1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
(Amending Part I - Items 1 and 2)
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter Ended September 30, 1996
Commission File No. 0-26288
CONTOUR MEDICAL, INC.
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(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
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(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 5,946,793 shares of the Registrant's $.001 par value Common Stock
outstanding as of November 14, 1996.
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CONTOUR MEDICAL, INC.
FORM 10-Q/A
INDEX
Part I. Financial Information
Item 1. Financial Statements Page
Consolidated Balance Sheets as of September 30, 1996
and June 30, 1996 3-4
Consolidated Statements of Operations for the Three
Months Ended September 30, 1996 and 1995 5
Consolidated Statements of Stockholders Equity 6-7
Three Months Ended September 30, 1996
Consolidated Statements of Cash Flows for the
Three Months Ended September 30, 1996 and 1995 8-9
Notes to Consolidated Financial Statements 10-16
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17-18
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CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, June 30,
1996 1996
------------ ----------
(Unaudited)
ASSETS
Current:
Cash $ 400,489 $ 146,219
Accounts receivable - trade
Related parties (Note 4) 2,027,499 1,918,000
Other 9,318,620 2,527,676
Inventories (Note 5) 6,368,222 2,876,792
Refundable income taxes 21,406 21,406
Prepaid expenses and other 592,200 51,519
Due from parent (Note 4) 755,333 618,897
----------- ----------
Total Current Assets 19,483,769 8,160,509
----------- ----------
Property and Equipment, less
accumulated depreciation (Note 6) 1,823,880 1,223,195
----------- ----------
Other Assets:
Goodwill, net of accumulated amortization 9,310,730 1,286,165
Deposit on equipment 503,018 416,184
Other 130,188 172,215
----------- ----------
Total Other Assets 9,943,936 1,874,564
----------- ----------
$31,251,585 $11,258,268
See accompanying notes to consolidated financial statements.
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CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, June 30,
1996 1996
------------- -----------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,345,228 $ 2,036,652
Accrued expenses 920,430 366,716
Current maturities of long-term
debt (Note 7) 11,099,183 1,825,193
----------- -----------
Total Current Liabilities 15,364,841 4,228,561
Long-term debt, less current
maturities (Note 7) 4,152,739 1,352,937
----------- -----------
Total Liabilities 19,517,580 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,
outstanding 185,000 and 600,000
respectively, at aggregate
liquidation preference 875,400 2,528,000
Common stock $.001 par - shares
authorized 76,000,000; issued and
outstanding 5,946,793 and 5,214,223
respectively, (net of $765 discount) 5,182 4,449
Additional paid-in capital 5,196,469 2,911,696
Retained earnings 656,954 232,625
----------- -----------
Total stockholders' equity 6,734,005 5,676,770
$31,251,585 $11,258,268
See accompanying notes to consolidated financial statements.
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CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Three Months Ended
(Unaudited)
September 30, September 30,
1996 1995
------------ ------------
SALES $12,912,530 $2,238,129
COST OF SALES 9,073,535 1,589,072
------------ ----------
GROSS PROFIT 3,838,995 649,057
OPERATING EXPENSES 2,937,158 489,601
OTHER INCOME (EXPENSE) (204,716) 3,088
------------ ----------
INCOME BEFORE INCOME TAXES 697,121 162,544
INCOME TAX EXPENSE 265,392 55,265
------------ ----------
NET INCOME $ 431,729 $ 107,279
NET INCOME PER COMMON SHARE $ .07 $ .02
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES 5,716,891 4,571,677
See accompanying notes to consolidated financial statements.
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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 296,820 297 625,209
Conversions of preferred
stock 415,000 415 1,659,564
Conversion dividend 20,750 21
Preferred dividends in
arrears -- -- --
Net income -- -- --
Balance, September 30, 1996 5,946,793 $5,182 $5,196,469
See accompanying notes to consolidated financial statements.
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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
Exercise of common stock
warrants -- -- --
Conversions of preferred
stock (415,000) (1,660,000) --
Preferred dividends in
arrears 7,400 (7,400)
Net income 431,729
Balance, September 30, 1996 185,000 $ 875,400 $656,954
See accompanying notes to consolidated financial statements.
