SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 8-K/A
AMENDMENT NO. 2
CURRENT REPORT
Pursuant to Section 13 of 15(d) of the
Securities Exchange Act of 1934
March 1, 1996
------------------------------------------------
Date of Report (date of earliest event reported)
CONTOUR MEDICAL, INC.
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Exact name of Registrant as Specified in its Charter
Nevada 0-26288 77-0163521
- --------------------------- --------------- ---------------------------
State or Other Jurisdiction Commission File IRS Employer Identification
of Incorporation Number Number
3340 Scherer Drive, St. Petersburg, Florida 33716
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Address of Principal Executive Offices, Including Zip Code
(813) 572-0089
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Registrant's Telephone Number, Including Area Code
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED. The following
financial statements for AmeriDyne Corporation are filed herewith:
Independent Auditors' Report . . . . . . . . . . . . F-1
Balance Sheet as of February 29, 1996. . . . . . . . F-2 & 3
Statement of Loss and Retained Earnings
for the ten months ended February 29, 1996 . . . . . F-4
Statement of Cash Flows for the ten months
ended February 29, 1996. . . . . . . . . . . . . . . F-5
Notes to Financial Statements. . . . . . . . . . . . F-6 - 10
Independent Auditors' Report . . . . . . . . . . . . F-11
Balance Sheet as of April 30, 1995 . . . . . . . . . F-12 & 13
Statement of Income and Expenses for the
twelve months ended April 30, 1995 . . . . . . . . . F-14
Statement of Retained Earnings for the
twelve months ended April 30, 1995 . . . . . . . . . F-15
Statement of Cash Flows for the twelve
months ended April 30, 1995. . . . . . . . . . . . . F-16 & 17
Notes to Financial Statements. . . . . . . . . . . . F-18 - 23
Supplementary Information. . . . . . . . . . . . . . F-24 & 25
Independent Auditors' Report . . . . . . . . . . . . F-26
Statement of Income and Retained Earnings
for the year ended April 30, 1994. . . . . . . . . . F-27
Statement of Cash Flows for the year
ended April 30, 1994 . . . . . . . . . . . . . . . . F-28
Notes to Financial Statement . . . . . . . . . . . . F-29 - 33
(b) PRO FORMA FINANCIAL INFORMATION. The following pro forma financial
information is filed herewith:
Pro Forma Consolidated Financial Statements . . . . . F-34
Pro Forma Consolidated Balance Sheet as of
December 31, 1995 (Unaudited) . . . . . . . . . . . . F-35 & 36
Pro Forma Consolidated Statement of Income
for the six months ended December 31, 1995
(Unaudited) . . . . . . . . . . . . . . . . . . . . . F-37
Pro Forma Consolidated Statement of Income
for the twelve months ended June 30, 1995
(Unaudited) . . . . . . . . . . . . . . . . . . . . . F-38
Notes to Pro Forma Consolidated Financial
Statements (Unaudited). . . . . . . . . . . . . . . . F-39
(c) EXHIBITS.
Exhibit 10. Agreement and Plan of Merger by and Among Contour
Medical, Inc., Contour Merger Sub, Inc., Scott F. Lochridge and AmeriDyne
Corporation*
_______________
* Previously filed
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of AmeriDyne Corporation
Jackson, Tennessee
We have audited the accompanying balance sheet of AmeriDyne Corporation as of
February 29, 1996, and the related statements of loss, retained earnings, and
cash flows for the ten months then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AmeriDyne Corporation as of
February 29, 1996, and the results of operations and cash flows for the ten
months then ended in conformity with generally accepted accounting principles.
/s/ Laney, Boteler & Killinger
LANEY, BOTELER & KILLINGER
Atlanta, Georgia
April 4, 1996
F-1
AMERIDYNE CORPORATION
BALANCE SHEET
February 29, 1996
ASSETS
Current assets
Cash $ 52,703
Accounts receivable - trade
net of allowance for doubtful
accounts of $400,000 1,355,600
Other receivables 23,748
Inventory 1,260,567
Prepaid insurance 2,496
Prepaid income taxes 58,121
Note receivable - current 50,670
Total current assets 2,803,905
Property and equipment
Equipment 121,970
Office furniture and equipment 165,634
Vehicles 49,636
337,240
Less accumulated depreciation 227,315
109,925
Other Assets
Deposits 7,689
Note receivable 83,999
Deferred tax benefit 160,000
251,688
$3,165,518
See notes to financial statements.
F-2
AMERIDYNE CORPORATION
BALANCE SHEET
February 29, 1996
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable $ 669,766
Accrued payroll and related taxes 87,448
Accrued taxes payable - other 33,389
Accrued interest payable 3,850
Note payable - credit line 777,000
Current portion of long-term debt 334,886
Total current liabilities 1,906,339
Long-term debt
Notes payable 7,512
Note payable - stockholder 127,988
135,000
Total liabilities 2,041,839
Stockholder's equity
Common stock - no par value, 1,000 shares
authorized and issued, 510 shares out-
standing 7,500
Additional paid-in capital 60,500
Retained earnings 1,112,979
1,180,979
Less: Treasury stock, 490 shares, at cost 57,300
Total stockholder's equity 1,123,679
$3,165,518
See notes to financial statements.
F-3
AMERIDYNE CORPORATION
STATEMENT OF LOSS AND RETAINED EARNINGS
Ten Months Ended February 29, 1996
Sales $8,637,514
Cost of sales 6,665,757
Gross profit 1,971,757
Other expenses
Salaries and commissions 933,216
Payroll taxes and benefits 118,615
Freight-out 242,103
Rent 108,335
Bad debts 460,429
Interest expense 110,118
Depreciation 50,355
Other operating expenses 172,123
2,195,294
Loss from operations (195,537)
Other income
Interest income 9,272
Royalty income 13,112
Service charge income 39,076
Other income 3,052
64,512
Loss before income taxes (159,025)
Income tax provision (benefit)
Current 13,129
Deferred (80,000)
(66,871)
Net loss (92,154)
Retained earnings, April 30, 1995 1,205,133
Retained earnings, February 29, 1996 $1,112,979
See notes to financial statements.
F-4
AMERIDYNE CORPORATION
STATEMENTS OF CASH FLOWS
Ten Months Ended February 29, 1996
Cash flows from operating activities
Net loss $ (92,154)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 50,355
Provision for doubtful accounts 200,000
Loss from sale of assets 1,145
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable - trade 263,412
Other receivables 15,206
Inventory (118,340)
Prepaid insurance 1,718
Prepaid income taxes (58,121)
Deferred tax benefit (80,000)
Increase (decrease) in liabilities:
Accounts payable 82,507
Accrued payroll and related taxes 41,002
Accrued taxes other 111
Accrued income taxes (317,197)
Accrued interest 1,936
Net cash used in operating activities (8,420)
Cash flows from investing activities
Note receivable collections 39,246
Decrease in cash surrender value -
officer's life insurance 9,269
Purchase of property and equipment (11,100)
Proceeds on sale of property and equipment 9,000
Net cash provided by investing
activities 46,415
Cash flows from financing activities
Payment of long-term debt (89,291)
Net borrowings under line of credit 102,000
Net cash provided by
financing activities 12,709
Net increase in cash 50,704
Cash, beginning of period 1,999
Cash, end of period $ 52,703
See notes to financial statements.
F-5
AMERIDYNE CORPORATION
NOTES TO FINANCIAL STATEMENT
February 29, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITIES
AmeriDyne Corporation (Company) was incorporated in 1980 to manufacture and
distribute bed pans and similar plastic products to hospitals and other users
in the medical community, primarily within the State of Tennessee. The
Company expanded its line of products over the years by reselling items
purchased from other manufacturers to the same market. Sales from the resale
line of business surpassed the sales of items manufactured by the Company. In
June 1993, AmeriDyne sold the assets of its manufacturing division and is now
engaged exclusively in the resale and distribution of medical supplies to
doctors' offices, hospitals, nursing homes, home health agencies and other
customers in the medical field.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to
be cash equivalents.
