<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
AUGUST 15, 1997
RAYTEL MEDICAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 0-2718 94-2787342
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) 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)
(former name or former address, if changed since last report)
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired
Amend Item 7(a) Financial Statements of Business Acquired by deleting such item
in its entirety and substituting the following:
Page
----
Cardiovascular Ventures, Inc. ("CVI") - Report of Independent
Public Accountants..........................................................1
Balance sheets as of June 30, 1996 and 1997..................................2
Statements of revenues and expenses for the years ended
June 30, 1996 and 1997......................................................3
Statements of stockholders' equity for the years ended
June 30, 1996 and 1997....................................................4
Statements of cash flows for the years ended June 30, 1996 and 1997 .........5
Notes to financial statements...............................................6-14
Although only one year of audited financial statements is required in this Form
8-K/A, two years have been included.
(b) Pro Forma Financial Information
Amend Item 7(b) Pro Forma Financial Information by deleting such item in its
entirety and substituting the following:
Page
----
Introduction..................................................................15
Unaudited pro forma balance sheet as of June 30, 1997.........................16
Unaudited pro forma statement of operations for the year ended September 30,
1996 (which includes results for the year ended
June 30, 1996 for CVI)......................... ..........................17
Unaudited pro forma statement of operations for the nine months
ended June 30, 1997.......................................................18
Unaudited notes to pro forma financial statements.............................19
<PAGE> 3
INDEPENDENT AUDITORS' REPORT
Board of Directors,
Cardiovascular Ventures, Inc.:
We have audited the consolidated balance sheets of Cardiovascular Ventures, Inc.
(the Company) and its subsidiaries and partnerships as of June 30, 1997 and
1996, and the related consolidated statements of revenues and expenses,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company and its subsidiaries
and partnerships at June 30, 1997 and 1996, and the results of their operations,
and their cash flows for the years then ended in conformity with generally
accepted accounting principles.
As discussed in Note 10 to the consolidated financial statements, on August 15,
1997 all of the common and preferred stock of the Company was acquired by
another company.
DELOITTE & TOUCHE LLP
New Orleans, Louisiana
September 19, 1997
<PAGE> 4
CARDIOVASCULAR VENTURES, INC.
AND SUBSIDIARIES AND PARTNERSHIPS
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1997 1996
<S> <C> <C>
CURRENT ASSETS:
Cash $ 2,462,999 $ 2,254,808
Patients accounts receivable,
net of allowance of
$1,190,665 in 1997 and
$821,186 in 1996 5,302,915 3,817,251
Medical supply inventories 412,692 283,208
Notes receivable, current portion 56,121 --
Prepaid expenses and other current assets 744,694 407,914
------------ ------------
Total current assets 8,979,421 6,763,181
PROPERTY AND EQUIPMENT - net 11,986,760 9,719,220
NOTES RECEIVABLE, long-term 112,243 --
GOODWILL - net 6,257,478 6,081,963
OTHER ASSETS 934,575 696,155
------------ ------------
TOTAL $ 28,270,477 $ 23,260,519
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 853,948 $ 538,588
Accrued expenses 1,790,393 1,761,851
Deferred income taxes -- 24,786
Current maturities of long-term debt 2,109,295 1,377,720
Current maturities of capital lease obligations 298,037 348,883
Income tax payable 42,125 --
------------ ------------
Total current liabilities 5,093,798 4,051,828
------------ ------------
LONG-TERM DEBT, less current maturities 13,689,273 11,945,008
CAPITAL LEASE OBLIGATIONS, less current maturities 1,467,785 1,248,406
DEFERRED INCOME TAXES -- 38,630
MINORITY INTEREST 3,490,143 2,696,168
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY:
Mandatory redeemable preferred stock 7,597,540 7,597,540
Common stock 151 151
Paid-in capital 445,538 444,778
Accumulated deficit (3,513,751) (4,761,990)
------------ ------------
Total stockholders' equity 4,529,478 3,280,479
------------ ------------
TOTAL $ 28,270,477 $ 23,260,519
============ ============
</TABLE>
See notes to consolidated financial statements
-2-
<PAGE> 5
CARDIOVASCULAR VENTURES, INC.
