-----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, Q8PdZCIa2vjFR1fdTYfvZD8MX27D4K2eKRSnhHWLF3ad7pqA6usxMgZrUeAqFEPO KB627ZQsM6/LQz5K6WrB2g== 0000950134-97-001711.txt : 19970312 0000950134-97-001711.hdr.sgml : 19970312 ACCESSION NUMBER: 0000950134-97-001711 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19961226 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970311 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GULF SOUTH MEDICAL SUPPLY INC CENTRAL INDEX KEY: 0000889885 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MEDICAL, DENTAL & HOSPITAL EQUIPMENT & SUPPLIES [5047] IRS NUMBER: 640831411 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-23540 FILM NUMBER: 97554663 BUSINESS ADDRESS: STREET 1: 426 CHRISTINE DR CITY: RIDGELAND STATE: MS ZIP: 39157 BUSINESS PHONE: 6018565900 MAIL ADDRESS: STREET 1: 426 CHRISTINE DR CITY: RIDGELAND STATE: MS ZIP: 39157 8-K/A 1 AMENDMENT NO.1 TO FORM 8-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 __________ FORM 8-K/A AMENDMENT NO. 1 TO FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): December 26, 1996 Gulf South Medical Supply, Inc. ------------------------------------------------------ (Exact name of Registrant as specified in its charter) Delaware 0-21512 06-1251310 - ---------------------------- ----------- ------------------- (State or other jurisdiction (Commission (IRS Employer of Incorporation) File number) Identification No.) 426 Christine Drive, Ridgeland, MS 39157 ---------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (601) 856-5900 2 The undersigned registrant hereby amends and restates Item 7 of its Current Report on Form 8-K dated December 26, 1996, so that as so amended and restated said Item 7 shall read in its entirety as set forth on the following pages. -2- 3 Item 7. Financial Statements, Pro Forma Financial Information and Exhibits (a) Financial Statements of Business Acquired. The following audited consolidated financial statements of Gateway Healthcare Corporation, together with the report thereon manually signed by KPMG Peat Marwick LLP, are included as Exhibit 99.1 to this report and incorporated herein by this reference: Consolidated Balance sheets as of December 31, 1995 and 1994 and September 30, 1996 (unaudited) and 1995 (unaudited) Consolidated Statements of Operations for the years ended December 31, 1995 and 1994 and for the nine months (unaudited) ended September 30, 1996 and 1995 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1995 and 1994 and the nine months ended September 30, 1996 (unaudited) Consolidated Statements of Cash Flows for the years ended December 31, 1995 and 1994 and for the nine months (unaudited) ended September 30, 1996 and 1995 Notes to Consolidated Financial Statements (b) Pro Forma Financial Information. The following unaudited pro forma combined financial statements are included as Exhibit 99.2 to this report and are incorporated herein by this reference: Unaudited Pro Forma Combined Balance Sheets as of September 30, 1996 Unaudited Pro Forma Combined Statements of Operations for the years ended December 31, 1995 and 1994 and the nine months ended September 30, 1996 Notes to Unaudited Pro Forma Combined Financial Information (c) Exhibits.
Exhibit No. Description - ----------- ----------- 2.1* Stock Purchase Agreement dated as of November 19, 1996 among Gulf South Medical Supply, Inc., Gateway Healthcare Corporation ("Gateway") and the stockholders of Gateway listed on the signature pages thereto ("Gateway Stock Purchase Agreement"). 2.2* Amendment and Waiver Agreement, dated as of December 26, 1996 among Gateway, the stockholders of Gateway listed on the signature pages thereto
-3- 4 and Gulf South Medical Supply, Inc., to the Gateway Stock Purchase Agreement. 23.1 Consent of KPMG Peat Marwick LLP 99.1 The following audited consolidated financial statements of Gateway Healthcare Corporation, together with the report thereon manually signed by KPMG Peat Marwick LLP Consolidated Balance sheets as of December 31, 1995 and 1994 and September 30, 1996 (unaudited) and 1995 (unaudited) Consolidated Statements of Operations for the years ended December 31, 1995 and 1994 and for the nine months (unaudited) ended September 30, 1996 and 1995 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1995 and 1994 and the nine months ended September 30, 1996 (unaudited) Consolidated Statements of Cash Flows for the years ended December 31, 1995 and 1994 and for the nine months (unaudited) ended September 30, 1996 and 1995 Notes to Consolidated Financial Statements 99.2 The following unaudited pro forma combined financial statements: Unaudited Pro Forma Combined Balance Sheets as of September 30, 1996 Unaudited Pro Forma Combined Statements of Operations for the years ended December 31, 1995 and 1994 and the nine months ended September 30, 1996 Notes to Unaudited Pro Forma Combined Financial Information
- ----------------- *Previously filed with the Company's Current Report on Form 8-K dated December 26, 1996 filed on January 9, 1997. -4- 5 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this amendment to be signed on its behalf by the undersigned hereunto authorized. GULF SOUTH MEDICAL SUPPLY, INC. Date: March 11, 1997 By: /s/ Thomas G. Hixon ----------------------------- Thomas G. Hixon -5- 6 EXHIBIT INDEX