ACCOUNTS RECEIVABLE
The Company uses the reserve method for uncollectible accounts. During the
ten months ended February 29, 1996, the allowance for doubtful accounts was
increased from $200,000 to $400,000 to allow for delinquent accounts which may
be uncollectible. For tax purposes, bad debt expense is deducted when they
are deemed uncollectible.
INVENTORIES
Inventories are stated at the lower of average cost or market. At February
29, 1996, the Company adjusted the inventory by $75,000 as a reserve for
slow-moving or obsolete inventory.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Maintenance and repairs of
property and equipment are charged to operations and major improvements are
capitalized. Upon retirement, sale or other disposition of property and
equipment, the cost and accumulated depreciation are eliminated from the
accounts and any gain or loss is included in operations.
Depreciation is computed using accelerated methods over the estimated useful
lives of the assets of three to ten years.
Included in property and equipment are assets acquired under capital lease.
At February 29, 1996, cost and accumulated depreciation for these assets
totaled $41,660 and $37,708, respectively. Amortization of these leased
assets is included in depreciation expense for the period ended February 29,
1996 and totaled $2,469.
F-6
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to the use of allowance for doubtful accounts for book
purposes. The deferred tax assets represent the future tax consequences of
those differences, which will be deductible when the assets are recovered
(Note 6).
ACCRUED PAYROLL
Statement of Financial Standards No. 43, "Accounting for Compensated
Absences", requires the accrual of vacation pay that has been earned but not
taken. Accordingly, the Company has accrued $25,870 and $1,979 for unpaid
vacation and the related FICA expense, respectively as of February 29, 1996.
This amount is included in accrued payroll reflected on the Company's balance
sheet at February 29, 1996.
NOTE 2 - NOTE AND ROYALTIES RECEIVABLE
On June 2, 1993, AmeriDyne Corporation sold its manufacturing division to MCP
Industries, Inc. (MCP). In connection with the sale, AmeriDyne received a
note from MCP in the amount of $245,000 to be paid in sixty monthly
installments of $4,968 including interest at 8.0%. AmeriDyne also receives a
2% royalty on all of MCP's sales to AmeriDyne's customers as of June 2, 1993
for five years. During the year ended April 30, 1995, MCP sold its operations
to another company, Maxxim Medical, which has assumed the obligations due to
AmeriDyne. During the period ended February 29, 1996, interest income and
royalty income received was $9,272 and $13,112, respectively.
Scheduled maturities of notes receivable at February 29, 1996 are as follows:
Year Ended February 28, Amount
1997 $ 50,670
1998 54,876
1999 29,123
$134,669
NOTE 3 - NOTE PAYABLE-CREDIT LINE
The Company has a $975,000 operating line of credit with Union Planters Bank
of Jackson, Tennessee. Interest is payable monthly at the bank's prime rate
plus 1.25%. The interest rate at February 29, 1996 was 9.50%. Principal is
due on demand, but no later than July 30, 1996. Collateral for the line of
credit consists of substantially all the Company's assets, including but not
limited to accounts receivable, inventory, furniture, fixtures, equipment,
machinery and bank accounts. The loan is also secured by the guarantees of
Scott (100% shareholder of the Company) and Constance Lochridge, and life
insurance policies on the lives of Scott Lochridge and Bill Farmer.
In connection with the notes payable-credit line and notes payable to the bank
referred to in Note 4, the Company executed a loan agreement containing
certain covenants regarding the maintenance of minimum financial ratios
regarding debt and working capital requirements. The current assets to
current liabilities ratio of the Company as of February 29, 1996, was less
than the minimum required by the loan agreements and the Company was
technically in default on the bank debt at that date. As a result of the
technical default, the notes payable to the bank have been classified as
current although no demand for payment has been made. The loan agreement also
restricts payment of dividends and capital acquisitions by the Company. The
whole life insurance policy on the life of Scott Lochridge for $500,000 has
been assigned to the bank to secure the bank loans. The corresponding cash
value of this policy was $17,095 at February 29, 1996.
F-7
On March 1, 1996, the personal guarantees of Scott and Constance Lochridge
were replaced by a guarantee from Retirement Care Associates, Inc. (Note 9).
NOTE 4 - LONG-TERM DEBT
Long-term debt consists of the following:
Union Planters Bank of Jackson, Tennessee payable in
monthly installments of $3,600 including interest at 9.0%
and maturing May 15, 1997. Collateral for the note is the
same as for the note payable-credit line (Note 3). $ 52,005
Union Planters Bank of Jackson, Tennessee payable in
monthly installments of $5,266 including interest at 9.0%
and maturing October 12, 1997. Collateral for the note
is the same as for the note payable-credit line (Note 3). 226,969
Capital lease-G.E. Capital payable in monthly installments
of $205, plus sales tax. Interest imputed at 5.39% and
maturing April 1996. Collateralized by Canon copier. 407
Capital lease-Eaton Financial Corporation payable in
monthly installments of $309, plus sales tax. Interest
imputed at 14.6% and maturing June 1997. Collateralized by
computer equipment. 4,011
Delta Handling Materials, Inc. note payable in 36 monthly
installments of $533 including interest at 11.0% and maturing
December 1997. Collateralized by Clark lift truck. 10,575
Note payable-stockholder Scott F. Lochridge. Payment of
interest and principal on demand. Unsecured. Effective
March 1, 1996, this note was modified to be paid in 36
monthly installments of $5,693 including interest at 10.0%. 176,419
---------
470,386
Less current portion 334,886
---------
$135,500
Principal maturities of long-term debt at February 29, 1996, are as follows:
Year ending February 28, Amount
1997 $334,886
1998 65,638
1999 64,217
2000 5,686
$470,386
NOTE 5 - COMMITMENTS
The Company began leasing office and warehouse facilities at 231 Bobrick Drive
in Jackson, Tennessee in July 1994 for $7,639 per month. The lease was
modified in August 1995 to increase the monthly rent to $7,917 and was
modified again in February to be effective April 1, 1996 and expiring March
31, 1999 and increased the monthly rent to $8,750. The rate increases are due
to modifications at the facility to combine two locations into one.
F-8
Future minimum lease payments as of February 29, 1996, are as follows:
Year ended February 29, Amount
1997 $104,169
1998 105,002
1999 105,002
2000 8,750
$322,923
In connection with the merger with Contour Merger Sub, Inc. (Note 9),
employment agreements were signed effective March 1, 1996, with the officers
of the Company. The current president and sole stockholder's agreement is for
a period of two years at an initial annual salary of $150,000, increasing to
$165,000 during the second year, plus an annual bonus of up to 30% of salary.
The current vice-president of operation's agreement is for a period of three
years at an initial annual salary of $75,000 with annual increases of 7.0%
plus a bonus of $50,000 upon signing the agreement. The bonus was paid in
March 1996.
NOTE 6 - INCOME TAXES
Income taxes are based on financial reporting income or loss. Differences
between loss for financial and income for income tax reporting relate
primarily to the allowance for doubtful accounts.
At February 29, 1996, the Company has deferred tax assets of $160,000 and
prepaid income taxes of $58,121. Deferred tax assets are related to the
$400,000 allowance for doubtful accounts not deductible for income tax
purposes until the accounts are actually written-off as uncollectible.
Prepaid income taxes are the excess of estimated income tax payments made
during the year over the accrued taxes currently payable.
NOTE 7 - RELATED PARTY TRANSACTIONS
Rent expense of $30,000 was paid during the period for the use of the
Company's premises at 4450 Highway 45 North to Lochridge-Tanner Properties, a
general partnership 50% owned by Scott F. Lochridge, President and sole
stockholder of AmeriDyne Corporation.
During the ten months ended February 29, 1996, interest payments totaling
$17,590 were paid on the note payable to the stockholder (Note 4).