AND SUBSIDIARIES AND PARTNERSHIPS
CONSOLIDATED STATEMENTS OF REVENUES AND EXPENSES
YEARS ENDED JUNE 30, 1997 AND 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
REVENUES:
Net patient service revenue $ 23,769,164 $ 15,108,298
Other revenue 439,249 184,750
------------ ------------
Total revenues 24,208,413 15,293,048
OPERATING EXPENSES:
Salaries and related benefits 10,713,855 5,986,747
Professional care of patients 2,701,065 1,980,653
General and administrative 4,088,424 2,796,963
Provision for bad debts 585,145 382,910
Depreciation and amortization 2,062,960 1,687,869
------------ ------------
Total operating expenses 20,151,449 12,835,142
------------ ------------
Income from operations 4,056,964 2,457,906
------------ ------------
OTHER INCOME (EXPENSE):
Development costs (524,745) (686,730)
Interest income 168,965 84,297
Interest expense (1,782,024) (1,332,379)
Other income - net 120,243 69,228
------------ ------------
Total other - net (2,017,561) (1,865,584)
------------ ------------
INCOME BEFORE INCOME TAX BENEFIT
AND MINORITY INTEREST IN NET INCOME
OF CONSOLIDATED PARTNERSHIPS 2,039,403 592,322
INCOME TAX BENEFIT 21,291 --
------------ ------------
INCOME BEFORE MINORITY INTEREST IN
NET INCOME OF CONSOLIDATED PARTNERSHIPS 2,060,694 592,322
MINORITY INTEREST IN NET INCOME OF
CONSOLIDATED PARTNERSHIPS (812,455) (654,127)
------------ ------------
NET INCOME (LOSS) $ 1,248,239 $ (61,805)
------------ ------------
NET INCOME (LOSS) PER COMMON SHARE:
Primary and fully diluted $ 0.83 $ (0.05)
============ ============
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE> 6
CARDIOVASCULAR VENTURES, INC.
AND SUBSIDIARIES AND PARTNERSHIPS
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MANDATORY
REDEEMABLE
PREFERRED COMMON PAID-IN ACCUMULATED
STOCK STOCK CAPITAL DEFICIT TOTAL
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, JULY 1, 1995 $ 7,597,540 $ 106 $ 269,323 $(4,700,185) $ 3,166,784
Issuance of common stock 45 175,455 175,500
Net loss (61,805) (61,805)
----------- ----------- ----------- ----------- -----------
BALANCE, JUNE 30, 1996 7,597,540 151 444,778 (4,761,990) 3,280,479
Issuance of common stock 760 760
Net income 1,248,239 1,248,239
----------- ----------- ----------- ----------- -----------
BALANCE, JUNE 30, 1997 $ 7,597,540 $ 151 $ 445,538 $(3,513,751) $ 4,529,478
=========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE> 7
CARDIOVASCULAR VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,248,239 $ (61,805)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 2,062,960 1,687,869
Provision for bad debts 585,145 382,910
Loss on disposition of property and equipment 66,054 --
Minority interest in net income of consolidated partnerships 812,455 654,127
Changes in operating assets and liabilities, net of effect of
acquisitions:
Patients accounts receivable (2,320,809) (1,589,350)
Medical supply inventories (129,484) (134,263)
Notes receivable (168,364) --
Prepaid expenses and other current assets (336,780) (144,396)
Accounts payable 315,360 20,985
Accrued expenses 28,542 151,526
Income taxes payable 42,125 --
Deferred income taxes (63,416) --
----------- -----------
Net cash provided by operating activities 2,142,027 967,603
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (4,074,791) (393,475)
Disposals of property and equipment 167,000 --
Net cash paid in connection with acquisition (85,027) (3,907,693)
Cash paid in connection with preopening and organization costs (567,671) --
Change in other assets -- 5,004
----------- -----------
Net cash used in investing activities (4,560,489) (4,296,164)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of long-term debt 4,064,103 5,712,225
Issuance of capital lease obligations 515,012 --
Principal payments on long-term debt (1,588,263) (1,312,467)
Principal payments on capital lease obligations (346,479) (420,266)
Capital contributions from minority interest, net of distributions (18,480) (597,519)
Issuance of common stock 760 --
----------- -----------
Net cash provided by financing activities 2,626,653 3,381,973
----------- -----------
NET INCREASE IN CASH 208,191 53,412
CASH, BEGINNING OF YEAR 2,254,808 2,201,396
----------- -----------
CASH, END OF YEAR $ 2,462,999 $ 2,254,808
=========== ===========
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 1,667,745 $ 992,426
=========== ===========
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE> 8
CARDIOVASCULAR VENTURES, INC.
