1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 2
(Amending Part I - Items 1, 2 and 6)
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)
6025 Shiloh Road
Alpharetta, Georgia 30005
----------------------------------------
(Address of Principal Executive Offices)
(770) 886-2600
----------------------------------------------------
(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.
2
CONTOUR MEDICAL, INC.
FORM 10-Q/A
INDEX
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 16-18
Item 6. Exhibits and Reports on Form 8-K 19
Signature 19
2
3
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 7,376,514 2,527,676
Inventories (Note 5) 7,047,944 2,876,792
Refundable income taxes -- 21,406
Prepaid expenses and other 988,108 51,519
Due from parent (Note 4) 973,164 618,897
----------- -----------
Total Current Assets 19,203,930 8,160,509
----------- -----------
Property and Equipment, less
accumulated depreciation (Note 6) 1,958,945 1,223,195
----------- -----------
Other Assets:
Goodwill 10,042,137 1,286,165
Deposit on equipment 671,760 416,184
Other 977,933 172,215
----------- -----------
Total Other Assets 11,691,830 1,874,564
----------- -----------
$32,854,705 $11,258,268
See accompanying notes to consolidated financial statements.
3
4
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 625,211 366,716
Current maturities of long-term
debt (Note 8) 200,700 433,658
----------- -----------
Total Current Liabilities 9,844,787 4,228,561
Long-term debt, less current
maturities (Note 8) 1,066,076 1,352,937
----------- -----------
Total Liabilities 10,910,863 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 170,000 and
600,000, respectively, 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 631,115 232,625
----------- -----------
Total stockholders' equity 16,943,842 5,676,770
$32,854,705 $11,258,268
See accompanying notes to consolidated financial statements.
4
5
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Three Months Ended
March 31, March 31,
1997 1996
----------- -----------
(Unaudited) (Unaudited)
SALES TO NON-RELATED PARTIES $11,626,229 $ 2,197,566
SALES TO RELATED PARTIES 1,511,178 1,582,000
----------- -----------
TOTAL SALES 13,137,407 3,779,566
COST OF SALES 9,345,136 2,751,524
----------- -----------
GROSS PROFIT 3,792,271 1,028,042
OPERATING EXPENSES 3,211,310 775,212
OTHER INCOME (EXPENSE) (63,696) 10,031
----------- -----------
INCOME BEFORE INCOME TAXES 517,265 262,861
INCOME TAX EXPENSE 196,750 89,373
----------- -----------
NET INCOME $ 320,515 $ 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
6
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Nine Months Ended
March 31, March 31,
1997 1996
----------- ----------
(Unaudited) (Unaudited)
SALES TO NON-RELATED PARTIES $34,592,701 $5,294,915
SALES TO RELATED PARTIES 4,460,016 3,235,000
----------- ----------
NET SALES 39,052,717 8,529,915
COST OF SALES 27,816,620 6,171,863
----------- ----------
GROSS PROFIT 11,236,097 2,358,052
OPERATING EXPENSES 9,352,812 1,760,156
OTHER INCOME (EXPENSE) (1,196,587) 13,251
----------- ----------
INCOME BEFORE INCOME TAXES 686,698 611,147
INCOME TAX EXPENSE 260,945 207,790
----------- ----------
NET INCOME $ 425,753 $ 403,357
NET INCOME PER COMMON SHARE $ .07 $ .07
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES 6,488,405 4,885,602
See accompanying notes to consolidated financial statements.
6
7
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
8
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 -- -- 425,753
Balance, March 31, 1997 170,000 $ 741,681 $631,115
======== =========== ========
See accompanying notes to consolidated financial statements.
8
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 OPERATING ACTIVITIES:
Net income (loss) $ 425,753 $ 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 (5,651,458) (825,785)
(Increase) decrease in inventories (4,171,152) (234,060)
(Increase) decrease in other
current assets and other assets (10,232,449) (5,837)
Increase (decrease) in accounts
payable 883,322 290,257
Increase (decrease) in accrued
expenses and other liabilities 258,495 61,239
------------ ------------
Net cash provided (used) by
operating activities (17,909,984) 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
10
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
11
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. 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. The Company 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 (the "Atlantic Notes") for all of the outstanding stock of
Atlantic. The Atlantic Notes beared interest at 7% per annum and were paid in
full on January 10, 1997. In the event of a default in the payment of the
Atlantic Notes, they were convertible into shares of common stock of Parent. The
Atlantic 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. The acquisition was made retroactively to July 1, 1996. The Company
paid $50,000 in cash and $350,000 in promissory notes (the "Facility Notes") for
the remaining outstanding stock of Facility Supply, Inc. The Facility Notes
beared interest at 7% per annum and were paid in full on January 10, 1997. In
the event of a default in the payment of the Facility Notes, they were
convertible into shares of common stock of Parent. The Facility 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 return for the Parent's guarantee of the Atlantic Notes and Facility
Notes, with which the Company could not have completed the Atlantic acquisition,
the Company has agreed to compensate the Parent $500,000, such amount to be
satisfied by the issuance of 100,000 shares of Contour Common Stock valued at
$5.00 per share. The Company believes this valuation represents market value and
approximates the average trading price of the Company's common stock during the
time the Atlantic acquisition was negotiated.
11
12
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", 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 $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.
12
13
6. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
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
13
14
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
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
15
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
Statement of Financial Accounting Standards 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 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, 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 (the "Atlantic Notes") for
all of the outstanding stock of Atlantic Medical. The Atlantic Notes bore
interest at 7% per annum and were due in full on January 10, 1997. On January
10, 1997, the Company repaid the Atlantic Notes, with interest.