NOTE 8 - CONCENTRATION OF CREDIT RISK AND ECONOMIC DEPENDENCE
AmeriDyne Corporation sells medical supplies and equipment to hospitals,
nursing homes, home health care agencies and other customers in the medical
field. Most of these customers are highly dependent on receipts from Medicare
and/or Medicaid for revenue from which to pay their expenses and suppliers,
including AmeriDyne. Any changes to the Medicare/Medicaid programs, or
violations of regulations by their customers could have a material effect on
the collectibility of AmeriDyne's accounts receivable.
Included in accounts receivable at February 29, 1996 is $460,422 due from
Century Home Health Services and its subsidiaries of Murfreesboro, Tennessee.
This represented 22% of the Company's entire accounts receivable.
AmeriDyne's sales to the Jackson-Madison County General Hospital and related
entities were $1,386,800 or 16% of the Company's sales and 5% of the Company's
gross profits for the ten months ended February 29, 1996.
F-9
NOTE 9 - SUBSEQUENT EVENTS
On March 1, 1996, the Company merged with Contour Merger Sub, Inc., a
Tennessee corporation wholly-owned by Contour Medical, Inc., a Nevada
corporation, with AmeriDyne Corporation as the surviving corporation. Each
share of AmeriDyne treasury stock was cancelled and all of the remaining
issued and outstanding shares, 100% owned by Scott F. Lochridge, were
converted into the right to receive shares of Contour Medical, Inc. common
stock, $.001 par value per share, having an aggregate value equal to
$2,100,000, plus $250,000 in cash. Each share of Contour Merger Sub, Inc.,
$.01 par value, issued and outstanding on March 1, 1996, was converted into
one share, no par value, common stock of AmeriDyne Corporation.
In connection with the merger, Retirement Care Associates, Inc. (RCA)
guaranteed all of the debt owed to Union Planters Bank of Jackson, Tennessee,
replacing the guarantees of Scott F. and Constance Lochridge (Note 3). RCA
owns a majority interest and/or voting control interest of Contour Medical,
Inc.
F-10
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of AmeriDyne Corporation
We have audited the accompanying balance sheet of AmeriDyne Corporation as of
April 30, 1995, and the related statements of income, retained earnings, and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AmeriDyne Corporation as of
April 30, 1995, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ Cowart & Rich
COWART & RICH, CERTIFIED PUBLIC ACCOUNTANTS, P.C.
Jackson, Tennessee
July 21, 1995
F-11
AMERIDYNE CORPORATION
BALANCE SHEET
April 30, 1995
(See Independent Auditor's Report)
ASSETS
CURRENT ASSETS:
Cash on Hand and in Bank (Note 2) $ 1,999.
Accounts Receivable - Trade
(Notes 1C & 7) $2,019,012.
Less Allowance for Doubtful
Accounts (Note 1C & 7) <200,000.> 1,819,012.
Royalty Income Receivable (Note 5) 1,822.
Purchase Rebates & Incentives Due
From Vendors 35,973.
Inventory (Note 1D) 1,142,227.
Deferred Taxes (Note 1F) 80,000.
Accrued Interest Receivable 1,159.
Prepaid Insurance 4,214.
Total Current Assets $3,086,406.
PROPERTY AND EQUIPMENT:
At Cost, Net of Accumulated
Depreciation (Note 1E) 159,325.
OTHER ASSETS:
Deposits 7,689.
Note Receivable - MCP Industries,
Inc. (Note 5) 173,915.
Cash Surrender Value - Officers'
Life Insurance (Note 2) 9,269.
Total Other Assets 190,873.
TOTAL ASSETS $3,436,604.
The accompanying notes are an integral part of these financial statements.
F-12
AMERIDYNE CORPORATION
BALANCE SHEET
April 30, 1995
(See Independent Auditor's Report)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 587,259.
Accrued Payroll (Note 1G) 46,446.
Income Taxes Payable (Note 1F)
Federal $256,608.
State 60,589. 317,197.
Accrued Taxes Payable - Other 33,278.
Notes Payable - Credit Line (Note 2) 675,000.
Notes Payable Due Within One Year (Note 3) 327,021.
Accrued Interest Payable 1,914.
Total Current Liabilities $1,988,115.
LONG-TERM LIABILITIES:
Long-Term Portion of Notes Payable (Note 3) 232,656.
COMMITMENTS (Note 4):
TOTAL LIABILITIES 2,220,771.
STOCKHOLDERS' EQUITY:
Common Stock - No Par Value, 1,000 Shares
Authorized and Issued, 510 Shares
Outstanding $ 7,500.
Paid - In Capital 60,500.
Retained Earnings 1,205,133.
1,273,133.
Less 490 Shares Held in Treasury - At Cost <57,300.>
Total Stockholders' Equity 1,215,833.
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,436,604.
The accompanying notes are an integral part of these financial statements.
F-13
AMERIDYNE CORPORATION
STATEMENT OF INCOME AND EXPENSES
For the Twelve Months Ended April 30, 1995
(See Independent Auditor's Report)
INCOME
Sales $10,564,054.
COST OF GOODS SOLD 7,906,859.
GROSS PROFIT 2,657,195.
OPERATING EXPENSES - SCHEDULE I 1,930,354.
INCOME FROM OPERATIONS 726,841.
OTHER INCOME - SCHEDULE II 147,712.
INCOME BEFORE TAXES 874,553.
PROVISION FOR INCOME TAXES
Current $401,789.
Deferred <72,936.> 328,853.
NET INCOME $ 545,700.
The accompanying notes are an integral part of these financial statements.
F-14
AMERIDYNE CORPORATION
STATEMENT OF RETAINED EARNINGS
For the Twelve Months Ended April 30, 1995
(See Independent Auditor's Report)
Retained Earnings Balance - April 30, 1994 $ 659,433.
Net Income For the Year Ended April 30, 1995 545,700.
Retained Earnings Balance - April 30, 1995 $ 1,205,133.
The accompanying notes are an integral part of these financial statements.
F-15
AMERIDYNE CORPORATION
STATEMENT OF CASH FLOWS
For the Twelve Months Ended April 30, 1995
(See Independent Auditor's Report)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 545,700.
Adjustments to Reconcile Net Income to Cash
Provided by Operating Activities:
Depreciation and Amortization (Note E) $ 63,717.
Changes in Assets and Liabilities:
Increase in Accounts Receivable <604,906.>
Increase in Royalty Income Receivable <1,822.>
Decrease in Purchase Rebates and Incentives
Due From Vendors 16,893.
Increase in Inventory <277,033.>
Increase in Deferred Taxes <72,936.>
Increase in Accrued Interest Receivable <1,159.>
Decrease in Prepaid Insurance 290.
Increase in Accounts Payable 103,446.
Decrease in Accrued Payroll <6,987.>
Increase in Income Taxes Payable 204,613.
Increase in Accrued Taxes Payable - Other 4,775.
Increase in Accrued Interest Payable 1,477.
Total Adjustments <569,632.>
NET CASH USED BY OPERATING ACTIVITIES <23,932.>
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in Deposits $ <7,689.>
Decrease in Note Receivable - MCP Industries, Inc. 40,263.
Increase in Cash Surrender Value - Officers'
Life Insurance <9,269.>
Capital Expenditures for Property and Equipment <167,224.>
CASH USED BY INVESTING ACTIVITIES <143,919.>
The accompanying notes are an integral part of these financial statements.
F-16
AMERIDYNE CORPORATION
STATEMENT OF CASH FLOWS
For the Twelve Months Ended April 30, 1995
(See Independent Auditor's Report)
CASH FLOWS FROM FINANCING ACTIVITIES
Loans to Finance Property Acquisitions $ 16,289.
Repayment of Bank and Equipment Loans <99,767.>
Loan from Stockholder 76,000.