Exhibit No. Description - ------- 2.1* Stock Purchase Agreement dated as of November 19, 1996 among Gulf South Medical Supply, Inc., Gateway Healthcare Corporation ("Gateway") and the stockholders of Gateway listed on the signature pages thereto ("Gateway Stock Purchase Agreement"). 2.2* Amendment and Waiver Agreement, dated as of December 26, 1996 among Gateway, the stockholders of Gateway listed on the signature pages thereto and Gulf South Medical Supply, Inc., to the Gateway Stock Purchase Agreement. 23.1 Consent of KPMG Peat Marwick LLP 99.1 The following audited consolidated financial statements of Gateway Healthcare Corporation, together with the report thereon manually signed by KPMG Peat Marwick LLP Consolidated Balance sheets as of December 31, 1995 and 1994 and September 30, 1996 (unaudited) and 1995 (unaudited) Consolidated Statements of Operations for the years ended December 31, 1995 and 1994 and for the nine months (unaudited) ended September 30, 1996 and 1995 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1995 and 1994 and the nine months ended September 30, 1996 (unaudited) Consolidated Statements of Cash Flows for the years ended December 31, 1995 and 1994 and for the nine months (unaudited) ended September 30, 1996 and 1995 Notes to Consolidated Financial Statements 99.2 The following unaudited pro forma combined financial statements: Unaudited Pro Forma Combined Balance Sheets as of September 30, 1996 Unaudited Pro Forma Combined Statements of Operations for the years ended December 31, 1995 and 1994 and the nine months ended September 30, 1996 Notes to Unaudited Pro Forma Combined Financial Information
- -------------- *Previously filed with the Company's Current Report on Form 8-K dated December 26, 1996 filed on January 9, 1997. -6- EX-23.1 2 CONSENT OF KPMG PEAT MARWICK LLP 1 EXHIBIT 23.1 Consent of Independent Auditors The Board of Directors Gulf South Medical Supply: We consent to the incorporation by reference in the registration statements (No. 33-83714, No. 333-10939 and No. 333-20395) on Forms S-8, S-3 and S-3, respectively, of Gulf South Medical Supply of our report dated April 10, 1996, with respect to the consolidated balance sheets of Gateway Healthcare Corporation and subsidiary, a then majority-owned subsidiary of North American Fund II, as of December 31, 1995 and 1994, and the related consolidated statements of operations, changes in stockholder's equity, and cash flows for the years then ended, which report appears in the Form 8-K/A of Gulf South Medical Supply dated March 11, 1997. (signed) KPMG Peat Marwick LLP Richmond, Virginia March 10, 1997 EX-99.1 3 AUDITED FINANCIAL STMTS OF GATEWAY HEALTHCARE CORP 1 EXHIBIT 99.1 Consolidated Financial Statements Gateway Healthcare Corporation and Subsidiary (a majority-owned subsidiary of North American Fund II) Years ended December 31, 1995 and 1994, and the nine months (unaudited) ended September 30, 1996 and 1995 with Report of Independent Auditors 2 Gateway Healthcare Corporation and Subsidiary Consolidated Financial Statements Years ended December 31, 1995 and 1994 and the nine months (unaudited) ended September 30, 1996 and 1995 CONTENTS Report of Independent Auditors . . . . . . . . . . . .. . . . . . . . . . 1 Consolidated Financial Statements Consolidated Balance Sheets . . . . . . . . . . . . . .. . . . . . . . . . 2 Consolidated Statements of Operations . . . . . . . . .. . . . . . . . . . 4 Consolidated Statements of Stockholder's Equity . . . .. . . . . . . . . . 5 Consolidated Statements of Cash Flows . . . . . . . . .. . . . . . . . . . 6 Notes to Consolidated Financial Statements . . . . . .. . . . . . . . . . 7
3 Report of Independent Auditors The Board of Directors Gateway Healthcare Corporation We have audited the accompanying consolidated balance sheets of Gateway Healthcare Corporation and subsidiary, a majority-owned subsidiary of North American Fund II, as of December 31, 1995 and 1994, and the related consolidated statements of operations, changes in stockholder's equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. 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, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Gateway Healthcare Corporation and subsidiary as of December 31, 1995 and 1994, and the results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP April 10, 1996 1 4 Gateway Healthcare Corporation and Subsidiary (a majority-owned subsidiary of North American Fund II) Consolidated Balance Sheets (in thousands, except share information)
DECEMBER 31 SEPTEMBER 30 1995 1994 1996 1995 -------------------------- --------------------------- (unaudited) ASSETS (NOTE 4) Current assets: Cash and cash equivalents $ 210 $ 160 $ 32 $ 9 Accounts receivable, less allowances for doubtful accounts of $250 and $184 at December 31, 1995 and 1994 and $202 (unaudited) and $285 (unaudited) at September 30, 1996 and 1995 (Note 10) 9,392 4,455 11,443 7,742 Inventories 5,351 3,170 5,809 4,788 Prepaid expenses 89 47 99 121 ------------------------ ------------------------- Total current assets 15,042 7,832 17,383 12,660 Property and equipment, net (Note 3) 1,380 866 1,237 1,159 Intangible and other assets, at cost: Noncompete agreements 839 829 839 839 Deferred charges 470 380 493 444 Goodwill 3,381 1,468 3,381 3,382 Other intangible assets 309 266 273 299 ------------------------ ------------------------- 4,999 2,943 4,986 4,964 Accumulated amortization (1,659) (1,379) (1,903) (1,573) ------------------------ ------------------------- 3,340 1,564 3,083 3,391 ------------------------ ------------------------- Total assets $ 19,762 $ 10,262 $ 21,703 $ 17,210 ======================== =========================