AND SUBSIDIARIES AND PARTNERSHIPS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997 AND 1996
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies of Cardiovascular Ventures, Inc. (the Company) and
its majority owned or controlled subsidiaries and partnerships conform
with generally accepted accounting principles. A summary of significant
accounting policies follows:
DESCRIPTION OF BUSINESS - The Company specializes in the development and
management of freestanding cardiac catheterization facilities, as well as
ownership and management of a professional physician association which
operates a multi-specialty clinic. The Company's subsidiaries and
partnerships are engaged in providing cardiac catheterization laboratory
services and related nuclear medicine studies. Catheterization is the
current method of diagnosing cardiac and vascular disease. Nuclear
medicine studies are noninvasive procedures which are used to determine
the need for cardiac catheterization.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements of the
Company include the accounts of the Company and its majority owned or
controlled subsidiaries and partnerships. All significant intercompany
accounts and transactions have been eliminated in the consolidation.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
MEDICAL SUPPLY INVENTORIES - Inventories, consisting mainly of medical
supplies, are stated at the lower of cost or market, determined on the
first-in, first-out method.
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost.
Depreciation is provided using the straight-line method at rates
sufficient to depreciate the cost of depreciable assets to operations over
their estimated service lives.
GOODWILL - Goodwill represents the excess of cost over fair value of the
net assets of the Company's subsidiaries when acquired and is being
amortized on a straight-line basis, over 40 years. These acquisitions have
been accounted for using the purchase method of accounting. Goodwill
totaled $6,257,478 and $6,081,963 at June 30, 1997 and 1996, net of
accumulated amortization of $242,346 and $82,834.
OTHER ASSETS - Other assets consist of preopening costs, organizational
costs and deferred loan costs. Amounts are amortized on a straight-line
basis over two years, five years and the life of the loan, respectively.
Other assets totaled $934,575 and $696,155 at June 30, 1997 and 1996, net
of accumulated amortization of $1,116,407 and $787,156.
-6-
<PAGE> 9
NET PATIENT SERVICE REVENUE - Net patient service revenues are reported at
the estimated net realizable amounts due from patients, third-party payors
and others for services rendered.
DEVELOPMENT COSTS - Certain costs, net of development fees received,
relating to soliciting physician initiated joint ventures for the
development of freestanding cardiac catheterization facilities are
expensed as incurred. The Company is presently negotiating agreements for
several new facilities and currently anticipates developing additional
facilities in the future.
INCOME TAXES - The Company and its subsidiaries join in filing a
consolidated federal income tax return and account for income taxes as
described in Note 6.
STATEMENTS OF CASH FLOWS - For purposes of the statements of cash flows,
the Company considers all short-term, highly liquid investments with an
original maturity of three months or less to be cash equivalents.
2. BUSINESS ACQUISITION
During the year ended June 30, 1996, the Company acquired all of the
assets and liabilities of two companies from a shareholder and director,
the Heart Institute of Port St. Lucie Inc. (HIPSL) and the remaining 49%
of a majority owned subsidiary, Port St. Lucie Cardiovascular Center, Ltd.
(PSL) for an initial cash payment of $4,485,403, a note payable of $3.3
million and the issuance of 450,000 shares of common stock.
The purchase agreement also included an earnout provision for the period
commencing November 1, 1995 and ending October 31, 1996. During 1997, an
additional payment of $51,004 was made in connection with this earnout
provision.
The acquisitions have been accounted for by the purchase method.
Accordingly, the costs of the acquisitions were allocated to the assets
acquired and liabilities assumed based upon their respective fair values.
The excess of cost over fair value of net assets acquired of approximately
$6,200,000 is being amortized over 40 years. The consolidated statements
of operations include operating results of the subsidiaries acquired since
the respective dates of acquisitions.
In connection with the acquisitions, assets were acquired and liabilities
were assumed as follows:
<TABLE>
<S> <C>
Fair value of tangible and intangible assets, excluding cash $ 12,168,146
Liabilities assumed (4,784,953)
Notes payable issued (3,300,000)
Market value of CVI common stock issued (175,500)
------------
Cash paid, net of cash acquired $ 3,907,693
============
</TABLE>
The allocation of the purchase price to the assets acquired and
liabilities assumed was revised in the year ended June 30, 1997.
-7-
<PAGE> 10
The following unaudited pro forma summary combines the consolidated
results of operations of the Company and those of the two acquired
companies as if the acquisition had occurred at the beginning of 1996,
after giving effect to certain adjustments, including the depreciation and
amortization of the assets acquired based on their fair values, increased
interest expense from financing with the acquisition, income tax effects,
and the increase in common shares outstanding. This pro forma summary does
not necessarily reflect the results of operations as they would have been
if the Company and the acquired companies constituted a single entity
during such periods and is not necessarily indicative of results which may
be obtained in the future.
