_______________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________________
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2008
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities and Exchange Act of 1934
For the transition period from
______ to ______
Commission File Number: 000-30406
HEALTHTRONICS, INC.
(Exact name of registrant as specified in its charter)
GEORGIA | 58-2210668 | ||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
1301 Capital of Texas Highway, Suite 200B, Austin, TX 78746
(Address of principal executive office) (Zip code)
(512) 328-2892
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large Accelerated Filer ¨ Accelerated Filer x Non-Accelerated Filer ¨ Smaller reporting company ¨(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). |
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. |
Title of Each Class Common Stock, no par value | Number of Shares Outstanding at May 1, 2008 38,222,749 |
PART IFINANCIAL INFORMATIONItem 1 - Financial Statements |
-2- |
HEALTHTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) |
---|
($ in thousands, except per share data) |
Three Months Ended March 31, | ||||||||
---|---|---|---|---|---|---|---|---|
2008 | 2007 | |||||||
Revenue: | ||||||||
Urology Services | $ | 29,550 | $ | 28,385 | ||||
Medical Products | 4,247 | 4,239 | ||||||
Other | 157 | 127 | ||||||
Total revenue | 33,954 | 32,751 | ||||||
Cost of services and general and administrative expenses: | ||||||||
Urology Services | 12,991 | 13,685 | ||||||
Medical Products | 2,177 | 2,404 | ||||||
Selling, general and administrative | 4,317 | 4,314 | ||||||
Depreciation and amortization | 2,628 | 2,816 | ||||||
22,113 | 23,219 | |||||||
Operating income | 11,841 | 9,532 | ||||||
Other income (expenses): | ||||||||
Interest and dividends | 191 | 276 | ||||||
Interest expense | (163 | ) | (236 | ) | ||||
28 | 40 | |||||||
Income from continuing operations before provision | ||||||||
for income taxes and minority interest | 11,869 | 9,572 | ||||||
Minority interest in consolidated income | 11,047 | 9,509 | ||||||
Provision (benefit) for income taxes | 370 | (15 | ) | |||||
Income from continuing operations | 452 | 78 | ||||||
Income (loss) from discontinued operations, net of tax | -- | (108 | ) | |||||
Net income (loss) | $ | 452 | $ | (30 | ) | |||
Basic earnings per share: | ||||||||
Income from continuing operations | $ | 0.01 | $ | -- | ||||
Income (loss) from discontinued operations | $ | -- | $ | -- | ||||
Net income (loss) | $ | 0.01 | $ | -- | ||||
Weighted average shares outstanding | 35,425 | 35,406 | ||||||
Diluted earnings per share: | ||||||||
Income from continuing operations | $ | 0.01 | $ | -- | ||||
Income (loss) from discontinued operations | $ | -- | $ | -- | ||||
Net income (loss) | $ | 0.01 | $ | -- | ||||
Weighted average shares outstanding | 35,425 | 35,417 | ||||||
See accompanying notes to condensed consolidated financial statements. |
-3- |
HEALTHTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) |
($ in thousands) | March 31, 2008 | December 31, 2007 | ||||||
---|---|---|---|---|---|---|---|---|
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 21,707 | $ | 25,198 | ||||
Accounts receivable, less allowance for doubtful | ||||||||
accounts of $2,522 in 2008 and $2,368 in 2007 | 19,996 | 21,889 | ||||||
Other receivables | 2,083 | 2,703 | ||||||
Deferred income taxes | 12,829 | 12,547 | ||||||
Prepaid expenses and other current assets | 2,527 | 1,656 | ||||||
Inventory | 9,276 | 10,221 | ||||||
Total current assets | 68,418 | 74,214 | ||||||
Property and equipment: | ||||||||
Equipment, furniture and fixtures | 48,539 | 47,751 | ||||||
Building and leasehold improvements | 12,942 | 12,437 | ||||||
61,481 | 60,188 | |||||||
Less accumulated depreciation and | ||||||||
amortization | (27,376 | ) | (27,169 | ) | ||||
Property and equipment, net | 34,105 | 33,019 | ||||||
Other investments | 1,353 | 1,353 | ||||||
Goodwill, at cost | 218,020 | 217,505 | ||||||
Intangible assets | 6,014 | 5,220 | ||||||
Other noncurrent assets | 4,918 | 4,745 | ||||||
$ | 332,828 | $ | 336,056 | |||||
