U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended March 31, 1997
Commission File No. 0-26288
CONTOUR MEDICAL, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Nevada 77-0163521
- ------------------------------ ----------------------------------
(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
3340 Scherer Drive
St. Petersburg, Florida 33716
----------------------------------------
(Address of Principal Executive Offices)
(813) 572-0089
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such report(s), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [ X ] No [ ]
There were 8,042,043 shares of the Registrant's $.001 par value Common Stock
outstanding as of March 31, 1997.
CONTOUR MEDICAL, INC.
FORM 10-Q
INDEX
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Part I. Financial Information
- ------ ---------------------
Item 1. Financial Statements Page
Consolidated Balance Sheets as of March 31, 1997
and June 30, 1996. . . . . . . . . . . . . . . . . . . . . . . . 3-4
Consolidated Statements of Operations for the Three
and Nine Months Ended March 31, 1997 and 1996. . . . . . . . . . 5-6
Consolidated Statement of Stockholder's Equity
for the Nine Months Ended March 31, 1997 . . . . . . . . . . . . 7-8
Consolidated Statements of Cash Flows for the
Nine Months Ended March 31, 1997 and 1996. . . . . . . . . . . .9-10
Notes to Consolidated Financial Statements . . . . . . . . . . 11-16
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . . 17-18
Part II. Other Information
- ------- -----------------
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
2
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
March 31, June 30,
1997 1996
------------ ----------
(Unaudited)
ASSETS:
Current:
Cash $ 97,580 $ 146,219
Accounts receivable - trade
Related parties (Note 4) 2,720,620 1,918,000
Other 9,235,987 2,527,676
Inventories (Note 5) 7,047,944 2,876,792
Refundable income taxes -- 21,406
Prepaid expenses and other 740,988 51,519
Due from parent (Note 4) 973,164 618,897
----------- ----------
Total Current Assets 20,816,283 8,160,509
----------- ----------
Property and Equipment, less
accumulated depreciation (Note 6) 1,958,945 1,223,195
----------- ----------
Other Assets:
Goodwill 9,713,392 1,286,165
Deposit on equipment 671,760 416,184
Other 977,933 172,215
----------- ----------
Total Other Assets 11,363,085 1,874,564
----------- ----------
$34,138,313 $11,258,268
See accompanying notes to consolidated financial statements.
3
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
March 31, June 30,
1997 1996
------------- -----------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable to banks -
credit lines (Note 7) $ 6,098,902 $ 1,391,535
Accounts payable 2,919,974 2,036,652
Accrued expenses 1,119,131 366,716
Current maturities of long-term
debt (Note 8) 200,700 433,658
---------- ----------
Total Current Liabilities 10,338,707 4,228,561
Long-term debt, less current
maturities (Note 8) 1,066,076 1,352,937
---------- ----------
Total Liabilities 11,404,783 5,581,498
Convertible debentures, 9% interest
due monthly through July 1, 2003 5,000,000 --
---------- ----------
Stockholders' Equity:
Preferred stock - Series A conver-
tible, $.001 par value, shares
authorized 1,265,000; issued
600,000, at aggregate liquidation
preference 741,681 2,528,000
Common stock $.001 par - shares
authorized 76,000,000; issued
8,042,043 and 4,802,280 (net of
$765 discount) 7,277 4,449
Additional paid-in capital 15,563,769 2,911,696
Retained earnings 1,420,803 232,625
---------- ----------
Total stockholders' equity 17,733,530 5,676,770
$34,138,313 $11,258,268
See accompanying notes to consolidated financial statements.
4
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Three Months Ended
March 31, March 31,
1997 1996
---------- ----------
(Unaudited) (Unaudited)
SALES $13,137,407 $ 3,779,566
COST OF SALES 9,345,136 2,751,524
----------- -----------
GROSS PROFIT 3,792,265 1,028,042
OPERATING EXPENSES 3,211,310 775,212
OTHER INCOME (EXPENSE) (63,696) 10,031
------------ -----------
INCOME BEFORE INCOME TAXES 517,759 262,861
INCOME TAX EXPENSE 196,750 89,373
------------ -----------
NET INCOME $ 321,009 $ 173,488
NET INCOME PER COMMON SHARE $ .04 $ .03
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES 7,817,379 4,967,739
See accompanying notes to consolidated financial statements.