<TABLE>
<CAPTION>
PRO FORMA RESULTS
(UNAUDITED)
-----------------
1996
<S> <C>
Net patient service revenue $ 20,511,965
Net income 116,350
Net income per share .08
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment at June 30, consist of the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Medical equipment $ 11,612,605 $ 9,159,215
Leasehold improvements 3,848,592 2,929,834
Office furniture and equipment 2,133,343 1,693,685
------------ ------------
17,594,540 13,782,734
Less accumulated depreciation (5,607,780) (4,063,514)
------------ ------------
Property and equipment - net $ 11,986,760 $ 9,719,220
============ ============
</TABLE>
-8-
<PAGE> 11
4. LONG-TERM DEBT
Long-term debt at June 30 is summarized as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Notes payable with interest ranging from 9% to 10.59%,
collateralized by equipment, payable in monthly
installments including interest, maturing at various
dates through 2002 $ 5,520,399 $ 3,670,344
Notes payable with interest ranging from 11.67% to
12.84%, collateralized by equipment and leasehold
improvements, payable in monthly installments including
interest, maturing at various dates through 2004 5,831,771 6,352,384
Notes payable ranging from 15.49% to 16.02%,
collateralized by equipment, payable in monthly
installments including interest, maturing at
various dates through 2003 1,096,398 --
Notes payable to financial institutions, due 2002
plus interest at 10%, payable quarterly 3,350,000 --
Note payable to stockholder, due 2002 plus interest
at 10%, payable quarterly -- 3,300,000
------------ ------------
15,798,568 13,322,728
Less principal payments due within one year (2,109,295) (1,377,720)
------------ ------------
$ 13,689,273 $ 11,945,008
============ ============
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
<S> <C>
1998 $ 2,109,295
1999 2,336,422
2000 2,451,184
2001 2,159,569
2002 5,182,633
Thereafter 1,559,465
------------
$ 15,798,568
============
</TABLE>
-9-
<PAGE> 12
5. STOCKHOLDERS' EQUITY
SERIES A PREFERRED STOCK
The Company has authorized 2,000,000 shares of Series A preferred stock at
$.0001 par value. The Company has 800,000 shares issued and outstanding.
This series has one vote per share, a cumulative annual dividend of $.375
per share and a mandatory redemption price of $2.50 per share at any time
on or after June 30, 1999. The Series A stock was recorded at fair value
on the date of issuance. The Series A stock is convertible at the option
of the holder at any time into shares of common stock of the Company at a
price of $2.50 per share. The conversion price is subject to adjustments
given the occurrence of certain events. Additionally, the Company may,
upon the occurrence of certain events, compel the holders to convert the
preferred stock to common stock at a price of $2.50 per share. Dividends
on the Series A stock are cumulative and will be paid only in the event of
liquidation but before any distribution to holders of common stock.
Cumulative unpaid dividends on this series are $1,639,000 at June 30,
1997. In any proceeding for the voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company, the holders of
this series shall be entitled to receive $2.50 per share for each share
together with all accrued and unpaid dividends.
SERIES B PREFERRED STOCK
The Company has authorized 2,000,000 shares of Series B preferred stock at
$.0001 par value. The Company has 910,373 shares issued and outstanding.
The Series B stock has one vote per share, a cumulative annual dividend
rate of $.525 per share and a mandatory redemption price of $3.50 per
share at any time on or after June 30, 1999. The Series B stock is
convertible at the option of the holder at any time into shares of common
stock of the Company at a price of $3.50 per share. The conversion price
is subject to adjustments given the occurrence of certain events.
Additionally, the Company may, upon the occurrence of certain events,
compel the holders to convert the preferred stock to common stock at a
price of $3.50 per share. Dividends on the Series B stock are cumulative
and will be paid only in the event of liquidation but before any
distribution to holders of common stock. Cumulative unpaid dividends on
this series are $2,116,946 at June 30, 1997. In any proceeding for the
voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Company, the holders of this series shall be entitled to
receive $3.50 per share for each share together with all accrued and
unpaid dividends.
SERIES C PREFERRED STOCK
The Company has authorized 2,000,000 shares of Series C preferred stock at
$.0001 par value. The Company has 571,429 shares issued and outstanding.
