-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QLQT9OFKtealcRiXsGTjQTZAr1tcP+xxyPvZy2pAKpGs36c3HuocINfNmnaaNC0r QkmLYhqlW8vfSGV05JgHKQ== 0000931763-96-000006.txt : 19960117 0000931763-96-000006.hdr.sgml : 19960117 ACCESSION NUMBER: 0000931763-96-000006 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19951115 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960116 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROTECH MEDICAL CORP CENTRAL INDEX KEY: 0000771142 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HOME HEALTH CARE SERVICES [8082] IRS NUMBER: 592115892 STATE OF INCORPORATION: FL FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-14003 FILM NUMBER: 96503785 BUSINESS ADDRESS: STREET 1: 4506 LB MCLEOD RD STE F CITY: ORLANDO STATE: FL ZIP: 32811 BUSINESS PHONE: 4078412115 MAIL ADDRESS: STREET 1: 4506 LB MCLEOD RD SUITE F STREET 2: PO BOX 536576 CITY: ORLANDO STATE: FL ZIP: 32811 8-K/A 1 FORM 8-K/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (Date of earliest event reported): November 15, 1995 ----------------- ROTECH MEDICAL CORPORATION -------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED ON ITS CHARTER) Florida 59-2115892 - ---------------------------- ------------------- (State or jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4506 L.B. McLeod Road, Suite F, Orlando, Florida 32811 - ------------------------------------------------ ------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (407) 841-2115 - --------------------------------------------------- -------------- Not Applicable - -------------- (former name or former address, if changed since last report) The undersigned Registrant hereby amends the following item, financial statements, exhibits or other portions of its Current Report on Form 8-K, filed November 15, 1995, relating to the acquisition of an aggregate of individually insignificant businesses acquired during the period August 1, 1995 to November 1, 1995. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. - --------------------------------------------------------------------------- (a) 1. Financial Statement of Businesses Acquired. ------------------------------------------- Advantage Healthcare, Inc. -------------------------- Report of Independent Certified Public Accountants Balance Sheet at December 31, 1994 Statement of Income for the Year Ended December 31, 1994 Statement of Changes in Stockholders' Equity for the Year Ended December 31, 1994 Statement of Cash Flows for the Year Ended December 31, 1994 Notes to Financial Statements Interim Balance Sheet at September 30, 1995 (unaudited) Interim Statement of Income for the Nine Months Ended September 30, 1995 (unaudited) Interim Statement of Stockholder's Equity for the Nine Months Ended September 30, 1995 (unaudited) Interim Statement of Cash Flows for the Nine Months Ended September 30, 1995 (unaudited) Notes to Interim Financial Statements as of September 30, 1995 (unaudited) Revco Home Health Care Centers, Inc. ------------------------------------ Report of Independent Public Accountants Balance Sheet at June 3, 1995 Statement of Operations for the Forty-four Week Period Beginning July 30, 1994 and Ending June 3, 1995 Statement of Stockholders' Deficit for the Forty-four Week Period Beginning July 30, 1994 and Ending June 3, 1995 Statement of Cash Flows for the Forty-four Week Period Beginning July 30, 1994 and Ending June 3, 1995 Notes to Financial Statements Interim Balance Sheet at September 30, 1995 (unaudited) Interim Statement of Income for the Four Months Ended September 30, 1995 (unaudited) Interim Statement of Stockholders' Deficit for the Four Months Ended September 30, 1995 (unaudited) Interim Statement of Cash Flows for the Four Months Ended September 30, 1995 (unaudited) Notes to Interim Financial Statements as of September 30, 1995 (unaudited) Valley Home Medical, Inc. ------------------------- Independent Auditors' Report Combined Balance Sheet at November 30, 1994 and 1993 Combined Statement of Income for the Years Ended November 30, 1994 and 1993 Combined Statement of Stockholders' Equity for the Years Ended November 30, 1994 and 1993 Combined Statement of Cash Flows for the Years Ended November 30, 1994 and 1993 Notes to Combined Financial Statements Interim Balance Sheet at October 31, 1995 (unaudited) Interim Statement of Income for the Eleven Months Ended October 31, 1995 (unaudited) Interim Statement of Stockholders' Equity for the Eleven Months Ended October 31, 1995 (unaudited) Interim Statement of Cash Flows for the Eleven Months Ended October 31, 1995 (unaudited) Notes to Interim Financial Statements as of October 31, 1995 (unaudited) (b) 1. Pro Forma Financial Information ------------------------------- Pro Forma Condensed Combined Financial Statements at July 31, 1995 Pro Forma Condensed Combined Interim Financial Statements at October 31, 1995 (unaudited) ADVANTAGE HEALTHCARE, INC. FINANCIAL REPORT DECEMBER 31, 1994 C O N T E N T S Page ---- REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1 Balance sheet 2 Statement of income 3 Statement of changes in stockholders' equity 4 Statement of cash flows 5 Notes to financial statements 6-8 Report of Independent Certified Public Accountants -------------------------------------------------- To the Board of Directors and Stockholders Advantage Healthcare, Inc. Chattanooga, Tennessee We have audited the accompanying balance sheet of Advantage Healthcare, Inc. as of December 31, 1994, and the related statements of income, changes in stockholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Advantage Healthcare, Inc. as of December 31, 1994, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ Hazlett, Lewis & Bieter, PLLC Chattanooga, Tennessee December 22, 1995 ADVANTAGE HEALTHCARE, INC. BALANCE SHEET December 31, 1994 - ------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash $ 97,588 Accounts receivable, less allowance for doubtful accounts of $31,500 218,926 Inventories 72,974 Prepaid expenses and other assets 6,597 --------- Total current assets 396,085 --------- EQUIPMENT AND VEHICLES, at cost (Note 2) Rental equipment - pharmacy 17,605 Rental equipment - respiratory therapy 149,334 Rental equipment - DME 166,437 Office equipment 41,337 Vehicles 166,142 --------- 540,855 Less accumulated depreciation (379,331) --------- Equipment and vehicles, net 161,524 --------- $ 557,609 ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current maturities of long-term debt $ 20,219 Accounts payable 103,618 Accrued pension plan expense (Note 3) 64,901 Other accrued expenses 1,729 --------- Total current liabilities 190,467 --------- LONG-TERM DEBT, less current maturities shown above (Note 2) 23,479 --------- STOCKHOLDERS' EQUITY Common stock, no par value, stated value $100 per share; 2,000 shares authorized; 300 shares outstanding 30,000 Retained earnings 313,663 --------- Total stockholders' equity 343,663 --------- $ 557,609 ========= The Notes to Financial Statements are an integral part of this statement. ADVANTAGE HEALTHCARE, INC. STATEMENT OF INCOME Year Ended December 31, 1994 - ------------------------------------------------------------------------ REVENUES Pharmacy $ 896,311 Respiratory therapy 404,132 DME 330,052 Other 19,886 ---------- Total revenues 1,650,381 ---------- COST OF REVENUES Pharmacy 313,820 Respiratory therapy 84,975 DME 156,129 Other 4,762 ---------- Total cost of revenues 559,686 ---------- Gross profit 1,090,695 ---------- OPERATING EXPENSES Officers' salaries 219,840 Salaries and wages 204,280 Commissions 319,563 Officers' and employee benefits 122,218 Outside services 19,048 Provision for bad debt expense 22,480 Rent expense 106,579 Depreciation 25,646 Utilities 5,627 Telephone 15,963 Business insurance 17,876 Vehicle expense 22,202 Professional fees 20,228 Accreditation fees 8,951 Office expenses 28,033 Taxes and licenses 4,756 Advertising 4,278 Dues and subscriptions 2,781 Contributions 2,445 Travel and entertainment 10,838 Other expenses 7,225 ---------- Total operating expenses 1,190,857 ---------- Operating loss (100,162) ---------- OTHER INCOME (EXPENSES) Interest income 4,643 Interest expense (1,875) ---------- Total other income (expenses), net 2,768 ---------- Net loss ($97,394) ========= The Notes to Financial Statements are an integral part of this statement. ADVANTAGE HEALTHCARE, INC. STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY Year Ended December 31, 1994 - -------------------------------------------------------------------------------
