-----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, O+JmA8MWGIFxZkOvWoBIWwOGihTFk3quOa5o1Gzu5puz99PoMsB9XeoD49wEKLBJ 0ahflcbLZgQimxX6M7NdyQ== 0000891618-97-003321.txt : 19970813 0000891618-97-003321.hdr.sgml : 19970813 ACCESSION NUMBER: 0000891618-97-003321 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970812 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: 1934 Act SEC FILE NUMBER: 000-27186 FILM NUMBER: 97656156 BUSINESS ADDRESS: STREET 1: 2755 CAMPUS DRIVE STREET 2: SUITE 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 6/30/97 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, 1997; 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) (415) 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, 1997 ----- -------------------------------------- COMMON STOCK 8,419,456 ($.001 PAR VALUE) 2 RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES INDEX
PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets as of June 30, 1997 and September 30, 1996................................................3 Condensed Consolidated Statements of Operations for the three months and the nine months ended June 30, 1997 and 1996................4 Condensed Consolidated Statements of Cash Flows for the nine months ended June 30, 1997 and 1996.....................................5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................................6 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, 1997 AND SEPTEMBER 30, 1996 (000'S OMITTED) ASSETS
JUNE 30, SEPTEMBER 30, 1997 1996 -------- ------------- (UNAUDITED) Current assets: Cash and cash equivalents $ 5,783 $ 5,737 Receivables, net 26,225 21,753 Prepaid expenses and other 2,047 1,472 -------- -------- Total current assets 34,055 28,962 Investment in and advances to unconsolidated entities and partnerships 33 74 Property and equipment, less accumulated depreciation and amortization 9,190 9,156 Intangible assets, less accumulated amortization 28,691 29,838 -------- -------- Total assets $ 71,969 $ 68,030 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 809 $ 2,703 Current portion of capital lease obligations 480 562 Accounts payable 2,759 2,861 Accrued liabilities 6,998 6,632 -------- -------- Total current liabilities 11,046 12,758 Long-term debt, net of current portion 3,491 3,842 Capital lease obligations, net of current portion 209 469 Deferred liabilities 1,144 983 Minority interest in consolidated entities 583 1,100 -------- -------- Total liabilities 16,473 19,152 -------- -------- Stockholders' equity: Common stock 8 8 Additional paid-in capital 55,966 55,585 Common stock to be issued 943 852 Accumulated deficit (251) (7,567) -------- -------- 56,666 48,878 Less treasury stock, at cost (1,170) -- -------- -------- Total stockholders' equity 55,496 48,878 -------- -------- Total liabilities and stockholders' equity $ 71,969 $ 68,030 ======== ========
3 4 RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS AND NINE MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) (000'S OMITTED, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED ----------------------- ----------------------- JUNE 30, JUNE 30, JUNE 30, JUNE 30, 1997 1996 1997 1996 -------- -------- -------- -------- Revenues: Pacing, CEDS and Holter revenues $ 11,807 $ 10,716 $ 35,778 $ 31,554 Diagnostic imaging service revenues 4,510 5,229 13,343 15,236 Heart center, practice management and other revenues 3,441 2,961 11,725 5,978 -------- -------- -------- -------- Total revenues 19,758 18,906 60,846 52,768 -------- -------- -------- -------- Costs and expenses: Operating costs 7,597 7,505 23,961 19,685 Selling, general and administrative 7,314 7,290 22,421 20,932 Depreciation and amortization 1,544 1,397 4,487 4,030 -------- -------- -------- -------- Total costs and expenses 16,455 16,192 50,869 44,647 -------- -------- -------- -------- Operating income 3,303 2,714 9,977 8,121 Interest expense 106 84 358 518 Other expense (income) (174) (166) (2,850) (463) Minority interest 95 224 275 647 -------- -------- -------- -------- Income before income taxes and extraordinary item 3,276 2,572 12,194 7,419 Provision for income taxes 1,311 659 4,878 2,597 -------- -------- -------- -------- Income before extraordinary item 1,965 1,913 7,316 4,822 Extraordinary item, net of related tax benefit -- -- -- 402 -------- -------- -------- -------- Net income $ 1,965 $ 1,913 $ 7,316 $ 4,420 ======== ======== ======== ======== Net income per share before extraordinary item $ .22 $ .22 $ .82 $ .60 ======== ======== ======== ======== Net income per share $ .22 $ .22 $ .82 $ .55 ======== ======== ======== ======== Weighted average common shares and dilutive equivalents outstanding 8,950 8,828 8,947 7,972 ======== ======== ======== ========