See accompanying notes to condensed consolidated financial statements. |
-4- |
HEALTHTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (continued) (Unaudited) |
($ in thousands, except share data) | March 31, 2008 | December 31, 2007 | ||||||
---|---|---|---|---|---|---|---|---|
LIABILITIES | ||||||||
Current liabilities: | ||||||||
Current portion of long-term debt | $ | 4,057 | $ | 4,332 | ||||
Accounts payable | 6,877 | 5,859 | ||||||
Accrued distributions to minority interests | 95 | 226 | ||||||
Accrued expenses | 5,284 | 7,275 | ||||||
Total current liabilities | 16,313 | 17,692 | ||||||
Long-term debt, net of current portion | 3,777 | 4,194 | ||||||
Other long term obligations | 53 | 75 | ||||||
Deferred income taxes | 30,679 | 30,024 | ||||||
Total liabilities | 50,822 | 51,985 | ||||||
Minority interest | 38,713 | 41,653 | ||||||
STOCKHOLDERS' EQUITY | ||||||||
Preferred stock, $.01 par value, 30,000,000 shares authorized: none outstanding | ||||||||
Common stock, no par value, 70,000,000 authorized: 36,285,402 issued in 2008 | ||||||||
and 36,235,263 outstanding in 2008; 35,610,236 issued in 2007 and | ||||||||
35,560,097 outstanding in 2007 | 202,472 | 202,049 | ||||||
Accumulated earnings | 41,293 | 40,841 | ||||||
Treasury stock, at cost, 50,139 shares in 2008 and 2007 | (472 | ) | (472 | ) | ||||
Total stockholders' equity | 243,293 | 242,418 | ||||||
$ | 332,828 | $ | 336,056 | |||||
See accompanying notes to condensed consolidated financial statements. |
-5- |
HEALTHTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) |
---|
Three Months Ended March 31, | ||||||||
---|---|---|---|---|---|---|---|---|
($ in thousands) | 2008 | 2007 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Fee and other revenue collected | $ | 36,846 | $ | 33,839 | ||||
Cash paid to employees, suppliers of goods and others | (20,497 | ) | (22,059 | ) | ||||
Interest received | 191 | 276 | ||||||
Interest paid | (149 | ) | (222 | ) | ||||
Taxes paid | (317 | ) | (366 | ) | ||||
Discontinued operations | -- | (86 | ) | |||||
Net cash provided by operating activities | 16,074 | 11,382 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of entities, net of cash acquired | (1,220 | ) | (206 | ) | ||||
Purchases of equipment and leasehold improvements | (4,671 | ) | (1,796 | ) | ||||
Proceeds from sales of assets | 1,195 | 495 | ||||||
Other | -- | (18 | ) | |||||
Discontinued operations | -- | (1 | ) | |||||
Net cash used in investing activities | (4,696 | ) | (1,526 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Borrowings on notes payable | 213 | 619 | ||||||
Payments on notes payable, exclusive of interest | (1,002 | ) | (1,448 | ) | ||||
Distributions to minority interest | (13,924 | ) | (11,810 | ) | ||||
Contributions by minority interest, net of buyouts | (156 | ) | (141 | ) | ||||
Discontinued operations | -- | (5 | ) | |||||
Net cash used in financing activities | (14,869 | ) | (12,785 | ) | ||||
NET DECREASE IN CASH AND CASH EQUIVALENTS | (3,491 | ) | (2,929 | ) | ||||
Cash and cash equivalents, beginning of period, includes cash | ||||||||
from discontinued operations of $(198) for December 31, 2006 | 25,198 | 27,659 | ||||||
Cash and cash equivalents, end of period, includes cash | ||||||||
from discontinued operations of $(269) for March 31, 2007 | $ | 21,707 | $ | 24,730 | ||||
See accompanying notes to condensed consolidated financial statements. |
-6- |
HEALTHTRONICS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (Unaudited) |
---|
Three Months Ended March 31, | ||||||||
---|---|---|---|---|---|---|---|---|
($ in thousands) | 2008 | 2007 | ||||||
Reconciliation of net income (loss) to net cash provided by operating activities: | ||||||||
Net income (loss) | $ | 452 | $ | (30 | ) | |||
Adjustments to reconcile net income (loss) | ||||||||
to net cash provided by operating activities | ||||||||
Minority interest in consolidated income | 11,047 | 9,509 | ||||||
Depreciation and amortization | 2,628 | 2,816 | ||||||
Provision for uncollectible accounts | (13 | ) | 71 | |||||
Provision for deferred income taxes | 373 | 96 | ||||||
Non-cash share based compensation | 423 | 813 | ||||||
Other | (79 | ) | 74 | |||||