Common Retained Stock Earnings Total ------- -------- -------- BALANCE, December 31, 1993, as previously reported (unaudited) $30,000 $373,339 $403,339 Restatement of assets and liabilities to reflect accounting under generally accepted accounting principles (Note 5) - 37,718 37,718 ------- -------- -------- BALANCE, December 31, 1993, as restated 30,000 411,057 441,057 Net loss for the year - (97,394) (97,394) ------- -------- -------- BALANCE, December 31, 1994 $30,000 $313,663 $343,663 ======= ======== ========
The Notes to Financial Statements are an integral part of this statement. ADVANTAGE HEALTHCARE, INC. STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1994 - -------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $(97,394) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 54,974 Provision for bad debt expense 22,480 Change in operating assets and liabilities: Accounts receivable (1,223) Inventories (3,693) Prepaid expenses and other assets 10,316 Accounts payable 78,117 Accrued pension plan expense (3,587) Other accrued expenses 574 -------- Net cash provided by operating activities 60,564 -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of equipment and vehicles (75,436) -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term debt 34,468 Principal payments on long-term debt (16,655) -------- Net cash provided by financing activities 17,813 -------- Net increase in cash 2,941 Cash at beginning of year 94,647 -------- Cash at end of year $ 97,588 ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for interest $ 1,875 ======== The Notes to Financial Statements are an integral part of this statement. ADVANTAGE HEALTHCARE, INC. NOTES TO FINANCIAL STATEMENTS December 31, 1994 - -------------------------------------------------------------------------------- Note 1. Summary of Operations and Significant Accounting Policies The accounting and reporting policies of the Company conform with generally accepted accounting principles. The policies that materially affect financial position and results of operations are summarized below. Company operations: The Company is engaged primarily in the sale and rental of pharmaceutical supplies and sale and rental of home healthcare equipment to home healthcare patients. Cash and cash equivalents: For purposes of reporting cash flows, cash and cash equivalents include cash on hand and cash in bank. Inventories: Inventories consist principally of pharmaceutical supplies, respiratory therapy supplies and durable medical equipment (DME). Inventories are valued at the lower of cost (first-in first-out method) or market. Equipment and vehicles: Equipment and vehicles are recorded at cost. Depreciation is provided over the estimated useful lives of the respective classes of assets using the straight-line method. Income taxes: The Company has elected by consent of its shareholders to be taxed under the provisions of Subchapter S of the Internal Revenue Code. Under these provisions, the Company does not pay federal corporate income taxes on its taxable income. Instead, the shareholders are liable for federal income tax on the Company's taxable income. Rental income recognition: The Company rents equipment under month-to-month leases. Income is recognized monthly for rental equipment based on equipment on lease each month. Rental equipment is depreciated over its economic useful life. Some DME is leased under informal lease-to-buy arrangements over 13 months. Income for DME rented under lease-to-buy arrangements is recognized monthly based on equipment on lease and the related equipment cost is charged to cost of revenues over the lease-to-buy term. ADVANTAGE HEALTHCARE, INC. NOTES TO FINANCIAL STATEMENTS December 31, 1994 - ------------------------------------------------------------------------------- Note 1. Summary of Operations and Significant Accounting Policies (continued) Use of estimates in the preparation of financial statements: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Note 2. Long-term Debt The Company's long-term debt consists of the following: Vehicle installment note; payable $561 monthly, including interest at 8.99% through December 1997; collateralized by vehicle $17,622 Vehicle installment note; payable $526 monthly, including interest at 7.80% through October 1997; collateralized by vehicle 16,429 Vehicle installment note payable to stockholder in monthly payments of $1,228, including interest at 4.75% through September 1995; collateralized by vehicle 9,647 _______ 43,698 Less current maturities (20,219) _______ $23,479 =======
Aggregate maturities of long-term debt for succeeding years are as follows: 1995 $20,219 1996 11,498 1997 11,981 Note 3. Employee Pensions - Individual Retirement Accounts The Company has adopted a simplified employee pension agreement under the provisions of Section 408(k) of the Internal Revenue Code. The Plan covers substantially all full-time employees who have completed two years of service and are at least 21 years old. Contributions to the Plan by the Company are discretionary in each year. The Company's contribution to the Plan for 1994 was $64,901. ADVANTAGE HEALTHCARE, INC. NOTES TO FINANCIAL STATEMENTS December 31, 1994 - -------------------------------------------------------------------------------- Note 4. Operating Leases and Related-Party Transaction Office space is leased from the stockholders under a 15-year lease agreement expiring in 2006. The agreement provides for annual rentals of $86,304, subject to an escalation at the lessor's discretion based on the CPI index. Total rents paid to related parties during 1994 was $86,304. The Company also leases medical equipment under short-term lease agreements with various expiration dates. Rental expense under these leases totaled $20,275 in 1994. The following is a schedule by year of future minimum rental payments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year as of December 31, 1994. 1995 $ 86,304 1996 86,304 1997 86,304 1998 86,304 1999 86,304 Thereafter 604,128 Note 5. Restatement of Retained Earnings at Beginning of Year Prior to January 1, 1994, the Company's financial statements were not audited and were prepared primarily on an income-tax basis of accounting. Retained earnings and related assets at the beginning of the year have been restated to reflect the use of generally accepted accounting principles (GAAP). The principal differences relate to use of an allowance for uncollectible accounts receivable versus the direct write-off method for bad debts; use of estimated economic useful lives for depreciable assets versus tax depreciable lives and recognizing the cost of DME sold under lease-to-buy arrangements with the related lease revenue. The net effect of these adjustments of $37,718 is reflected as an adjustment of beginning retained earnings in the accompanying statement of stockholders' equity. Note 6. Event Subsequent to December 31, 1994 Effective October 1, 1995, Rotech Medical Corporation through its subsidiary, Beta Medical Equipment, Inc., acquired substantially all of the assets of Advantage Healthcare, Inc. Rotech operates home healthcare agencies providing infusion therapy, medical equipment, respiratory and oxygen care in various states. Advantage Healthcare, Inc. Interim Balance Sheet (Unaudited) - -------------------------------------------------------------------------------
SEPTEMBER 30, 1995 -------------------- ASSETS Current Assets: Cash $147,515 Accounts receivable: Trade, less allowance for contractual adjustments and doubtful accounts 206,586 Inventories 30,404 Prepaid expenses and other 3,997 -------- Total Current Assets 388,502 Other Assets 2,600 Property and Equipment, less accumulated depreciation 136,741 -------- Total Assets $527,843 ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable, accrued expenses and other liabilities $ 22,329 Current maturities of long-term debt 13,045 -------- Total Current Liabilities 35,374 Other liabilities: Long-term debt 13,160 Stockholders' Equity: Common stock, no par value, stated value $100 per share, 2000 shares authorized; 300 outstanding 30,000 Retained earnings 449,309 -------- 479,309 -------- Total Liabilities and Stockholders' Equity $527,843 ========