4 5 RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED) (000'S OMITTED)
JUNE 30, JUNE 30, 1997 1996 -------- -------- Cash flows from operating activities: Net income $ 7,316 $ 4,420 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,487 4,030 Minority interest 275 647 Other, net (511) 345 Changes in operating accounts: Receivables, net (4,172) (3,701) Prepaid expenses and other (575) (260) Accounts payable (102) 845 Accrued liabilities and other 382 (37) -------- -------- Net cash provided by operating activities 7,100 6,289 -------- -------- Cash flows from investing activities: Capital expenditures (2,323) (2,446) Purchases of net assets and physician practice (427) (14,254) Other, net 568 254 -------- -------- Net cash used in investing activities (2,182) (16,446) -------- -------- Cash flows from financing activities: Net proceeds from initial public offering -- 20,400 Repurchase of warrants -- (2,101) Repurchase of Company stock (1,170) -- Principal repayments of debt (3,286) (9,296) Other, net (416) (492) -------- -------- Net cash provided by (used in) financing activities (4,872) 8,511 -------- -------- Net increase (decrease) in cash and cash equivalents 46 (1,646) Cash and cash equivalents at beginning of period 5,737 4,983 -------- -------- Cash and cash equivalents at end of period $ 5,783 $ 3,337 ======== ========
The interim financial statements furnished above reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. These interim financial statements should be read in conjunction with the financial statements and notes included in Raytel Medical Corporation's (the "Company") September 30, 1996 Annual Report on Form 10-K. The foregoing interim results are not necessarily indicative of the results of operations for the full fiscal year ending September 30, 1997. 5 6 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 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. Beginning on February 1, 1996 and September 18, 1996, revenue is also being provided from the operation of the Raytel Heart Center at Granada Hills ("RHCGH") and from the management of Southeast Texas Cardiology Associates, P.A. ("SETCA"), a physician practice, respectively. Also, beginning on November 1, 1996, revenue is being provided from the management of Comprehensive Cardiology Consultants, a Medical Group, Inc. ("CCMG"), a physician practice, as described below. The Company's investment in one consolidated venture that operates three of the consolidated diagnostic imaging centers terminated on December 31, 1996. Revenues contributed by this venture were $0 and $766,000 for the three months ended June 30, 1997 and 1996, respectively, and $512,000 and $2,192,000 for the nine months ended June 30, 1997 and 1996, respectively. The Company's investment in another consolidated venture terminated on June 30, 1997. Revenues contributed by this venture were $280,000 and $296,000 for the three months ended June 30, 1997 and 1996, respectively, and $806,000 and $860,000 for the nine months ended June 30, 1997 and 1996, respectively. On October 18, 1996, the Company, through a subsidiary, entered into a long-term management service agreement whereby the Company will manage the non-medical aspects of the CCMG practice. Total consideration for the transaction was cash of $427,000, promissory notes of $620,000 and 14,376 shares of the Company's Common Stock to be delivered at future dates, valued at $91,000 (which represents a discount from market at the time of the transaction due primarily to the delay in the delivery of the shares). In September 1996, the Company received a favorable administrative decision related to a billing dispute with a New York Medicare carrier. The Company billed the carrier at a reimbursement rate which was in effect at the time the Company acquired the CardioCare division from Medtronic, Inc. in 1993. The reimbursement rate was confirmed by the carrier after the acquisition. Following an audit of the carrier by the Healthcare Finance Administration ("HCFA"), the Company was ordered to return approximately $4 million to Medicare, a decision the Company appealed. The Company was first notified on September 23, 1996, and again on December 12, 1996 in a reissued opinion, that an administrative law judge found that the Company was without fault and was entitled to the approximately $4 million in question. The time for 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"). Practice management revenues are recognized pursuant to long-term arrangements with physician groups pursuant to which the Company provides the physician group with a full range of services, including but not limited to physician practice 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. The