Discontinued Operations | -- | 90 | ||||||
Changes in operating assets and liabilities, | ||||||||
net of effect of purchase transactions | ||||||||
Accounts receivable | 1,906 | 59 | ||||||
Other receivables | 620 | 39 | ||||||
Inventory | 1,063 | (357 | ) | |||||
Other assets | (1,043 | ) | 444 | |||||
Accounts payable | 1,018 | (234 | ) | |||||
Accrued expenses | (2,321 | ) | (2,008 | ) | ||||
Total adjustments | 15,622 | 11,412 | ||||||
Net cash provided by operating activities | $ | 16,074 | $ | 11,382 | ||||
See accompanying notes to condensed consolidated financial statements. |
-7- |
HEALTHTRONICS, INC. AND SUBSIDIARIES |
1.General
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with the accounting principles for interim financial statements and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. These condensed consolidated financial statements reflect all adjustments which are, in our opinion, necessary for a fair presentation of the statement of the financial position as of March 31, 2008 and the results of operations and cash flows for the periods presented. Such adjustments are of a normal recurring nature unless otherwise noted herein. The operating results for the interim periods are not necessarily indicative of results for the full fiscal year. |
2.Debt
Senior Credit Facility |
-8- |
HEALTHTRONICS, INC. AND SUBSIDIARIES |
Other |
3.Earnings per share
Basic earnings per share (“EPS”) is based on weighted average shares outstanding without any dilutive effects considered. Diluted EPS reflects dilution from all contingently issuable shares, including options, non-vested stock awards and warrants. A reconciliation of such EPS data is as follows: |
($ in thousands, except per share data) | Basic earnings per share | Diluted earnings per share | ||||||
---|---|---|---|---|---|---|---|---|
Three Months Ended March 31, 2008 | ||||||||
Net income | $ | 452 | $ | 452 | ||||
Weighted average shares outstanding | 35,425 | 35,425 | ||||||
Effect of dilutive securities | -- | -- | ||||||
Shares for EPS calculation | 35,425 | 35,425 | ||||||
Net income per share | $ | 0.01 | $ | 0.01 | ||||
Three Months Ended March 31, 2007 | ||||||||
Net loss | $ | (30 | ) | $ | (30 | ) | ||
Weighted average shares outstanding | 35,406 | 35,406 | ||||||
Effect of dilutive securities | -- | -- | ||||||
Shares for EPS calculation | 35,406 | 35,406 | ||||||
Net loss per share | $ | -- | $ | -- | ||||
We did not include in our computation of diluted EPS unexercised stock options and non-vested stock awards to purchase 3,558,000 and 3,922,000 shares of our common stock as of March 31, 2008 and 2007, respectively, because the effect would be antidilutive. In May 2005, our shareholders approved an amendment to our 2004 Equity Incentive Plan to increase by 450,000 shares the number of shares available for issuance thereunder (from 500,000 to 950,000 shares). In June 2006, our shareholders approved an amendment to our 2004 Equity Incentive Plan to increase by 2 million shares the number of shares available for issuance thereunder (from 950,000 to 2,950,000 shares). |
-9- |
HEALTHTRONICS, INC. AND SUBSIDIARIES |
4.Segment Reporting
We have two reportable segments: urology services and medical products. The urology services segment provides services related to the operation of the lithotripters, including scheduling, staffing, training, quality assurance, maintenance, regulatory compliance and contracting with payors, hospitals and surgery centers. Also in the urology segment, we provide treatments for benign and cancerous conditions of the prostate. In treating benign prostate disease, we deploy three technologies: (1) photo-selective vaporization of the prostate (PVP), (2) trans-urethral needle ablation (TUNA), and (3) trans-urethral microwave therapy (TUMT) in certain partnerships. All three technologies apply an energy source which reduces the size of the prostate gland. Our medical products segment sells and maintains lithotripters and their related consumables. We are also the exclusive U.S. distributor of the Revolix branded laser. The operations of our Claripath pathology laboratory are also included in our medical products segment. |
