EX-99.3 24 v023409_ex99-3.htm
Exhibit 99.3
 
Good morning.
 
Joe has already covered many of the highlights of RITA's second quarter, so I'll try to go through our income statement and balance sheet as quickly as possible.
 
Sales reached $11,955 for the quarter, a 7% sequential increase over the first quarter. Strong international results, at least some of which reflect the new Habib 4X sealer, drove the top line, although our US results were also ahead as utilization in our existing accounts continued to grow.
 
Our margins grew to 61%, from 57% last quarter, even though integration efforts were still underway through much of the period. In particular, our cost of goods sold included $200,000 of expenses associated with operating our Mountain View facility. As we mentioned before, the Mountain View facility is now closed and our integration efforts are complete.

We had $1.0 million in R&D expense, and SG&A expense for the quarter totaled $7.4 million. This figure reflects a number of large one-time expenses, including $500,000 of professional expenses, legal and accounting, related to general corporate business but also related to Sarbanes Oxley compliance. We don't expect charges of that magnitude in future quarters. We incurred about $100,000 in expenses associated with our move to our new Fremont facility, and, also, we incurred $200,000 in expenses associated with the resignation of Don Stewart, our CFO, and the search for his replacement.
Again, we don't expect charges of this size to be present in the third quarter.
 
Despite all of the integration efforts and one-time expenses that characterized the quarter, we were encouraged to see our Loss per Share narrow, moving to ($0.03) from ($0.04) last quarter and ($0.05) in the fourth quarter of 2004.
 
Moving to the balance sheet, the top line we show - CASH - is probably the most important line we show. Cash fell almost two million from our Q1 2005 level, and is down $9.6 million from year end, although a major portion of the decline from 12/31 is the $6.5 million  debt repayment we undertook in the first quarter.
 
Aside from the impact of the expenses I referred to earlier, we've tied up cash in working capital. Our DSO's have remained essentially constant at about 53 days, but higher sales have driven a $400,000 higher investment. Our inventories are also higher, compared to year end levels. We've consciously built inventory for our RFA product line as a consequence of the decision to move production to Georgia, a much less expensive place to manufacture. But, as a result, our inventory turn was 2.4 times at quarter end, compared to 2.8 times at December 31. The increase in inventory since December 31 has used another $700,000 of cash.
 
The accounting for the Habib product license may be of interest. To date, we've spent $50,000 in cash and issued 150,000 shares of stock valued at about $400,000 in acquisition of this license. We've also agreed to pay $500,000 in cash in May of 2006. Further, we will pay $200,000 upon FDA approval of the device for use in the United States; we believe that this payment is likely in the third quarter.
 
Our debt refinancing has already been covered, but to summarize, up until this morning we were paying 14% interest on $8.3 million in Senior Debt. We replaced all of this debt with new Convertible notes, which bear interest at 6.5%. The conversion price of the new notes is $4.03. These notes are adjustable, of course, in the event of a recapitalization such as a stock split, but not otherwise. Most importantly, the new notes will be subordinate to a future working capital line. We are actively investigating a working capital line which we believe will provide the Company with liquidity and help fund our future growth.
 
At this point, I'll turn things back over to you, Joe.
 
 
 
 
 
Balance Sheet Notes
 

                   
YTD
               
     
December 31
  
March 31
  
June 30
    
Cash Flow
                
                                     
Cash and Marketable Securities:  
13,858
 
6,157
 
4,262
   
9,596
  Cash shrink       
         
(7,701)
  
(1,895)
    
(6,800)
  Prepay and other debt pay       
                   
300
  From options etc       
                   
3,096
  Operating uses, including capital spending    
      
                                     
Accounts receivable  
6,410
 
6,480
 
6,952
                     
- DSO  
54
 
52
 
53
   
Constant        
                                     
                                     
Inventory  
7,126
 
6,881
 
7,774
                     
- Turns  
2.86
 
2.79
 
2.38
                     
- DIOH  
128
 
131
 
153
   
RF safety stock        
                                     
                                     
Goodwill  
91,339
 
91,339
 
91,339
   
No impairment.  
Net Assets
    
Assets 
  
143,548
                             
Current Liab 
  
(7,762)
                             
LT debt and other LT liab 
  
(9,459)
                                  
126,327
                                     
                       
Market Value
    
Shares outstanding 6/30 
  
41,652
                             
Closing price 6/30 
  
$ 3.16
                                   
131,620
                                     
                                   
5,293
                                     
Intangibles  
30,142
 
29,885
 
(496)
    
Habib detail
  
50,000
cash
          
             
954
Habib
      
403,500
equity
          
             
30,600
       
500,000
liability
          
                       
953,500
           
                                     
                       
