-----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, C5so18k5A1bvAycIQ5ywTwuho1iIO8R1Tm38LBksiwYm5jphz5tjwMQjyjRKBw99 Q48ovq0ttoIFpoajnAik3w== 0000891618-98-003697.txt : 19980812 0000891618-98-003697.hdr.sgml : 19980812 ACCESSION NUMBER: 0000891618-98-003697 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980810 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: RAYTEL MEDICAL CORP CENTRAL INDEX KEY: 0001002017 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISC HEALTH & ALLIED SERVICES, NEC [8090] IRS NUMBER: 942787342 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-27186 FILM NUMBER: 98680376 BUSINESS ADDRESS: STREET 1: 2755 CAMPUS DR STREET 2: STE 200 CITY: SAN MATEO STATE: CA ZIP: 94403 BUSINESS PHONE: 4153490800 MAIL ADDRESS: STREET 1: 2755 CAMPUS DRIVE STREET 2: SUITE 200 CITY: SAN MATEO STATE: CA ZIP: 94403 10-Q 1 FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1998 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) /X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the Quarterly period ended June 30, 1998; or / / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from ____________________ to ___________________. Commission File Number: 0-27186 RAYTEL MEDICAL CORPORATION (Exact name of registrant as specified in its charter) Delaware 94-2787342 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2755 Campus Drive, Suite 200, San Mateo, California 94403 (Address of principal executive offices)(Zip code) (650) 349-0800 (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. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Shares Outstanding as of July 31, 1998 ----- -------------------------------------- Common Stock ($.001 par value) 8,823,679 2 RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES INDEX
Page ---- PART I. FINANCIAL INFORMATION Item 1 Financial Statements Condensed Consolidated Balance Sheets as of June 30, 1998 and September 30, 1997................................................3 Condensed Consolidated Statements of Operations for the three months and the nine months ended June 30, 1998 and 1997................4 Condensed Consolidated Statements of Cash Flows for the nine months ended June 30, 1998 and 1997.....................................5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................................7 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K.......................................................12 SIGNATURE.......................................................................................13
2 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS JUNE 30, 1998 AND SEPTEMBER 30, 1997 (000's omitted)
ASSETS June 30, September 30, 1998 1997 --------- --------- (Unaudited) Current assets: Cash and cash equivalents .............................. $ 8,493 $ 7,873 Receivables, net ....................................... 35,406 30,345 Prepaid expenses and other ............................. 3,852 3,970 --------- --------- Total current assets ............................ 47,751 42,188 Property and equipment, less accumulated depreciation and amortization .......................... 19,613 19,712 Intangible assets, less accumulated amortization ........................................... 55,878 57,486 Other .................................................... 45 35 --------- --------- Total assets .................................... $ 123,287 $ 119,421 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt and capital lease obligations .......................... $ 2,035 $ 1,893 Accounts payable ....................................... 4,271 5,110 Accrued liabilities .................................... 9,948 10,794 --------- --------- Total current liabilities ....................... 16,254 17,797 Long-term debt and capital lease obligations, net of current portion .............................. 36,318 34,461 Deferred liabilities ..................................... 1,386 1,163 Minority interest in consolidated entities ............... 3,866 4,101 --------- --------- Total liabilities ............................... 57,824 57,522 --------- --------- Stockholders' equity: Common stock ........................................... 9 9 Additional paid-in capital ............................. 61,504 61,261 Common stock to be issued .............................. 916 943 Retained earnings ...................................... 5,583 1,097 --------- --------- 68,012 63,310 Less treasury stock, at cost ........................... (2,549) (1,411) --------- --------- Total stockholders' equity ...................... 65,463 61,899 --------- --------- Total liabilities and stockholders' equity ........................................ $ 123,287 $ 119,421 ========= =========