See accompanying notes to interim financial statements (unaudited). Advantage Healthcare, Inc. Interim Statement of Cash Flows (Unaudited) - -------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 1995 ------------------ NET CASH PROVIDED BY OPERATING ACTIVITIES $ 84,830 INVESTING ACTIVITIES Purchases of property and equipment (24,584) --------- Net cash used in investing activities (24,584) FINANCING ACTIVITIES Payments on notes payable (10,319) --------- Net cash used by financing activities (10,319) --------- Increase in cash 49,927 Cash at beginning of period 97,588 --------- Cash at end of period $ 147,515 =========
See accompanying notes to interim financial statements (unaudited). Advantage Healthcare, Inc. Notes to Interim Financial Statements - September 30, 1995 (Unaudited) - ------------------------------------------------------------------------------- 1. BASIS OF REPORTING The interim balance sheet as of September 30, 1995 and the interim statements of income, stockholders' equity and cash flows for the nine months ended September 30, 1995 are unaudited. In the opinion of management, these statements have been prepared on the same basis as the audited financial statements and include all adjustments, consisting only of normal recurring accruals, necessary for the fair statement of the results of the interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These interim financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's audited financial statements as of and for the year ended December 31, 1994. The results of operations for the interim period are not necessarily indicative of the results which may be expected for an entire year. 2. SUBSEQUENT EVENT Effective October 1, 1995, the Company sold substantially all of its net assets and granted a covenant not to compete to a Florida-based provider of home health care services for approximately $2.6 million cash and 56,281 shares of the buyer's restricted common stock valued at $1.1 million. REVCO HOME HEALTH CARE CENTERS, INC. FINANCIAL STATEMENTS AS OF JUNE 3, 1995 TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Revco Home Health Care Centers, Inc.: We have audited the accompanying balance sheet of Revco Home Health Care Centers, Inc. (an Ohio corporation and an indirect wholly owned subsidiary of Revco D.S., Inc.) as of June 3, 1995 and the related statements of operations, stockholder's deficit and cash flows for the forty-four week period beginning July 30, 1994 (acquisition date) and ending June 3, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Revco Home Health Care Centers, Inc. as of June 3, 1995, and the results of its operations and cash flows for the forty-four week period beginning July 30, 1994 (acquisition date) and ending June 3, 1995 in conformity with generally accepted accounting principles. Cleveland, Ohio, December 15, 1995. REVCO HOME HEALTH CARE CENTERS, INC. ------------------------------------ BALANCE SHEET ------------- JUNE 3, 1995 ------------ ($ in 000's)
ASSETS ------ CURRENT ASSETS: Cash $ 784 Accounts receivable, net of allowance for doubtful accounts of $4,867 4,073 Inventories 4,257 Other current assets 82 ------- Total current assets 9,196 PROPERTY AND EQUIPMENT, net (Note 2) 3,128 ------- $12,324 ======= LIABILITIES AND STOCKHOLDER'S DEFICIT - ------------------------------------- CURRENT LIABILITIES: Compensation and benefits $ 332 DUE TO PARENT 13,029 ------- 13,361 STOCKHOLDER'S DEFICIT: Common stock, $.01 par value, 850 shares authorized, issued and - outstanding Accumulated deficit (1,037) ------- (1,037) ------- $12,324 =======
The accompanying notes to financial statements are an integral part of this balance sheet. REVCO HOME HEALTH CARE CENTERS, INC. ------------------------------------ STATEMENT OF OPERATIONS ----------------------- FOR THE FORTY-FOUR WEEK PERIOD BEGINNING ---------------------------------------- JULY 30, 1994 (ACQUISITION DATE) AND ENDING JUNE 3, 1995 -------------------------------------------------------- ($ in 000's) REVENUE: Sales of supplies and equipment $18,101 Equipment rental 4,923 ------- 23,024 ------- COST OF SALES 10,797 OPERATING EXPENSES 12,823 DEPRECIATION AND AMORTIZATION 441 ------- 24,061 ------- Net loss $(1,037) =======
The accompanying notes to financial statements are an integral part of this statement. REVCO HOME HEALTH CARE CENTERS, INC. ------------------------------------ STATEMENT OF STOCKHOLDER'S DEFICIT ---------------------------------- FOR THE FORTY-FOUR WEEK PERIOD BEGINNING ---------------------------------------- JULY 30, 1994 (ACQUISITION DATE) AND ENDING JUNE 3, 1995 -------------------------------------------------------- ($ in 000's)
Common Accumulated Stock Deficit Total ------- ----------- -------- BALANCE, JULY 30, 1994 $ - $ - $ - Net loss - (1,037) (1,037) ------ -------- -------- BALANCE, JUNE 3, 1995 $ - $(1,037) $(1,037) ====== ======== ========
The accompanying notes to financial statements are an integral part of this statement. REVCO HOME HEALTH CARE CENTERS, INC. ------------------------------------ STATEMENT OF CASH FLOWS ----------------------- FOR THE FORTY-FOUR WEEK PERIOD BEGINNING ---------------------------------------- JULY 30, 1994 (ACQUISITION DATE) AND ENDING JUNE 3, 1995 -------------------------------------------------------- ($ in 000's) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(1,037) Adjustments to reconcile net loss to net cash used for operating activities- Depreciation and amortization 441 Changes in assets and liabilities- Accounts receivable (1,381) Inventories 949 Other, net (13) ------- Net cash used for operating activities (1,041) ------- CASH FLOWS FROM INVESTING ACTIVITIES: Net additions to property and equipment (786) ------- Net cash used for investing activities (786) ------- CASH FLOWS FROM FINANCING ACTIVITIES: Net advances from parent 2,570 ------- Net cash provided by financing activities 2,570 ------- NET INCREASE IN CASH 743 ------- CASH, BEGINNING OF PERIOD 41 ------- CASH, END OF PERIOD $ 784 =======
The accompanying notes to financial statements are an integral part of this statement. REVCO HOME HEALTH CARE CENTERS, INC. ------------------------------------ NOTES TO FINANCIAL STATEMENTS ----------------------------- JUNE 3, 1995 ------------ 1. ORGANIZATION AND SUMMARY OF SIGNICANT ACCOUNTING POLICIES: ------------------------------ Revco Home Health Care Centers, Inc. (HHC) is a wholly owned operating subsidiary of Hook-SupeRx, Inc. (HSI). HSI is a wholly owned subsidiary of Revco D.S., Inc. (Revco and, collectively, with HSI, the Parent). The accompanying financial statements include the operating results of HHC since Revco's acquisition of HSI, which for financial reporting purposes was July 30, 1994. Revco Acquisition of HSI - ------------------------ In July 1994, Revco completed its acquisition of HSI. The acquisition was accounted for using the purchase method. Accordingly, the carrying values of HHC's net assets were adjusted to their estimated fair values. The net fair values assigned to HHC assets exceeded the Parent's allocated acquisition cost of HHC. In the accompanying financial statements, the resulting excess was allocated to reduce the values of HHC's noncurrent assets (Note 2). None of the acquisition financing or any other HSI or Revco debt has been pushed down to or recorded by HHC. Transactions with Parent - ------------------------ The Parent provided HHC with certain services including executive, legal, data processing, accounting, tax and financial services. HHC's coverage for liability, industrial compensation and other insurance was provided under programs administered by the Parent. In accordance with the Securities and Exchange Commission Rules and Regulations, certain expenses have been adjusted in the accompanying financial statements to reflect