Repayment of Loan to Stockholder <83,081.>
Net Borrowings Under Lines of Credit Agreements 150,000.
Loan from Bank for Operations 280,000.
CASH PROVIDED BY FINANCING ACTIVITIES 339,441.
INCREASE IN CASH & CASH EQUIVALENTS 171,590.
CASH & CASH EQUIVALENTS AT BEGINNING OF YEAR:
Cash on Hand $ 69.
Bank Overdrafts <169,660.> <169,591.>
CASH & CASH EQUIVALENTS AT END OF YEAR:
Cash on Hand and in Bank $ 1,999.
CASH PAID DURING THE YEAR FOR:
Interest $ 96,580.
Income Taxes $203,835.
The accompanying notes are an integral part of these financial statements.
F-17
AMERIDYNE CORPORATION
NOTES TO FINANCIAL STATEMENTS
April 30, 1995
BUSINESS ACTIVITIES
AmeriDyne Corporation (the Company) was incorporated in 1980 to manufacture
and distribute bedpans and similar plastic products to hospitals and other
users in the medical community, primarily within the State of Tennessee. The
Company expanded its line of products over the years, by reselling items
purchased from other manufacturers to the same market. Sales from the resale
line of business outgrew the sales of items manufactured by the Company.
During the year ended April 30, 1994 AmeriDyne sold the assets of its
manufacturing division, and is now engaged exclusively in the resale and
distribution of medical supplies to doctors' offices, hospitals, nursing
homes, home health agencies and other customers in the medical field.
NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of AmeriDyne Corporation is
presented to assist in understanding the Company's financial statements. The
financial statements and notes are representations of the Company's
management, who are responsible for their integrity and objectivity. The
accounting policies conform to generally accepted accounting principles, and
have been consistently applied in the preparation of the financial statements.
(A) METHOD OF ACCOUNTING
The Company recognizes revenue, costs and expenses on the accrual basis of
accounting, with income being recorded when earned and costs and expenses
recorded when incurred.
(B) CASH
For purposes of the statement of cash flows, the Company considers all
short-term debt instruments purchased with a maturity of three months or less
to be cash equivalents.
(C) ACCOUNTS RECEIVABLE
An allowance for doubtful accounts has been established to absorb unforeseen
losses from delinquent accounts, with a corresponding charge to Bad Debt
Expense on the books. Bad Debts are deducted on the Company's federal income
tax return when they are deemed uncollectible.
(D) INVENTORIES
Inventories are stated at the lower of average cost or market.
(E) PROPERTY AND EQUIPMENT
The cost of property and equipment is depreciated over the estimated useful
lives of the respective assets using accelerated depreciation methods.
Expenditures for major renewals and betterments that extend the useful lives
of property and equipment are capitalized. Expenditures for maintenance and
repairs are charged to expense as incurred. Details related to the property
and equipment at April 30, 1995 are as follows:
F-18
Equipment $ 115,094.
Vehicles 70,191.
Office furniture and equipment 161,090.
Leasehold improvements 319.
Total cost $ 346,694.
Accumulated depreciation <187,369.>
$ 159,325.
Certain of the Company's assets were acquired under capital leasing
arrangements and are included in property and equipment at April 30, 1995:
Accumulated
Cost Depreciation
Equipment $ 8,418. $ 8,418.
Office furniture and equipment 28,847. 22,322.
Total $37,265. $ 30,740.
Amortization of these leased assets was $4,621 for the year and is included in
depreciation expense.
(F) INCOME TAXES
Deferred income taxes are provided for differences between financial statement
assets and liabilities and income tax reporting basis of assets and
liabilities in accordance with Financial Accounting Standard No. 109. The
difference for the year ended April 30, 1995 resulted from the use of the
allowance for bad debt expense in the Company's financial statements, not
deductible for income tax purposes:
Net Income Per Books $ 545,700.
Permanent differences:
Federal income tax expense per books 270,781.
Nondeductible entertainment expense 2,785.
Nondeductible life insurance premiums 166.
Deferred state taxes per books <10,222.>
Nondeductible penalties 6,659.
Nondeductible bad debts 165,000.
Rounding <1.>
Tax return taxable income $ 980,868.
As it is more likely than not that all future tax benefits will be realized,
no valuation allowance has been recorded for the deferred tax assets. There
was no prior balance in the valuation allowance, and therefore, there was no
change in the valuation allowance for the year ended April 30, 1995.
The components of the provision for income taxes for the year ended December
31, 1995 are as follows:
Current
Federal $ 333,495.
State 68,294.
Current Income Tax $ 401,789.
Deferred <Tax benefit>
Federal <62,714.>
State <10,222.>
Deferred Income Tax (Benefit> <72,936.>
Total Income Tax $ 328,853.
F-19
(G) ACCRUED PAYROLL
Statement of Financial Standards No. 43, "Accounting for Compensated
Absences", requires the accrual of vacation pay that has been earned but not
taken. Accordingly, the Company has made the following accruals at April 30,
1995 for unpaid vacation and the related FICA expense:
Accrued Payroll Salaries and Wages Expense $ 18,127.
Payroll Taxes Withheld and Accrued Taxes-Payroll 1,387.
$ 19,514.
This amount is included in accrued payroll of $46,446 reflected on the
Company's balance sheet at April 30, 1995.
NOTE 2-NOTES PAYABLE-CREDIT LINE
Due to Union Planters Bank of Jackson, Tennessee. Interest is payable monthly
at the bank's prime rate + 1.25%. The interest rate at April 30, 1995 was
10.25%. Principal is due on demand. Collateral for the line of credit
consists of substantially all the Company's assets, including but not limited
to Accounts Receivable, Inventory, Furniture, Fixtures, Equipment, Machinery,
and bank accounts. The loan is also secured by the guaranties of Scott and
Constance Lochridge, and life insurance policies on the lives of Scott
Lochridge and Bill Farmer. In connection with the Notes Payable-Credit Line
and Notes Payable to the Bank referred to in Note 3, the Company executed a
Loan Agreement containing certain covenants regarding the maintenance of
minimum financial ratios regarding debt and working capital requirements. The
working capital of the Company as of April 30, 1995 was less than the minimum
required by the Loan Agreements, and the Company was technically in default on
the bank debt at that date. The loan agreement also restricts payment of
dividends and capital acquisitions by the Company. The insurance policy on
the life of Scott Lochridge for $500,000 has been assigned to the bank to
secure the bank loans. The corresponding cash value of this policy - $9,269
at April 30, 1995 - was assigned to the bank as well.
NOTE 3-LONG-TERM DEBT
Long-term debt consists of the following:
Union Planters Bank of Jackson, Tennessee-payable
monthly in installments of $3,000.00 principal plus
interest. The interest rate is adjustable at 2% + the
bank's prime rate. The current interest rate at April
30, 1995 was 11.00%. Collateral for the note is the
same as for the Note Payable-Credit Line (See Note 2). $ 16,000.
Union Planters Bank of Jackson, Tennessee-payable
in monthly installments of $3,600.00 at 9.25% interest.
Collateral for the note is the same as for the Note
Payable-Credit Line (See Note 2). 79,767.
Union Planters Bank of Jackson, Tennessee-payable in
monthly installments of $5,265.76 until 10-12-97 when
the balance is due in full. Interest rate of 9.00%.
Collateral for the note is the same as for the Note Payable-
Credit Line (See Note 2). 260,815.
Capital Lease-G.E. Capital-secured by Canon copier and
attachments, payable in monthly installments of $205.00
plus sales tax. Interest rate of 5.39%. 2,392.
F-20
Ford Motor Credit-secured by 1992 Ford E-350 van, payable
in monthly installments of $640.57. Interest rate
of 11.00%. 3,037.
Capital Lease-Eaton Financial Corporation- payable in
monthly installments of $308.83 plus sales tax. Interest
rate of 14.6%. Secured by computer equipment. 6,520.