200,000
payment due upon US approval (hopefully, Q3)     
                                     
                                     
AP / AL  
6,731
 
6,629
 
7,161
                     
             
(500)
Habib
                    
             
6,661
                     
                                     
                                     
Debt  
7,200
 
708
 
601
   
$601 includes $270 to BofA (reclassed) plus remaining Stepic        
     
9,722
 
9,452
 
9,459
                     
     
16,922
 
10,160
 
10,060
   
REFI
Senior
  
Junior
          
                     
$ 8,262
 
$ 1,393
 
$ 9,655
 
$ 9,700
 
                     
14%
  
6%
  
13%
  
6.5%
  
                     
1,157
 
84
 
$ 1,240
 
631
 
 
 
 
 
 
Sales Detail

 
 
 
Three Months Ended
  
Q2 v Q1
  
Q2 v Q204
  
     
June 30,
  
Sept. 30,
  
Dec. 31,
  
March 31,
  
June 30,
          
     
2004
 
2004
 
2004
 
2005
 
2005
         
Sales
    
$
4,659
  
$
7,951
  
$
10,961
  
$
11,205
  
$
11,955
  
$
750
  
$
(127
)
 
HMP
  
$
7,423
  
$
1,354
                      
7
%
  
-1
%
     
$
12,082
  
$
9,305
                                
                                               
Segment Information:
                                              
United States
    
$
3,723
  
$
6,662
  
$
9,077
  
$
9,523
  
$
9,604
  
$
81
  
$
(880
)
HMP
  
$
6,761
  
$
1,254
                      
1
%
  
-8
%
     
$
10,484
  
$
7,916
                                
                                               
International
    
$
936
  
$
1,129
  
$
1,540
  
$
1,573
  
$
2,145
  
$
572
  
$
707
  
HMP
  
$
502
  
$
100
                      
36
%
  
49
%
     
$
1,438
  
$
1,229
                                
                                               
Other Revenue
    
$
160
  
$
160
  
$
344
  
$
109
  
$
206
              
                                               
United States Sources of Revenue
                                              
New Customer Revenue
    
$
428
  
$
446
  
$
815
  
$
285
  
$
382
              
Utilization Revenue
    
$
3,295
  
$
2,215
  
$
2,780
  
$
3,226
  
$
3,484
    
8
%
  
6
%
Ports
    
$
4,599
  
$
2,534
  
$
3,434
  
$
4,098
  
$
4,045
              
Other Specialty Access Catheters
          
$
1,467
  
$
2,048
  
$
1,914
  
$
1,693
              
 
 
 
 
 
 

Income Statement
                           
                           
Sales
    
                 
vs 04
  
vs Q1 05
    
                           
     
Q2 2004
  
Q105
  
Q205
  
Growth
  
Growth
    
                           
Revenue
    
4,659
 
11,205
 
11,955
 
157%
 
7%
    
     
7,423
                   
     
12,082
         
-1%
        
                           
                           
Domestic Revenue
GAAP
3,723
 
9,523
 
9,604
 
158%
 
1%
    
     
6,761
                   
   
Non-GAAP
10,484
     
9,604
 
-8%
        
                           
   
Utilization
    
3,226
 
3,484
     
8%
    
                           
                           
Intl Revenue
      
1,573
 
2,145
     
36%
  
w/o BO
         
-
 
128
           
         
1,573
 
2,017
     
28%
  
2%
                           
                           
GM
    
Q4
Q1
Q2
                
                           
   
GAAP
54%
57%
61%
                
   
Non-GAAP
62%
63%
63%
                
                           
   
- Higher volume
   
- Integration complete: all operations functioning in GA
   
- Q2 improvement achieved despite relatively high content of International business
   
- Guidance is 61 - 63
                           
R&D
  
- Flat
                    
   
- Initial expenese re:
Breast
 
       
LifeGuard Vision
                           
SG&A
    
Q4
Q1
Q2
  
vs Q1
            
   
Expense
6,114
6,768
7,415
 
647
           
   
Sev
220
60
-
               
                           
         
Professional
  
400
            
         
Recruiting
  
200
            
         
Move
  
100
            
         
Sales
Meeting
100
            
           
Other
200
            
                           
                           
   
- Sharply reduced budgets in Q3 for R&D and S&M
                           
   
Q4
Q1
Q2
                  
Net Income
  
$ (0.05)
$ (0.04)
$ (0.03)
                  
                           
       
$ 0.01   
Integration
260
              
       
$ 0.02   
One-time
949
              
                           
   
- Guidance is (0.01) to 0.00