5
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Nine Months Ended
March 31, March 31,
1997 1996
------------ ------------
(Unaudited) (Unaudited)
SALES $39,052,717 $8,529,915
COST OF SALES 27,616,620 6,171,863
----------- ----------
GROSS PROFIT 11,436,097 2,358,052
OPERATING EXPENSES 9,105,887 1,760,156
OTHER INCOME (EXPENSE) (368,019) 13,251
----------- ----------
INCOME BEFORE INCOME TAXES 1,962,191 611,147
INCOME TAX EXPENSE 746,750 207,790
----------- ----------
NET INCOME $ 1,215,441 $ 403,357
NET INCOME PER COMMON SHARE $ .19 $ .07
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES 6,488,405 4,885,602
See accompanying notes to consolidated financial statements.
6
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
Additional
Common Stock Paid-in
Shares Amount Capital
--------- ------ ----------
Balance, June 30, 1996 5,214,223 $4,449 $2,911,696
Exercise of common stock
warrants 326,320 326 684,574
Conversions of preferred
stock 430,000 430 1,719,549
Conversion dividend 21,500 22 --
Preferred dividends in
arrears -- -- --
Stock issued for guarantee 100,000 100 499,900
Exercise of convertible note 1,950,000 1,950 9,748,050
Net income -- -- --
Balance, March 31, 1997 8,042,043 $7,277 $15,563,769
---------- -------- -----------
---------- -------- -----------
See accompanying notes to consolidated financial statements.
7
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
Convertible
Preferred Stock
----------------- Retained
Shares Amount Earnings
-------- -------- -----------
Balance, June 30, 1996 600,000 $2,528,000 $232,625
Conversions of preferred
stock (430,000) (1,720,000) --
Payment of Preferred Dividend -- ( 88,519) ( 5,063)
Preferred dividends in
arrears -- 22,200 (22,200)
Net income -- -- 1,215,441
Balance, March 31, 1997 185,000 $ 741,681 $1,420,803
-------- --------- -----------
-------- --------- -----------
See accompanying notes to consolidated financial statements.
8
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended
March 31, March 31,
1997 1996
---------- ----------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $1,215,441 $ 403,357
Adjustments to reconcile net income
(loss) to net cash provided (used) by
operating activities:
Depreciation & Amortization 577,505 111,863
Tax benefit from NOL -- 207,790
(Increase) decrease in accounts
receivable (7,510,931) (825,785)
(Increase) decrease in inventories (4,171,152) (234,060)
(Increase) decrease in other
current assets and other assets (9,656,584) ( 5,837)
Increase (decrease) in accounts
payable 883,322 290,257
Increase (decrease) in accrued
expenses and other liabilities 752,415 61,239
----------- ----------
Net cash provided (used) by
operating activities (19,125,425) 8,824
CASH FLOW FROM INVESTING ACTIVITIES:
Acquisition of equipment (1,313,255) (549,017)
(Increase)Decrease in due from (354,267) 555,338
Parent
Acquisition of AmeriDyne, net of
cash acquired -- (322,297)
------------ ----------
Net cash used by investing
activities (1,667,522) (315,976)
See accompanying notes to consolidated financial statements.
9
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended
March 31, March 31,
1997 1996
------------ ------------
(Unaudited) (Unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES:
Convertible debentures issued $5,000,000 --
Net borrowing (payments) on loans 4,187,548 193,103
Proceeds from exercise of options 59,395 50,000
Payment of short-swing liability
by shareholder -- 36,531
Proceeds from issuance of common
stock 9,750,000 --
Payment of preferred stock dividends (93,582) --
Exercise of Warrants 625,506 --
------------ ----------
Net cash provided by financing
activities 19,528,867 279,634
------------ ----------
NET INCREASE (DECREASE) IN CASH (48,639) (27,518)
CASH BEGINNING OF PERIOD 146,219 96,235
------------ ----------
CASH END OF PERIOD $ 97,580 $ 68,717
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION AND NON-CASH
ACTIVITIES:
Cash paid for interest $ 576,944 $ 109,168
Cash paid for income tax $ -- $ 930
See accompanying notes to consolidated financial statements.