the costs incurred by the Parent on behalf of HHC. These specific expenses were allocated according to a formula based on the ratio of HHC's revenues to the Parent's revenues. Management believes that these expenses were reasonably allocated. Charges to HHC for such services totaled $450,000 for the current period and are included in operating expenses in the accompanying statement of operations. Due to Parent - ------------- The Parent provided financing to HHC through an intercompany debt account. No interest is charged to HHC on intercompany borrowings from the Parent. There are no set repayment terms relative to the due to parent account. Fiscal Year - ----------- HHC's fiscal year ends on the Saturday closest to May 31. Inventory - --------- Inventory consists primarily of medical supplies and equipment and is stated at the lower of cost or market. Cost is determined using the first-in, first-out method. Revenue Recognition - ------------------- Revenues are recognized on sales of supplies and medical equipment on the date of delivery and on rental during the time period the equipment is used by patients. A majority of HHC's revenues are billed to insurance carriers and other care providers and are subject to review for eligibility. Accounts receivable are recognized at estimatable reimbursable amounts. Provisions are made for doubtful accounts and estimated sales returns. Provision for doubtful accounts for the forty-four weeks ended June 3, 1995 was $2,995,000 and is included in operating expenses in the accompanying statement of operations. Approximately 55% of HHC's receivables are due from Medicare and Medicaid programs. Income Taxes - ------------ HHC's results of operations have been included in the consolidated federal tax returns of the Parent. The accompanying financial statements reflect the tax accounts of HHC as if it were a corporation filing separate returns. The corresponding tax amounts paid by or credited to HHC by the Parent are included in the amount due to parent on the accompanying balance sheet. No income tax benefit has been recognized in the accompanying statement of operations for the current period. 2. PROPERTY AND EQUIPMENT: ----------------------- As discussed above, as of July 30, 1994, HHC's property and equipment were adjusted to reflect the push-down of the Parent's allocation of the acquisition cost of HHC. All current period additions are stated at cost. Depreciation and amortization is provided using the straight-line method over the remaining useful lives of the respective assets. Property and equipment is summarized as follows ($ in 000's):
Financial Reporting Financial Value Reporting Before Parent Value After Estimated Push-Down of Push-Down of Useful Acquisition Acquisition Lives Cost Cost ---------- ------------- ------------ Rental equipment 5 $4,070 $2,867 Land - 84 84 Building 20 618 618 Vehicles 5 235 - Leasehold improvements 3-7 455 - Store furniture and fixtures 3-7 292 - Office equipment 3-5 181 - ------ ------ $5,935 3,569 ====== Less- Accumulated depreciation and amortization (441) ------ $3,128 ======
3. COMMITMENTS AND CONTINGENCIES: ------------------------------ HHC conducts substantially all of its retailing operations in leased premises. Future minimum lease payments under noncancelable operating leases are as follows ($ in 000's):
1996 $ 975 1997 873 1998 645 1999 514 2000 341 2001 and thereafter 1,042 ------ $4,390 ======
Rental expense for the current period was $944. HHC is subject to litigation in the normal course of business. Management believes the effect, if any, of an unfavorable settlement of litigation will not have a material effect on the financial position or results of operations of HHC. 4. SUBSEQUENT EVENT: ----------------- On September 29, 1995, the Parent completed the sale of substantially all of the assets of HHC to Responsive Home Health Care, Inc., a Florida corporation and a wholly owned subsidiary of RoTech Medical Corporation, a Florida corporation. Revco Home Health Care Centers, Inc. Interim Balance Sheet (Unaudited) - -------------------------------------------------------------------------------- SEPTEMBER 30, 1995 ------------------ ASSETS Current Assets: Cash $ - Accounts receivable: Trade, net of allowance for contractual adjustments and doubtful accounts 4,645,200 Inventories 2,615,000 ----------- Total Current Assets 7,260,200 Property and Equipment, net 3,170,670 ----------- Total Assets $10,430,870 =========== LIABILITIES AND STOCKHOLDERS' DEFICIT Current Liabilities: Compensation and benefits 500,670 ----------- Total Current Liabilities 500,670 Due to parent $10,658,000 Stockholders' Deficit: Common stock, $.01 par value, 850 shares authorized, issued and - outstanding Accumulated deficit (727,800) ----------- (727,800) ----------- Total Liabilities and Stockholders' Deficit $10,430,870 =========== See accompanying notes to interim financial statements (unaudited). Revco Home Health Care Centers, Inc. Interim Statement of Income (Unaudited) - -------------------------------------------------------------------------------- FOUR MONTHS ENDED SEPTEMBER 30, 1995 -------------------- Operating revenue $8,489,700 Cost and expenses: Cost of revenue 6,074,900 Selling, general and administrative 2,005,700 Depreciation 99,900 ---------- 8,180,500 ---------- Net Income $ 309,200 ========== See accompanying notes to interim financial statements (unaudited). Revco Home Health Care Centers, Inc. Interim Statement of Stockholders' Deficit (Unaudited) - -------------------------------------------------------------------------------- COMMON STOCK -------------- ACCUMULATED SHARES AMOUNT DEFICIT --------------------------- Balance at June 4, 1995 850 - $(1,037,000) Net income 309,200 --------------------------- Balance at September 30, 1995 850 - $(727,800) =========================== See accompanying notes to interim financial statements (unaudited). Revco Home Health Care Centers, Inc. Interim Statement of Cash Flows (Unaudited) - ------------------------------------------------------------------------------- FOUR MONTHS ENDED SEPTEMBER 30, 1995 ------------------ NET CASH PROVIDED BY OPERATING $ 1,729,570 ACTIVITIES INVESTING ACTIVITIES Purchases of property and equipment (142,570) ----------- Net cash used in investing activities (142,570) FINANCING ACTIVITIES Payments to parent (2,371,000) ----------- Net cash used by financing activities (2,371,000) ----------- Decrease in cash (784,000) Cash at beginning of period 784,000 ----------- Cash at end of period $ - =========== See accompanying notes to interim financial statements (unaudited). Revco Home Health Care Centers, Inc. Notes to Interim Financial Statements - September 30, 1995 (Unaudited) - -------------------------------------------------------------------------------- 1. BASIS OF REPORTING The interim balance sheet as of September 30, 1995 and the interim statements of income, stockholders' deficit and cash flows for the four months ended September 30, 1995 are unaudited. In the opinion of management, these statements have been prepared on the same basis as the audited financial statements and include all adjustments, consisting only of normal recurring accruals, necessary for the fair statement of the results of the interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These interim financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's audited financial statements as of and for the forty-four week period ended June 3, 1995. The results of operations for the interim period are not necessarily indicative of the results which may be expected for an entire year. 2. SUBSEQUENT EVENT Effective October 1, 1995, the Company sold substantially all of its net assets to a Florida-based provider of home health care services for $10.4 million cash. [LETTERHEAD OF TANNER & CO. APPEARS HERE] TO THE BOARD OF DIRECTORS OF VALLEY HOME MEDICAL INC. We have audited the accompanying balance sheet of Valley Home Medical Inc. as of November 30, 1994 and the combined balance sheet of Valley Home Medical, Inc. and Valley Home I.V. Services, Inc., as of November 30, 1993, and the related statements of income, stockholders' equity and cash flows for the years ended November 30, 1994 and 1993. These combined financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined financial statements based on our audit. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such combined financial statements present fairly, in all material respects, the financial position of Valley Home Medical, Inc., and Valley Home I.V. Services, Inc., as of November 30, 1994 and 1993, and the results of their operations and its cash flows of the years ended November 30, 1994 in conformity with generally accepted accounting principles. /s/ Tanner & Co. July 14, 1995 VALLEY HOME MEDICAL, INC. COMBINED BALANCE SHEET