Company's practice management revenues are derived from the physician groups' revenues, generally as a purchased service, except for 6 7 the physician compensation and employment benefits, which are paid by the physician group on a priority basis. Under existing management services arrangements, the Company's practice management revenues represent approximately 56% and 56% of the revenues of the physician groups for the three and nine months ended June 30, 1997, respectively. On May 5, 1997, the Company announced that it has retained Dillon, Read & Co., Inc. to help the Company evaluate options for the future of it's diagnostic imaging business. The Company intends to explore all possible alternatives for the business including a sale or the investment of additional capital to fund growth. On June 13, 1997, the Company announced it has signed a letter of intent to acquire Cardiovascular Ventures Inc. ("CVI"), of New Orleans, LA. CVI manages, owns and operates cardiovascular diagnostic facilities in Texas, Louisiana, Maryland, and Florida and owns and manages a physician clinic in Florida. CVI had revenues of approximately $17.3 million and was profitable through the first nine months of its current fiscal year ending June 30, 1997. Terms of the transaction were not disclosed. The transaction is subject to the completion of the Company's due diligence review and the execution of a definitive agreement. Completion of the transaction will also be subject to customary closing conditions, including approval by the individual shareholders of CVI. The transaction, if completed, will be treated as a purchase for accounting purposes. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share," ("SFAS 128"). SFAS 128 establishes new standards for computing and presenting earnings per share. SFAS 128 is effective for financial statements issued for periods ending after December 15, 1997 and earlier adoption is not permitted. The Company has not quantified the impact of adopting SFAS 128. RESULTS OF OPERATIONS Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996. The operations of Cardio Data Services ("CDS") are included in the Company's Consolidated Statements of Operations since June 11, 1996, the effective date of the Company's acquisition of CDS. Accordingly, the operations of CDS are included in the three month period ended June 30, 1997, but are only included for 20 days of the three month period ended June 30, 1996. The results of operations from the management service agreements with SETCA and CCMG are included in the Company's Consolidated Statements of Operations since September 18, 1996 and November 1, 1996, the effective dates of each respective management agreement. Accordingly, such results are included in the three month period ended June 30, 1997, but are not included in the three month period ended June 30, 1996. Revenues. Pacing, CEDS and Holter revenues increased by $1,091,000 or 10.2%, from $10,716,000 for the three months ended June 30, 1996 to $11,807,000 for the three months ended June 30, 1997, due primarily to the inclusion of revenues from CDS. Diagnostic imaging service revenues decreased by $719,000, or 13.8%, from $5,229,000 for the three months ended June 30, 1996 to $4,510,000 for the three months ended June 30, 1997, due primarily to the termination of a venture on December 31, 1996. Heart Center, practice management and other revenues increased by $480,000 or 16.2% from $2,961,000 for the three months ended June 30, 1996 to $3,441,000 for the three months ended June 30, 1997 due primarily to the inclusion of revenues from the physician practices, partially offset by a decrease in revenues from RHCGH. As a result of the foregoing factors, total revenues increased by $852,000 or 4.5% from $18,906,000 for the three months ended June 30, 1996 to $19,758,000 for the three months ended June 30, 1997. Operating Expenses. Operating costs and selling, general and administrative expenses increased by $116,000, or .8%, from $14,795,000 for the three months ended June 30, 1996 to $14,911,000 for the three months ended June 30, 1997 due primarily to the inclusion of costs and expenses from the management of the physician practices and from the CDS operations. These increases were mostly offset by decreases in costs and expenses at operating facilities, other than CDS, which provide Pacing, CEDS and Holter services due to cost containment measures and a 7 8 decrease at RHCGH due to decreased volume. Operating costs and selling, general and administrative expenses as a percentage of total revenues decreased by 2.8%, from 78.3% for the three months ended June 30, 1996 to 75.5% for the three months ended June 30, 1997. At RHCGH, operating expenses