($ in thousands) | Urology Services | Medical Products | ||||||
---|---|---|---|---|---|---|---|---|
Three Months Ended March 31, 2008 | ||||||||
Revenue from external customers | $ | 29,550 | $ | 4,247 | ||||
Intersegment revenues | -- | 2,443 | ||||||
Segment profit | 2,245 | 755 | ||||||
Three Months Ended March 31, 2007 | ||||||||
Revenue from external customers | $ | 28,385 | $ | 4,239 | ||||
Intersegment revenues | -- | 2,570 | ||||||
Segment profit | 1,670 | 120 |
The following is a reconciliation of the measure of segment profit per above to consolidated income before provision for income taxes per the condensed consolidated statements of income: |
-10- |
HEALTHTRONICS, INC. AND SUBSIDIARIES |
Three Months ended March 31, | ||||||||
---|---|---|---|---|---|---|---|---|
($ in thousands) | 2008 | 2007 | ||||||
Total segment profit | $ | 3,000 | $ | 1,790 | ||||
Unallocated corporate revenues | 157 | 127 | ||||||
Unallocated corporate expenses: | ||||||||
General and administrative | (2,277 | ) | (1,816 | ) | ||||
Net interest income (expense) | 51 | 151 | ||||||
Other, net | (109 | ) | (189 | ) | ||||
Total unallocated corporate expenses | (2,335 | ) | (1,854 | ) | ||||
Income before income taxes | $ | 822 | $ | 63 | ||||
5. Stock-Based Compensation
On January 1, 2006, we adopted Statement of Financial Accounting Standard (“SFAS”) No. 123(R), Share-Based Payment, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including stock option grants based on estimated fair values. SFAS No. 123(R) requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the award’s portion that is ultimately expected to vest is recognized as expense over the requisite service periods. Prior to the adoption of SFAS No. 123(R), we accounted for share-based awards to employees and directors using the intrinsic value method in accordance with Accounting Principles Board Opinion (“APB”) No. 25 as allowed under SFAS No. 123, Accounting for Stock-Based Compensation. Under the intrinsic value method, share-based compensation expense was only recognized by us if the exercise price of the stock option was less than the fair market value of the underlying stock at the date of grant. |
Percent of Grant Vesting | Performance Target (% increase over grant price) | |||
---|---|---|---|---|
25% | 15% | |||
25% | 30% | |||
25% | 45% | |||
25% | 60% |
As of March 31, 2008, unrecognized share-based compensation cost related to unvested stock options was approximately $2.5 million, which is expected to be recognized over a weighted average period of approximately 1.7 years. We also had $3.0 million of unrecognized compensation costs related to non-vested stock awards as of March 31, 2008, which is expected to be recognized over a weighted average period of approximately 1.5 years. We have included approximately $423,000 and $389,000 for share-based compensation cost in the accompanying condensed consolidated statements of income for the three months ended March 31, 2008 and 2007, respectively. |
-11- |
HEALTHTRONICS, INC. AND SUBSIDIARIES |
Share-based compensation expense recognized during the quarters ended March 31, 2008 and 2007 is related to awards granted prior to, but not yet fully vested as of, January 1, 2006 and awards granted subsequent to December 31, 2005. We have historically and continue to estimate the fair value of share-based awards using the Black-Scholes-Merton (“Black Scholes”) option-pricing model. |
6. Inventory
As of March 31, 2008 and December 31, 2007, inventory consisted of the following: |
($ In thousands) | March 31, 2008 | December 31, 2007 | ||||||
---|---|---|---|---|---|---|---|---|
Raw Materials | $ | 6,374 | $ | 6,144 | ||||
Finished Goods | 2,902 | 4,077 | ||||||
$ | 9,276 | $ | 10,221 | |||||
7. Discontinued Operations
In November, 2006 we announced our decision to discontinue our involvement in the clinical trials of the Ablatherm device manufactured by EDAP TMS S.A. (EDAP). This decision results in our forfeiting the exclusive rights in the United States, when and if a Pre-Market Approval is granted by the FDA and forfeiting our rights to earn additional warrants to acquire EDAP common stock. We have accordingly included our costs related to the clinical trials in discontinued operations in the accompanying condensed consolidated statements of income. |