10
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
1. BASIS OF PRESENTATION
---------------------
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments, consisting of normal recurring accruals, considered necessary for
a fair presentation have been included. It is suggested that these condensed
financial statements be read in conjunction with the financial statements and
notes thereto included in the June 30, 1996, audited financial statements for
Contour Medical, Inc. The results of operations for the periods ended March
31, 1997 and 1996 are not necessarily indicative of the operating results for
the full year.
The consolidated financial statements include the accounts of Contour
Medical, Inc. ("CMI") and its wholly-owned subsidiaries, Contour Fabricators,
Inc. ("CFI"), Contour Fabricators of Florida, Inc. ("CFFI") and, since March
1, 1996, AmeriDyne Corporation ("AmeriDyne"), and effective July 1, 1996
Atlantic Medical Supply Company, Inc. ("Atlantic') collectively referred to as
the Company. All material intercompany accounts and transactions have been
eliminated. CMI is a majority-owned subsidiary of Retirement Care Associates,
Inc. ("Parent").
On March 1, 1996, Contour Medical, Inc. acquired AmeriDyne through a
merger which was accounted for as a purchase. The Company issued 369,619
shares of its common stock and paid $250,000 to the sole stockholder of
AmeriDyne in connection with this purchase.
On August 6, 1996, the Company acquired all of the outstanding stock of
Atlantic Medical Supply Company, Inc. (Atlantic Medical), a distributor of
disposable medical supplies and a provider of third-party billing services to
the nursing home and home health care markets. The acquisition was made
retroactively to July 1, 1996. The Company paid $1.4 million in cash and
$10.5 million in promissory notes for all of the outstanding stock of Atlantic
Medical. The promissory notes beared interest at 7% per annum and were paid
in full on January 10, 1997. The promissory notes were paid with $9,750,00 in
proceeds from the issuance of 1,950,000 shares of the Company's common stock
and the balance came from the Company's line of credit.
In addition, on August 9, 1996, the Company acquired the remaining
minority interest of Facility Supply, Inc., a majority owned subsidiary of
Atlantic Medical. The acquisition was made retroactively to July 1, 1996.
The Company paid $50,000 in cash and $350,000 in promissory notes for the
remaining outstanding stock of Facility Supply, Inc. The promissory notes
beared interest at 7% per annum and were paid in full on January 10, 1997.
2. CHANGE IN METHOD OF ACCOUNTING FOR TAXES AND INCOME
---------------------------------------------------
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109") which
requires recognition of estimated income taxes payable or refundable on income
tax returns for the current year and for the estimated future tax effect
attributable to temporary differences and carry forwards. Measurement of
11
deferred income tax assets being reduced by available tax benefits not
expected to be realized.
3. CHANGE IN YEAR END
------------------
The Company changed its fiscal year end from December 31 to June 30
during 1995. Atlantic also changed its fiscal year end from December 31 to
June 30 during 1996.
4. RELATED PARTY TRANSACTIONS
--------------------------
During 1995, the Company began distributing medical supplies to health
care facilities owned, leased or managed by the Parent. Sales to these
facilities approximated $4,460,016 for the nine month period ended March 31,
1997, and $1,511,778 for the three month period ended March 31, 1997. Trade
accounts receivable of $2,720,620 and $1,918,000 were outstanding as of March
31, 1997 and June 30, 1996, respectively, as related to health care facility
sales to the Parent. Additionally, the Company had an outstanding loan
receivable due from its Parent of approximately $1,000,000 at March 31, 1997,
which is due within 45 days of advance with interest at prime and $619,000 at
June 30, 1996, which is due on demand with no stated interest rate.
On January 10, 1997, the Parent loaned the Company $9,750,000 in
exchange for a convertible promissory note. The Parent immediately exercised
its conversion rights under the convertible promissory note in full, and
received 1,950,000 shares of the Company's Common Stock. The $9,750,000
received by the Company in this transaction was used toward the repayment of
the promissory notes issued in connection with the acquisition of Atlantic
Medical Supply Company, Inc. described in Note 9 below.
