company completed a private placement
of 2,386,839 shares of common stock at $3 per share. In the
year ended June 30, 1994, 1,176,086 of the warrants issued
in tandem with the shares of common stock in this private
offering were exercised to purchase 1,272,626 shares of
common stock.
In February 1994, the Company completed a private placement
of 1,011,190 shares of common stock at $5.66 per share with
institutions outside of the United States.
(F) STOCK REPURCHASE PLAN
On August 5, 1994, the Board of Directors approved a stock
repurchase plan authorizing the repurchase of up to 10% of
the outstanding shares of the Company's common stock to be
used to meet the Company's common stock requirements for its
employee benefit plans and other purposes. Repurchases may
be made from time to time in the open market or in privately
negotiated transactions. The plan authorizes, but does not
require, the Company to repurchase shares. Actual
repurchases in any period are subject to approval by the
Finance Committee of the Board of Directors and will depend
on market conditions and other factors. As of December 31,
1995, no shares had been repurchased under this plan.
F-19
AIR METHODS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ----------------------------------------------------------------------
(G) PROFIT SHARING PLAN
In 1995 the Board of Directors approved a profit sharing
plan which provides for the distribution of 5% of the
Company's net income to its employees effective for the
fiscal year ending December 31, 1996.
(7) REVENUE
The Company has operating agreements and leases with various
hospitals and hospital systems to provide services and aircraft
for periods ranging from 1 to 7 years. The agreements provide
for revenue from monthly fixed fees and flight fees based upon
the utilization of aircraft in providing emergency medical
services. The fixed-fee portion of the agreements and leases
provide for the following revenue for years subsequent to
December 31, 1995 (amounts in thousands):
Year ending December 31:
1996 $15,708
1997 12,648
1998 9,191
1999 7,940
2000 5,971
Thereafter 16,951
------
$68,409
======
(8) INCOME TAXES
For income tax purposes, the Company has net operating loss
carryforwards at December 31, 1995 of approximately $34,603,000
which will expire in varying amounts through the year 2010.
Alternative minimum tax (AMT) loss carryforwards available to
offset future AMT taxable income approximate net operating loss
carryforwards for regular federal income tax purposes.
In 1991, the Company acquired all of the outstanding common
shares of Air Methods Corporation, a Colorado corporation
("AMC"). As a result of the acquisition of AMC and other
issuances of stock, the utilization of a portion of the
aforementioned net operating loss carryforwards will be limited
annually by the provisions of Section 382 of the Internal Revenue
Code. Any future tax benefits recognized through utilization of
AMC's net operating loss carryforwards as of the acquisition date
will be applied to reduce the excess of cost over the fair value
of net assets acquired.
F-20
AIR METHODS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ----------------------------------------------------------------------
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 1995 and 1994 are as follows (amounts
in thousands):
1995 1994
---- ----
Deferred tax assets:
Overhaul and parts replacement cost,
principally due to the accrual method $ 2,007 1,877
Assets held for sale principally
due to differences in bases -- 354
Accrued restructuring expenses and
valuation allowances 49 433
Net operating loss carryforwards 12,111 11,181
Other 175 246
------- -------
Total gross deferred tax assets 14,342 14,091
Less valuation allowance (9,292) (9,894)
------- -------
Net deferred tax assets 5,050 4,197
------- -------
Deferred tax liabilities:
Equipment and leasehold improvements,
principally due to differences in
bases and depreciation methods (4,966) (4,090)
Other (84) (107)
------- -------
Total deferred tax liabilities (5,050) (4,197)
------- -------
Net deferred tax liability $ -- --
======== ========
Income tax expense calculated at the federal statutory tax rate
was offset entirely in the year ended December 31, 1995, by the
decrease in the valuation allowance for deferred tax assets. No
tax benefit was recorded for the six months ended December 31,
1994 or the years ended June 30, 1994 and 1993 due to the
uncertainty of realizing the deferred tax asset relating to the
Company's net operating loss carryforwards.
(9) RETIREMENT PLAN
The Company has a defined contribution retirement plan whereby
employees who have completed one year of employment may
contribute up to 12% of their annual salaries. The Company
contributes an amount equal to 1% of the employees' annual salary
and will match 20% of the employees' contributions up to 6% of
their annual salaries. Company contributions totaled
approximately $150,000, $70,000, $156,000, and $126,000 for the
year ended December 31, 1995, the six months ended December 31,
1994 and the years ended June 30, 1994 and 1993, respectively.
F-21
AIR METHODS CORPORATION
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- ----------------------------------------------------------------------
(10) PROPOSED BUSINESS COMBINATIONS
In April 1992, the Company agreed in principle to acquire
American Air Ambulance, Inc. (AAA). In October 1992, the
agreement was allowed to expire. Costs totaling $272,000
relating to the proposed acquisition were charged to merger
termination expense in the third quarter of fiscal 1993.
During the six months ended December 31, 1994, the Company
discussed the feasibility of a business combination of the
emergency air medical transport business of the Company with
Rocky Mountain Helicopters, Inc. ("RMHI"), which was then
operating as a debtor-in-possession under Chapter 11 of the U.S.
Bankruptcy Code. In November 1994, the cash portion of the
Company's bid for the aeromedical assets of RMHI was exceeded in
a bid placed by another party and the Company declined to submit
a final bid. The expenses incurred as part of the due diligence
process consist primarily of legal and professional fees and
comprise the balance of the $305,000 merger termination expense
recognized in the six months ended December 31, 1994.
(11) RELATED PARTY TRANSACTIONS
During the year ended June 30, 1993, the Company contracted with
a placement agent, which is partially owned by one of the
Company's former directors, to provide services relating to the
solicitation for the exercise of public warrants. Fees paid to
this agent were $917,000 for the fiscal year ended June 30, 1993.
During the year ended June 30, 1994, the Company issued five-year
warrants to purchase 50,000 shares of common stock to Americas
Partners in connection with the guarantee of a $2,500,000 note.
The general partners of Americas Partners are directors of the
Company. The note was paid in full in the third quarter of 1994.
In February 1994 warrants to purchase an additional 150,000
shares were issued to Americas Partners in connection with a
commitment from Americas Partners to fund start-up costs for a
joint venture in Mexico. The commitment was paid to the Company
in full subsequent to June 30, 1994. The exercise price of all
of the Americas Partners warrants is $3 per share.
(12) COMMITMENTS AND CONTINGENCIES
In November 1992, a former employee brought a lawsuit against the
Company in the U.S. District Court for the District of Minnesota
alleging that the Company had wrongfully discharged him. In
September 1995, the District Court issued a directed verdict in
favor of the Company. The plaintiff appealed the case to the
Eighth Circuit of the U.S. Court of Appeals in November 1995.
Management of the Company believes the ultimate outcome of this
action will not have a material adverse impact on the Company's
financial position or results of operations.
F-22