<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 26, 1999
REGISTRATION NO. 333-66977
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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HealthTronics, Inc.
(Name of small business issuer in its charter)
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<CAPTION>
GEORGIA 3845 58-221066
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<S> <C> <C>
(State or other (Primary Standard Industrial (IRS Employer
jurisdiction of Classification Code Number) Identification Number)
incorporation or
organization)
------------------------------------
</TABLE>
425 FRANKLIN ROAD, SUITE 545 425 FRANKLIN ROAD, SUITE 545
MARIETTA, GEORGIA 30067 MARIETTA, GEORGIA 30067
(770) 419-0691 (770) 419-0691
(Address and telephone number (Name, address and telephone
of principal executive offices and principal number of agent for service)
place of business)
Copies to:
UGO F. IPPOLITO, ESQ.
W. SCOTT MCGINNESS, JR., ESQ.
FRANK M. WILLIAMS, ESQ.
MILLER & MARTIN LLP
100 GALLERIA PARKWAY, N.W.
TWELFTH FLOOR
ATLANTA, GEORGIA 30339-3122
(770) 953-3500
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
<PAGE> 2
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, check
the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ]
2
<PAGE> 3
INITIAL PUBLIC OFFERING
PROSPECTUS
1,000,000 SHARES OF COMMON STOCK
$6.00 PER SHARE
HEALTHTRONICS, INC.
HealthTronics was founded to obtain Food and Drug
Administration approval for medical devices that use shock wave therapies to
treat kidney stones and various orthopedic problems. This is HealthTronics,
Inc.'s initial public offering of common stock. HealthTronics is offering a
minimum of 83,334 shares and a maximum of 1,000,000 shares at a price of $6.00
per share. Although officers, directors and principal shareholders may purchase
shares in this offering, these shares will not count towards the minimum number
of shares. We will not sell more than 1,000,000 shares in this offering,
however, including any shares purchased by officers, directors and principal
shareholders. The minimum subscription amount is 100 shares per investor. The
offering will be open for an initial period of 90 days. If the minimum shares
are sold, the offering will be open for 9 months from the date of this
prospectus or until ____________, 2000.
The common stock will be marketed through Capital Growth
Management, Inc. as sales agent for HealthTronics on a best efforts basis, which
means that Capital Growth is not required to sell the minimum number of shares
but must use its best efforts to sell the shares. Although Capital Growth will
use its best efforts to market and sell the common stock, there is no guarantee
that the required minimum number of shares will be sold. For this reason, money
paid for shares will be held in a non-interest bearing escrow account and will
be returned if the minimum offering period ends and the minimum number of shares
are not sold.
This is our initial public offering and there is no public
market for our shares and there is no assurance that any will develop or
continue.
<TABLE>
<CAPTION>
The Offering Per Share Total Minimum Total Maximum
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<S> <C> <C> <C>
Public Price $6.00 $500,004.00 $6,000,000.00
Underwriting Discounts and $ .60 $ 50,000.40 $ 600,000.00
Commissions
Proceeds, before expenses to $5.40 $450,003.60 $5,400,000.00
HealthTronics, Inc.
</TABLE>
THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE SHARES ONLY
IF YOU CAN AFFORD A COMPLETE LOSS. WE URGE YOU TO READ CAREFULLY THE "RISK
FACTORS" SECTION BEGINNING ON PAGE 3, ALONG WITH THE REST OF THIS PROSPECTUS,
BEFORE YOU MAKE YOUR INVESTMENT DECISION.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------------
CAPITAL GROWTH MANAGEMENT, INC.