5. INVENTORIES
-----------
Inventories are summarized as follows:
March 31, June 30,
1997 1996
---------- ----------
Raw Materials $ 352,485 $ 330,699
Work in process 84,181 96,647
Finished goods 6,611,278 2,449,446
---------- ----------
$7,047,944 $2,876,792
All inventories are pledged as collateral.
6. PROPERTY AND EQUIPMENT
----------------------
Property and equipment consist of the following:
12
Useful Lives March 31, 1997 June 30, 1996
------------ -------------- -------------
Land & Land Improvements -- 59,842 $ 50,000
Building 5-45 years 596,247 596,247
Computer Equipment 3-7 years $1,189,782 --
Machinery and equipment 3-7 years 2,370,686 1,798,520
Furniture and fixtures 5-7 years 239,211 146,536
Leasehold improvements 5 years 312,153 251,352
Vehicles 3-5 years 188,202 72,245
---------- ----------
4,956,123 2,914,900
Less accumulated depreciation 2,997,178 1,691,705
---------- ----------
$1,958,945 $1,223,195
Certain property and equipment are pledged as collateral (see Notes 7 and 8).
7. NOTES PAYABLE
----------------------
Notes payable at March 31, 1997 and June 30, 1996 consisted of the
following:
March 31, June 30,
1997 1996
---------- ---------
Note payable to bank, interest at prime plus
1% (9.25% at June 30, 1996), principal of
$5,000 plus interest due monthly through
June 2000, collateralized by equipment 173,556 217,559
Note payable to bank, interest at prime plus
.75% (9.00% at June 30, 1996) principal of
$7,605 plus interest due monthly through
May 2000, collateralized by equipment and
real property 432,819 496,171
Mortgage payable to bank, bearing interest
at 8.58%, principal and interest of $6,793,
due monthly through December 2003,
collateralized by equipment and real property 420,409 456,233
Mortgage payable to bank, interest at prime
plus .75% (9.00% at June 30, 1996) principal
of $1,190 plus interest due monthly through
December 2000, collateralized by equipment and
real property 53,570 64,284
Borrowings under $7,000,000 line of credit,
interest at 30 day libor plus 200bp (7.44%
at September 30, 1996), payable monthly,
collateralized by accounts receivable and
inventory. Principal due October 31, 1997 6,098,902 --
Borrowings under $100,000 line of credit,
interest at prime plus .75% (9.00%
at June 30, 1996), payable monthly,
collateralized by accounts receivable,
inventory, equipment, and real property -- 65,000
Note payable to bank, interest at 8.75%
principal and interest at $1,282 due monthly
through April 2001, collateralized by equipment 52,630 60,436
13
Borrowings under $500,000 line of credit,
interest at prime plus .25% (8.5% at June
30, 1996) payable monthly, collateralized
by accounts receivable, inventory and
equipment, and guarantees by
Parent -- 433,535
Note payable to leasing institution,
interest at 14.6%, monthly installments of
$309 plus sales tax. Matures June 1997,
collateralized by computer equipment 306 2,924
Note payable to equipment company, interest at
11%, monthly installments of $533 including
interest. Matures December 1997,
collateralized by equipment 4,580 8,805
Note payable to stockholder, interest at 10%,
principal and interest of $5,693, due monthly
through March 1999 123,362 163,646
Note payable to bank, interest at 9%, principal
and interest of $3,600 due monthly through May
1997, collateralized by accounts receivable,
inventory, furniture, fixtures, equipment,
machinery, bank accounts, and guarantees of
Parent -- 38,924
Note payable to equipment company, interest at
14.1%, monthly installments of $405 including
interest. Matures October 1998 collataralized
by equipment. 6,544 --
Note payable to bank, interest at 9%, principal
and interest of $5,266 due monthly through
October 1997, collateralized by accounts
receivable, inventory, furniture, fixtures,
equipment, machinery, bank accounts, and
guarantees of Parent -- 212,613
Borrowings under $975,000 line of credit, interest
at prime plus 1.25% (9.5% at June 30, 1996).