-12- |
HEALTHTRONICS, INC. AND SUBSIDIARIES |
Condensed Consolidated Statements of Income | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|
($ in thousands) | 2007 | |||||||||
For the Three Months Ended March 31 | ||||||||||
Revenue | ||||||||||
Rocky Mountain Prostate Thermotherapies | $ | 1,138 | ||||||||
HIFU | -- | |||||||||
Cost of services | ||||||||||
Rocky Mountain Prostate Thermotherapies | (1,165 | ) | ||||||||
HIFU | (146 | ) | ||||||||
Depreciation and amortization | ||||||||||
Rocky Mountain Prostate Thermotherapies | -- | |||||||||
HIFU | (3 | ) | ||||||||
Income tax benefit | 68 | |||||||||
Discontinued operations, net of tax | $ | (108 | ) | |||||||
8. New Pronouncements
In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157, "Fair Value Measurements" (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. In December 2007, the FASB released a proposed FASB Staff Position (FSP FAS 157-b–Effective Date of FASB Statement No. 157) which, if adopted as proposed, would delay the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The adoption of SFAS 157 did not have a material impact on our financial position or results of operations. |
9. Subsequent Events
On April 17, 2008, we completed the acquisition of Advanced Medical Partners, Inc. (“AMPI”) pursuant to the Stock Purchase Agreement dated March 18, 2008 between us, Litho Management, Inc., AMPI and the stockholders of AMPI. We acquired the outstanding shares of capital stock of AMPI (other than shares already held by us) for a purchase price of approximately $6.9 million in cash and approximately 1.8 million shares of common stock, plus a two-year earn-out based on the future achievement of EBITDA. |
-13- |
Item 2 — Management’s Discussion and Analysis |
Forward-Looking Statements
The statements contained in this report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding our expectations, hopes, intentions or strategies regarding the future. You should not place undue reliance on forward-looking statements. All forward-looking statements included in this report are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. It is important to note that our actual results could differ materially from those in the forward-looking statements. In addition to any risks and uncertainties specifically identified below and in the text surrounding forward-looking statements in this report, you should review the risk factors described in our most recent Annual Report on Form 10-K and other filings with the Securities and Exchange Commission, for factors that could cause our actual results to differ materially from those presented. |
• | uncertainties in our establishing or maintaining relationships with physicians and hospitals; | |
• | the impact of current and future laws and governmental regulations; | |
• | uncertainties inherent in third party payors’ attempts to limit health care coverages and levels of reimbursement; | |
• | the effects of competition and technological changes; | |
• | the availability (or lack thereof) of acquisition or combination opportunities; and | |
• | general economic, market or business conditions. |
General
We provide healthcare services and medical devices, primarily to the urology marketplace. We have two reportable segments: urology services and medical products. |
-14- |
Item 2 — Management’s Discussion and Analysis |
