1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 3
(Amending Part I - Item 1)
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended December 31, 1996
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 6,046,793 shares of the Registrant's $.001 par value Common Stock
outstanding as of December 31, 1996.
2
CONTOUR MEDICAL, INC.
FORM 10-Q/A
INDEX
-------
Part I. Financial Information
- ------ ---------------------
Item 1. Financial Statements Page
Consolidated Balance Sheets as of December 31, 1996
and June 30, 1996 3-4
Consolidated Statements of Operations for the Three
and Six Months Ended December 31, 1996 and 1995 5-6
Consolidated Statement of Stockholders' Equity
for the Six Months Ended December 31, 1996 7-8
Consolidated Statements of Cash Flows for the
Six Months Ended December 31, 1996 and 1995 9-10
Notes to Consolidated Financial Statements 11-16
Signature
17
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CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
December 31, June 30,
1996 1996
------------ -----------
(Unaudited)
ASSETS
Current:
Cash $ 184,382 $ 146,219
Accounts receivable - trade
Related parties (Note 4) 2,095,575 1,918,000
Other 8,116,172 2,527,676
Inventories (Note 5) 6,509,354 2,876,792
Refundable income taxes -- 21,406
Prepaid expenses and other 803,937 51,519
Due from parent (Note 4) 974,612 618,897
----------- -----------
Total Current Assets 18,684,032 8,160,509
----------- -----------
Property and Equipment, less
accumulated depreciation (Note 6) 1,915,935 1,223,195
----------- -----------
Other Assets:
Goodwill 10,116,391 1,286,165
Deposit on equipment 577,245 416,184
Other 469,250 172,215
----------- -----------
Total Other Assets 11,162,886 1,874,564
----------- -----------
$31,762,853 $11,258,268
See accompanying notes to consolidated financial statements.
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4
CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
December 31, June 30,
1996 1996
------------ ------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable to banks -
credit lines (Note 7) $ 3,815,722 $ 1,391,535
Accounts payable 3,228,155 2,036,652
Accrued expenses 906,700 366,716
Current maturities of long-term
debt (Note 7) 10,990,700 433,658
----------- -----------
Total Current Liabilities 18,941,277 4,228,561
Long-term debt, less current
maturities (Note 7) 1,008,141 1,352,937
----------- -----------
Total Liabilities 19,949,417 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 794,281 2,528,000
Common stock $.001 par - shares
authorized 76,000,000; issued
6,046,793 and 4,802,280 (net of
$765 discount) 5,282 4,449
Additional paid-in capital 5,696,369 2,911,696
Retained earnings 317,504 232,625
----------- -----------
Total stockholders' equity 6,813,436 5,676,770
$31,762,853 $11,258,268
See accompanying notes to consolidated financial statements.
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CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Six Months Ended
December 31, December 31,
1996 1995
------------ ------------
(Unaudited) (Unaudited)
SALES TO NON-RELATED PARTIES $22,967,078 $3,097,349
SALES TO RELATED PARTIES 2,948,238 1,653,000
----------- ----------
NET SALES 25,915,316 4,750,349
COST OF SALES 18,471,484 3,420,339
GROSS PROFIT 7,443,832 1,330,010
OPERATING EXPENSES 6,141,502 984,944
OTHER INCOME (EXPENSE) (1,133,391) 3,220
----------- ----------
INCOME BEFORE INCOME TAXES 168,939 348,286
INCOME TAX EXPENSE 64,197 118,417
----------- ----------
NET INCOME $ 104,742 $ 229,869
NET INCOME PER COMMON SHARE $ .02 $ .05
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES 5,838,369 4,613,841
NET INCOME PER COMMON SHARE AND COMMON
SHARE EQUIVALENTS $ .01
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES AND COMMON SHARE EQUIVALENTS 8,961,026
See accompanying notes to consolidated financial statements.
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CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Three Months Ended
December 31, December 31,
1996 1995
----------- ------------
(Unaudited) (Unaudited)
SALES TO NON-RELATED PARTIES $11,890,548 $ 1,605,220
SALES TO RELATED PARTIES 1,112,238 907,000
----------- -----------
NET SALES 13,002,786 2,512,220
COST OF SALES 9,197,949 1,831,267
----------- -----------
GROSS PROFIT 3,804,837 680,953
OPERATING EXPENSES 2,957,419 495,343
OTHER INCOME (EXPENSE) (305,741) 132
----------- -----------
INCOME BEFORE INCOME TAXES 541,677 185,742
INCOME TAX EXPENSE 205,837 63,152
----------- -----------
NET INCOME $ 335,840 $ 122,590
NET INCOME PER COMMON SHARE $ .06 $ .03
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES 5,959,837 4,613,841
NET INCOME PER COMMON SHARE AND COMMON
SHARE EQUIVALENTS $ .04
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES AND COMMON SHARE EQUIVALENTS 8,961,026
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 -- -- --
Stock issued for guarantee 100,000 100 499,900
Net income -- -- --
Balance, December 31, 1996 6,046,793 $5,282 $5,696,369
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
Conversions of preferred
stock (415,000) (1,660,000) --
Payment of Preferred Dividend -- (88,519) (5,063)
Preferred dividends in
arrears -- 14,800 (14,800)
Net income -- -- 104,742
Balance, December 31, 1996 185,000 $ 794,281 $ 317,504
See accompanying notes to consolidated financial statements.