Principal is due on demand but no later than May
15, 1997. Collateralized by accounts receivable,
inventory, furniture, fixtures, equipment,
machinery, bank accounts, and guarantees of
Parent -- 958,000
----------- ----------
$ 7,365,678 $ 3,178,130
Less current maturities 6,299,602 1,825,193
----------- ----------
$ 1,006,076 $ 1,352,937
Certain of the above agreements contain financial and operating
covenants, including requirements that the Company maintain certain net worth
levels and satisfy current and debt-to-net-worth ratios. The Company was in
compliance with all debt covenants as of March 31, 1997.
14
The aggregate maturities of long-term debt are as follows as of March 31,
1997:
1997 $ 6,299,602
1998 186,741
1999 303,777
2000 491,884
2001 83,674
SFAS No. 107, "Disclosure About Fair Value of Financial Instruments," requires
that the Company disclose estimated fair values for its financial instruments.
Fair value is defined as the price at which a financial instrument could be
liquidated in an orderly manner over a reasonable time period under present
market conditions. The rates of the Company's fixed obligations approximate
those rates of the adjustable loans. Therefore, the fair value of those loans
has been estimated to be approximately equal to their carrying value.
COMMITMENTS AND CONTINGENCIES:
The company is obligated under various noncancelable leases for equipment and
office space. Future minimum lease commitments under operating leases were as
follows as of March 31, 1997.
1997 $ 389,974
1998 412,224
1999 385,974
2000 307,224
2001 305,062
Employment Agreement - The Company has entered into an employment agreement
with a key executive for a five-year period ending June 1998. The agreement
provides for annual base compensation of $100,000.
Litigation - During 1994, the Company was a defendant in an employment injury
lawsuit filed by one of its employees. The Company settled this dispute for
approximately $30,000.
The Company was a defendant in a lawsuit filed by one of its former employees
for wrongful discharge of employment. During the year ended December 31,
1993, the Company settled this dispute for $85,000.
8. INCOME TAXES:
Income taxes are provided based on the liability method of accounting
pursuant to Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes."
9. ACQUISITION:
Effective March 1, 1996, the Company acquired all of the outstanding
common stock of AmeriDyne Corporation (AmeriDyne) for approximately $2.475
million in cash and stock. AmeriDyne distributes medical supplies to
hospitals, clinics, physicians, pharmacies, nursing homes and other health
care providers.
The purchase price exceeded the fair value of the net assets acquired by
approximately $1.3 million. The acquisition was accounted for as a purchase.
The resulting goodwill is being amortized on the straight-line basis over 40
years.
15
On August 6, 1996, the Company acquired all of the outstanding stock of
Atlantic Medical Supply Company, Inc. (Atlantic Medical), a distributor of
disposable medical supplies and a provider of third-party billing services to
the nursing home and home health care markets. The acquisition was made
retroactively to July 1, 1996. The Company paid $1.4 million in cash and
$10.5 million in promissory notes for all of the outstanding stock of Atlantic
Medical. The promissory notes bore interest at 7% per annum and were due in
full on January 10, 1997. On January 10, 1997, the Company repaid the
promissory notes, with interest.
The following unaudited pro forma consolidated results of operations
presents information as if the acquisitions had occurred at the beginning of
the fiscal year in 1995. The pro forma information is provided for
information purposes only. It is based on historical information and does not
necessarily reflect the results that would have occurred nor is it necessarily
indicative of future results of operations of the combined enterprise.
Unaudited Unaudited
Six Months Ended Year Ended
March 31, 1996 June 30, 1996
---------------- -------------
Sales $ 35,341,890 $ 34,333,727
Net Income $ 785,516* $ 585,784*
Per share $ 0.16 $ 0.10
* Full year earnings reflect write down of approximately $1.1 million for
events occurring prior to July 1, 1995.
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following should be read in conjunction with the attached Financial
Statements and Notes thereto of the Company.