We have two types of contracts, retail and wholesale, that we enter into in providing our lithotripsy services. Retail contracts are contracts where we contract with the hospital and private insurance payors. Wholesale contracts are contracts where we contract only with the hospital. The two approaches functionally differ in that, under a retail contract, we generally bill for the entire non-physician fee for all patients other than governmental pay patients, for which the hospital bills the non-physician fee. Under a wholesale contract, the hospital generally bills for the entire non-physician fee for all patients. In both cases, the billing party contractually bears the costs associated with the billing service, including pre-certification, as well as non-collection. The non-billing party is generally entitled to its fees regardless of whether the billing party actually collects the non-physician fee. Accordingly, under the wholesale contracts where we are the non-billing party, the hospital generally receives a greater proportion of the total non-physician fee to compensate for its billing costs and collection risk. Conversely, under the retail contracts where we generally provide the billing services and bear the collection risk, we receive a greater portion of the total non-physician fee. |
• | Fees for urology treatments. A substantial majority of our urology revenue is derived from fees related to lithotripsy treatments performed using our lithotripters. We, through our partnerships or other entities, facilitate the use of our equipment and provide other support services in connection with these treatments at hospitals and other health care facilities. The professional fee payable to the physician performing the procedure is generally billed and collected by the physician. Benign prostate disease and prostate cancer treatment services are billed in the same manner as our lithotripsy services under either retail or wholesale contracts. These services are also primarily performed through limited partnerships or other entities, which we manage. |
-15- |
Item 2 — Management’s Discussion and Analysis |
• | Fees for managing the operation of our lithotripters and laser devices. Through our partnerships and otherwise directly by us, we provide services related to operating our lithotripters and lasers and receive a management fee for performing these services. |
Medical Products. We sell and maintain lithotripters and their related consumables. We are also the exclusive U.S. distributor of the Revolix branded laser. The operations of our Claripath pathology laboratory are also included in our medical products segment. |
• | Fees for maintenance services. We provide equipment maintenance services to our partnerships as well as outside parties. These services are billed either on a time and material basis or at a fixed contractual rate, payable monthly, quarterly, or annually. Revenues from these services are recorded when the related maintenance services are performed. |
• | Fees for equipment sales, consumable sales and licensing applications. We sell and maintain lithotripters and we distribute the Revolix laser and we also manufacture and sell consumables related to the lithotripters. With respect to some lithotripter sales, in addition to the original sales price, we receive a licensing fee from the buyer of the lithotripter for each patient treated with such lithotripter. In exchange for this licensing fee, we provide the buyer of the lithotripter with certain consumables. All the sales for equipment and consumables are recognized when the related items are delivered. Revenues from licensing fees are recorded when the patient is treated. In some cases, we lease certain equipment to our partnerships, as well as third parties. Revenues from these leases are recognized on a monthly basis or as procedures are performed. |
• | Fees for Claripath anatomical pathology services. We provide anatomical pathology services primarily to the urology marketplace. Revenues from these services are recorded when the related laboratory procedures are performed. |
Recent Developments
On April 17, 2008, we completed the acquisition of Advanced Medical Partners, Inc. (“AMPI”) pursuant to the Stock Purchase Agreement dated March 18, 2008 between us, Litho Management, Inc., AMPI and the stockholders of AMPI. We acquired the outstanding shares of capital stock of AMPI (other than shares already held by us) for a purchase price of approximately $6.9 million in cash and approximately 1.8 million shares of common stock, plus a two-year earn-out based on the future achievement of EBITDA. |
-16- |
Item 2 — Management’s Discussion and Analysis |
Critical Accounting Policies and Estimates.