The Series C stock has one vote per share, a cumulative annual dividend
rate of $.656 per share and a mandatory redemption price of $4.375 per
share. The Series C stock is convertible at the option of the holder at
any time into shares of common stock of the Company at a price of $4.375
per share. The conversion price is subject to adjustments given the
occurrence of certain events. Additionally, the Company may, upon the
occurrence of certain events, compel the holders to convert the preferred
stock to common stock at a price of $4.375 per share. Dividends on the
Series C stock are cumulative and will be paid only in the event of
liquidation but before any distribution to holders of common stock and
Series A and B preferred stock. Cumulative unpaid dividends on this series
are $1,140,857 at June 30, 1997. In any proceeding for the voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Company, the holders of this series shall be entitled to receive $4.375
per share for each share together with all accrued and unpaid dividends.
-10-
<PAGE> 13
COMMON STOCK
The authorized capital stock of the Company consists of 10,000,000 shares
of $.0001 par value common stock of which 1,512,000 and 1,510,000 shares
were issued and outstanding at June 30, 1997 and 1996, respectively.
The Company has an incentive stock option plan that provides for the
granting of incentive stock options to certain officers and key employees
at exercise prices that vary from the estimated market value of the stock
at the date of grant. Compensation resulting from stock options is
measured at the grant date based on the difference between the exercise
price and estimated market price of the common stock at the date of the
grant.
A summary of the changes in stock options is as follows:
<TABLE>
<CAPTION>
NO. OF SHARES EXERCISE PRICE
<S> <C> <C>
Outstanding at July 1, 1995 791,000 1.00 to 3.62
Granted 515,000 1.75 to 2.50
Expired (159,000) 2.00 to 2.50
----------
Outstanding at June 30, 1995 1,147,000 1.00 to 3.62
Granted 106,500 1.75 to 2.00
Expired --
----------
Outstanding at June 30, 1996 1,253,500 1.00 to 3.62
Granted 107,500 2.00 to 6.00
Expired (2,000) 2.00
----------
Outstanding at June 30, 1997 1,359,000 1.00 to 6.00
==========
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its plan. Accordingly, no compensation expense is
recognized for its stock-based compensation plan other than for
performance-based awards. As all stock options were subject to
cancellation agreements as noted at Note 10, no disclosure of compensation
cost for the Company's stock option plan based upon the fair value at the
grant date for awards under this plan consistent with the methodology
prescribed under Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" has been made.
6. INCOME TAXES
The Company accounts for income taxes under the liability method which,
among other things, requires recognition of future tax benefits, measured
by enacted tax rates, attributable to deductible temporary differences
between financial statement and income tax bases of assets and
liabilities, and net operating loss carryforwards to the extent that
realization of such benefits is more likely than not.
-11-
<PAGE> 14
A reconciliation between the amount of reported income taxes and the
amount computed by multiplying the income (loss) before income taxes by
the statutory federal and state rates for the periods ended June 30, 1997
and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Income tax expense (benefit) at the statutory federal and
state rates $ 502,634 $ (23,733)
Reductions in tax expense (benefit) resulting from changes in
valuation allowance and other (523,925) 23,733
--------- ---------
INCOME TAX BENEFIT $ (21,291) $ --
========= =========
</TABLE>
The provision for income taxes differs from the amount computed by
applying the federal income tax statutory rate on income before taxes
primarily because of the reduction of the valuation allowance in 1997 due
to the utilization of a portion of the prior years' net operating loss
carryforwards, and due to the valuation allowance provided for 1997 and
the income of the minority interest being related to a partnership which
is therefore reported as income on the partner's individual income tax
return.
Deferred income taxes consist of future tax benefits attributable to:
<TABLE>
<CAPTION>
Assets (Liabilities) JUNE 30,
---------------------------
1997 1996
<S> <C> <C>
Net operating loss carryforwards $ 1,716,608 $ 2,192,024
Other temporary differences (418,037) (114,097)
----------- -----------
1,298,571 2,077,927
Less valuation allowance (1,298,571) (2,141,343)
----------- -----------
Net Deferred Tax Liability $ -- $ (63,416)
=========== ===========
</TABLE>
Due to the Company's relatively short existence and no history of
profitable operations prior to 1997, it is not possible to predict whether
it is more likely than not that the deferred tax asset will be realized.
Additionally, the Company's ability to utilize its net operating loss
carryforwards to offset future income may be substantially limited due to
ownership changes. Accordingly management has provided a valuation
allowance for the deferred tax asset. The deferred tax liability consists
of deferred state taxes for which no net operating loss carryforwards are
available.