Delta Handling Materials, Inc.-Note payable in 36
installments of $533.24 at 11.00%, beginning
February 2, 1995. Secured by Clark lift truck. 14,727.
Note Payable-Shareholder-Due to Scott F. Lochridge.
Payment of interest and principal due in full on
demand. Interest rate of 12%. Unsecured. 176,419.
Total obligations $ 559,677.
Less amounts due within one year <327,021.>
Total long-term portion of notes payable $ 232,656.
At April 30, 1995 installments of principal were scheduled to mature in the
following years:
Year ending April 30, 1996 $ 327,021.
1997 54,349.
1998 178,307.
After 1998 0.
Total $ 559,677.
NOTE 4-COMMITMENTS
(A) Lochridge-Tanner Properties, a general partnership, rents to the Company
its premises located at 4450 Highway 45 North, for a current rental of $3,000
per month. There is no written lease agreement between the Company and the
lessor.
(B) The Company leases a Canon copier for use at its premises at 231 Bobrick
Drive. The lease expires in September, 1996. The monthly lease amount is for
$217.50 per month. There were seventeen payments remaining at April 30, 1995,
due as follows:
Year ending April 30, 1996 $ 2,610.
1997 1,088.
Total $ 3,698.
(C) On July 11, 1994, the Company leased additional office and warehouse
facilities located at 231 Bobrick Drive for a one year term ending September
14, 1995. The monthly rent under this lease is $7,639.04 per month. There
were four monthly payments remaining on this lease at April 30, 1995,
totalling $30,556.16.
(D) The Company leases a TMC forklift truck under an operating lease. This
lease expires in May, 1995. There was one payment remaining under this lease
at April 30, 1995 in the amount of $412.13.
(E) On November 22, 1991 the Company executed a Non-Competition Agreement and
a Consulting Agreement with a former shareholder. The Non-Competition
Agreement obligates the Company for 48 monthly payments of $2,916.66,
beginning December 1, 1991. The Consulting Agreement obligates the Company
for 48 monthly payments of $500.00, beginning on the same date. Payments
remaining at April 30, 1995 were as follows:
F-21
Year ending April 30, 1996 $ 23,917.
Total $ 23,917.
NOTE 5-MCP INDUSTRIES/MAXXIM MEDICAL
On May 31, 1993 AmeriDyne Corporation discontinued its manufacturing
operations (Plastics Division) and sold substantially all the related assets
to MCP Industries, Inc. The agreement included the assumption by MCP
Industries of certain notes payable, accounts payable and other obligations,
the payment of cash, and the execution of a note to AmeriDyne in the amount of
$245,000.00. This note is payable in 60 monthly installments of $4,967.72 at
8.00% interest. MCP Industries received certain of the Company's accounts
receivable and other assets, and agreed to pay a 2% Royalty to AmeriDyne on
sales of certain products to specified customers during the five years
following May 31, 1993. For the year ended April 30, 1995 the royalties
received from MCP Industries by AmeriDyne were $26,044.
During the year ended April 30, 1995 MCP Industries sold its operations to
another company, Maxxim Medical, who has assumed the obligations for the note
and royalty payments to AmeriDyne.
NOTE 6-RELATED PARTY TRANSACTIONS
(A) Rent Expense of $36,200.00 was paid during the year for the use of the
Company's premises at 4450 Highway 45 North to Lochridge-Tanner Properties, a
general partnership 50% owned by Scott F. Lochridge, President and sole
shareholder of AmeriDyne Corporation.
(B) Equipment Lease Expense of $8,736.00 was paid between May and December,
1994 to Scott Lochridge for the use of the Company's computer operating
software. In January, 1995 the Company purchased this software from Mr.
Lochridge for $41,500.00.
NOTE 7-ACCOUNTS RECEIVABLE/CONCENTRATION OF CREDIT RISK
(A) AmeriDyne Corporation sells medical supplies and equipment to hospitals,
nursing homes, home health care agencies and other customers in the medical
field. Most of these customers are highly dependent on receipts from Medicare
and/or Medicaid for revenue from which to pay their expenses and suppliers,
including AmeriDyne. Any changes to the Medicare/Medicaid programs, or
violations of regulations by their customers could have a material effect on
the collectibility of AmeriDyne's accounts receivable.
(B) The Company's aged accounts receivable trial balance at April 30, 1995 is
summarized as follows:
Invoices not yet due $ 165,379. 8.2%
Invoices within current credit terms 779,511. 38.6
Invoices 1-30 days past due 362,005. 17.9
Invoices 31-60 days past due 166,060. 8.2
Invoices 61-90 days past due 144,330. 7.1
Invoices more than 90 days past due 401,727. 20.0
Total $2,019,012. 100.0%
The Company's management has established an allowance for doubtful accounts in
the amount of $200,000.
Management feels that all of the accounts receivable above this $200,000 are
collectible in full.
F-22
(C)CONCENTRATION OF CREDIT RISK
(1)Century Home Health Services and its subsidiaries, of Murfreesboro,
Tennessee owed AmeriDyne Corporation $426,819 on open account at April 30,
1995. This represented 21.1% of the Company's entire accounts receivable.
Century's aged accounts receivables are summarized as follows:
At April 30, 1995
Invoices not yet due $ 27,866. 6.5%
Invoices within current credit terms 75,673. 17.7
Invoices 30-60 days past due 79,357. 18.6
Invoices 60-90 days past due 42,187. 9.9
Invoices 90-120 days past due 37,525. 8.8
Invoices more than 120 days past due 164,211. 38.5
Total $ 426,819. 100.0%
AmeriDyne grants Century 45 day credit terms. AmeriDyne's management feels
that all of the Century accounts are collectible in full.
Sales to Century Home Health Services and its subsidiaries for the year ended
April 30, 1995 were $768,157.
(2)At April 30, 1995 the Company's checking account balance at Union Planters
Bank per the bank statement was $136,234. This amount is in excess of the
$100,000 Federal Deposit Insurance Corporation insurance limit, leaving
$36,234 in uninsured deposits.
NOTE 8-ECONOMIC DEPENDENCE
AmeriDyne Corporation's sales to its five largest customers, and the
percentage to the Company's total net sales for the year ended April 30, 1995
were as follows:
Customer
Jackson Madison County General Hospital $1,811,231. 17.1%
Fairchild Medical 980,793. 9.3%
Century Home Health Services 768,157. 7.3%
Top RX 499,028. 4.7%
Trinity Healthcare 353,337. 3.3%
NOTE 9-SUBSEQUENT EVENTS
Scott F. Lochridge, the president and sole shareholder of AmeriDyne
Corporation, is currently negotiating to sell all of his common stock in the
Company to another party.
F-23
AMERIDYNE CORPORATION
SCHEDULE I - OPERATING EXPENSES
For the Twelve Months Ended April 30, 1995
(See Independent Auditor's Report)
Advertising $ 5,298.
Office Supplies 17,655.
Educational Materials 1,046.
Utilities 9,269.
Salaries & Wages (Note 1G) 1,008,260.
Maintenance 4,832.
Rent 112,632.
Freight Out 298,847.
Travel 6,937.
Entertainment 5,570.
Depreciation 63,717.
Commissions 4,413.
Bank Charges 2,467.
Delivery Expense 9,587.
Insurance - General 26,652.
Insurance - Employees 57,331.
Insurance - Officers' Lives 166.
Interest 98,057.
Temporary Labor 48,623.
Legal & Accounting Fees 11,104.
Subscriptions & Dues 8,000.
Charitable Contributions 600.
Taxes - Payroll (Note 1G) 77,540.
Tax Penalties 6,659.
Taxes and Licenses - Other 10,603.
Factory Supplies and Expense 18,503.
Equipment Lease 17,710.
Telephone 53,534.
Professional Fees 3,620.
Postage 6,346.
Computer Service Contracts 5,612.
Payments Under Non-Competition
Agreement (Note 4E) 35,000.