The date of this prospectus is *****, 1999
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary of Our Offering...........................................................................................1
Risk Factors......................................................................................................3
Forward-Looking Statements........................................................................................9
Terms of the Offering.............................................................................................9
History And Business.............................................................................................10
Management ......................................................................................................23
Securities Ownership of Certain Beneficial Owners and Management.................................................29
Certain Relationships And Related Transactions...................................................................33
Dilution ........................................................................................................35
Capitalization...................................................................................................36
Description of Common Stock......................................................................................36
Use of Proceeds..................................................................................................38
Plan of Distribution.............................................................................................38
Experts ........................................................................................................40
Legal Matters....................................................................................................40
Management's Discussion and Analysis of Financial Condition and Results of Operations............................40
Additional Information That Is Available to You..................................................................45
Index to Financial Statements....................................................................................46
</TABLE>
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SUMMARY OF OUR OFFERING
This summary highlights certain information from the remainder
of our prospectus. It does not contain all of the information that is important
to you in making a decision whether or not to invest in our offering. To
understand this offering fully, you should read the entire prospectus carefully,
including the risk factors beginning on page 3 and the financial statements
beginning on page F-1.
<TABLE>
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WHO WE ARE: We are a Georgia corporation founded for
the purpose of obtaining Food and Drug
Administration approval for certain products
manufactured by HMT High Medical
Technologies GmbH, a Swiss corporation.
These products, which use shock wave
therapies to treat certain ailments, are
called the LithoTron(R) lithotripter and the
OssaTron(R)orthopedic lithotripter. Our
complete mailing address and telephone
number of our principal executive offices
are:
HealthTronics, Inc.
425 Franklin Road, Suite 545
Marietta, Georgia 30067
(770) (419-0691)
FAX: (770) (419-9490)
Attention: Roy S. Brown, president
OUR BUSINESS: Our business is the sales and servicing of
LithoTron lithotripters and, upon FDA
approval, OssaTron orthopedic lithotripters.
We also rent, lease and provide services
with Lithotron lithotripters.
OUR MARKET: Our market consists of hospitals, clinics,
physician groups and physicians providing
treatment to persons with kidney stones in
the United States, Canada and Mexico. In the
event we obtain FDA approval, our market
will also include hospitals, clinics,
physician groups and physicians providing
treatment to persons with orthopedic
problems or injuries.
OUR PRODUCTS AND
PROPOSED PRODUCTS: - The LithoTron lithotripter
A lithotripter is a medical device that uses
shock waves to treat kidney stones. The
LithoTron lithotripter is our proprietary
lithotripter.
</TABLE>
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<TABLE>
<S> <C>
- The OssaTron orthopedic lithotripter
An orthopedic lithotripter is a medical
device that uses shock waves to treat
some orthopedic problems. It is an
extension of the principle used to treat
kidney stones. The OssaTron orthopedic
lithotripter is our proprietary orthopedic
lithotripter.
THE PATENT AND OUR We have licenses for patents and our own
LICENSE TO USE IT: patent applications pending for the use of
shock waves in treating orthopedic
conditions.
We have an exclusive license from HMT to
make, use, lease or sell shock wave
equipment for medical purposes. This
license also grants to us the exclusive
rights to manufacture the OssaTron
orthopedic lithotripter and its related
accessories, spare parts, consumables and
disposables.
HMT also entered into distributorship
agreements with us granting us the
exclusive distribution rights for the
OssaTron orthopedic lithotripter and the
LithoTron lithotripter and related parts
and consumables for the United States,
Canada and Mexico. These distributorship
agreements are for indefinite periods of
time and may be terminated at any time for
cause.
OUR OFFERING:
Securities Offered 83,334 shares minimum, 1,000,000 shares
maximum
Shares Outstanding at date 9,665,342 shares
of Prospectus
Shares to be Outstanding 9,748,676 shares minimum, 10,665,342
after Offering shares maximum
Options Outstanding at 454,000 options
date of Prospectus
Total Public Offering Price $500,004 minimum, $6,000,000 maximum
Net Proceeds $450,004 minimum, $5,400,000 maximum
Use of Proceeds Primarily: the purchase of capital
equipment for lease, the purchase of
inventory, FDA study expense and working
capital
</TABLE>
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RISK FACTORS
You should give careful consideration to the following facts
concerning HealthTronics and the risks involved in the purchase of our shares.