As of June 30, 1997, the Company has net operating loss carryforwards of
approximately $4,400,000 expiring between 2008 and 2011. As discussed
above, the utilization of these carryforwards may be substantially limited
due to ownership changes.
-12-
<PAGE> 15
7. INCOME (LOSS) PER COMMON SHARE
Primary net income (loss) per common share is computed by dividing the net
income (loss) available to common stockholders by the weighted average
number of shares and share equivalents outstanding during the years. The
preferred stock was determined not to be a common stock equivalent in the
calculation of primary and fully diluted net loss per share.
The adjusted weighted average shares outstanding used in the primary and
fully diluted loss per common share calculation were 1,510,416 and
1,285,000 in 1997 and 1996, respectively.
8. RELATED PARTY TRANSACTIONS
The Company's cardiac catheterization facilities are available for use by
the limited partners of the Company's partnerships and other qualifying
cardiologists. The majority of the net patient service revenue was
generated by the limited partners.
One of the Company's Partnerships leases a facility from a limited
partner. Rent expense for this lease was $148,176 and $143,150 for 1997
and 1996, respectively.
The Company's Partnerships pay medical director fees to limited partners
for services rendered. Approximately $282,000 and $272,000 in such fees
were incurred in 1997 and 1996, respectively.
One of the Company's Partnerships entered into an agreement in 1994 with
the Heart Institute of Port St. Lucie, Inc. (HIPSL), a company controlled
by a shareholder and director until December 29, 1995 (see Note 2), for
management of the Partnership. In accordance with the management
agreement, the Partnership was to pay HIPSL management fees equal to 8.1%
of the Partnership's net patient service revenues. HIPSL was also
reimbursed for expenses it incurred on behalf of the Partnership. During
1996 (prior to December 29, 1995), the Partnership expensed approximately
$116,000 and $413,000 as management fees and reimbursements of costs,
respectively, to HIPSL.
9. COMMITMENTS AND CONTINGENCIES
The Company conducts certain of its operations in leased facilities. Rent
expense for the Company was $1,053,000 and $575,305 in 1997 and 1996,
respectively.
At June 30, 1997, minimum rental commitments under capital and operating
leases were as follows:
-13-
<PAGE> 16
<TABLE>
<CAPTION>
YEAR ENDING
JUNE 30, CAPITAL OPERATING
<S> <C> <C>
1998 $ 484,971 $ 1,012,167
1999 484,971 1,035,572
2000 450,505 1,002,751
2001 381,573 885,798
2002 381,573 744,352
Thereafter 148,026 1,443,045
----------- -----------
Minimum lease payments 2,331,619 $ 6,123,685
Less amounts representing interest at 11.4% to 12% (565,797)
-----------
Present value of net minimum lease payment 1,765,822
Less current obligations (298,037)
-----------
$ 1,467,785
===========
</TABLE>
The Company's investment in capital leases consisted of the following at
June 30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Cost of medical and other equipment $ 3,041,878 $ 2,698,995
Accumulated depreciation (1,122,445) (775,336)
----------- -----------
$ 1,919,433 $ 1,923,659
=========== ===========
</TABLE>
During 1997 and 1996, the Company entered into capital leases of $515,012
and $1,427,490, respectively, in order to acquire medical equipment and
certain other items of property and equipment.
Included in depreciation expense are charges related to capital leases.
The Company has entered into agreements with various physicians and key
employees for periods up to ten years. The agreements provide for certain
annual salaries, and provide that the employees are not to compete in
business related to the Company's activities during the employment period
and for a period of one to ten years following the termination of the
employment contracts.
The Company's operations are significantly affected by various state and
federal regulations. A change in these regulations, if it were to occur,
could have an adverse effect on the Company's programs and activities.
10. SUBSEQUENT EVENTS
On August 15, 1997, Raytel Medical Corporation (Raytel) acquired all of
the issued and outstanding common and preferred stock of the Company. In
addition, Raytel entered into cancellation agreements with those holders
of options to acquire the Company's common stock and holders of warrants
who were not Company stockholders.