Consulting Fees (Note 4E) 6,000.
Sales Expense 4,543.
Bad Debt Expense 165,000.
Miscellaneous Expenses 4,829.
Less: Overhead Absorbed by Cost of Goods Sold <286,208.>
Total Operating Expenses $ 1,930,354.
F-24
AMERIDYNE CORPORATION
SCHEDULE II - OTHER INCOME
For the Twelve Months Ended April 30, 1995
(See Independent Auditor's Report)
Delivery Income - Standard Register and Custom Medical $ 61,616.
Service Charge Income on Accounts Receivable 39,946.
Interest Income 15,542.
Royalties (Note 5) 26,044.
Sales Tax Incentive and Miscellaneous Other Income 4,564.
$ 147,712.
F-25
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of AmeriDyne Corporation
Jackson, Tennessee
We have audited the accompanying statements of income, retained earnings and
cash flows of AmeriDyne Corporation for the year ended April 30, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of income and retained
earnings is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement
of income and retained earnings. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the statements of income,
retained earnings and cash flows. We believe that our audit provides a
reasonable basis for our opinion.
The financial statements of AmeriDyne Corporation as of April 30, 1994 were
audited by other auditors whose report dated July 1994, expressed an
unqualified opinion on the balance sheet and disclaimed an opinion on the
statements of income, retained earnings and cash flows because they did not
observe the physical inventory as of April 30, 1993, and were unable to
satisfy themselves regarding the inventory by means of other auditing
procedures. They also were not able to satisfy themselves regarding the
reconciled cash balance as of April 30, 1993. We performed additional
auditing procedures regarding the cash and inventory amounts as of April 30,
1993 and, accordingly, our opinion on the statements of income, retained
earnings and cash flows, as presented herein, is different from that expressed
by the other auditors.
In our opinion, the statements of income, retained earnings and cash flows
referred to above present fairly, in all material respects, the results of
operations and cash flows of AmeriDyne Corporation for the year ended April
30, 1994, in conformity with generally accepted accounting principles.
/s/ Laney, Boteler & Killinger
LANEY, BOTELER & KILLINGER
Atlanta, Georgia
June 20, 1996
F-26
AMERIDYNE CORPORATION
STATEMENT OF INCOME AND RETAINED EARNINGS
For the year Ended April 30, 1994
Sales $7,981,571
Cost of sales 6,131,467
Gross profit 1,850,104
Other expenses
Salaries and commissions 928,476
Payroll taxes and benefits 121,075
Advertising 48,080
Provision for bad debts 45,697
Interest 72,988
Non-compete expense 37,583
Rent 66,800
Depreciation 41,020
Other operating expenses 397,949
1,759,668
Income from operations 90,436
Other income
Delivery service income 46,325
Interest 17,186
Royalty 15,836
Other income 5,593
84,940
Income from continuing operations
before income taxes 175,376
Income tax provision (benefit)
Current 84,813
Deferred (7,064)
77,749
Income from continuing operations 97,627
Discontinued operations
Loss from operations of Plastics Division,
net of income tax benefit of $9,078 (16,814)
Gain on sale of Plastics Division,
net of income tax provision of $73,443 136,039
119,225
Net income 216,852
Retained earnings, beginning of year 442,581
Retained earnings, end of year $ 659,433
F-27
AMERIDYNE CORPORATION
STATEMENT OF CASH FLOWS
For the Year Ended April 30, 1994
Cash flows from operating activities:
Net income $ 216,852
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 85,529
Provision for doubtful accounts 35,000
Gain on sale of assets (212,310)
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable - trade (183,488)
Other receivables 8,147
Inventory 245,296
Prepaid insurance (3,259)
Prepaid income taxes 18,907
Deferred tax benefit (7,064)
Increase (decrease) in liabilities:
Accounts payable (407,599)
Accrued payroll 17,056
Accrued taxes other 7,779
Accrued income taxes 107,081
Accrued interest 437
---------
Net cash used in operating activites (71,636)
Cash flows from investing activities:
Increase in note receivable $ (214,178)
Purchase of property and equipment (25,641)
Proceeds on sale of property and equipment 534,875
---------
Net cash provided by investing activities 295,056
Cash flows from financing activities:
Decrease in bank overdrafts $ (99,123)
Proceeds from long-term debt 7,380
Repayment of long-term debt (450,723)
Net increase in stockholder loans 33,500
Net borrowings under line of credit agreements 285,348
---------
Net cash used in financing activities (223,618)
Net decrease in cash (198)
Cash, beginning of year 267
---------
Cash, end of year $ 69
---------
See notes to financial statements.
F-28
AMERIDYNE CORPORATION
NOTES TO FINANCIAL STATEMENT
April 30, 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITIES
AmeriDyne Corporation (Company) was incorporated in 1980 to manufacture and
distribute bed pans and similar plastic products to hospitals and other users
in the medical community, primarily within the State of Tennessee. The
Company expanded its line of products over the years by reselling items
purchased from other manufacturers to the same market. Sales from the resale
line of business surpassed the sales of items manufactured by the Company. In
June 1993, AmeriDyne sold the assets of its manufacturing division and is now
engaged exclusively in the resale and distribution of medical supplies to
doctors' offices, hospitals, nursing homes, home health agencies and other
customers in the medical field.
ACCOUNTS RECEIVABLE
The Company uses the reserve method for uncollectible accounts. During the
year ended April 30, 1994, a provision of $35,000 was recorded to allow for
delinquent accounts which may be uncollectible. For tax purposes, bad debt
expense is deducted when they are deemed uncollectible.
INVENTORIES
Inventories are stated at the lower of average cost or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Maintenance and repairs of
property and equipment are charged to operations and major improvements are
capitalized. Upon retirement, sale or other disposition of property and
equipment, the cost and accumulated depreciation are eliminated from the
accounts and any gain or loss is included in operations.
Depreciation is computed using accelerated methods over the estimated useful
lives of the assets of three to ten years.
Included in property and equipment are assets acquired under capital lease.
At April 30, 1994, cost and accumulated depreciation for these assets totaled
$41,660 and $30,752, respectively. Amortization of these leased assets is
included in depreciation expense for the period ended April 30, 1994 and
totaled $12,710.
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to the use of allowance for doubtful accounts for book
purposes. The deferred tax assets represent the future tax return
consequences of those differences, which will be deductible when the assets
are recovered (Note 6).
F-29
ACCRUED PAYROLL
Statement of Financial Standards No. 43, "Accounting for Compensated
Absences", requires the accrual of vacation pay that has been earned but not
taken. Accordingly, the Company has accrued $15,873 and $1,214 for unpaid
vacation and the related FICA expense, respectively, as of April 30, 1994.
NOTE 2 - DISCONTINUED OPERATIONS AND NOTE AND ROYALTIES RECEIVABLE
On June 2, 1993, AmeriDyne Corporation sold its manufacturing division to MCP
Industries, Inc. (MCP) (Note 9). In connection with the sale, AmeriDyne
received a note from MCP in the amount of $245,000 to be paid in sixty monthly
installments of $4,968 including interest at 8.0%. AmeriDyne also receives a
2% royalty on all of MCP's sales to AmeriDyne's customer base as of June 2,
1993 for a period of five years. During the year ended April 30, 1994,
interest income and royalty income received was $17,186 and $15,836,
respectively.
Scheduled maturities of notes receivable at April 30, 1994 are as follows:
Year Ended April 30, Amount
1995 $ 44,071
1996 47,729
1997 51,690
1998 55,981
1999 14,707
$214,178
NOTE 3 - NOTE PAYABLE - CREDIT LINE
The Company was obligated under a fully drawn $525,000 operating line of
credit with Union Planters Bank of Jackson, Tennessee. Interest is payable
monthly at the bank's prime rate plus 1.25%. The interest rate at April 30,
1994 was 8.50%. Principal is due on demand. Collateral for the line of
credit consists of substantially all the Company's assets, including but not
limited to accounts receivable, inventory, furniture, fixtures, equipment,
machinery and bank accounts. The loan is also collateralized by the
guaranties of Scott (100% shareholder of the Company) and Constance Lochridge,
and life insurance policies on the lives of Scott Lochridge and Bill Farmer.