3 4 RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS AND NINE MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED) (000's omitted, except per share amounts)
Three Months Ended June 30, Nine Months Ended June 30, -------------------------- ------------------------- 1998 1997 1998 1997 -------- -------- -------- -------- Revenues: Pacing, CEDS and Holter ............. $ 11,618 $ 11,807 $ 34,580 $ 35,778 Diagnostic imaging service .......... 5,700 4,510 15,044 13,343 Heart center, practice management and other ......................... 10,813 3,441 31,522 11,725 -------- -------- -------- -------- Total revenues ......... 28,131 19,758 81,146 60,846 -------- -------- -------- -------- Costs and expenses: Operating costs ..................... 12,970 7,597 37,789 23,961 Selling, general and administrative . 9,428 7,314 26,544 22,421 Depreciation and amortization ....... 2,049 1,544 6,373 4,487 -------- -------- -------- -------- Total costs and expenses 24,447 16,455 70,706 50,869 -------- -------- -------- -------- Operating income .................... 3,684 3,303 10,440 9,977 Interest expense ...................... 779 106 2,288 358 Other expense (income) ................ (98) (174) (296) (2,850) Minority interest ..................... 394 95 972 275 -------- -------- -------- -------- Income before income taxes .......... 2,609 3,276 7,476 12,194 Provision for income taxes ............ 1,043 1,311 2,990 4,878 -------- -------- -------- -------- Net income .......................... $ 1,566 $ 1,965 $ 4,486 $ 7,316 ======== ======== ======== ======== Net income per share: Basic ........................... $ .18 $ .23 $ .50 $ .87 ======== ======== ======== ======== Diluted ......................... $ .17 $ .22 $ .48 $ .82 ======== ======== ======== ======== Weighted average shares: Basic ........................... 8,880 8,418 8,906 8,386 ======== ======== ======== ======== Diluted ......................... 9,166 8,950 9,369 8,947 ======== ======== ======== ========
4 5 RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED) (000's omitted)
June 30, ----------------- 1998 1997 ------- ------- Cash flows from operating activities: Net income ............................................... $ 4,486 $ 7,316 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ........................ 6,373 4,487 Minority interest .................................... 972 275 Other, net ........................................... 199 (511) Changes in operating accounts: Receivables, net ................................... (5,061) (4,172) Prepaid expenses and other ......................... 153 (575) Accounts payable ................................... (839) (102) Accrued liabilities and other ...................... (964) 382 ------- ------- Net cash provided by operating activities ..... 5,319 7,100 ------- ------- Cash flows from investing activities: Capital expenditures ..................................... (3,969) (2,323) Purchases of net assets and physician practice ........... -- (427) Other, net ............................................... (672) 568 ------- ------- Net cash used in investing activities ......... (4,641) (2,182) ------- ------- Cash flows from financing activities: Repurchase of Company stock .............................. (1,138) (1,170) Income distributions to noncontrolling investors ......... (1,146) (796) Proceeds from (paydown of) line of credit ................ 3,222 (1,764) Principal repayments of debt ............................. (1,268) (1,522) Other, net ............................................... 272 380 ------- ------- Net cash used in financing activities ......... (58) (4,872) ------- ------- Net increase in cash and cash equivalents .................. 620 46 Cash and cash equivalents at beginning of period ........... 7,873 5,737 ------- ------- Cash and cash equivalents at end of period ................. $ 8,493 $ 5,783 ======= =======
The accompanying unaudited condensed consolidated financial statements of Raytel Medical Corporation (the "Company") have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the three months and nine months ended June 30, 1998 are not necessarily indicative of results that may be expected for the year ending September 30, 1998. For further information, refer to the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended September 30, 1997. 5 6 The Company has adopted the provisions of Statement of Financial Accounting Standards No. 128, Earnings Per Share. The adoption of this accounting standard did not affect previously reported earnings per share. For the three months and nine months ended June 30, 1998 and 1997, basic and diluted earnings per share are calculated as follows:
For the three months For the nine months ended June 30, ended June 30, -------------------- ------------------- 1998 1997 1998 1997 ------ ------ ----- ----- (000's omitted, except per share amounts) Basic Earnings per Share: Net income ........................ $1,566 $1,965 $4,486 $7,316 ====== ====== ====== ====== Weighted average shares outstanding 8,880 8,418 8,906 8,386 ====== ====== ====== ====== Per share ......................... $ .18 $ .23 $ .50 $ .87 ====== ====== ====== ====== Diluted Earnings per Share: Net income ........................ $1,566 $1,965 $4,486 $7,316 ====== ====== ====== ====== Weighted average shares outstanding 8,880 8,418 8,906 8,386 Shares to be issued ............... 132 136 132 135 Options ........................... 154 317 293 334 Warrants .......................... -- 79 38 92 ------ ------ ------ ------ 9,166 8,950 9,369 8,947 ====== ====== ====== ====== Per share ......................... $ .17 $ .22 $ .48 $ .82 ====== ====== ====== ======
Certain options and warrants to purchase shares of common stock were outstanding during the three months and nine months ended June 30, 1998 and 1997, but were not included in the computation of diluted earnings per share because their exercise prices were greater than the average market price of the common shares for the period. The options and warrants outstanding and their exercise prices are as follows:
For the three months For the nine months ended June 30, ended June 30, ------------------------------- ------------------------------- 1998 1997 1998 1997 ------------ ------------- ------------ ------------- Options and warrants outstanding ...... 984,999 24,731 365,208 377,339 Range of exercise prices .............. $7.50-$13.50 $10.00-$13.50 $7.50-$13.50 $10.00-$13.50
6 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This discussion and analysis includes a number of forward-looking statements which reflect the Company's current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties, including those discussed under "Business Environment and Future Results" and elsewhere in this Item, that could cause actual results to differ materially from historical results or those anticipated. In this Item, the words "anticipates," "believes," "expects," "intends," "future" and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Overview The Company generates the majority of its revenues from the provision of transtelephonic monitoring services for cardiac pacemaker patients ("Pacing"), cardiac event detection services ("CEDS") and Holter, diagnostic imaging services and cardiac catheterization procedures. Following the Company's initial public offering in December 1995, the Company has entered into a series of transactions which have expanded its heart center and physician practice management businesses. As a result, revenue is also being provided from: Raytel Heart Center at Granada Hills ("RHCGH") beginning on February 1, 1996; the management of Southeast Texas Cardiology Associates II P.A. ("SETCA") beginning on September 18, 1996; the management of Comprehensive Cardiology Consultants, a Medical Group, Inc. ("CCMG") beginning on November 1, 1996; and Cardiovascular Ventures, Inc. ("CVI") beginning on August 15, 1997, which included the multi-specialty medical practice, Heart and Family Health Institute ("HFHI"). The Company's investments in two ventures ("Ventures") that operated four of the consolidated diagnostic imaging centers terminated during fiscal 1997. Revenues contributed by these ventures were $280,000 and $1,318,000 for the three months and nine months ended June 30, 1997, respectively. Under certain practice management contracts, revenues are recognized pursuant to long-term arrangements with physician groups under which the Company provides the physician group with a full range of services, including, but not limited to, office space, specialized clinical and procedural facilities, medical equipment, data processing and medical record keeping, billing and collection procedures and services, non-physician licensed personnel, such as nurses and technicians, as well as office staff and administrative personnel. In the case of SETCA and CCMG, the Company's practice management revenues are derived from the physician groups' revenues, generally as a purchased service, except for certain physician compensation and employment benefits, which are paid by the physician group on a priority basis. Under the above management services arrangements, the Company's practice management revenues represent approximately 56.2% and 