were slightly in excess of revenues for the three month periods ended June 30, 1997 and 1996. Depreciation and Amortization. Depreciation and amortization expense increased by $147,000, from $1,397,000 for the three months ended June 30, 1996 to $1,544,000 for the three months ended June 30, 1997, and increased as a percentage of revenues from 7.4% for the three months ended June 30, 1996 to 7.8% for the three months ended June 30, 1997. Operating Income. As a result of the foregoing factors, operating income increased by $589,000 or 21.7% from $2,714,000 for the three months ended June 30, 1996 to $3,303,000 for the three months ended June 30, 1997. Interest Expense. Interest expense increased by $22,000, or 26.2%, from $84,000 for the three months ended June 30, 1996 to $106,000 for the three months ended June 30, 1997. Income Taxes. The provision for income taxes increased by $652,000, or 98.9%, from $659,000 for the three months ended June 30, 1996 to $1,311,000 for the three months ended June 30, 1997 as a result of increased taxable income and a higher effective tax rate in the current period. Net Income. As a result of the foregoing factors, net income increased by $52,000, or 2.7%, from $1,913,000 for the three months ended June 30, 1996 to $1,965,000 for the three months ended June 30, 1997. Nine Months Ended June 30, 1997 Compared to Nine Months Ended June 30, 1996. The operations of RHCGH are included in the Company's Consolidated Statements of Operations since February 1, 1996, the effective date of the Company's management agreement. Accordingly, RHCGH's operations are included in the full nine month period ended June 30, 1997, but are only included for five months of the nine month period ended June 30, 1996. The operations of CDS are included in the Company's Consolidated Statements of Operations since June 11, 1996, the effective date of the Company's acquisition of CDS. Accordingly, the operations of CDS are included in the nine month period ended June 30, 1997, but are only included for 20 days of the nine month period ended June 30, 1996. The results of operations from the management service agreements with SETCA and CCMG are included in the Company's Consolidated Statements of Operations since September 18, 1996 and November 1, 1996, the effective dates of each respective management agreement. Accordingly, such results are included in the nine month period ended June 30, 1997, but are not included in the nine month period ended June 30, 1996. Revenues. Pacing, CEDS and Holter revenues increased by $4,224,000, or 13.4%, from $31,554,000 for the nine months ended June 30, 1996 to $35,778,000 for the nine months ended June 30, 1997, due primarily to the inclusion of revenues from CDS. Diagnostic imaging service revenues decreased by $1,893,000 or 12.4%, from $15,236,000 for the nine months ended June 30, 1996 to $13,343,000 for the nine months ended June 30, 1997, due primarily to the termination of a venture on December 31, 1996. Heart Center, practice management and other revenues increased by $5,747,000 or 96.1% from $5,978,000 for the nine months ended June 30, 1996 to $11,725,000 for the nine months ended June 30, 1997 due primarily to the inclusion of revenues from the physician practices and from RHCGH. As a result of the foregoing factors, total revenues increased by $8,078,000 or 15.3% from $52,768,000 for the nine months ended June 30, 1996 to $60,846,000 for the nine months ended June 30, 1997. Operating Expenses. Operating costs and selling, general and administrative expenses increased by $5,765,000, or 14.2%, from $40,617,000 for the nine months ended June 30, 1996 to $46,382,000 for the nine months ended June 30, 1997, due primarily to the inclusion of costs and expenses from RHCGH and CDS and, to a lesser extent, costs and expenses from the management of the physician practices. These increases were partially offset by decreases in costs and expenses at operating facilities, other than CDS, which provide Pacing, CEDS and 8 9 Holter services due to cost containment measures. Operating costs and selling, general and administrative expenses as a percentage of total revenues remain relatively unchanged. At RHCGH, operating expenses were slightly in excess of revenues for the nine month periods ended June 30, 1997 and 1996. Depreciation and Amortization. Depreciation and amortization expense increased by $457,000, from $4,030,000 for the nine months ended June 30, 1996 to $4,487,000 for the nine months ended June 30, 1997, and declined as a percentage of revenues from 7.6% for the nine months ended June 30, 1996 to 7.4% for the nine months ended June 30, 1997. Operating Income. As a result of the foregoing factors, operating income increased