In connection with the notes payable-credit line and notes payable to the bank
referred to in Note 4, the Company executed a loan agreement containing
certain covenants regarding the maintenance of minimum financial ratios
regarding debt and working capital requirements. The current assets to
current liabilities ratio of the Company as of April 30, 1994 was less than
the minimum required by the loan agreements and the Company was technically in
default on the bank debt at that date. The loan agreement also restricts
payment of dividends and capital acquisitions by the Company.
Subsequent to April 30, 1994, the line of credit was periodically increased to
$975,000 as of February 29, 1996. On March 1, 1996, the personal guarantees
of Scott and Constance Lochridge were replaced by a guarantee from Retirement
Care Associates, Inc. (Note 10).
NOTE 4 - LONG-TERM DEBT
Long-term debt consists of the following:
F-30
Union Planters Bank of Jackson, Tennessee payable in
monthly installments of $3,600 including interest at
9.0% and maturing May 15, 1997. Collateral for the note
is the same as for the note payable-credit line (Note 3). $111,119
Union Planters Bank of Jackson, Tennessee payable in
monthly installments of $3,000 plus interest at the
bank's prime rate plus 2.0% (9.25% at April 30, 1994)
and maturing August 1995. Collateral for the note is
the same as for the note payable-credit line (Note 3). 52,000
Capital lease-G.E. Capital payable in monthly install-
ments of $205, plus sales tax. Interest imputed at 5.39%
and maturing April 1996. Collateralized by Canon copier. 4,474
Capital lease-Eaton Financial Corporation payable in
monthly installments of $309, plus sales tax. Interest
imputed at 14.6% and maturing June 1997. Collateralized by
computer equipment. 9,137
Ford Motor Credit note payable in 36 monthly installments
of $641 including interest at 11.0% and maturing September
1995. Collateralized by Ford van. 10,006
Note payable-stockholder Scott F. Lochridge. Payment of
interest and principal due on demand. Interest rate of
12%. Unsecured. Effective March 1, 1996, this note was
modified to be paid in 36 monthly installments of $5,693
including interest at 10.0%. 183,500
--------
370,236
Less current portion 265,717
--------
$104,519
Principal maturities of long-term debt at April 30, 1994 are as follows:
Year ending April 30, Amount
1995 $265,717
1996 61,950
1997 42,569
$370,236
NOTE 5 - COMMITMENTS
The Company leases a forklift under an operating lease payable $419 per month.
The lease expires in April 1995. There were twelve payments remaining under
this lease at April 30, 1994, totaling $5,028.
The Company leases its computer operating software from Scott F. Lochridge for
a monthly rental of $1,092 (Note 7). In January 1995, the Company acquired
the software for $41,500.
Lochridge-Tanner Properties (Note 7), a general partnership, rents to the
Company its premises located at 4450 Highway 45 North, for a monthly rental of
$3,800. There is no written lease agreement between the Company and its
landlord.
F-31
On November 22, 1991, the Company executed a non-competition agreement and a
consulting agreement with a former shareholder. The non-competition agreement
obligates the Company for forty-eight monthly payments of $2,917, beginning
December 1, 1991. The consulting agreement obligates the Company for
forty-eight monthly payments of $500, beginning on the same date. Payments
remaining at April 30, 1994 were as follows:
Year ending April 30, 1995 $41,000
Year ending April 30, 1996 23,917
$64,917
NOTE 6 - INCOME TAXES
Income taxes are based on financial reporting income or loss. Differences
between income and loss for financial and income tax reporting relate
primarily to allowance for doubtful accounts.
At April 30, 1994, the Company has deferred tax assets of $7,064. Deferred
tax assets are related to the $35,000 allowance for doubtful accounts not
deductible for income tax purposes until the accounts are actually written-off
as uncollectible.
Income taxes payable at April 30, 1994, of $112,584 represent current income
taxes payable in excess of estimated payments already paid.
NOTE 7 - RELATED PARTY TRANSACTIONS
Rent expense of $49,400 was paid during the period for the use of the
Company's premises at 4450 Highway 45 North to Lochridge-Tanner Properties, a
general partnership 50% owned by Scott F. Lochridge, President and sole
stockholder of AmeriDyne Corporation (Note 5).
During the year ended April 30, 1994, payments totaling $14,196 were paid on
the computer software lease with the stockholder (Note 5).
NOTE 8 - CONCENTRATION OF CREDIT RISK AND ECONOMIC DEPENDENCE
AmeriDyne Corporation sells medical supplies and equipment to hospitals,
nursing homes, home health care agencies and other customers in the medical
field. Most of these customers are highly dependent on receipts from Medicare
and/or Medicaid for revenue from which to pay their expenses and suppliers,
including AmeriDyne. Any changes to the Medicare/Medicaid programs, or
violations of regulations by their customers could have a material effect on
the collectibility of AmeriDyne's accounts receivable.
AmeriDyne's sales to the Jackson-Madison County General Hospital and related
entities were $2,228,675 or 28% of the Company's sales and 12% of the
Company's gross profits for the year ended April 30, 1994.
NOTE 9 - DISCONTINUED OPERATIONS
On May 31, 1993, AmeriDyne Corporation discontinued its manufacturing
operations (Plastics Division) and sold substantially all the related assets
to MCP Industries, Inc. (MPC). The agreement included the assumption by MCP
of certain notes payable, accounts payable and other obligations, the payment
of cash, and the execution of a note to AmeriDyne in the amount of $245,000
(Note 2). MCP received certain of the Company's accounts receivable and other
assets, and agreed to pay a 2% royalty to Ameridyne on sales of certain
products to specified customers during the five years following May 31, 1993.
F-32
For the year ended April 30,1994, the royalties earned from MCP by AmeriDyne
were $15,836 and are included in Continuing Operations on the Statement of
Income and Expenses. Operating revenues of the Plastics Division for the year
were $112,694 and are included in the Loss from Operations of the Discontinued
Operations on the Statement of Income and Expenses.
NOTE 10 - SUBSEQUENT EVENTS
On March 1, 1996, the Company merged with Contour Merger Sub, Inc., a
Tennessee corporation wholly-owned by Contour Medical, Inc., a Nevada
corporation, with AmeriDyne Corporation as the surviving corporation. Each
share of AmeriDyne treasury stock was cancelled and all of the remaining
issued and outstanding shares, 100% owned by Scott F. Lochridge, were
converted into the right to receive shares of Contour Medical, Inc. common
stock, $.001 par value per share, having an aggregate value equal to
$2,100,000, plus $250,000 in cash. Each share of Contour Merger Sub, Inc.,
$.01 par value, issued and outstanding on March 1, 1996, was converted into
one share, no par value, common stock of AmeriDyne Corporation.
In connection with the merger, Retirement Care Associates, Inc. (RCA)
guaranteed all of the debt owed to Union Planters Bank of Jackson, Tennessee
replacing the guarantees of Scott F. and Constance Lochridge. RCA owns a
majority interest and/or voting control interest of Contour Medical, Inc.
F-33
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
PROFORMA CONSOLIDATED FINANCIAL STATEMENTS
As discussed elsewhere herein, on March 1, 1996, the Company acquired all of
the issued and outstanding shares of the common stock of AmeriDyne Corporation
for payment of $300,000 cash and 369,619 shares of the Company's common stock
(which has been valued at $5.6815 per share for purposes of the proforma
financial statements). The Company obtained the funds for the acquisition
from Retirement Care Associates, Inc., the parent company of Contour Medical,
Inc., through the repayment of funds advanced to Retirement Care Associates,
Inc. by the Company.