******
-14-
<PAGE> 17
RAYTEL MEDICAL CORPORATION
INTRODUCTION - PRO FORMA FINANCIAL INFORMATION
(UNAUDITED)
Pursuant to the Stock Purchase Agreement dated August 11, 1997 (the
"Agreement"), by and between the registrant ("Raytel" or the "Company"), a
Delaware corporation, and CVI, a Delaware corporation, the registrant acquired
all of the issued and outstanding capital stock of CVI effective August 15, 1997
for a negotiated purchase price of approximately $21,600,000 (the "Purchase
Price"). The Purchase Price was paid in cash from the registrant's available
cash and short-term investments, a line of credit with BankBoston and Banque
Paribas, 500,000 shares of Common Stock of the Company and contingent notes in
the aggregate principal amount of $820,000. The entire Purchase Price (with the
exception of the contingent notes) was paid upon the closing of the transaction
and is subject to an adjustment for a decrease based upon the cash flow from
operations of one of the cardiovascular diagnostic facilities operated by CVI
during the twelve months following the acquisition.
The following unaudited pro forma balance sheet as of June 30, 1997 and
unaudited pro forma statements of operations for the year ended September 30,
1996 (which includes results for the year ended June 30, 1996 for CVI) and the
nine months ended June 30, 1997 reflect the pro forma financial condition as of
June 30, 1997 and the pro forma results of operations of Raytel after giving
effect to the acquisition of CVI as of the beginning of each period. The results
for CVI for the period from July 1, 1996 to September 30, 1996 are not included
in the pro forma statements of operations.
The unaudited pro forma balance sheet and statements of operations should be
read in conjunction with the financial statements of Raytel and CVI and the
related notes thereto.
-15-
<PAGE> 18
RAYTEL MEDICAL CORPORATION
PRO FORMA BALANCE SHEET
JUNE 30, 1997
(UNAUDITED)
(000'S OMITTED)
<TABLE>
<CAPTION>
ASSETS
PRO-FORMA PRO-FORMA
RAYTEL CVI (1) ADJUSTMENTS(2) CONSOLIDATED
--------- --------- -------------- ------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 5,783 $ 2,463 $ (3,251) $ 4,995
Receivables, net 26,225 5,303 (700) 30,828
Prepaid expenses and other 2,047 2,260 (1,661) 2,646
--------- --------- --------- ---------
Total current assets 34,055 10,026 (5,612) 38,469
Investment in and advances to
unconsolidated entities and partnerships 33 -- -- 33
Property and equipment, less accumulated
depreciation and amortization 9,190 11,987 (1,800) 19,377
Intangible assets, less accumulated
amortization 28,691 6,257 22,932 57,880
--------- --------- --------- ---------
Total assets $ 71,969 $ 28,270 $ 15,520 $ 115,759
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 809 $ 2,109 $ -- $ 2,918
Current portion of capital lease
obligations 480 298 -- 778
Accounts payable 2,759 854 -- 3,613
Accrued liabilities 6,998 1,833 2,196 11,027
--------- --------- --------- ---------
Total current liabilities 11,046 5,094 2,196 18,336
Long-term debt, net of current portion 3,491 13,689 12,650 29,830
Capital lease obligations, net of current
portion 209 1,468 -- 1,677
Deferred liabilities 1,144 -- -- 1,144
Minority interest in consolidated entities 583 3,490 -- 4,073
--------- --------- --------- ---------
Total liabilities 16,473 23,741 14,846 55,060
--------- --------- --------- ---------
Stockholders' equity:
Mandatory redeemable preferred stock -- 7,598 (7,598) --
Common stock 8 -- 1 9
Additional paid-in capital 55,966 445 4,757 61,168
Common stock to be issued 943 -- -- 943
Accumulated deficit (251) (3,514) 3,514 (251)
--------- --------- --------- ---------
56,666 4,529 674 61,869
Less treasury stock, at cost (1,170) -- -- (1,170)
--------- --------- --------- ---------
Total stockholders' equity 55,496 4,529 674 60,699
--------- --------- --------- ---------
Total liabilities and stockholders'
equity $ 71,969 $ 28,270 $ 15,520 $ 115,759
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
proforma financial statements.