by $1,856,000 or 22.9% from $8,121,000 for the nine months ended June 30, 1996 to $9,977,000 for the nine months ended June 30, 1997. Interest Expense. Interest expense decreased by $160,000, or 30.9%, from $518,000 for the nine months ended June 30, 1996 to $358,000 for the nine months ended June 30, 1997 primarily due to the final repayment of term debt in the first quarter of fiscal 1996, the repayment of a subordinated note during fiscal 1996 and a reduction in the principal amount outstanding under equipment loans and capital leases. Other expense (income). Other income increased by $2,387,000 from $463,000 for the nine months ended June 30, 1996 to $2,850,000 for the nine months ended June 30, 1997 due primarily to the Decision. Income Taxes. The provision for income taxes increased by $2,281,000, or 87.8%, from $2,597,000 for the nine months ended June 30, 1996 to $4,878,000 for the nine months ended June 30, 1997 as a result of increased taxable income and a higher effective tax rate in the current period. Extraordinary Item. An extraordinary noncash charge of $402,000, net of the related tax benefit, for the write-off of unamortized debt discount and the write-off of capitalized debt issuance expense was charged off in the nine months ended June 30, 1996. This charge resulted from the repayment of indebtedness and the repurchase of certain redeemable warrants from the net proceeds of the initial public offering. Net Income. As a result of the foregoing factors, net income increased by $2,896,000, or 65.5%, from $4,420,000 for the nine months ended June 30, 1996 to $7,316,000 for the nine months ended June 30, 1997. 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 growth 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. These reductions had a negative effect on the Company's operating results for fiscal 1996 and the first quarter of fiscal 1997 and, unless modified, will continue to have a negative effect on its ongoing results. Further minor rate reductions became effective on January 1, 1997. 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. 9 10 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. 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 and the assets of physician practices and other businesses related to its current operations. In January 1996, the Company entered into an agreement for the development of a heart center (RHCGH) which began operations on February 1, 1996, and in September 1996, the Company acquired all of the non-medical assets of a physician practice (SETCA) and entered into a long-term management service agreement. A second physician practice management service agreement (CCMG) was entered into effective November 1, 1996. The success of the Company's existing and future heart centers and physician practice management activities 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 increased 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 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. At June 30, 1997, the Company had working capital of $23,009,000, compared to $16,204,000 at September 30, 1996. At June 30, 1997, the Company had cash and temporary cash investments of $5,783,000. 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 10 11 the Company's second and third fiscal quarters and the collection of these receivables primarily during the subsequent fourth fiscal quarter and the first quarter of the following fiscal year. The Company has a revolving line of credit with two banks in the amount of $25,000,000 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 1998 at which time any outstanding balance will be converted to a five-year term loan. At June 30, 1997, the amount outstanding under the line of credit was $612,000. 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 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 1997. 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, 1997. 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 11, 1997 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 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 11, 1997 By: ------------------------------- E. Payson Smith, Jr. Senior Vice President and Chief Financial Officer (duly authorized officer and principal financial officer) 15 INDEX TO EXHIBITS EXHIBIT NUMBER EXHIBITS - ------- -------- 27 Financial Data Schedule EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS SEP-30-1997 OCT-01-1996 JUN-30-1997 5,783 0 26,225 0 0 34,055 24,886 (15,696) 71,969 11,046 0 0 0 8 55,488 71,969 0 60,846 0 50,869 (2,575) 0 358 12,194 4,878 7,316 0 0 0 7,316 .82 .82 (RECEIVABLES) REPRESENTS NET RECEIVABLES. (LOSS PROVISION) INCLUDED IN (TOTAL COSTS)
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