THREE MONTHS ENDED March 31, 1997 COMPARED TO THREE MONTHS ENDED March 31,
1996
- -----------------------------------------------------------------------------
As a result of the factors discussed below, for the three months ended
March 31, 1997, the Company had net income of $321,009 compared to $173,488
for the three months ended March 31, 1996.
Sales increased by $ 9,357,841 for the three months ended March 31, 1997
as compared to the three months ended March 31, 1996. Approximately $2,807,618
of the increase resulted from sales by AmeriDyne and approximately $6,505,882
of the increase resulted from sales by Atlantic.
Gross profit for the three months ended March 31, 1997, was $3,792,265 or
28.4% of sales, as compared to $1,028,042 or 27.2% of sales, for the same
period of the previous year. The increase in gross profit as a percentage of
sales is primarily the result of higher gross profit margins on business'
acquired.
Operating expenses for the three month period ending March 31, 1997, were
$3,211,310 as compared to $775,212 in 1996. The operating expenses increased
approximately 314% as the result of the acquisitions, although as a percent of
sales the increase represented only a 3.9% increase.
NINE MONTHS ENDED March 31, 1997 COMPARED TO NINE MONTHS ENDED March 31, 1996
- -----------------------------------------------------------------------------
As a result of the factors discussed below, for the nine months ended
March 31, 1997, the Company had net income of $ 1,215,441 compared to $403,357
for the nine months ended March 31, 1996.
Sales increased by $30,522,802 for the nine months ended March 31, 1997
as compared to the nine months ended March 31, 1996. Approximately $5,945,433
of the increase resulted from sales by AmeriDyne and approximately $19,927,927
of the increase resulted from sales by Atlantic.
Gross profit for the nine months ended March 31, 1997, was $11,436,097 or
29.3% of sales, as compared to $2,358,052 or 27.6% of sales, for the same
period of the previous year. The increase in gross profit as a percentage of
sales is primarily the result of higher gross profit margins on business'
acquired.
Operating expenses for the nine month period ending March 31, 1997, were
$9,105,887 as compared to $1,760,156 in 1996. The operating expenses
increased approximately 417% as the result of the acquisitions, although as a
percent of sales the increase represented only a 2.8% increase.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At March 31, 1997, the Company had $10,565,112 of working capital as
compared to $3,931,948 on June 30, 1996.
Operating activities for the nine months ended March 31, 1997, utilized
cash of $19,125,425 as compared to operating activities during the nine months
ended
17
March 31, 1996, which provided cash of $8,824. The increased use of cash was
primarily due to increases in inventory, accounts receivable and other assets.
The cash flows utilized for investing activities of $1,506,438 during
the nine months ended March 31, 1997, were a result of the draw of $354,267
from the Company's parent and by the use of $1,313,255 for the acquisition of
and deposits on additional equipment.
Cash flow of $19,528,867 was provided from financing activities in the
nine months ended March 31, 1997, whereas in the same period in 1996, cash
flows from financing activities provided cash of $279,634. During the nine
months ended March 31, 1997, $5,000,000 was provided from debenture
borrowings, $9,750,000 was provided from the issuance of common stock,
$625,506 was provided by the exercise of stock warrants, $59,395 was provided
by the exercise of employee stock options and $4,187,548 was provided from
additional borrowings. The Company also paid out $93,582 in preferred stock
dividends.
The Company currently maintains a total of $7 million in revolving lines
of credit with its banks for short-term working capital needs. As of March
31, 1997, $6,098,902 had been borrowed against these lines.
On August 6, 1996, the Company acquired all of the outstanding stock of
Atlantic Medical Supply Company, Inc. ("Atlantic"), a distributor of
disposable medical supplies and a provider of third-party billing services to
the nursing home and home health care markets. The acquisition was made
retroactively to July 1, 1996. The Company paid $1,400,000 in cash and
promissory notes totaling $10,500,000 for the stock of Atlantic, and
subsequently paid an additional $50,000 in cash and issued a promissory note
for $350,000 to acquire a minority interest in a subsidiary of Atlantic,
Facility Supply, Inc. The cash for this transaction came from the $5 million
debenture placement that was completed on July 12, 1996. The promissory notes
bore interest at 7% per annum and were due in full on January 10, 1997. On
January 10, 1997, the Company paid the promissory notes from the proceeds of a
subscription of the Company's securities by the Company's Parent, providing
$9,750,000. The balance of the promissory notes was paid by borrowing under
the Company's line of credit.