continued 2 5 Gateway Healthcare Corporation and Subsidiary (a majority-owned subsidiary of North American Fund II) Consolidated Balance Sheets, continued (in thousands, except share information)
DECEMBER 31 SEPTEMBER 30 1995 1994 1996 1995 ------------------------ ------------------------ (unaudited) LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Bank overdraft $ 1,404 $ - $ 1,008 $ 587 Accounts payable 4,153 2,194 4,777 3,952 Note payable to bank (Note 5) 4,473 - 7,523 3,000 Note payable to parent (Note 5) 1,000 450 1,000 1,000 Notes payable (Note 5) 408 - 25 864 Other accrued expenses 900 461 631 328 ---------------------- ---------------------- Total current liabilities 12,338 3,105 14,964 9,731 Long-term debt(Note 5) 3,192 3,210 3,176 3,202 Total liabilities 15,530 6,315 18,140 12,933 Stockholder's equity (Note 1): Common stock, $0.01 par value. Authorized 10,000,000 shares, issued and outstanding 545,000 and 525,000 shares at December 31, 1995 and 1994 and 545,000 (unaudited) and 525,000 (unaudited) shares at September 30, 1996 and 1995 5 5 5 5 Convertible preferred stock, $117.69 par value, $10 liquidation value. Authorized, issued and outstanding 13,000 shares (Note 5) 200 200 200 200 Additional paid-in capital 5,565 5,365 5,565 5,365 Accumulated deficit (1,538) (1,623) (2,207) (1,293) ---------------------- ---------------------- Total stockholder's equity 4,232 3,947 3,563 4,277 Commitments and contingencies (Note 9 and 11) ---------------------- ---------------------- Total liabilities and stockholder's equity $19,762 $ 10,262 $21,703 $ 17,210 ====================== ======================
See accompanying notes to consolidated financial statements. 3 6 Gateway Healthcare Corporation and Subsidiary (a majority-owned subsidiary of North American Fund II) Consolidated Statements of Operations (in thousands)
Year ended Nine months ended December 31 September 30 1995 1994 1996 1995 ------------------------- ----------------------- (Unaudited) Net sales (Note 10) $47,737 $33,216 $52,979 $33,061 Cost of goods sold 37,724 26,436 42,390 26,238 ----------------------- ---------------------- Gross profit 10,013 6,780 10,589 6,823 Selling, general and administrative expenses 9,475 6,653 10,542 6,227 ----------------------- ---------------------- Operating income 538 127 47 596 Interest expense (527) (488) (742) (333) Other income 74 107 26 67 ----------------------- ---------------------- Income (loss) before income taxes and extraordinary item 85 (254) (669) 330 Income taxes (Note 8) - - - - Income (loss) before extraordinary item 85 (254) (669) 330 ----------------------- ---------------------- Extraordinary item-early extinguishment of long-term debt (Note 5) - 544 - - ----------------------- ---------------------- Net income (loss) $ 85 $ 290 $ (669) $ 330 ======================= ======================
See accompanying notes to consolidated financial statements. 4 7 Gateway Healthcare Corporation and Subsidiary (a majority-owned subsidiary of North American Fund II) Consolidated Statements of Stockholder's Equity (in thousands)
Convertible Additional Common Preferred Paid-in Accumulated Stock Stock Capital Deficit Total -------------------------------------------------------------------- Balance at December 31, 1993 $ 370 $ - $3,450 $(1,913) $1,907 Issuance of common stock to parent 1,550 - - - 1,550 Equity reclassification due to reorganization transaction (Note 1) (1,915) - 1,915 - - Issuance of preferred stock (Note 5) - 200 - - 200 Net income for the year ended December 31, 1994 - - - 290 290 -------------------------------------------------------------------- Balance at December 31, 1994 5 200 5,365 (1,623) 3,947 Issuance of common stock - - 200 - 200 Net income for the year ended December 31, 1995 - - - 85 85 -------------------------------------------------------------------- Balance at December 31, 1995 5 200 5,565 (1,538) 4,232 Net loss for the nine months ended September 30, 1996 (unaudited) - - - (669) (669) -------------------------------------------------------------------- Balance at September 30, 1996 (unaudited) $ 5 $ 200 $5,565 $(2,207) $3,563 ====================================================================
See accompanying notes to consolidated financial statements. 5 8 Gateway Healthcare Corporation and Subsidiary (a majority-owned subsidiary of North American Fund II) Consolidated Statement of Cash Flows (in thousands)
YEAR ENDED NINE MONTHS ENDED DECEMBER 31 SEPTEMBER 30 1995 1994 1996 1995 ---------------------- ------------------------- (unaudited) OPERATING ACTIVITIES Net income (loss) $ 85 $ 290 $ (669) $ 330 Adjustments to reconcile net income to net cash used in operating activities,net of effects of acquisition: Extraordinary item - early extinguishment of long- term debt - (544) - - Depreciation 268 221 300 187 Amortization of intangible assets 281 247 244 194 Loss (gain) on sale of assets 2 (1) - - Accretion of discount on long-term debt - 242 - - Increase in accounts receivable (2,182) (479) (2,051) (1,229) Increase in inventories (804) (536) (458) (692) Decrease (increase) in prepaid expenses and other intangible assets 16 (2) 26 (7) Increase (decrease) in bank overdraft 1,404 - (396) 587 Increase in accounts payable 374 110 624 722 Increase (decrease) in other accrued expenses 187 76 (269) (351) ---------------------- ------------------------- Net cash used in operating activities (369) (376) (2,649) (259) INVESTING ACTIVITIES Purchase of property and equipment (364) (219) (157) (125) Organization costs and other fees paid (90) (8) (23) (64) Cash paid for acquisitions (Note 4) (3,125) (1,813) - (2,502) Proceeds