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CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months Ended
(Unaudited)
September 30, September 30,
1996 1995
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 431,729 $ 107,279
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation and Amortization 163,661 33,076
Tax benefit from NOL -- 55,265
(Increase) decrease in accounts
receivable (6,900,443) (123,127)
(Increase) decrease in inventories (3,491,430) (204,788)
(Increase) decrease in other
current assets and other assets (8,523,219) (84,713)
Increase (decrease) in accounts
payable 1,308,576 (16,227)
Increase (decrease) in accrued
expenses and other liabilities 553,714 15,103
------------ ---------
Net cash provided by operating
activities (16,457,412) (218,132)
CASH FLOW FROM INVESTING ACTIVITIES:
Deposit on equipment (86,834) --
Acquisition of equipment (720,106) (95,921)
Decrease (increase) in due
from parent (136,436) 150,000
-------------- ---------
Net cash provided(used) by
investing activities (943,376) $ 54,079
See accompanying notes to consolidated financial statements.
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CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months Ended
(Unaudited)
September 30, September 30,
1996 1995
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Acquisition Notes Issued $ 10,850,000 $ --
Convertible Debentures Issued 5,000,000 --
Net borrowing on loans 1,179,552 126,135
Exercise of warrants 625,506 50,000
------------ ----------
Net cash provided (used) by
financing activities 17,655,058 176,135
------------ ----------
NET INCREASE (DECREASE) IN CASH 254,270 12,082
CASH BEGINNING OF PERIOD 146,219 96,235
------------ ----------
CASH END OF PERIOD $ 400,489 $ 108,317
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION AND NON-CASH
ACTIVITIES:
Cash paid for interest $ 199,255 $ 28,890
See accompanying notes to consolidated financial statements.
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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
September 30, 1996 and 1995 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"), 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. The promissory
notes bear interest at 7% per annum and are due in full on January 10, 1997.
In the event of a default in the payment of the promissory notes, they are
convertible into shares of common stock of Parent.
In addition, on August 9, 1996, the Company acquired the remaining minority
interest of Facility Supply, Inc., a majority owned subsidiary of Atlantic.
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 bear interest at 7% per
annum and are due in full on January 10, 1997. In the event of a default in
the payment of the promissory notes, they are convertible into shares of common
stock of Parent.
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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
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 $1,836,000 for the three month period ended September 30, 1996,
and $746,000 in 1995. Trade accounts receivable of $2,027,000 and $1,918,000
were outstanding as of September 30, 1996 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
$755,000 at September 30, 1996, 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.
5. INVENTORIES
Inventories are summarized as follows:
September 30, June 30,
1996 1996
---------- ----------
Raw Materials $ 284,463 $ 330,699
Work in process 70,604 96,647
Finished goods 6,013,155 2,449,446
---------- ----------
$6,368,222 $2,876,792
All inventories are pledged as collateral.
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6. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
September 30, June 30,
Useful Lives 1996 1996
------------ ---------- ----------
Land & Land Improvements -- 59,842 $ 50,000
Building 5-45 years 596,247 596,247
Computer Equipment 3-7 years $1,010,445 --
Machinery and equipment 3-7 years 2,208,217 1,798,520
Furniture and fixtures 5-7 years 222,920 146,536
Leasehold improvements 5 years 290,563 251,352
Vehicles 3-5 years 188,202 72,245
---------- ----------
4,576,436 2,914,900
Less accumulated depreciation 2,752,556 1,691,705
---------- ----------
$1,823,880 $1,223,195
Certain property and equipment are pledged as collateral (see Notes 7 and 8).
7. NOTES PAYABLE
Notes payable at September 30, 1996 and June 30, 1996 consisted of the
following:
September 30, June 30,
1996 1996
---------- -----------
Note payable to sellers of Atlantic Medical
Supply Company, Inc. at 7%, principal and
interst due on January 10, 197, in event
of default convertible into common stock
of Parent $10,500,000 --
Note payable to sellers of Facility
Supply, inc. at 7%, principal and
interest due on January 10, 1997, in
event of default convertible into common
stock of Parent 350,000 --
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 203,750 $ 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 480,899 496,171
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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 445,677 456,233
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 59,522 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 2,994,105 --
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 57,903 60,436
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 Retirement
Care Associates, Inc. -- 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 2,079 2,924
Note payable to equipment company, interest at
11%, monthly installments of $533 including
interest. Matures December 1997,
collateralized by equipment 7,436 8,805
Note payable to stockholder, interest at 10%,
principal and interest of $5,693, due monthly
through March 1999 150,551 163,646
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,
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machinery, bank accounts, and guarantees of
Parent -- 38,924
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
----------- ----------
$15,251,922 $3,178,130
Less current maturities 11,099,183 1,825,193
----------- ----------
$ 4,152,739 $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 September 30, 1996.