The acquisition has been accounted for as a purchase, with assets acquired and
liabilities assumed recorded at fair value, and the results of AmeriDyne
Corporation's operations included in the Company's consolidated financial
statements from the date of acquisition.
The accompanying consolidated financial statements illustrate the effect of
the acquisition ("Proforma") on the Company's financial position and results
of operations. The consolidated balance sheet as of December 31, 1995, is
based on the historical balance sheets of the Company and AmeriDyne
Corporation as of December 31, 1995, and October 31, 1995, respectively, and
assumes the acquisition took place on that date. The consolidated statements
of income for the year ended June 30, 1995, and the six months ended December
31, 1995, are prepared based on the historical statements of income of the
Company and AmeriDyne Corporation for the year ended June 30, 1995, and April
30, 1995, and the six months ended December 31, 1995, and October 31, 1995,
respectively. The proforma consolidated statements of income assume the
acquisition took place as of July 1, 1994.
On February 29, 1996, the Company authorized a 1.05-for-1 forward stock split
of its common stock effective March 15, 1996. All common shares and per share
amounts in the proforma consolidated financial statements reflect the forward
stock split.
The proforma consolidated financial statements may not be indicative of the
actual results of the acquisition. In particular, the proforma consolidated
financial statements are based on management's current estimate of the
allocation of the purchase price, the actual allocations of which may differ.
The accompanying consolidated proforma financial statements should be read in
conjunction with the historical financial statements of the Company and
AmeriDyne Corporation included elsewhere herein.
F-34
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
PROFORMA CONSOLIDATED BALANCE SHEET
December 31, 1995 (Unaudited)
CONTOUR PROFORMA
MEDICAL ADJUSTMENTS FOR PROFORMA
INC. AND AMERIDYNE PURCHASE ACQUISITION CONSOLIDATED
SUBSIDIARIES CORPORATION DR CR TOTAL
ASSETS
Cash $ 42,593 $ 205 $ 300,000(2) $ 300,000(1) $ 42,798
Accounts receivable 2,126,170 1,974,712 4,100,882
Inventory 1,635,673 1,209,371 2,845,044
Prepaid expenses 153,833 90,239 244,072
Due from parent 941,563 300,000(2) 641,563
4,899,832 3,274,527 300,000 600,000 7,874,359
Property and equipment 807,121 140,346 947,467
Other assets:
Deposit on equipment 355,454 7,689 363,143
Goodwill 985,639(4) 985,639
Notes receivable 146,718 146,718
Other assets 4,575 9,270 13,845
360,029 163,677 985,639 0 1,509,345
$6,066,982 $3,578,550 $1,285,639 $ 600,000 $10,331,171
See accompanying notes to proforma consolidated statements.
F-35
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
PROFORMA CONSOLIDATED BALANCE SHEET
December 31, 1995 (Unaudited)
CONTOUR PROFORMA
MEDICAL ADJUSTMENTS FOR PROFORMA
INC. AND AMERIDYNE PURCHASE ACQUISITION CONSOLIDATED
SUBSIDIARIES CORPORATION DR CR TOTAL
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 303,800 $ 327,021 $ 630,821
Current maturities of
long-term debt 168,477 763,200 931,677
Accounts payable 1,070,648 721,357 1,792,005
Accrued expenses 136,973 179,183 316,156
Total current
liabilities 1,679,898 1,990,761 0 0 3,670,659
Long-term debt 1,061,130 173,428 1,234,558
Total liabilities $2,741,028 $2,164,189 0 0 4,905,217
SHAREHOLDER'S EQUITY:
Preferred stock 2,400,000 0 2,400,000
Common stock 4,079 7,500 7,500(3) 370(1) 4,449
Additional paid-in
capital 986,415 60,500 60,500(3) 2,099,630(1) 3,086,045
Retained earnings
(deficit) (64,540) 1,403,661 1,403,661(3) (64,540)
Treasury stock 0 (57,300) 57,300(3) 0
3,325,954 1,414,361 1,471,661 2,157,300 5,425,954
$6,066,982 $3,578,550 $1,471,661 $2,157,300 $10,331,171
See accompanying notes to proforma consolidated statements.
F-36
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
PROFORMA CONSOLIDATED STATEMENT OF INCOME
For Six Months Ended December 31, 1995 (Unaudited)
CONTOUR
MEDICAL PROFORMA PROFORMA
INC. AND AMERIDYNE PROFORMA ADJUST- CONSOLIDATED
SUBSIDIARIES CORPORATION SUBTOTAL MENTS TOTAL
Sales $4,750,349 $5,167,006 $9,917,355 $9,917,355
Cost of sales 3,420,339 3,924,598 7,344,937 7,344,937
Gross profit 1,330,010 1,242,408 2,572,418 0 2,572,418
Operating expenses 984,944 989,911 1,974,855 24,641(5) 1,999,496
Other income 3,220 83,384 86,604 86,604
Income (loss) before
income tax 348,286 335,881 684,167 (24,641) 659,526
Income taxes 118,417 137,351 255,768 (9,600)(6) $ 246,168
Net income $ 229,869 $ 198,530 $ 428,399 $(15,041) $ 413,358
Net income per common
and common equivalent
share $0.05 $ 0.09 $ 0.08
Weighted average
shares outstanding 4,844,533 4,844,533 369,619 5,214,152
See accompanying notes to proforma consolidated financial statements.
F-37
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
PROFORMA CONSOLIDATED STATEMENT OF INCOME
For Twelve Months Ended June 30, 1995 (Unaudited)
CONTOUR
MEDICAL PROFORMA PROFORMA
INC. AND AMERIDYNE PROFORMA ADJUST- CONSOLIDATED
SUBSIDIARIES CORPORATION SUBTOTAL MENTS TOTAL
Sales $5,585,004 $10,564,054 $16,149,058 $16,149,058
Cost of sales 3,666,601 7,906,859 11,573,460 11,573,460
Gross profit 1,918,403 2,657,195 4,575,598 0 4,575,598
Operating expenses 1,764,461 1,930,354 3,694,815 49,282(5) 3,744,097
Other income (loss) (38,235) 147,712 109,477 109,477
Income (loss) before
income tax 115,707 874,553 990,260 (49,282) 940,978
Income taxes 54,718 328,853 383,571 (19,220)(6) $ 364,351
Net income $ 60,989 $ 545,700 $ 606,689 $ (30,062) $ 576,627
Net income per common
and common equivalent
share $0.01 $ 0.13 $ 0.11
Weighted average shares
outstanding 4,786,126 4,786,126 369,619 5,155,745
See accompanying notes to proforma consolidated financial statements.
F-38
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
NOTES TO PROFORMA CONSOLIDATED (UNAUDITED) FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
Reference is made to the "Introduction" at page F-48.
NOTE B - PROFORMA ADJUSTMENTS
The proforma adjustments to the consolidated balance sheet are as follows:
(1) To record the purchase of 100% of the outstanding common stock of
AmeriDyne Corporation for a purchase price consisting of $300,000 cash and
369,619 common shares of Contour Medical with a fair market value of
$2,100,000.
(2) To record the receipt of $300,000 from Retirement Care Associates,
Inc., the parent company of Contour Medical.
(3) To record the elimination of AmeriDyne Corporation shareholder equity.
(4) To record goodwill of $985,639 which is the difference between the
purchase price of $2,400,000 consisting of common stock and cash; and the
net assets of AmeriDyne Corporation of $1,414,361. The goodwill will be
amortized over a 20 year life.
The proforma adjustment to the consolidated statements of income are as
follows:
(5) To record amortization of goodwill of $985,639 over a 20 year period.
(6) To record income tax changes for proforma adjustments at a 39%
effective tax rate.
F-39
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by
the undersigned, hereunto duly authorized.
CONTOUR MEDICAL, INC.
Dated: July 1, 1996
By /s/ Donald F. Fox
Donald F. Fox, President