You are cautioned to read all of the documents furnished or made available by
us, including our financial statements and the footnotes. Please refer to
"additional information that is available to you" on page 45 of this
prospectus to see how to obtain additional information and documents that may
help you in better understanding HealthTronics and the risks of purchasing our
shares.
LOSSES FROM OPERATIONS
We have incurred net losses from operations in 1996 and 1997. In
1996 we lost $432,572, and in 1997 we lost $418,028. While we did have a net
profit for fiscal year ended 1998, there can be no assurance that HealthTronics
will have profits in the future. Continued net losses could cause an investor to
lose some or all of his or her entire investment.
INVESTORS WILL INCUR A SUBSTANTIAL AND IMMEDIATE DILUTION
We have previously issued shares at prices ranging from $.01 to
$3.00 per share. If you purchase shares in this offering at $6.00 per share, you
will incur an immediate dilution in the net tangible book value of your shares
of from $5.12 per share if the maximum offering is sold to $5.53 per share if
only the minimum offering is sold. We also have 454,000 options currently
outstanding which are exercisable at prices well below the public offering price
of our shares. The exercise of any or all of these options could substantially
decrease the net tangible book value of your shares.
THERE IS NO MARKET FOR HEALTHTRONICS SECURITIES
There is currently no market for our shares and there may never be
a market for our shares, even if this entire offering is sold. Therefore, an
investor may be unable to sell the HealthTronics shares purchased in this
offering. If a market does develop, the sale of currently outstanding shares and
the sale of shares from exercised options for shares could have a negative
impact on the market or the market price.
WE COMPETE WITH LARGER, BETTER FINANCED AND ESTABLISHED COMPANIES
Established competitors, such as Dornier Medical Systems, Siemens
GmbH, Medstone International, Integrated Healthcare Services, Prime Medical
Services and Storz Medical Systems, have competitive advantages over companies
such as HealthTronics. Some of these companies have substantially more
experience and financial resources than we have. Several of these larger
companies are currently working on an orthotripsy device that will directly
compete with our orthotripter.
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<PAGE> 8
OUR PRODUCTS SUBJECT US TO SUBSTANTIAL REGULATION BY THE FOOD AND DRUG
ADMINISTRATION AND OTHER GOVERNMENT AGENCIES
We are subject to various local ordinances, county, state and
federal laws and regulations, including those that may directly affect our
profitability. Our proposed products must be approved by the FDA prior to
marketing. If FDA approval is denied, our earnings may be negatively impacted.
In addition for our orthopedic lithotripter we are subject to regulations
promulgated by the Drug Enforcement Administration and the Health Care Financing
Administration. Our compliance with any changes in these laws and regulations
may increase our expenses or limit income and have an adverse effect upon our
business.
THE MEDICARE AND MEDICAID STATUTES, RULES AND REGULATIONS MAY LIMIT OUR MARKET
The Medicare and Medicaid statutes prohibit some referrals by
doctors to entities with which they have a financial relationship. Comments
accompanying proposed regulations under the Medicare and Medicaid statutes
indicate that lithotripsy may come within the scope of these regulations. As a
result, physicians may become reluctant to own lithotripters or invest in
partnerships that own lithotripters. Because the limited partnerships with which
we and US Lithotripsy have established working arrangements are at least
partially owned by physicians, we might have to seek other arrangements for
marketing our products.
HEALTHTRONICS RELIES ON KEY PERSONNEL
Our success in the next few years is materially dependent upon the
abilities of our executive officers. We could lose any of our executive
officers, and our business might be hurt as a result. We currently have key
person insurance in the total amount of $1,000,000 on both Argil Wheelock, MD,
our Chairman and CEO, and Marie Marlow, Vice President of Clinical and
Regulatory Affairs, but not on any of our other officers or employees. While we
believe this amount of insurance to be helpful, the loss of the services of any
one or more of our key employees could still adversely affect us. In addition,
Victoria Beck, our Chief Financial Officer, and Marie Marlow are the only
officers who have entered into employment agreements with us, and a state court
could determine not to enforce, or only to partially enforce, the terms of any
employment agreement.