15
16
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 (the "Facility Notes") for
the remaining outstanding stock of Facility Supply, Inc. The Facility Notes
beared interest at 7% per annum and were paid in full on January 10, 1997, 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
Nine 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 a write down of approximately $1.1 million
recorded in Atlantic's historical financial statements for events occurring
prior to July 1, 1995.
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 of bulk medical supplies by
AmeriDyne and approximately $6,505,882 from sales of bulk medical supplies by
Atlantic. AmeriDyne and Atlantic were businesses acquired in March 1996 and
August 1996, respectively. Sales of the Company's manufacturing division
remained relatively unchanged.
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 businesses
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 of AmeriDyne and
Atlantic, although as a percent of sales the increase represented a 3.93%
increase. The increase of $2,436,098 in operating expenses is directly related
to the increase of $9,357,841 in revenues. The largest components of operating
expenses are indirect labor (including sales salaries and commissions),
occupancy expense, depreciation and amortization, and insurance. Specifically,
prior to the acquisitions of AmeriDyne and Atlantic, Contour did not have a
direct sales force and, therefore, incurred minimal selling expenses as a
percentage of sales. Selling expenses as a percentage of sales now represents
approximately 4% of total sales.
16
17
Indirect labor, including sales salaries and commissions increased to
approximately $1,575,339, an increase of $1,252,711 compared to the same period
last year. Occupancy expense, depreciation and amortization and insurance costs
increased to approximately $762,873, an increase of $459,204 compared to the
same period last year.
Other income and expenses are made up of interest expense, debts
recovered that were previously written off, service charge income, and gains and
losses on the disposition of assets. Interest expense for the three month period
ending March 31, 1997 was $214,700 compared to $43,107 for the same period last
year. Interest expense has increased primarily as a result of the $5,000,000
convertible debentures issued on July 12, 1997, bearing interest at 9% per
annum.
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, Contour had net income of $425,753 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 $8,945,433 of
the increase resulted from sales of bulk medical supplies by AmeriDyne and
approximately $19,927,927 from sales of bulk medical supplies by Atlantic.
Approximately $1,225,016 of the increase resulted from the sales of bulk medical
supplies to Contour's majority shareholder. The balance of the sales increase,
or approximately $426,426, resulted from sales of manufactured products.
Gross profit for the nine months ended March 31, 1997, was $11,236,097
or 28.8% 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 businesses
acquired.
Operating expenses for the nine month period ending March 31, 1997,
were $9,352,812 as compared to $1,760,156 in 1996. The operating expenses
increased approximately 431% as the result of the acquisitions, although as a
percent of sales the increase represented a 3.3% increase. The increase of
$7,592,656 in operating expenses is directly related to the increase of
$30,522,802 in revenues. The largest components of operating expenses are
indirect labor (including sales salaries and commissions), occupancy expense,
depreciation and amortization, and insurance. In particular, prior to the
acquisitions of AmeriDyne and Atlantic, the Company did not have a direct sales
force and therefore incurred minimal selling expenses as a percentage of sales.
Selling expenses as a percentage of sales now represents approximately 4% of
total sales.
Indirect labor, including sales salaries and commissions increased by
$3,853,099 compared to the same period last year, to approximately $4,635,437.
Occupancy expense, depreciation and amortization and insurance costs increased
by $1,681,804 compared to the same period last year, to approximately
$2,366,002. Other expenses, including payroll taxes, professional fees, travel
and entertainment, equipment leases, supplies and vehicle costs and bad debt
expense, accounted for the balance of the increase in operating expenses
compared to the same period last year.
Other income and expenses are made up of interest expense, debts
recovered that were previously written off, service charge income, and gains and
losses on the disposition of assets. Interest expense for the nine month period
ending March 31, 1997 was approximately $905,000 compared to $109,168 for the
same period last year. Interest expense has increased primarily as a result of
the $5,000,000 convertible debentures issued on July 12, 1997, bearing interest
at 9% per annum and the issuance of the Atlantic and Facility Notes. The Company
also incurred $500,000 in financing costs in connection with the Parent's
guaranty of the Atlantic acquisition.
17
18
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had $9,359,143 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 $17,909,984 as compared to operating activities during the nine months
ended 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
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.
Contour currently maintains revolving lines of credit totaling $7
million 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, Contour acquired all of the outstanding stock of
Atlantic. The acquisition was made retroactively to July 1, 1996. Contour paid
$1,400,000 in cash and promissory notes totaling $10,500,000 (the "Atlantic
Notes") for the stock of Atlantic, and subsequently paid an additional $50,000
in cash and issued a promissory note (the "Facility Notes") 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. Contour paid the Atlantic Notes and Facility
Notes from the proceeds of a $9,750,000 loan from Parent, payable in accordance
with the terms of a promissory note that was convertible into shares of the
Company's common stock at the option of the note holder. Contour's parent
simultaneously converted this promissory note into 1,950,000 shares of the
Company's common stock. The balance of the Atlantic Notes and Facility Notes
was paid by borrowing under Contour's lines of credit.
Contour presently does not anticipate any commitments for material
capital expenditures.
SEASONALITY AND INFLATION
Contour'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, Contour 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 Contour's business will not be affected by
inflation in the future.
18
19
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 Restated Financial Data Schedule
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: October 20, 1997 By: \s\ Donald F. Fox
-----------------------------------------
Donald F. Fox, President, Treasurer
and Chief Financial Officer
19