-16-
<PAGE> 19
RAYTEL MEDICAL CORPORATION
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1996
(UNAUDITED)
(000'S OMITTED, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
----------------------------------
SEPTEMBER 30, 1996 JUNE 30, 1996
------------------ ------------- PRO-FORMA PRO-FORMA
RAYTEL CVI (1) ADJUSTMENTS CONSOLIDATED
-------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Pacing, CEDS and Holter revenues $ 43,649 $ -- $ -- $ 43,649
Diagnostic imaging service revenues 19,970 -- -- 19,970
Heart center, practice management and
other revenues 8,896 15,293 -- 24,189
-------- -------- -------- --------
Total revenues 72,515 15,293 -- 87,808
-------- -------- -------- --------
Costs and expenses:
Operating costs 27,582 7,967 (240) 35,309
Selling, general and administrative 28,830 3,180 -- 32,010
Depreciation and amortization 5,590 1,688 870 8,148
-------- -------- -------- --------
Total costs and expenses 62,002 12,835 630 75,467
-------- -------- -------- --------
Operating income 10,513 2,458 (630) 12,341
Interest expense 514 1,332 1,520 3,366
Other expense (income) (591) 534 -- (57)
Minority interest 762 654 -- 1,416
-------- -------- -------- --------
Income before income taxes and
extraordinary item 9,828 (62) (2,150) 7,616
Provision for income taxes (benefit) 3,248 -- (890)(6) 2,358
-------- -------- -------- --------
Net income before extraordinary item $ 6,580 $ (62) $ (1,260) $ 5,258
======== ======== ======== ========
Net income per share before
extraordinary item $ .80 $ .60
======== ========
Weighted average common shares and
dilutive equivalents outstanding 8,194 500 8,694
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
proforma financial statements.
-17-
<PAGE> 20
RAYTEL MEDICAL CORPORATION
PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
(000'S OMITTED, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED JUNE 30, 1997
--------------------------------------- PRO-FORMA PRO-FORMA
RAYTEL CVI(1) ADJUSTMENTS CONSOLIDATED
-------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Pacing, CEDS and Holter revenues $ 35,778 $ -- $ -- $ 35,778
Diagnostic imaging service revenues 13,343 -- -- 13,343
Heart center, practice management and
other revenues 11,725 19,213 -- 30,938
-------- -------- -------- --------
Total revenues 60,846 19,213 -- 80,059
-------- -------- -------- --------
Costs and expenses:
Operating costs 23,961 10,418 (180)(3) 34,199
Selling, general and administrative 22,421 3,539 -- 25,960
Depreciation and amortization 4,487 1,607 594 (4) 6,688
-------- -------- -------- --------
Total costs and expenses 50,869 15,564 414 66,847
-------- -------- -------- --------
Operating income 9,977 3,649 (414) 13,212
Interest expense 358 1,345 1,000 (5) 2,703
Other expense (income) (2,850) 91 -- (2,759)
Minority interest 275 735 -- 1,010
-------- -------- -------- --------
Income before income taxes 12,194 1,478 (1,414) 12,258
Provision for income taxes (benefit) 4,878 (21) (753)(6) 4,104
-------- -------- -------- --------
Net income $ 7,316 $ 1,499 $ (661) $ 8,154
======== ======== ======== ========
Net income per share $ .82 $ .86
======== ========
Weighted average common shares and
dilutive equivalents outstanding 8,947 500 9,447
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
proforma financial statements.
-18-
<PAGE> 21
RAYTEL MEDICAL CORPORATION
NOTES TO PRO FORMA FINANCIAL STATEMENTS AS
OF JUNE 30, 1997 AND FOR THE YEAR ENDED SEPTEMBER 30, 1996
(WHICH INCLUDES THE YEAR ENDED JUNE 30, 1996 FOR
CVI) AND THE NINE MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
(1) Certain amounts were reclassified from the individual CVI financial
statements to conform to Raytel's format.
(2) The purchase price reflected in the pro forma balance sheet is
approximately $20,750,000; which is $232,000 lower than the purchase price
paid on August 15, 1997 due to the change in the value of the net assets
that would have been acquired on June 30, 1997 versus the actual value of
the net assets actually acquired on August 15, 1997. The adjustments
reflect recording CVI assets and liabilities at their estimated fair
market value at June 30, 1997 and the resultant intangible assets
acquired. The value of the Raytel stock was determined based on the fair
market value of such stock when the final acquisition terms were publicly
announced. No adjustment has been made to the pro-forma for the stock
prices in effect at that time.
(3) Reflects an executive position that was eliminated.
(4) Reflects the amortization of purchased goodwill and the recalculated
depreciation of the adjusted fixed asset values net of amounts previously
recorded.
(5) Assumes that approximately $16,000,000 of the purchase price was paid for
with cash from a line-of-credit.
(6) Reflects the income tax effect of pro forma adjustments affecting Raytel's
results. It assumes no change in total taxes from the results of CVI, due
to their net operating loss carryforwards.
-19-
<PAGE> 22
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: October 24, 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)
20