WE ARBITRARILY ESTABLISHED THE OFFERING PRICE FOR THIS OFFERING
The offering price of $6.00 per share was determined arbitrarily
by our management. This offering price has no relationship to book value, market
value or any other indications of valuation, and there can be no assurance of
any resale value for our shares.
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HEALTHTRONICS HOLDS A NON-EXCLUSIVE LICENSE FOR THE ORTHOPEDIC LITHOTRIPTER
VISSH Voennomedicinsky Institute of Bulgaria holds the Bulgarian
patent for the orthopedic lithotripter. In addition, the license granted from
HMT to HealthTronics is only for the U.S., Mexican and Canadian patents. This
means that products produced in Bulgaria by VISSH or its licensee or by other
licensees of HMT in other countries in which the invention is licensed (such as
China, South Korea and Japan) could effectively compete with our products in the
world market outside of the U.S., Mexico and Canada. Our amended license with
HMT is not effective until we gain pre-market approval from the FDA and is not
renewable unless we sell an average of 20 OssaTron orthopedic lithotripters a
year.
HEALTHTRONICS DEPENDS ON PATENT AND TRADEMARK PROTECTION
Both Siemens and Dornier Medical Systems have had patents approved
for the use of shock wave therapy in orthopedics, as well as to treat pain.
HealthTronics has licensed and received assignment of patents or pending patents
to use shock wave equipment for medical treatment. HealthTronics has also filed
patent claims for additional uses. It is possible that a court could determine
that we have infringed upon either patent, and this could lead to our having to
cease use of the OssaTron orthopedic lithotripter, which is our product that
uses shock wave therapy to treat orthopedic problems.
We do not have patent protection for the LithoTron lithotripter, and we
do not anticipate filing for protection. This means that if one of our
competitors achieved patent protection on a similar device, we could be forced
to cease use of the LithoTron lithotripter.
HEALTHTRONICS MAY BE SUBJECT TO A TREND OF LOWER RATES OF REIMBURSEMENT
Lower reimbursement rates for health care services or resistance
by insurance companies to reimburse for treatments could restrict the potential
market for our products and have an adverse effect on our business. Over the
last several years, there has been a trend towards lower reimbursement rates for
health care services and prescription drugs by cost-conscious third-party payors
such as health maintenance organizations.
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<PAGE> 10
OUR PRODUCTS MAY BECOME OBSOLETE
The OssaTron orthopedic lithotripter and LithoTron lithotripter
both may become obsolete with the development of less expensive alternatives,
new technologies, or drugs, or refinements of existing ones.
OUR PRODUCTS EXPOSE US TO MALPRACTICE AND PRODUCT LIABILITY RISKS
Physicians and technicians who use our products are exposed to the
risk of liability and malpractice claims. Those claims could also name us, based
on a theory of malpractice or product liability. Although we have not
experienced any malpractice or product liability claims, an award for damages
could exceed the limits of our applicable insurance coverage. Successful
liability claims asserted against us, to the extent not covered by insurance,
could affect our ability to operate profitably. While management believes our
current level of insurance is adequate, there can be no assurance of this.