NOVEMBER 30, 1994 1993 ---------- ---------- ASSETS ------ Current Assets: Cash $ - $ 2,452 Accounts receivable (net of allowance for doubtful accounts of $80,000 and $87,000 at November 30, 1994 and 728,613 479,992 1993, respectively) Inventories 394,924 83,148 Notes receivable - related parties 19,587 136,554 --------- -------- Total Current Assets 1,143,124 702,146 Property and Equipment, net 552,964 286,612 Other assets 3,142 9,439 Investment in Layton Drug Company - 104,366 Deferred tax asset 19,000 - --------- -------- $1,718,230 $1,102,563 ========== ==========
VALLEY HOME MEDICAL, INC. COMBINED BALANCE SHEET
NOVEMBER 30, 1994 1993 ---------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Checks written in excess of cash in $ 22,417 $ 40,165 bank Current portion of long-term debt 252,769 12,850 Note payable 153,321 26,000 Accounts payable 381,863 71,092 Accrued expenses 32,011 47,238 Income taxes payable 28,743 33,500 ---------- ---------- Total current liabilities 871,124 230,845 ---------- ---------- Long-term debt 76,379 - ---------- ---------- Total liabilities 947,503 230,845 Commitments - - Stockholders' equity: Valley Home Medical, Inc. Common Stock, no par value , 10,000 shares authorized; shares issued and outstanding, 2,500 and 1,500 at 436,021 1,500 November 30, 1994 and 1993, respectively Valley Home I.V. Services, Inc. Common stock, no par value; 10,000 shares authorized; 1,000 shares - 1,000 issued and outstanding at November 30, 1993 Retained earnings 334,706 878,218 Treasury stock - (9,000) ---------- ---------- 770,727 871,718 ---------- ---------- Total Stockholders' equity $1,718,230 $1,102,563 ========== ==========
See notes to combined financial statements. VALLEY HOME MEDICAL, INC. COMBINED STATEMENT OF INCOME
YEAR ENDED NOVEMBER 30, 1994 1993 ------------ ---------- Revenue: Net Sales 3,867,440 1,571,359 Net rental income 452,670 351,191 ----------- ---------- Total revenue 4,320,110 1,922,550 Cost of sales and rental 2,177,971 584,846 ----------- ---------- Gross profit 2,142,139 1,337,704 ----------- ---------- Selling, general and administrative 2,213,768 1,314,951 expenses ----------- ---------- Income (loss) from operations (71,629) 22,753 ----------- ---------- Other income (expense): Interest expense (18,987) (5,497) Other 34,490 59,441 ----------- ---------- 15,503 53,944 ----------- ---------- Income (loss) before income (56,126) 76,697 taxes Income taxes (provision) benefit: Current (7,000) (11,500) Deferred 19,000 (3,500) ----------- ---------- Total income taxes 12,000 (15,000) ----------- ---------- Net (loss) income $ (44,126) $ 61,697 =========== ==========
See notes to combined financial statements. VALLEY HOME MEDICAL, INC. COMBINED STATEMENT OF STOCKHOLDERS' EQUITY YEARS ENDED NOVEMBER 30, 1994 AND 1993
VALLEY HOME VALLEY HOME MEDICAL, INC. I.V. SERVICES, INC. COMMON STOCK COMMON STOCK ---------------------- ----------------------- NO. OF NO. OF RETAINED TREASURY SHARES AMOUNT SHARES AMOUNT EARNINGS STOCK ---------- --------- --------- -------- ----------- ------------- Balance, December 1, 1992 1,500 $ 1,500 1,000 $ 1,000 $ 816,521 $(9,000) Net Income - - - - 61,697 - ------- -------- ------ ------- --------- ------- Balance, November 30, 1993 1,500 1,500 1,000 1,000 878,218 (9,000) Acquisition of Valley Home I.V. Services, Inc. 1,000 434,521 (1,000) (1,000) (442,521) 9,000 Distribution to shareholders in connection with acquisition of Layton - - - - (56,865) - Drug Company, Inc. Net (loss) - - - - (44,126) - ------- -------- ------ ------- --------- ------- Balance, November 30, 1994 2,500 $436,021 - - 334,706 - ======= ======== ======= ======== ========= =======
See notes to combined financial statements. Valley Home Medical, Inc. Statement of Cash Flows Years Ended November 30, 1994 and 1993 1994 1993 ---------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Reconciliation of net income to net cash provided by operating activities: Net Income (loss) $ (44,126) 61,697 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation 135,282 65,680 Loss on disposal of assets 13,247 - (Increase) decrease in: Accounts receivable (120,590) 48,087 Inventories (776) (20,308) Other assets 6,297 1,353 Increase (decrease) in: Checks written in excess of cash in bank (17,748) 40,165 Accounts payable 58,222 11,393 Accrued expenses (15,227) 6,049 Income taxes payable (4,757) (22,000) Deferred income taxes (19,000) 3,500 --------- --------- Net cash (used in) provided by operating activities (9,176) 195,616 --------- --------- CASH FLOWS FROM INVESTMENT ACTIVITIES: Purchase of property and equipment (398,494) (139,878) Payments received from notes receivable 116,967 - Increase in notes receivable - (136,554) Decrease in investment - 7,114 --------- --------- Net cash (used in) investing activities (281,527) (269,318) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net changes in notes payable 140,471 30,801 Proceeds from long-term debt 244,128 - Principal payments on long-term debt (96,348) --------- --------- Net cash provided by (used in) financing activities 288,251 30,801 --------- --------- VALLEY MEDICAL, INC. STATEMENT OF CASH FLOWS - CONTINUED
YEAR ENDED NOVEMBER 30, 1994 1993 ------------------------- Net decrease in cash (2,452) (42,901) Cash, beginning of year 2,452 45,353 ------- ------ Cash, end of year $ - 2,452 ======= ====== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $ 5,837 6,321 ======= ====== Income taxes $12,094 30,184 ======= ======
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Effective January 1, 1994, the Company increased its ownership in Layton Drug Company, Inc., from 30 percent to 100 percent. The Company did this through the issuance of a note payable in the amount of $155,369. At the time of the increase in ownership, Layton Drug Company, Inc., had the following assets and liabilities:
Accounts Receivable $ 128,032 Inventory 311,000 Office equipment 19,119 Accumulated depreciation (2,732) Accounts payable (252,549) --------- Equity at January 1, 1994 202,870 Less total investment in Layton Drug Company Inc. Investment in Layton Drug (104,366) Issuance of note payable (155,369) --------- Net excess of consideration paid over assets acquired $ (56,865) =========
See notes to combined financial statements. VALLEY HOME MEDICAL, INC. NOTES TO COMBINED FINANCIAL STATEMENTS NOVEMBER 30, 1994 AND 1993 1. BASIS OF PRESENTATION The financial statements present the financial condition, results of operation and cash flows of Valley Home Medical, Inc. (Company) at November 30, 1994 and for the year then ended. The Company acquired Valley Home I.V. Services (Home I.V.) effective December 1, 1993. The acquisition was effected through a stock-for-stock transaction wherein the Company issued 1,500 shares of its common stock for 100 percent of the outstanding common stock of Home I.V. The acquisition was accounted for as a purchase with all assets and liabilities recorded at their historical cost. Home I.V. had similar ownership as the Company. At the time of the acquisition, the Corporation of Home I.V. was terminated. Effective January 1, 1994, the Company acquired the remaining 70 percent of Layton Drug Company, Inc. (Layton Drug). The Company previously owned 30 percent. The Company issued a note payable in the amount of $155,369 for the remaining interest in Layton Drug. At the time of the acquisition, the Company's investment in Layton Drug plus the issued note payable exceeded the equity of Layton Drug by $212,234. This has been recorded as a distribution. The owners of Layton Drug are similar to those of the Company. The financial statements at November 30, 1994 and the year then ended include those of the Company and Home I.V. for the entire year and Layton Drug from January 1, 1994. The combined financial statements at November 30, 1993 and for the year then ended include those of the Company and Home I.V. Layton Drug was accounted for on the equity method as the Company had a 30 percent interest. 2. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNT POLICIES ORGANIZATION Valley Home Medical, Inc., (the Company) was incorporated under the laws of the State of Utah on December 28, 1983. The primary purpose of the Company is to rent and sell medical equipment, supplies and pharmaceutical products. INVENTORIES Inventories consist of pharmaceutical, medical equipment and supplies held for sale and are stated at the lower of average cost (FIFO basis) or market. VALLEY HOME MEDICAL, INC. NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED 2. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED PROPERTY AND EQUIPMENT Property and equipment is stated at cost. Depreciation and amortization is computed using the straight-line method over estimated useful lives or lease terms as follows: Leasehold improvements 5-10 years Furniture and fixtures 5-10 years Rental equipment 3-10 years Equipment and signs 5 years Vehicles 5 years INCOME TAXES Deferred income taxes are provided in amounts sufficient to give effect to temporary differences between financial and tax reporting, principally related to depreciation and the allowance for bad debts. REVENUE RECOGNITION The Company is involved in the business of selling pharmaceutical products, providing respiratory services and equipment sales and the sale of rehabilitation and adaptive equipment. Revenues are accounted for as follows: * Patient revenues are recognized net of contractual adjustments related to third party payers when services are rendered. The amount paid by third party payors is dependent upon the benefits included in the patient's policy. * Other revenues are recognized as the services are rendered or the sales are made. CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject the Company to concentration of credit risk consist primarily of trade receivables. In the normal course of business, the Company provides credit terms to its customers. Accordingly, the Company performs ongoing credit evaluations of its customers and maintains allowances for possible losses which, when realized, have been within the range of management's expectations. The Company's customer base consists primarily of individuals in the state of Utah. Substantially all revenues and accounts receivable are from these customers. VALLEY HOME MEDICAL, INC. NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED 2. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED CASH AND CASH EQUIVALENTS For purposes of the statement of cash flows, the Company considers all short-term securities purchased with a maturity of three months or less to be cash equivalents. 3. NOTES RECEIVABLE The Company has the following notes receivable at November 30, 1994 and 1993: 1994 1993 -------- ------- Notes receivable from an officer/shareholder at an interest rate of 10%, due on demand, unsecured $19,587 24,054 Note receivable from a related entity at an interest rate of 10%, due on demand, unsecured - 112,500 ------- ------- Total $19,587 136,554 ======= ======= 4. PROPERTY AND EQUIPMENT Property and equipment at November 30, 1994 and 1993 consisted of the following: 1994 1993 ----------- --------- Rental equipment $ 411,067 324,902 Equipment 117,110 132,485 Furniture and fixtures 262,802 65,337 Vehicles 218,435 148,734 Leasehold improvements 12,263 12,128 ---------- -------- 1,021,677 683,586 Less accumulated depreciation and (468,713) (396,974) amortization ---------- -------- Property and equipment - net $ 552,964 286,612 ========== ======== VALLEY HOME MEDICAL, INC. NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED 5. INVESTMENT At November 30, 1993, the Company had a 30 percent investment in Layton Drug Company. The investment was accounted for on the equity method of accounting. The equity value was $104,366 at November 30, 1993. Effective January 1, 1994, the Company acquired the remaining 70 percent ownership in Layton Drug through the issuance of a note payable of $155,369. Upon acquiring the remaining ownership, the Layton Drug Corporation was terminated. Operations of Layton Drug have been included in the financial statements from January 1, 1994 through November 30, 1994. 6. NOTE PAYABLE Note payable at November 30, 1994 and 1993 consisted of the following: 1994 1993 -------- ------ Line of credit payable to a financial institution due May 14, 1996; with interest payments at the bank's prime rate (8.5% at November 30, 1994) plus 1.50% payable monthly; collateralized by accounts receivable and inventory $153,321 26,000 ======== ====== 7. LONG-TERM DEBT Long-term debt at November 30, 1994 and 1993 consisted of the following: 1994 1993 -------- ------ Note payable to an officer/shareholder on demand with no interest requiring no monthly payment, secured by $155,369 - inventory Note payable to a company requiring monthly payments of $8,003 including interest at a rate of 6.25%, due April 125,650 - 1996, unsecured VALLEY HOME MEDICAL, INC. NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED 7. LONG-TERM DEBT Long-term debt at November 30, 1994 and 1993 consisted of the following: 1994 1993 --------- -------- Notes payable to a financial institution, payable in aggregate monthly installments of $626 including interest at 10.95%, collateralized by certain pieces of property and equipment 28,870 - Note payable to a financial institution requiring monthly payments of $471 including interest at 9.0%, due on demand and unsecured 19,259 - Note payable to an officer shareholder at an interest rate of 10% due on demand and unsecured - 12,850 -------- ------ 329,148 12,850 Less current portion 252,769 12,850 -------- ------ Long-term debt $ 76,379 - ======== ====== Future maturities of long-term debt at November 30, 1994 were as follows: Year ending November 30: 1995 $252,769 1996 46,535 1997 10,587 1998 11,702 1999 7,555 -------- $329,148 ======== VALLEY HOME MEDICAL, INC. NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED 8. RELATED PARTY TRANSACTIONS The Company has notes receivable and notes payable to related parties at November 30, 1994 and 1993. For more detail of the terms of the notes see notes 3, 6, and 7. A summary of related party notes and approximate balances are as follows: 1994 1993 -------- ------- Accounts receivable - related party $ 80,000 80,000 ======== ======= Notes receivable - officer shareholder $ 19,587 24,059 ======== ======= Note receivable - related entity $ - 112,500 ======== ======= Notes payable - officer shareholder $155,369 12,850 ======== ======= Interest Income $ 1,850 2,000 ======== ======= Interest Expense $ 14,250 1,300 ======== ======= In addition, during fiscal year 1994, the Company entered into a lease agreement with a related party to rent its primary facility under a noncancellable lease with monthly payments $11,000. Rent expense was $81,441. 9. INCOME TAXES The provisions for income taxes differs from the amount computed at federal statutory rates as follows: 1994 1993 --------- -------- Tax at statutory rates $(23,000) (14,000) State tax (5,000) (1,000) -------- ------- $(28,000) (15,000) ======== ======= The deferred tax asset for the years ended November 30, 1994 and 1993, results from temporary differences between financial statement income primarily related to the difference in the writing off of bad debts for financial reporting and income taxes. VALLEY HOME MEDICAL, INC. NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED 10. FRANCHISE AGREEMENT The Company has entered into a franchise agreement with another entity in which it is required to pay 9 percent of the collections on certain sales. The agreement will expire in January 1996. The amount paid on the obligation was $96,471 and $106,040 in fiscal years 1994 and 1993, respectively. 11. LEASES OPERATING LEASES The Company leased a building from a related party in 1994 and part of 1993 under noncancelable operating leases. The Company also leased a building from a non-related party in 1993. Rent expense approximated $81,000 and $20,000 for the years ended November 30, 1994 and 1993, respectively. Future minimum annual rentals under the operating leases as of November 30, 1994 were as follows:
Year ending November 30: 1995 $ 132,000 1996 132,000 1997 132,000 1998 132,000 1999 132,000 Thereafter 1,859,000 ---------- Total $2,519,000 ==========
Valley Home Medical, Inc. Interim Balance Sheet (Unaudited) - -------------------------------------------------------------------------------- OCTOBER 31, 1995 ---------------- ASSETS Current Assets: Cash $ (109,077) Accounts receivable: Trade, less allowance for contractual adjustments and doubtful accounts 1,206,383 Inventories 514,428 Prepaid expenses and other 14,399 ---------- Total Current Assets 1,626,133 Property and Equipment, less accumulated depreciation 563,423 ---------- Total Assets $2,189,556 ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable, accrued expenses and other liabilities $ 617,775 Current maturities of long-term debt 320,568 ---------- Total Current Liabilities 938,343 Other liabilities: Long-term debt 182,891 Stockholders' Equity: Common stock, no par value, 10,000 shares authorized; 1,000 issued and outstanding 436,021 Retained earnings 632,301 ---------- 1,068,322 ---------- Total Liabilities and Stockholders' Equity $2,189,556 ========== See accompanying notes to interim financial statements (unaudited). Valley Home Medical, Inc. Interim Statement of Income (Unaudited) - -------------------------------------------------------------------------------
ELEVEN MONTHS ENDED OCTOBER 31, 1995 ------------------- Operating revenue $4,597,431 Cost and expenses: Cost of revenue 2,328,215 Selling, general and administrative 1,916,675 Depreciation 31,122 Interest 23,824 ---------- 4,299,836 ---------- Net income $ 297,595 ==========
See accompanying notes to interim financial statements (unaudited). Valley Home Medical, Inc. Interim Statement of Stockholders' Equity (Unaudited) - -------------------------------------------------------------------------------
COMMON STOCK RETAINED ----------------- SHARES AMOUNT EARNINGS ---------------------------- Balance at January 1, 1995 2,500 $436,021 $334,706 Net income 297,595 ---------------------------- Balance at October 31, 1995 2,500 $436,021 $632,301 ============================
See accompanying notes to interim financial statements (unaudited). Valley Home Medical, Inc. Interim Statement of Cash Flows (Unaudited) - -------------------------------------------------------------------------------
ELEVEN MONTHS ENDED OCTOBER 31, 1995 --------------------- NET CASH USED BY OPERATING ACTIVITIES $(196,150) INVESTING ACTIVITIES Purchases of property and equipment (19,439) --------- Net cash used in investing activities (19,439) FINANCING ACTIVITIES Proceeds from notes payable 106,512 --------- Net cash provided by financing activities 106,512 --------- Decrease in cash (109,077) Cash at beginning of period - --------- Cash at end of period $(109,077) =========
See accompanying notes to interim financial statements (unaudited). Valley Home Medical, Inc. Notes to Interim Financial Statements - October 31, 1995 (Unaudited) - -------------------------------------------------------------------- 1. BASIS OF REPORTING The interim balance sheet as of October 31, 1995 and the interim statements of income, stockholders' equity and cash flows for the eleven months ended October 31, 1995 are unaudited. In the opinion of management, these statements have been prepared on the same basis as the audited financial statements and include all adjustments, consisting only of normal recurring accruals, necessary for the fair statement of the results of the interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These interim financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's audited financial statements as of and for the year ended November 30, 1994. The results of operations for the interim period are not necessarily indicative of the results which may be expected for an entire year. 2. SUBSEQUENT EVENT Effective November 1, 1995, the Company sold substantially all of its net assets and granted a covenant not to compete to a Florida-based provider of home health care services for $3.3 million cash. RoTech Medical Corporation and Subsidiaries Pro Forma Condensed Combined Financial Statements The pro forma condensed combined financial statements for the year ended July 31, 1995 have been prepared to illustrate the estimated combined effects of the Agreements of Purchase and Sales (Agreements) between RoTech Medical Corporation (the Company) and Advantage, Hooks and Valley. The pro forma condensed combined balance sheet as of July 31, 1995 was derived by adjusting the historical balance sheet as of July 31, 1995 of the Company and the historical balance sheet as of September 30, 1995 of Advantage, the historical balance sheet as of June 3, 1995 of Hooks and the historical balance sheet as of October 31, 1995 of Valley. The pro forma condensed combined statement of income was derived by adjusting the historical statement for the year ended July 31, 1995 of the Company and the historical statement of income for the year ended September 30, 1995 of Advantage, the historical statement of income for the forty-four week period ended June 3, 1995 of Hooks and the historical statement of income for the year ended October 31, 1995 of Valley. The pro forma condensed combined statement of income was prepared as if each purchase and sale had occurred on August 1, 1994. The pro forma condensed combined statement of income presented is not necessarily indicative of the results of operations that might have occurred had the transaction been completed as of the date specified or of the results of operations of the Company and its subsidiaries for any future period. No changes in operating revenue and expenses have been made to reflect the results of any modification to operations that might have been made had the Agreements been consummated on the aforesaid assumed effective date for purposes of presenting pro forma results. Certain supportable payroll costs attributable to acquired entities' employees whose services would have been terminated upon the effective date of purchase and sale along with certain expenses for duplicate locations have been eliminated. The acquisitions have been accounted for in accordance with the purchase method of accounting. The pro forma condensed combined statement of income includes amortization of intangible assets as if the Agreements had been completed on the assumed effective date referred to above. The pro forma condensed combined financial statements should be read in conjunction with the audited consolidated financial statements and related notes thereto included in the Company's July 31, 1995 Form 10-K. ROTECH MEDICAL CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- Pro Forma Condensed Combined Statements of Income
For the Year Ended July 31, 1995 ------------------------------------------------------------ (Unaudited) RoTech RoTech Medical Medical Corporation Corporation Consolidated Combined Combined Year Ended Acquired Pro Forma Pro Forma July 31, 1995 Entities Adjustments Results ------------------------------------------------------------ Operating revenue $134,111,458 $33,180,673 $167,292,131 Cost and expenses: Cost of revenue 36,287,811 15,497,748 (1,200,000)(a) 50,585,559 Selling, general and administrative 66,477,381 18,533,434 (1,875,000)(b) 83,135,815 Depreciation and amortization 9,565,238 546,828 304,000 (c) 10,416,066 Interest 835,462 (18,271) 1,108,400 (d) 1,925,591 ------------ ---------- ---------- ----------- 113,165,892 34,559,739 (1,662,600) 146,063,031 ------------ ---------- ---------- ----------- Income before income taxes 20,945,566 (1,379,066) 1,662,600 21,229,100 Income tax expense 7,800,800 (12,000) 117,474 (e) 7,906,274 ------------ ---------- ---------- ----------- Net Income $13,144,766 ($1,367,066) $1,545,126 $13,322,826 ============ ========== ========== =========== Net Income Per Share $1.27 $1.29 ============ =========== Weighted Average Number of Shares Outstanding 10,342,000 10,342,000