56.1% of the revenues of the physician groups for the three months ended June 30, 1998 and 1997, respectively and approximately 54.5% and 56.1% for the nine months ended June 30, 1998 and 1997, respectively. For HFHI, the Company recognizes 100% of all medical revenue as the physicians are employees of the Company. On August 15, 1997, the Company acquired the stock of CVI, of New Orleans, Louisiana. CVI currently manages, owns and operates cardiovascular diagnostic facilities in Texas, Louisiana, and Florida and owns and manages a physician clinic in Florida. Total consideration for the transaction consisted of cash and transaction costs of approximately $16,980,000 and 500,000 shares of Raytel Common Stock. The contingent promissory notes in the aggregate principal amount of $820,000 were cancelled in accordance with the terms of the agreement. On October 9, 1997, the Company announced it had entered into an agreement with The Baptist Hospital of Southeast Texas to develop a Raytel Heart Center at the hospital. Under the agreement, Raytel will manage the heart center, which will provide a range of cardiovascular services, including diagnostic, therapeutic and patient wellness programs. Among other duties, Raytel will be responsible for the day-to-day operations of the heart center, including administrative support, information systems management and public relations activities. The Company expects to begin operations at Baptist Hospital during its fourth quarter of fiscal 1998. 7 8 In September 1996, the Company received a favorable administrative decision related to a billing dispute with a New York Medicare carrier whereby it was entitled to receive approximately $4.0 million. The time period for the Healthcare Finance Administration ("HCFA") and the Social Security Administration to file an appeal expired on February 10, 1997. After accounting for administrative costs and reimbursements due to Medtronic under the terms of the acquisition of CardioCare and a separate provision against the value of a non-operating asset, the Company recognized other income of $2,510,000 pretax in its second fiscal quarter ending March 31, 1997, with a positive after tax effect of $1,506,000 or $.17 per share (the "Decision"). Results of Operations Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997. The operations of CVI are included in the Company's Condensed Consolidated Statements of Operations since August 15, 1997, the effective date of the Company's acquisition of CVI. Accordingly, such results are included in the three month period ended June 30, 1998, but are not included in the three month period ended June 30, 1997. Revenues. Pacing, CEDS and Holter revenues decreased by $189,000, or 1.6%, from $11,807,000 for the three months ended June 30, 1997 to $11,618,000 for the three months ended June 30, 1998, due primarily to a slight decrease in CEDS revenue due to a combination of competitive pressures and lower reimbursement rates, partially offset by a slight increase in pacing revenue. Diagnostic imaging service revenues increased by $1,190,000, or 26.4%, from $4,510,000 for the three months ended June 30, 1997 to $5,700,000 for the three months ended June 30, 1998, due primarily to increases in revenues at certain centers due to an increase in volume, partially offset by decreased revenues due to the termination of a venture on June 30, 1997. Heart Center, practice management and other revenues increased by $7,372,000 or 214.2% from $3,441,000 for the three months ended June 30, 1997 to $10,813,000 for the three months ended June 30, 1998 due primarily to the inclusion of revenues from CVI. As a result of the foregoing factors, total revenues increased by $8,373,000, or 42.4%, from $19,758,000 for the three months ended June 30, 1997 to $28,131,000 for the three months ended June 30, 1998. Operating Expenses. Operating costs and selling, general and administrative expenses increased by $7,487,000, or 50.2%, from $14,911,000 for the three months ended June 30, 1997 to $22,398,000 for the three months ended June 30, 1998 due primarily to the inclusion of costs and expenses from CVI. Operating costs and selling, general and administrative expenses as a percentage of total revenues increased by 4.1%, from 75.5% for the three months ended June 30, 1997 to 79.6% for the three months ended June 30, 1998. At RHCGH, operating expenses were slightly in excess of revenues for the three month periods ended June 30, 1998 and 1997. Depreciation and Amortization. Depreciation and amortization expense increased by $505,000, from $1,544,000 for the three months ended June 30, 1997 to $2,049,000 for the three months ended June 30, 