from sale of equipment 17 11 - - ---------------------- ------------------------- Net cash used in investing activities (3,562) (2,029) (180) (2,691) FINANCING ACTIVITIES Proceeds from issuance of common stock 200 1,550 - - Proceeds from issuance of notes payable to bank 4,473 - 3,050 3,000 Proceeds from issuance of demand notes to parent 1,000 450 - 1,000 Proceeds from notes payable - 5 - 481 Payments on demand notes to parent (450) - - (450) Payments on notes payable to bank (1,223) - (383) (1,224) Principal payments on long-term debt (19) (164) (16) (8) ---------------------- ------------------------- Net cash provided by financing activities 3,981 1,841 2,651 2,799 Net increase (decrease) in cash and cash equivalents 50 (564) (178) (151) Cash and cash equivalents at beginning of year 160 724 210 160 ---------------------- ------------------------- Cash and cash equivalents at end of period $ 210 $ 160 $ 32 $ 9 ====================== ======================== SUPPLEMENTAL CASH FLOW INFORMATION - INTEREST PAID $ 528 $ 250 $ 333 $ 759 ====================== ========================
See accompanying notes to consolidated financial statements. 6 9 Gateway Healthcare Corporation and Subsidiary (a majority-owned subsidiary of North American Fund II) Notes to Consolidated Financial Statements (in thousands, except share amounts) December 31, 1995 and 1994 1. DESCRIPTION OF BUSINESS Gateway Healthcare Corporation (Gateway) is a medical and surgical supply distributor with operations in Virginia, North Carolina, Indiana, New Hampshire and Pennsylvania. Gateway is a wholly-owned subsidiary of North American Fund II, a venture capital fund. Effective December 28, 1994, Gateway Holdings, Inc., the former parent of Gateway underwent certain reorganization transactions as follow: (1) Gateway Healthcare Corporation amended and restated its articles of incorporation to authorize 10,000,000 shares of common stock and reduce the par value of common stock to $.01 per share; (2) Gateway Healthcare Corporation amended and restated its articles of incorporation to authorize 200,000 shares of preferred stock; and (3) Gateway Holdings, Inc. merged into Gateway Healthcare Corporation, its wholly-owned subsidiary and thereby transferred all of its assets and liabilities. Subsequent to the reorganization transactions, the consolidated assets, liabilities and operations of Gateway Healthcare Corporation are essentially those of Gateway Holdings, Inc. Accordingly, the accompanying consolidated financial statements present the historical financial position and results of operations of Gateway Healthcare Corporation, formerly known as Gateway Holdings, Inc. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the financial statements of Gateway Healthcare Corporation, its wholly- owned subsidiary, TotalMed Leasing & Sales Corporation and its divisions, Medical Surgical Center, Commonwealth Medical Supply, Carolina Surgical Supply and Dominion Medical Supply. All significant intercompany transactions have been eliminated in consolidation. CASH EQUIVALENTS For purposes of the statement of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. 7 10 Gateway Healthcare Corporation and Subsidiary (a majority-owned subsidiary of North American Fund II) Notes to Consolidated Financial Statements (continued) (in thousands, except share amounts) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INVENTORIES Inventories of medical and surgical supplies held for resale are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation of property and equipment is calculated on the straight-line method over the estimated useful lives of the assets, which range from 3 to 31.5 years. INTANGIBLE AND OTHER ASSETS Non-Compete agreements are amortized over the related non-compete periods which range from 2 to 5 years. Deferred charges consist principally of loan fees, professional fees and other direct costs of acquiring the net assets of the acquired companies. Loan fees and related costs are amortized on a straight-line basis over the life of the related loans. Other fees are amortized on the straight-line method over a five-year period. Goodwill represents the excess of the cost of the purchased business over the fair value of the net assets at the date of acquisition and is being amortized on the straight-line method over periods ranging from 15 to 40 years. Other intangible assets represent the value of operating leases acquired at less than market value. The differential is being amortized over the term of the leases. DISCOUNT ON LONG-TERM DEBT The discount on long-term debt was being amortized on the interest method over the life of the debt. 8 11 Gateway Healthcare Corporation and Subsidiary (a majority-owned subsidiary of North American Fund II) Notes to Consolidated Financial Statements (continued) (in thousands, except share amounts) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INCOME TAXES Income taxes are accounted for in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". Under the asset and liability method of Statement 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. USE OF ESTIMATES Management has made estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. 3. PROPERTY AND EQUIPMENT The major classes of property and equipment are as follows:
DECEMBER 31 SEPTEMBER 30 1995 1994 1996 1995 ----------------------- ------------------------- (unaudited) Land $ 14 $ 14 $ 14 $ 14 Buildings and improvements 248 147 248 248 Equipment and fixtures 1,741 955 1,880 1,361 Trucks and autos 230 215 248 242 Rental equipment 26 26 26 26 ----------------------- ------------------------ 2,259 1,357 2,416 1,891 Less accumulated depreciation 879 491 1,179 732 ----------------------- ------------------------ $ 1,380 $ 866 $ 1,237 $ 1,159 ======================= ========================
9 12 Gateway Healthcare Corporation and Subsidiary (a majority-owned subsidiary of North American Fund II) Notes to Consolidated Financial Statements (continued) (in thousands, except share amounts) 4. ACQUISITIONS On June 30, 1995, Gateway acquired, TotalMed Leasing & Sales Corp. (TotalMed), a New Hampshire based medical equipment and supply company. The acquisition was accounted for by the purchase method of accounting and accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their fair values at the date of the acquisition. The excess of the purchase price over fair value of net assets acquired was recorded as goodwill. Gateway obtained a bank note payable to fund the purchase of TotalMed. The results of operations from June 30, 1995 to December 31, 1995 of TotalMed have been included in the financial statements of Gateway. On November 6, 1995, Gateway acquired Pointsource, Inc. (Pointsource) a Massachusetts based medical supply company. The acquisition was accounted for by the purchase method of accounting and accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their fair values at the date of the acquisition. No goodwill was acquired. The results of operations from November 1, 1995 to December 31, 1995 of Pointsource have been included in the financial statements of Gateway. On April 8, 1994, Gateway acquired Dominion Medical Supply, a Richmond, Virginia based medical supply company. The acquisition was accounted for by the purchase method of accounting and accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their fair values at the date of the acquisition. The excess of the purchase price over fair value of net assets acquired was recorded as goodwill. Gateway issued additional common stock to North American Fund II in a cash for stock transaction to fund the purchase of Dominion Medical Supply and provide working capital to Gateway. The results of operations from April 1, 1994 to December 31, 1994 of Dominion Medical have been included in the financial statements of Gateway. 10 13 Gateway Healthcare Corporation and Subsidiary (a majority-owned subsidiary of North American Fund II) Notes to Consolidated Financial Statements (continued) (in thousands, except share amounts) 4. ACQUISITIONS (CONTINUED) A summary of the fair value of assets acquired and liabilities assumed follows:
1995 1994 TOTALMED POINTSOURCE TOTAL DOMINION ------------------------------------------------------- Accounts receivable $ 2,058 $ 697 $ 2,755 $ 678 Inventories 926 452 1,378 395 Prepaids 56 1 57 3 Property and equipment 355 82 437 119 Other assets 44 - 44 - Noncompete agreements 10 - 10 10 Goodwill 1,914 - 1,914 993 Accounts payable (1,036) (549) (1,585) - Accrued expenses (218) (35) (253) (385) Notes payable to bank (1,224) - (1,224) - ------------------------------------------------------- Fair value of assets acquired 2,885 648 3,533 1,813 Less holdbacks and additional amounts payable to seller 383 25 408 - ------------------------------------------------------- Cash paid $ 2,502 $ 623 $ 3,125 $ 1,813 =======================================================
5. DEBT NOTES PAYABLE
DECEMBER 31 SEPTEMBER 30 1995 1994 1996 1995 ----------------------------------------------------- (Unaudited) Note payable to bank $4,473 $ - $7,523 $3,000 Notes payable to parent 1,000 450 1,000 1,000 Notes payable 408 - 25 864 ---------------------------------------------------- Total notes payable $5,881 $ 450 $8,548 $4,864 ====================================================
11 14 Gateway Healthcare Corporation and Subsidiary (a majority-owned subsidiary of North American Fund II) Notes to Consolidated Financial Statements (continued) (in thousands, except share amounts) 5. DEBT (CONTINUED) The note payable to bank represents the amount drawn on a $9,000 line of credit, due in full on June 30, 1996. The rate of interest on the note is prime plus .62. Subsequent to December 31, 1995, the line of credit was increased to $10,000 (unaudited) with interest at prime plus .58 due June 30, 1997. The note payable to Gateway's parent, North American Fund II, is subordinated to notes payable to bank, due on demand and bears interest at the prime rate plus one percent. The notes payable relate to amounts held back by Gateway in accordance with acquisition agreements as discussed in Note 4. The TotalMed note bears interest at 5% and both notes are expected to be repaid in full in 1996. LONG-TERM DEBT Long-term debt consisted of the following:
DECEMBER 31 SEPTEMBER 30 1995 1994 1996 1995 ---------------------------------------------------- (unaudited) Subordinated secured debentures $3,142 $3,142 $3,142 $3,142 Notes payable 50 68 34 60 ---------------------------------------------------- Long-term debt $3,192 $3,210 $3,176 $3,202 ====================================================