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CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six Months Ended
December 31, December 31,
1996 1995
------------ ------------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 104,742 $ 229,869
Adjustments to reconcile net income
(loss) to net cash provided (used) by
operating activities:
Depreciation & Amortization 385,807 70,447
Tax benefit from NOL -- 118,417
(Increase) decrease in accounts
receivable (5,766,071) (422,373)
(Increase) decrease in inventories (3,632,562) (338,279)
(Increase) decrease in other
current assets and other assets (9,540,741) (68,834)
Increase (decrease) in accounts
payable 1,191,503 188,124
Increase (decrease) in accrued
expenses and other liabilities 539,984 55,996
----------- ---------
Net cash provided by operating
activities (16,717,338) (396,502)
CASH FLOW FROM INVESTING ACTIVITIES:
Acquisition of equipment (1,150,723) (412,497)
(Increase)Decrease in due from (355,715) 227,388
Parent ----------- ---------
Net cash used by investing
activities (1,506,438) (185,159)
See accompanying notes to consolidated financial statements.
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CONTOUR MEDICAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six Months Ended
December 31, December 31,
1996 1995
------------ ------------
(Unaudited) (Unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES:
Acquisition Notes Issued $ 10,850,000 $ --
Convertible Debentures Issued 5,000,000 --
Net borrowing (payments) on loans 1,786,433 211,619
Proceeds from exercise of options -- 50,000
Payment of short-swing liability
by shareholder -- 36,513
Exercise of Warrants 625,506 --
------------ ---------
Net cash provided by financing
activities 18,261,939 298,150
------------ ---------
NET INCREASE (DECREASE) IN CASH 38,163 (53,642)
CASH BEGINNING OF PERIOD 146,219 96,235
------------ ---------
CASH END OF PERIOD $ 184,382 $ 42,593
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION AND NON-CASH
ACTIVITIES:
Cash paid for interest $ 362,244 $ 66,061
Cash paid for income tax $ -- $ 930
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 December 31, 1996 and 1995 are not
necessarily indicative of the operating results for the full year.
The consolidated financial statements include the accounts of the
Company 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, the Company 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, 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 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 Atlantic 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 (the "Facility Notes") for
the remaining outstanding stock of Facility Supply, Inc. The Facility 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 Facility Notes, they are convertible into
shares of common stock of Parent.
In return for the Parent's guarantee of the Atlantic 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 Contour Common Stock during the time
the Atlantic acquisition was negotiated.
2. RESTATEMENT:
During Contour's fiscal year 1997 year-end audit, certain adjustments
to Contour's previously issued financial statements were discovered to be
necessary. These adjustments, together with additional amounts, have been
applied to the financial statements of Contour for the quarter ended December
31, 1996 as restatements and corrections. The following table gives a brief
description of such restatements and corrections:
Description: Amount:
- ------------ -------
Accrual of interest on Atlantic
Medical Acquisition Notes $205,634
Less: Adjustment to Income Taxes $(78,771)
Decrease in Net Income: $126,863
Decrease in Net Income per Share: $ .02
Contour further advises the Staff that no adjustments or restatements of
Contour's financial statements for the quarter ended March 31, 1997 were
required under APB 20
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3. 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.
4. 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.
5. 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 $2,948,238 for the six month period ended December 31,
1996, and $1,112,238 for the three month period ended December 31, 1996. Trade
accounts receivable of $2,095,575 and $1,918,000 were outstanding as of December
31, 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 $975,000 at December 31, 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.
6. INVENTORIES
Inventories are summarized as follows:
December 31, June 30,
1996 1996
----------- ----------
(Unaudited) (Unaudited)
Raw Materials $ 330,823 $ 330,699
Work in process 62,985 96,647
Finished goods 6,115,546 2,449,446
---------- ----------
$6,509,354 $2,876,792
All inventories are pledged as collateral.
7. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
December 31, 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 1,074,945 --
Machinery and equipment 3-7 years 2,349,616 1,798,520
Furniture and fixtures 5-7 years 234,257 146,536
Leasehold improvements 5 years 290,563 251,352
Vehicles 3-5 years 188,202 72,245
---------- ----------
4,793,672 2,914,900
Less accumulated depre-
ciation 2,877,737 1,691,705
---------- ----------
$1,915,935 $1,223,195
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Certain property and equipment are pledged as collateral (see Note 8).
8. NOTES PAYABLE
Notes payable at December 31, 1996 and June 30, 1996 consisted of the
following:
December 31, June 30,
1996 1996
----------- ---------
Note payable to sellers of Atlantic Medical
Supply Company, Inc. at 7%, principal and
interest due on January 10,1997, 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 -- 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 457,251 496,171
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 434,789 456,233
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 57,141 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 3,815,722 --
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 55,301 60,436
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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 1,206 2,924
Note payable to equipment company, interest at
11%, monthly installments of $533 including
interest. Matures December 1997,
collateralized by equipment 6,027 8,805
Note payable to stockholder, interest at 10%,
principal and interest of $5,693, due monthly
through March 1999 137,126 163,646
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 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
----------- -----------
$15,814,563 $ 3,178,130
Less current maturities 14,806,422 1,825,193
----------- -----------
$ 1,008,141 $ 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 December 31, 1996.
The aggregate maturities of long-term debt are as follows as of
December 31, 1996:
1997 $ 11,099,183
1998 3,273,405
1999 303,777
2000 491,884
2001 83,674
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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 December 31, 1996.
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.
9. 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."
10. 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. 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 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 Atlantic 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.
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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 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 Facility Notes, they are convertible into
shares of common stock of Parent.
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.
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
December 31, 1995 June 30, 1996
Sales $ 23,219,482 $ 34,333,727
Net Income $ 645,332 $ 585,784*
Per share $ 0.14 $ 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.
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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: March 11, 1998 By: /s/ Donald F. Fox
-----------------------------------
Donald F. Fox, President, Treasurer
and Chief Financial Officer
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