The aggregate maturities of long-term debt are as follows as of September 30,
1996:
1997 $11,099,183
1998 3,273,405
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 September 30, 1996.
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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.
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 $1.4 million in cash and $10.5 million in
promissory notes for all of the outstanding stock of Atlantic. The promissory
notes bear interest at 7% per annum and are due in full on January 10, 1997.
In the event of a default in the payment of the promissory notes, they are
convertible into shares of common stock of Parent.
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
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the results that would have occurred nor is it necessarily indicative of future
results of operations of the combined enterprise.
Unaudited Unaudited
Three Months Ended Year Ended
September 30, 1995 June 30, 1996
------------------ -------------
Sales $ 10,430,697 $ 34,333,727
Net Income 590,841 $ 585,784*
Per share 0.13 $ 0.10
* Full year earnings reflect write down of approximately $1.1 million for
events occurring prior to July 1, 1995.
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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 SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1995
As a result of the factors discussed below, for the three months ended
September 30, 1996, the Company had net income of $431,729 compared to $107,279
for the three months ended September 30, 1995.
Sales increased by $10,674,000 for the three months ended September 30, 1996 as
compared to the three months ended September 30, 1995. Approximately $52,000
of this increase related to an increase in demand for the Company's traditional
product lines. Approximately $3,226,000 of the increase resulted from sales by
AmeriDyne and approximately $7,396,000 in sales by Atlantic. AmeriDyne and
Atlantic were acquired by the Company effective March 1, 1996, and July 1,
1996, respectively.
Gross profit for the three months ended September 30, 1996, was $3,838,995 or
30% of sales, as compared to $649,057 or 29% 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 the products sold by
AmeriDyne and Atlantic.
Operating expenses for the three month period ending September 30, 1996, were
$2,937,158 as compared to $489,601 in 1995. The operating expenses increased
approximately 600% as the result of the Atlantic and AmeriDyne acquisitions,
although as a percent of sales the increase represented only a 1% increase.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company had $4,118,928 of working capital as
compared to $3,931,948 on June 30, 1996.
Operating activities for the three months ended September 30, 1996, utilized
cash of $16,457,412 as compared to operating activities during the three months
ended September 30, 1995, which utilized cash of $218,132. The increased use
of cash was primarily due to increases in inventory, accounts receivable and
other assets as a result of the Atlantic acquisition.
The cash flows used in investing activities of $943,376 during the three months
ended September 30, 1996, were a result of an advance of $136,000 to the
Company's Parent and by the use of $807,000 for the acquisition of additional
equipment and a deposit on equipment.
Cash flow of $17,655,058 was provided from financing activities in 1996,
whereas in 1995 cash flows from financing activities provided cash of
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$176,135. During the three months ended September 30, 1996, $5,000,000 was
provided from debenture borrowings, $10,850,000 from promissory notes related
to the acquisition of Atlantic, and $625,506 was provided from the exercise of
warrants.
The Company currently maintains a total of $7 million revolving line of credit
with its banks for short-term working capital needs. As of September 30, 1996,
$2,994,105 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 effective
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 Medical, 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 promissory notes bear interest at 7% per annum and
are due in full on January 10, 1997. In the event of a default in the payment
of the promissory notes, they are convertible into shares of common stock of
the Parent. The cash for this transaction came from the $5 million debenture
placement that was completed on July 12, 1996. The Company intends to pay the
promissory notes from the proceeds of an offering of the Company's securities
to be conducted by the Company.
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.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONTOUR MEDICAL, INC.
Date: July 29, 1997 By: /s/ Donald F. Fox
---------------------------------------------
Donald F. Fox, President, Treasurer and
Chief Financial Officer
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