1998, due primarily to the inclusion of CVI, but decreased as a percentage of revenues from 7.8% for the three months ended June 30, 1997 to 7.3% for the three months ended June 30, 1998. Operating Income. As a result of the foregoing factors, operating income increased by $381,000, or 11.5%, from $3,303,000 for the three months ended June 30, 1997 to $3,684,000 for the three months ended June 30, 1998. Interest Expense. Interest expense increased by $673,000, or 634.9%, from $106,000 for the three months ended June 30, 1997 to $779,000 for the three months ended June 30, 1998 due primarily to an increase in debt due to the CVI acquisition. Minority Interest. Minority interest increased by $299,000 or 314.7%, from $95,000 for the three months ended June 30, 1997 to $394,000 for the three months ended June 30, 1998 due primarily to the inclusion of CVI. 8 9 Income Taxes. The provision for income taxes decreased by $268,000, or 20.4%, from $1,311,000 for the three months ended June 30, 1997 to $1,043,000 for the three months ended June 30, 1998 as a result of decreased taxable income. Net Income. As a result of the foregoing factors, net income decreased by $399,000, or 20.3%, from $1,965,000 for the three months ended June 30, 1997 to $1,566,000 for the three months ended June 30, 1998. Nine Months Ended June 30, 1998 Compared to Nine Months Ended June 30, 1997. The operations of CVI are included in the Company's Condensed Consolidated Statements of Operations since August 15, 1997, the effective date of the Company's acquisition of CVI. Accordingly, such results are included in the nine month period ended June 30, 1998, but are not included in the nine month period ended June 30, 1997. The results of operations from the management service agreement with CCMG are included in the Company's Condensed Consolidated Statements of Operations since November 1, 1996, the effective date of the agreement. Accordingly, such results are included in the nine month period ended June 30, 1998, but are only included for eight months of the nine month period ended June 30, 1997. Revenues. Pacing, CEDS and Holter revenues decreased by $1,198,000, or 3.3%, from $35,778,000 for the nine months ended June 30, 1997 to $34,580,000 for the nine months ended June 30, 1998, due primarily to a combination of competitive pressures and lower reimbursement rates for CEDS. Diagnostic imaging service revenues increased by $1,701,000, or 12.7%, from $13,343,000 for the nine months ended June 30, 1997 to $15,044,000 for the nine months ended June 30, 1998, due primarily to increases in revenues at certain centers due to an increase in volume, partially offset by decreased revenues due to the termination of two Ventures in fiscal 1997. Heart Center, practice management and other revenues increased by $19,797,000, or 168.8%, from $11,725,000 for the nine months ended June 30, 1997 to $31,522,000 for the nine months ended June 30, 1998 due primarily to the inclusion of revenues from CVI. As a result of the foregoing factors, total revenues increased by $20,300,000, or 33.4%, from $60,846,000 for the nine months ended June 30, 1997 to $81,146,000 for the nine months ended June 30, 1998. Operating Expenses. Operating costs and selling, general and administrative expenses increased by $17,951,000, or 38.7%, from $46,382,000 for the nine months ended June 30, 1997 to $64,333,000 for the nine months ended June 30, 1998, due primarily to the inclusion of costs and expenses from CVI. Operating costs and selling, general and administrative expenses as a percentage of total revenues increased from 76.2% for the nine months ended June 30, 1997 to 79.3% for the nine months ended June 30, 1998. At RHCGH, operating expenses were slightly in excess of revenues for the nine month periods ended June 30, 1998 and 1997. Depreciation and Amortization. Depreciation and amortization expense increased by $1,886,000, from $4,487,000 for the nine months ended June 30, 1997 to $6,373,000 for the nine months ended June 30, 1998 due primarily to the inclusion of CVI, and increased as a percentage of revenues from 7.4% for the nine months ended June 30, 1997 to 7.9% for the nine months ended June 30, 1998. Operating Income. As a result of the foregoing factors, operating income increased by $463,000 or 4.6%, from $9,977,000 for the nine months ended June 30, 1997 to $10,440,000 for the nine months ended June 30, 1998. Interest Expense. Interest expense increased by $1,930,000, or 539.1%, from $358,000 for the nine months ended June 30, 1997 to $2,288,000 for the nine months ended June 30, 1998 due primarily to an increase in debt due to the CVI acquisition. Other expense (income). Other income decreased by $2,554,000 from $2,850,000 for the nine months ended June 30, 1997 to $296,000 for the nine months ended June 30, 1998 due primarily to the Decision. Minority Interest. Minority interest increased by $697,000, or 253.5%, from $275,000 for the nine months ended June 30, 1997 to $972,000 for the nine months ended June 30, 1998 due primarily to the inclusion of CVI. 9 10 Income Taxes. The provision for income taxes decreased by $1,888,000, or 38.7%, from $4,878,000 for the nine months ended June 30, 1997 to $2,990,000 for the nine months ended June 30, 1998 as a result of decreased taxable income. Net Income. As a result of the foregoing factors, net income decreased by $2,830,000, or 38.7%, from $7,316,000 for the nine months ended June 30, 1997 to $4,486,000 for the nine months ended June 30, 1998. Business Environment and Future Results The Company's future operating results may be affected by various trends in the healthcare industry as well as by a variety of other factors, some of which are beyond the Company's control. The healthcare industry is undergoing significant change as third-party payors attempt to control the cost, utilization and delivery of healthcare services. Substantially all of the Company's revenues are derived from Medicare, HMOs, and commercial insurers and other third-party payors. Both government and private payment sources have instituted cost containment measures designed to limit payments made to healthcare providers, by reducing reimbursement rates, limiting services covered, increasing utilization review of services, negotiating prospective or discounted contract pricing, adopting capitation strategies and seeking competitive bids. Although the Company's total revenues have increased in each of the last three fiscal years, revenue of the Company's Pacing operations during that period has been negatively impacted by Medicare reimbursement rate reductions in certain geographic areas. Additional reimbursement rate reductions applicable to the Company's Pacing procedures became effective on January 1, 1996 and January 1, 1997. These reductions had a negative effect on the Company's operating results for fiscal 1997 and the first quarter of fiscal 1998. The Company's Pacing operations have been favorably impacted since January 1, 1998 due to an increase in Medicare reimbursement rates effective on that date. The Company cannot predict with any certainty whether or when additional reductions or changes in Medicare or other third-party reimbursement rates or policies will be implemented. There can be no assurance that future changes, if any, will not adversely affect the amounts or types of services that may be reimbursed to the Company, or that future reimbursement of any service offered by the Company will be sufficient to cover the costs and overhead allocated to such service. From time to time, Congress considers legislation to reduce Medicare and Medicaid expenditures. Future legislation of this type could have a material adverse effect on the Company's business, financial condition and operating results. Governmental agencies promulgate regulations which mandate changes in the method of delivering services which could have a material adverse effect on the Company's business. A key element of the Company's long-range strategy is the development and operation of integrated heart centers and the acquisition of cardiac healthcare providers specializing in cardiology related services and the assets of physician practices and other businesses related to its current operations. The success of the Company's existing and future heart centers and physician practices will depend upon several factors, including the Company's ability to: obtain and operate in compliance with appropriate licenses; control costs and realize operating efficiencies; educate patients, referring physicians and third-party payors about the benefits of such heart centers; and provide cost-effective services that meet or exceed existing standards of care. An element of the Company's strategy is to expand, in part, through acquisitions and investments in complementary healthcare businesses. The implementation of this strategy may place significant strain on the Company's administrative, operational and financial resources and increase demands on its systems and controls. There can be no assurances that businesses acquired by the Company, either recently or in the future, will be integrated successfully and profitably into the Company's operations, that suitable acquisition or investment opportunities will be identified, or that any such transactions can be consummated. Providers of