The Company presently does not anticipate any commitments for material
capital expenditures.
SEASONALITY AND INFLATION
- -------------------------
The Company's business is relatively consistent and stable on a monthly
basis, and has not indicated any seasonality over the prior three fiscal
periods.
In addition, the Company does not believe that inflation has had a
material effect on its results from operations during the past three fiscal
years. There can be no assurance, however, that the Company's business will
not be affected by inflation in the future.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. None.
ITEM 2. CHANGES IN SECURITIES. During the quarter ended March 31, 1997, the
Company issued securities in a transaction which was not registered under the
Securities Act of 1933, as amended (the "Act"), as follows:
18
On January 10, 1997, the Company issued 1,950,000 shares of its
Common Stock to its Parent, Retirement Care Associates, Inc., in a private
transaction in exchange for the conversion of a convertible promissory note
which the Parent had received for a loan of $9,750,000 to the Company on
January 10, 1997. With respect to this sale, the Company relied on Section
4(2) of the Act. The investor is the Company's majority shareholder, and is
listed on the New York Stock Exchange. The investor represented that it was
purchasing the shares for investment only and not for the purpose of resale or
distribution. The appropriate restrictive legends were placed on the
certificates and stop transfer instructions were issued to the transfer agent.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. On January 21,
1997, the Company held an Annual Meeting of Shareholders at which Chris
Brogdon, Edward E. Lane and Darrell C. Tucker were elected to serve as
Directors of the Company, Coopers & Lybrand L.L.P. was ratified as the
Company's auditors, and the Company's 1996 Stock Option Plan was approved. No
other matters were presented for a vote at the meeting.
The following sets forth the votes cast for and withheld in the
election of the Directors. There were no broker non-votes.
Nominees For Withheld
----------------- --------------- -------------
Chris Brogdon 5,578,387 Votes 118,182 Votes
Edward E. Lane 5,578,387 Votes 118,182 Votes
Darrell C. Tucker 5,578,492 Votes 118,077 Votes
The following sets forth the votes cast for, against, abstentions and broker
non-votes on the ratification of Coopers & Lybrand L.L.P. as the Company's
auditors and the approval of the 1996 Stock Option Plan.
Broker
Proposal submitted to vote For Against Abstain Non-Votes
- ---------------------------------------- --------- ------- ------- ---------
Ratification of Coopers & Lybrand L.L.P. 5,660,985 23,150 12,434 -0-
Approval of 1996 Stock Option Plan 4,259,912 143,792 98,900 1,193,965
ITEM 5. OTHER INFORMATION. None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBIT 27 FINANCIAL DATA SCHEDULE Filed herewith electronically
(b) REPORTS ON FORM 8-K. The Company filed a Report on Form 8-K dated
January 10, 1995, reporting information under Item 5 - Other Events and Item 7
- - Financial Statements, Pro Forma Financial Information and Exhibits,
concerning the Company's repayment of promissory notes of approximately
$10,850,000, the receipt of a $9,750,000 loan from the Company's Parent, and
the conversion of such loan into 1,950,000 shares of Common Stock.
The Company filed a Report on Form 8-K dated February 17, 1997,
reporting information under Item 2 - Acquisition of Disposition of Assets and
Item 7 - Financial Statements, Pro Forma Financial Information and Exhibits,
reporting information concerning the Company entering into an Agreement and
Plan of Merger and Reorganization with Sun Healthcare Group, Inc.
19
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
19934, the Registrant has duly caused this Report to be signed on its behalf
by the undersigned thereunto duly authorized.
CONTOUR MEDICAL, INC.
Date: May 14, 1997 By:/s/ Donald F. Fox
Donald F. Fox, President, Treasurer
and Chief Financial Officer
20
EXHIBIT INDEX
EXHIBIT METHOD OF FILING
- ------- ------------------------------
27. Financial Data Schedule Filed herewith electronically