In December 1994, the senior secured notes, subordinated debentures and senior subordinated debentures were exchanged for subordinated secured debentures in the amount of $3,142 bearing interest at 8.25% and with all principal due and payable in a single payment on September 1, 2001 and 13,000 shares of convertible preferred stock of Gateway with a par value of $1,530 valued at $200 at the time of exchange. The preferred stock does not pay dividends and has a liquidation value of $10 per share to acquire 10,000 shares of Gateway common stock and is convertible into 13,000 shares of Gateway common stock. The transaction was accounted for as a debt extinguishment with the resulting gain recorded as an extraordinary item in the amount of $544, due to the write-off of the discount on the previous debt that was exchanged. Detachable stock warrants to acquire 10,000 shares of Gateway common stock were also issued to replace the warrants held by the former holder of the senior debentures. These warrants are 12 15 Gateway Healthcare Corporation and Subsidiary (a majority-owned subsidiary of North American Fund II) Notes to Consolidated Financial Statements (continued) (in thousands, except share amounts) 5. DEBT (CONTINUED) convertible into 10,000 shares of Gateway common stock in exchange for cash or shares of preferred stock as set forth in a conversion schedule in the warrant agreement. The holder of the subordinated secured debenture also holds warrants to acquire 10,000 shares of Gateway common stock in exchange for $10 per share. The warrants were deemed to have no additional value as of December 31, 1995 and 1994 over what was attributed to them in 1991. 6. FAIR VALUES OF FINANCIAL INSTRUMENTS In 1995, Gateway adopted the provisions of FASB Statement No. 107, Disclosure about Fair Value of Financial Instruments, which defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between parties. Cash and cash equivalents, accounts receivables and all current liabilities have carrying amounts which approximate fair value because of the short maturity of those instruments. The fair value of Gateway's long-term debt is estimated to be $2,800 at December 31, 1995 based on current market rates for similar issues. 7. BENEFIT PLANS Gateway has a defined contribution employee profit sharing plan in which substantially all employees are eligible to participate. Employees may make voluntary contributions up to the maximum allowed by ERISA. The Company matches approximately 60% of employee contributions on an amount not to exceed 6% of a contributing employees' total compensation. Gateway may also make a discretionary profit sharing plan contribution. Total profit sharing expense was approximately $115 and $76, respectively, for the years ended December 31, 1995 and 1994 and $109 (unaudited) and $81 (unaudited), respectively, for the nine months ended September 30, 1996 and 1995. Gateway has a management stock option plan under which grants of stock options to acquire Gateway common stock are granted to certain key employees at the discretion of the Board of Directors. Gateway had outstanding under this plan stock options to acquire 61,688 and 53,813 shares of Gateway common stock at December 31, 1995 and 1994 and 60,375 (unaudited) and 56,438 13 16 Gateway Healthcare Corporation and Subsidiary (a majority-owned subsidiary of North American Fund II) Notes to Consolidated Financial Statements (continued) (in thousands, except share amounts) 7. BENEFIT PLANS (CONTINUED) (unaudited) shares of Gateway common stock at September 30, 1996 and 1995 at an exercise share price of $10 per share. The options, in general, vest over a five-year term period from date of employment. 8. INCOME TAXES At December 31, 1995 and 1994, Gateway had deferred tax assets of approximately $700 arising principally from net operating losses and additional inventory costs capitalized for tax purposes, and deferred tax liabilities of approximately $200 arising principally from amortization of other assets which differs from book amortization. The net deferred tax assets have been reduced to zero by valuation allowances. Net operating losses of $326 were utilized at December 31, 1995 to reduce income tax expense to $0. At December 31, 1995, Gateway has a net operating loss carryforward of approximately $1,200 available to offset any future income taxes. These carryforwards expire beginning December 31, 2005 through December 31, 2009. 9. LEASES The Company has several noncancellable operating leases, primarily for office facilities, that expire over the next five years. Rental expense for operating leases was approximately $540 and $280, respectively, for the years ended December 31, 1995 and 1994 and $734 (unaudited) and $359 (unaudited) for the nine months ended September 30, 1996 and 1995. Future minimum lease payments under noncancellable operating leases (with initial or remaining lease terms in excess of one year) as of December 31, 1995 are as follows: 1996, $645; 1997, $567; 1998, $543; 1999, $268 and 2000, $79. 14 17 Gateway Healthcare Corporation and Subsidiary (a majority-owned subsidiary of North American Fund II) Notes to Consolidated Financial Statements (continued) (in thousands, except share amounts) 10. SIGNIFICANT CUSTOMERS AND CREDIT CONCENTRATIONS Sales to two major customers accounted for approximately 16% of net sales for the years ended December 31, 1995 and 1994 and 16% (unaudited) for the nine months ended September 30 ,1996 and 1995. Accounts receivables related to these customers were approximately 4% and 12%, respectively, of total accounts receivable at December 31, 1995 and 1994 and 12% (unaudited) at September 30, 1996 and 1995. Gateway's customers consist primarily of nursing homes, physician clinics and other health care providers in the Midatlantic, New England, and the Midwest. Gateway grants credit to these customers on an unsecured basis during the normal course of business. 