healthcare services are subject to numerous federal, state and local laws and regulations that govern various aspects of their business. There can be no assurance that the Company will be able to obtain regulatory approvals that may be required to expand its services or that new laws or regulations will not be enacted 10 11 or adopted that will have a material adverse effect on the Company's business, financial condition or operating results. The healthcare businesses in which the Company is engaged are highly competitive. The Company expects competition to increase as a result of ongoing consolidations and cost-containment pressures, among other factors. The trading price of the Company's Common Stock could be subject to wide fluctuations in response to quarterly variations in the Company's operating results, shortfalls in such operating results from levels forecasted by securities analysts and other events or factors. In addition, the stock market has, from time to time, experienced extreme price and volume fluctuations that have particularly affected the market prices of companies in the healthcare service industries and that have often been unrelated to the operating performance of the affected companies. Announcements of changes in reimbursement policies of third-party payors, legislative or regulatory developments, economic news and other external factors may have a significant impact on the market price of healthcare stocks. Liquidity and Capital Resources The Company's liquidity was materially improved as a result of the completion of the initial public offering of its Common Stock in December 1995 and its receipt of $20,400,000 in net proceeds therefrom. The Company acquired certain assets and assumed certain liabilities of CDS in June 1996 for cash in the amount of $14,254,000, SETCA in September 1996 for cash in the amount of $4,010,000 and CCMG in November 1996 for cash in the amount of $427,000 and acquired the stock of CVI in August 1997 for cash and transaction costs in the amount of $16,980,000. At June 30, 1998, the Company had working capital of $31,497,000, compared to $24,391,000 at September 30, 1997. At June 30, 1998, the Company had cash and temporary cash investments of $8,493,000. At June 30, 1998, $29,183,000 was outstanding under the Company's line of credit. The Company batch-bills Medicare insurance carriers for most cardiac testing services performed during the first five months of each calendar year. This practice results in a temporary build-up of accounts receivable during the Company's second and third fiscal quarters and the collection of these receivables primarily during the subsequent fourth fiscal quarter. The Company has a revolving line of credit with two banks in the amount of $45,000,000 to fund working capital needs, future acquisitions, equipment purchases and other business needs. Amounts outstanding under the line of credit bear interest based on a defined formula and are subject to certain covenants. The line of credit expires in August 1999 at which time any outstanding balance will be converted to a five-year term loan. The Company's long-term capital requirements will depend on numerous factors, including the rate at which the Company develops and opens new heart centers or acquires existing heart centers, physician practices or other businesses, if any. The Company believes that its cash and cash equivalent balances, together with amounts available from bank borrowings and cash generated by its operating activities, will be adequate to meet the Company's anticipated needs for working capital and capital expenditures through fiscal 1999. 11 12 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K a. Exhibits: The following exhibits are filed as a part of this Report: Exhibit Number Title ------ ----- 27 Financial data schedule b. Reports on Form 8-K: The Company filed no reports on Form 8-K during the quarter ended June 30, 1998. 12 13 SIGNATURE 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. RAYTEL MEDICAL CORPORATION Dated: August 7, 1998 By: /s/ E. Payson Smith, Jr. ------------------------ E. Payson Smith, Jr. Senior Vice President and Chief Financial Officer (duly authorized officer and principal financial officer) 13 14 EXHIBIT INDEX Exhibit No. Description - ------- ----------- 27 Financial Data Schedule EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS. 1,000 9-MOS SEP-30-1998 OCT-01-1997 JUN-30-1998 8,493 0 35,406 0 0 47,751 39,564 19,951 123,287 16,254 0 0 0 9 65,454 123,287 0 81,146 0 70,706 676 0 2,288 7,476 2,990 4,486 0 0 0 4,486 0.50 0.48 Represents net receivables Included in
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