Management has identified the following critical accounting policies and estimates: |
-17- |
Item 2 — Management’s Discussion and Analysis |
Three months ended March 31, 2008 compared to the three months ended March 31, 2007 |
-18- |
Item 2 — Management’s Discussion and Analysis |
In the first quarter of 2007, we had a loss from discontinued operations of $108,000 attributable to our RMPT and HIFU operations. Our RMPT business, was sold on September 28, 2007. |
-19- |
Item 2 — Management’s Discussion and Analysis |
Accounts receivable as of March 31, 2008 decreased $1,893,000 from December 31, 2007. This decrease relates primarily to the timing of collections. |
-20- |
Item 2 — Management’s Discussion and Analysis |
General |
Payments due by period | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Contractual Obligations | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | ||||||||||||
Long Term Debt | $ | 7,834 | $ | 4,057 | $ | 3,389 | $ | 365 | $ | 23 | |||||||
Operating Leases (1) | 5,944 | 1,585 | 2,657 | 1,298 | 404 | ||||||||||||
Non-compete contracts (2) | 136 | 86 | 50 | - | - | ||||||||||||
Unrecognized tax benefit | 2,294 | - | - | - | 2,294 | ||||||||||||
Total | $ | 16,208 | $ | 5,728 | $ | 6,096 | $ | 1,663 | $ | 2,721 | |||||||
(1) | Represents operating leases in the ordinary course of our business. | ||||
(2) | Represents an obligation of $46 due to an employee of Medstone, at a rate of $4 per month continuing until February 28, 2009, and an obligation of $90 due to a previous employee of ours, at a rate of $3 per month until June 15, 2010. |
In addition, the scheduled principal repayments for all long term debt as of March 31, 2008 are payable as follows: |
($ in thousands) | ||||||
---|---|---|---|---|---|---|
2008 | $ | 4,057 | ||||
2009 | 2,320 | |||||
2010 | 1,069 | |||||
2011 | 299 | |||||
2012 | 66 | |||||
Thereafter | 23 | |||||
Total | $ | 7,834 | ||||
On April 17, 2008, we borrowed $6 million under our revolving line of credit under our senior credit facility. |
-21- |
Item 2 — Management’s Discussion and Analysis |
Based upon the current level of our operations and anticipated cost savings and revenue growth, we believe that cash flows from our operations and available cash, together with available borrowings under our senior credit facility, will be adequate to meet our future liquidity needs both for the short term and for at least the next several years. However, there can be no assurance that our business will generate sufficient cash flows from operations, that we will realize our anticipated revenue growth and operating improvements or that future borrowings will be available under our senior credit facility in an amount sufficient to enable us to service our indebtedness or to fund our other liquidity needs. |
-22- |
Item 2 — Management’s Discussion and Analysis |
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115” ("SFAS 159"). SFAS 159 expands the use of fair value accounting to many financial instruments and certain other items. The fair value option is irrevocable and generally made on an instrument-by-instrument basis, even if a company has similar instruments that it elects not to measure based on fair value. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The adoption of SFAS 159 did not have a material impact on our financial position or results of operations. |
-23- |
Item 3 — Quantitative and Qualitative Disclosures |
Interest Rate Risk
As of March 31, 2008, we had long-term debt (including current portion) totaling $7,834,000, of which $5,626,000 had fixed rates of 1% to 11%, and $2,208,000 incurred interest at a variable rate equal to a specified prime rate. We are exposed to some market risk due to the remaining floating interest rate debt totaling $2,208,000. We make monthly or quarterly payments of principal and interest on $1,014,000 of the floating rate debt. An increase in interest rates of 1% would result in a $22,000 annual increase in interest expense on this existing principal balance. |
-24- |
Item 4 – Controls and Procedures |
As of March 31, 2008, under the supervision and with the participation of our management, including our Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial officer), we evaluated the effectiveness of our disclosure controls and procedures (as defined under Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of March 31, 2008, our disclosure controls and procedures were effective. |
-25- |
PART IIOTHER INFORMATION |
-26- |
Item 1A. Risk Factors.
In addition to the other information set forth in this report, you should carefully consider the factors discussed under “Risk Factors” in Part I, Item 1 in our Annual Report on Form 10-K for the year ended December 31, 2007, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. |
Item 6. Exhibits.
10.1 10.2* 31.1* 31.2* 32.1* 32.2* | Stock Purchase Agreement, dated as of March 18, 2008, by and among HealthTronics, Inc., Litho Management, Inc., Advanced Medical Partners, Inc. and the stockholders of Advanced Medical Partners, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 20, 2008). Form of Restricted Stock Award Agreement Certification of Chief Executive Officer Certification of Chief Financial Officer Certification of Chief Executive Officer Certification of Chief Financial Officer |
* Filed herewith. |
-27- |
SIGNATURES |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. |
Date: May 12, 2008 | HEALTHTRONICS, INC. By:/s/ Ross A. Goolsby Ross A. Goolsby Chief Financial Officer |
-28- |