11. COMMITMENTS AND CONTINGENCIES During the normal course of business, Gateway negotiates various inventory purchase arrangements with suppliers. In the opinion of management, these purchase arrangements are not expected to result in operating losses to Gateway. 15 EX-99.2 4 AUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS 1 EXHIBIT 99.2 GULF SOUTH MEDICAL SUPPLY, INC. AND SUBSIDIARIES PRO FORMA COMBINED FINANCIAL STATEMENTS (UNAUDITED) The following unaudited pro forma combined balance sheet as of September 30, 1996 and pro forma combined statements of operations for the years ended December 31, 1995 and 1994 and the nine months ended September 30, 1996 of Gulf South Medical Supply, Inc. ("Gulf South") give effect to the December 26, 1996 purchase of all of the outstanding stock of Gateway Healthcare Corporation ("Gateway"). The pro forma combined financial statements have been prepared by management of Gulf South based upon the historical financial statements of Gulf South and the adjustments and assumptions in the accompanying notes to the pro forma combined financial statements. The pro forma combined statements of operations for the years ended December 31, 1995 and 1994 and the nine months ended September 30, 1996 set forth the effects of Gulf South's purchase of Gateway as if it had been consumated on January 1, 1994. These pro forma combined financial statements may not be indicative of the results that actually would have occurred if the purchase had been in effect on the dates indicated or which may be obtained in the future. The pro forma combined financial statements should be read in conjunction with the financial statements and notes of Gulf South included in its annual report on Form 10-K for the year ended December 31, 1995. 2 GULF SOUTH MEDICAL SUPPLY, INC. AND SUBSIDIARIES PRO FORMA COMBINED BALANCE SHEETS September 30, 1996 (in thousands, except share amounts)
Gulf South Pro Forma (2) Gulf South Historical Adjustments Pro Forma ----------- ----------- --------- ASSETS Current assets: Cash and cash equivalents $ 78,578 $(37,518)(3) $ 41,060 Trade accounts receivable 37,080 10,906 47,986 Inventories 22,983 4,928 27,911 Prepaid expenses and other 1,404 61 1,465 Deferred income taxes 664 875 1,539 -------- -------- -------- Total current assets 140,709 (20,748) 119,961 Property and equipment, net 2,628 1,139 (4) 3,767 Other assets: Goodwill 4,395 27,624 (6) 32,019 Deferred income taxes -- 2,900 2,900 Other assets 3,951 53 4,004 -------- -------- -------- Total assets $151,683 $ 10,968 $l62,651 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Trade accounts payable $ 8,617 $ 5,331 $ 13,948 Accrued expenses and other current liabilities 795 5,152 (7) 5,947 Accrued integration expenses -- 3,677 3,677 -------- -------- -------- Total current liabilities 9,412 14,160 23,572 Stockholders' equity: Preferred stock, $.0l par value: Authorized shares -- 1,000,000 Issued and outstanding shares -- none -- -- -- Common stock, $.0l par value: Authorized shares -- 30,000,000 Issued and outstanding shares -- 16,264,923 162 -- 162 Paid-in capital 115,679 -- 115,679 Retained earnings 26,430 (3,192) 23,238 -------- -------- -------- Total stockholders' equity 142,271 (3,192) 139,079 -------- -------- -------- Total liabilities and stockholders' equity $151,683 $ 10,968 $162,651 ======== ======== ========
3 GULF SOUTH MEDICAL SUPPLY, INC. AND SUBSIDIARIES PRO FORMA COMBINED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31,1995 (in thousands)
Gulf South Pro Forma (5) Gulf South Historical Adjustments Pro Forma ----------------------------- ----------- Net sales $ 130,094 $ 47,737 $ 177,831 Cost of sales 97,973 37,724 135,697 --------------------------- ----------- Gross profit 32,121 10,013 42,134 Selling, general and administrative expenses 18,418 10,016 (4),(6) 28,434 --------------------------- ----------- Operating income 13,703 (3) 13,700 Interest expense (199) (2,698)(7) (2,897) Interest income 163 (163)(7) -- Other income -- 74 74 --------------------------- ----------- Income before income taxes 13,667 (2,790) 10,877 Income tax (expense) benefit (5,507) 840 (8) (4,667) --------------------------- ----------- Net income $ 8,160 $ (1,950) $ 6,210 =========================== =========== Net income per share $ 0.58 $ 0.44 =========================== ===========
4 GULF SOUTH MEDICAL SUPPLY, INC. AND SUBSIDIARIES PRO FORMA COMBINED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31,1994 (in thousands)
Gulf South Pro Forma (5) Gulf South Historical Adjustments Pro Forma ----------------------- ---------- Net sales $ 92,151 $ 33,216 $ 125,367 Cost of sales 68,122 26,436 94,558 --------------------- --------- Gross profit 24,029 6,780 30,809 Selling, general and administrative expenses 13,913 7,476 (4),(6) 21,389 --------------------- --------- Operating income 10,116 (696) 9,420 Interest expense (629) (2,620)(7) (3,249) Interest income 186 (186)(7) -- Other income -- 107 107 --------------------- --------- Income before income taxes and extraordinary item 9,673 (3,395) 6,278 Income tax (expense) benefit (3,877) 1,019 (8) (2,858) --------------------- --------- Income before extraordinary item 5,796 (2,376) 3,420 Extraordinary item -- 544 544 --------------------- --------- Net income $ 5,796 $ (1,832) $ 3,964 ===================== ========= Net income per share $ 0.45 $ 0.30 ===================== =========
5 GULF SOUTH MEDICAL SUPPLY, INC. AND SUBSIDIARIES PRO FORMA COMBINED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30,1996 (in thousands)