RoTech Medical Corporation and Subsidiaries Notes to Pro Forma Condensed Combined Financial Statements (1) Elimination of net book value of certain assets and liabilities not aquired. Reclassification of certain liabilities assumed to accounts payable. (2) Purchase price paid as an increase in current note payable to bank. Elimination of the acquired entities' equity in accordance with the purchase method of accounting. (Shares issued as consideration paid for acquired entities' net assets are contingent and, therefore, not recorded as outstanding and not included in the weighted average share calculations.) (3) Additional intangibles resulting from the excess of the purchase price over the net assets acquired and non-compete contracts. This adjustment does not contemplate any change to the purchase price for the differences in the business purchased at their respective dates of acquisition compared to what the purchase price may have been as of August 1, 1994. (a) Supportable adjustments to reduce the acquired entities' cost of revenue based on minimum cost savings to be gained by those acquired entities purchasing goods under the Company's contractual arrangements. (b) Supportable general and administrative expenses relating directly to the payroll and related expenses of those terminated employees and locations determined to be duplicated by the Company's existing structure and therefore would not be needed after the acquisition. Elimination of estimated non-recurring expenses incurred by Advantage, Hooks and Valley. (c) Amortization of intangibles recorded in the acquisition (amortized over various lives from 5 to 25 years). (d) Additional interest expense related to borrowings for cash paid to acquire Advantage, Hooks and Valley; assumed borrowed on August 1, 1994, less interest expense pertaining to liabilities not assumed by the Company. Assumed 6.8% interest rate on purchase price. (e) Adjustment to income tax expense for the tax expense relating to the net income as adjusted for the combined entity. Income taxes are calculated on the basis that operations of the consolidated company could be combined as one company for federal income tax purposes at the actual historical rate for the period. No assurance can be given that these tax benefits will be realizable by the Company. RoTech Medical Corporation and Subsidiaries Pro Forma Condensed Combined Interim Financial Statements The pro forma condensed combined interim financial statements for the three months ended October 31, 1995 have been prepared to illustrate the estimated combined effects of the Agreements of Purchase and Sale (Agreements) between RoTech Medical Corporation (the Company) and Advantage, Hooks and Valley. The pro forma condensed combined interim statement of income was derived by adjusting the unaudited historical statement for the three months ended October 31, 1995 of the Company and the unaudited historical interim statement of income for the nine months ended September 30, 1995 of Advantage, the unaudited historical interim statement of income for the four months ended September 30, 1995 of Hooks and the unaudited historical interim statement of income for the eleven months ended October 31, 1995 of Valley. The pro forma condensed combined interim statement of income was prepared as if each purchase and sale had occurred on August 1, 1995. The pro forma condensed combined interim statement of income presented is not necessarily indicative of the results of operations that might have occurred had the transaction been completed as of the date specified or of the results of operations of the Company and its subsidiaries for any future period. No changes in operating revenue and expenses have been made to reflect the results of any modification to operations that might have been made had the Agreements been consummated on the aforesaid assumed effective date for purposes of presenting pro forma results. Certain supportable payroll costs attributable to acquired entities' employees whose services would have been terminated upon the effective date of purchase and sale along with certain expenses for duplicate locations have been eliminated. The acquisitions have been accounted for in accordance with the purchase method of accounting. The pro forma condensed combined interim statement of income includes amortization of intangible assets as if the Agreements had been completed on the assumed effective date referred to above. The pro forma condensed combined interim financial statements should be read in conjunction with the audited consolidated financial statements and related notes thereto included in the Company's July 31, 1995 Form 10-K and the condensed consolidated interim financial statements and the related notes thereto included in the Company's October 31, 1995 Form 10-Q. ROTECH MEDICAL CORPORATION AND SUBSIDIARIES - -------------------------------------------------------------------------------- Pro Forma Condensed Combined Interim Statements of Income
For the Three Months Ended October 31, 1995 ---------------------------------------------------------- (Unaudited) RoTech Medical RoTech Corporation Medical Consolidated Corporation Three Months Combined Combined Ended Acquired Pro Forma Pro Forma October 31, 1995 Entities Adjustments Results -------------------------------------------------------------- Operating revenue $45,119,179 $5,821,884 $50,941,063 Cost and expenses: Cost of revenue 12,247,877 4,263,844 (200,000)(a) 16,311,721 Selling, general and administrative 21,648,847 1,716,170 (500,000)(b) 22,865,017 Depreciation and amortization 3,897,523 68,830 72,500 (c) 4,038,853 Interest 440,963 7,135 203,433 (d) 651,531 ------------- ---------- --------- ----------- 38,235,210 6,055,979 (424,067) 43,867,122 ------------- ---------- --------- ----------- Income before income taxes 6,883,969 (234,095) 424,067 7,073,941 Income tax expense 2,560,836 0 70,669 (e) 2,631,505 ------------- ---------- --------- ----------- Net Income $4,323,133 $ (234,095) $353,397 $4,442,435 ============= ========== ========= =========== Net Income Per Share $0.37 $0.38 ============= ========== Weighted Average Number of Shares Outstanding 11,823,000 11,823,000
RoTech Medical Corporation and Subsidiaries Notes to Pro Forma Condensed Combined Interim Financial Statements (a) Supportable adjustment to reduce the acquired entities' cost of revenue based on minimum cost savings to be gained by those acquired entities purchasing goods under the Company's contractual arrangements. (b) Supportable general and administrative expenses relating directly to the payroll and related expenses of those terminated employees and locations determined to be duplicated by the Company's existing structure and therefore would not be needed after the acquisition. Elimination of estimated non-recurring expenses incurred by Advantage, Hooks and Valley. (c) Amortization of intangibles recorded in the acquisition (amortized over various lives from 5 to 25 years). (d) Additional interest expense related to borrowings for cash paid to acquire Advantage, Hooks and Valley; assumed borrowed on August 1, 1995, less interest expense pertaining to liabilities not assumed by the Company. Assumed 6.8% interest rate on purchase price. (e) Adjustment to income tax expense for the tax expense relating to the net income as adjusted for the combined entity. Income taxes are calculated on the basis that operations of the consolidated company could be combined as one company for federal income tax purposes at the actual historical rate for the period. No assurance can be given that these tax benefits will be realizable by the Company. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amendment of Report on 8-K to be signed on its behalf by the undersigned hereunto duly authorized. RoTech Medical Corporation, a Florida Corporation Dated: January 11, 1996 By: /s/ Stephen P. Griggs ---------------- -------------------------- Stephen P. Griggs, President and Chief Operating Officer -----END PRIVACY-ENHANCED MESSAGE-----