Gulf South Pro Forma (5) Gulf South Historical Adjustments Pro Forma ----------------------- --------- Net sales $ 130,980 $ 52,979 $ 183,959 Cost of sales 100,217 42,390 142,607 ---------------------- --------- Gross profit 30,763 10,589 41,352 Selling, general and administrative expenses 17,532 10,914 (4),(6) 28,446 ---------------------- --------- Operating income 13,231 (325) 12,906 Interest expense (219) (1,720)(7) (1,939) Interest income 962 (499)(7) 463 Other income -- 26 26 ---------------------- --------- Income before income taxes 13,974 (2,518) 11,456 Income tax (expense) benefit (5,309) 768 (8) (4,541) ---------------------- --------- Net income $ 8,665 $ (1,750) $ 6,915 ====================== ========= Net income per share $ 0.57 $ 0.46 ====================== =========
6 GULF SOUTH MEDICAL SUPPLY, INC. AND SUBSIDIARIES NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (UNAUDITED) (in thousands) 1. Effective December 26, 1996, Gulf South Medical Supply, Inc. purchased all of the outstanding stock of Gateway Healthcare Corporation ("Gateway") for $26,077, including transaction cost of $756, in a transaction accounted for as a purchase. The purchase price was funded with notes to the selling shareholders of which $20,321 were paid January 2, 1997. The remaining $5,000 in notes are being held in escrow and are to be paid in accordance with the Gateway Stock Purchase Agreement. 2. The pro forma adjustments to the Consolidated Balance Sheet as of September 30, 1996 include the following purchase accounting adjustment to reflect Gateway's assets and liabilities at their estimated fair values as December 26, 1996: Cash $ 24 Accounts receivable 10,906 Inventories 4,928 Prepaid 61 Deferred income taxes 875 Property and equipment 690 Goodwill 29,561 Deferred income taxes 2,900 Other assets 53 Notes payable (11,465) Accounts payable (5,331) Accrued exit integration expense (3,677) Accrued expenses (3,448) -------- $ 26,077 ========
The pro forma adjustments reflected in the pro forma Consolidated Statements of Operations for the years ended December 31, 1995 and 1994 and the nine months ended September 30, 1996 as described in notes 3, 4, 6 and 7 reflect the effects of the transaction as if it had been recorded in the earliest year presented. 3. The pro forma adjustments to cash and cash equivalents as of September 30, 1996 assumes that Gateway's purchase price and related transaction costs totaling $26,077 and Gateway's existing notes payable and long-term debt totaling $11,465 were funded from Gulf South's and Gateway's existing cash and cash equivalents. 7 4. The pro forma adjustment to property and equipment includes a write-down of $454 to its estimated fair value resulting in pro forma adjustments to decrease depreciation expense of $163 for the years ended December 31,1995 and 1994, respectively, and $123 for the nine months ended September 30, 1996. 5. The effects on income and expenses of the pro forma adjustments of Gateway's income and expense for the periods presented are as follows:
Nine Months ended Year ended December 31 September 30 1995 1994 1996 ------------------------ ------------ Net sales $47,737 $33,216 $52,979 Cost of sales 37,724 26,436 42,390 ------------------------ ------- Gross profit 10,013 6,780 10,589 Selling, general and administrative expenses 9,475 6,653 10,542 Operating income 538 127 47 Interest expense (527) (488) (742) Other income 74 107 26 ------------------------ ------- Income (loss) before taxes and extraordinary item 85 (254) (669) Income taxes - - - ------------------------ ------- Income before extraordinary item 85 (254) (669) Extraordinary item - 544 - ------------------------ ------- Net income (loss) $ 85 $ 290 $ (669) ======================== =======
6. The pro forma adjustments to selling, general and administrative expense include amortization expense of $985 for the years ended December 31, 1995 and 1994, respectively, and $739 for the nine months ended September 30, 1996 resulting from the goodwill on the Gateway purchase being amortized on a straight-line basis over 30 years and the reduction of Gateway's amortization expense of $281 and $247 for the years ended December 31, 1995 and 1994, respectively, and $244 for the nine months ended September 30, 1996 for the elimination of Gateway's existing goodwill through the purchase accounting adjustment. 8 7. The pro forma adjustments to interest income includes the reduction of Gulf South's cash and cash equivalents for the period from June 12 through September 30, 1996. For the period from January 1, 1994 through June 11, 1996, the pro forma effect of the Gateway purchase was to eliminate cash and cash equivalents and to increase borrowings under the revolving credit agreement at Gulf South's borrowing rate thus reducing interest income and increasing interest expense for that period. The pro forma adjustments reflect decreased interest income of $163 and $186 for the years ended December 31,1995 and 1994, respectively, and $499 for the nine months ended September 30, 1996. The pro forma adjustments also reflect increased interest expense of $2,171 and $2,132 for the years ended December 31,1995 and 1994, respectively, and $978 for the nine months ended September 30, 1996. 8. The pro forma effective income tax rate increased to 43.9% and 42.9% for the years ended December 31, 1995 and 1994, respectively, and 39.6% for the nine months ended September 30, 1996 because of the non-deductibility for income tax purposes of a portion of the goodwill amortization applicable to the Gateway purchase. -----END PRIVACY-ENHANCED MESSAGE-----