DEPENDENCE UPON HMT
Our products are manufactured by HMT. HMT is privately held and
does not publish any resulting financial information. If HMT encountered
financial problems and ceased to manufacture our products, we might not find an
alternative manufacturer or the terms of any manufacturing agreement with an
alternative manufacturer might not be as favorable to us as our current
agreement with HMT. Our current manufacturing agreement with HMT expires on July
21, 2002. We do not own or operate any manufacturing facilities and we
have no plans to manufacture any of our products for at least the next 12
months. Because HMT is located in Switzerland, all of the risks normally
associated with imported technology apply. These risks include:
- The possibility of currency fluctuations that may make
the exchange rate between the dollar and the Swiss franc
disadvantageous to us;
- The possibility of government imposed restrictions on the
sharing of various technologies;
- The possibility that HMT may incur substantial problems in
meeting year 2000 compliance and that these problems will be
increased because of communication problems; and
- The difficulty in interpreting various contracts between
persons who are residents of separate nations.
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HEALTHTRONICS HAS POTENTIAL LIABILITY FOR THE DEBTS OF AFFILIATED COMPANIES
We have guaranteed the debts of some of our subsidiaries. In
addition, because we act as general partner to several limited partnerships, we
have unlimited liability for the payment of the debts of these limited
partnerships. As of December 31, 1998, our consolidated debt aggregated
$3,634,418, which includes our obligations for thirteen limited partnerships. If
these limited partnerships are unable or unwilling to repay their debts, we
could be liable for the entire amount of these debts.
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WE ARE DEPENDENT UPON SERVICETRENDS
Our products are serviced exclusively by Servicetrends, Inc.
Servicetrends is a subsidiary of a publicly held corporation that is a major
competitor of HealthTronics. Some of Servicetrends' officers and employees are
also shareholders of HealthTronics. If Servicetrends encountered financial
problems and ceased the servicing of our products, we might not be able to find
an alternative service company that would enter into a servicing agreement on
terms as favorable to us as our current agreement with Servicetrends. This could
have an adverse effect on our business.
HEALTHTRONICS SHARES COULD BECOME SUBJECT TO THE REGULATIONS OF PENNY STOCKS
If our common stock becomes subject to the penny stock rules, you
may find it more difficult to sell your shares. Penny stocks are generally
equity securities with a price of less than $5.00 per share, with certain
exceptions not relevant to our offering. A per share price of $5.00 is only
$1.00 per share below our public offering price, and less than $1.00 below the
anticipated tangible book value per share after this offering.
Transactions in penny stocks require broker-dealers to comply with
rules concerning disclosure of risk and the compensation of the broker-dealers
and their salesmen and to determine that the transactions are suitable
investments for the purchasers. These requirements may have the effect of
reducing the level of trading activity in the secondary market for
HealthTronics' stock.
CONTROL OF OUR COMPANY
Our officers and directors, as a group, are the beneficial owners
of approximately 47.09% of the outstanding shares. Even if this entire offering
is sold, that percentage will only decrease to 42.76%. Accordingly, if you
invest in this offering you will not have the ability to control HealthTronics.
8
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FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements which involve
risks and uncertainties. The words "expects", "intends", "believes",
"anticipates", "estimates", "may", "could", "should", "would", "will", "plans",
"hopes" and similar expressions identify forward-looking statements. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those described in this
prospectus. The risk factors in the previous section and other factors noted
throughout this prospectus could cause our actual results to differ materially
from those contained in any forward-looking statement.
TERMS OF THE OFFERING
GENERAL
HealthTronics is offering a minimum of 83,334 shares and a maximum
of 1,000,000 shares of its common stock for cash at a price of $6.00 per share.
The stock will be marketed through Capital Growth Management, Inc. Although
Capital Growth will use its best efforts to market and sell the shares, there is
no guarantee that the required minimum number of shares will be sold. Each
investor must purchase a minimum of 100 shares. The purchase price of $6.00 per
share must be paid in full upon execution and delivery of the subscription
agreement. All subscriptions tendered by investors are subject to acceptance by
the board of directors of HealthTronics, and HealthTronics reserves the absolute
and unqualified right to reject any subscription for any reason prior to
acceptance. Rejected subscriptions will be returned to the subscriber without
interest.
CONDITIONS OF THE OFFERING
This offering is being conducted on a best-efforts, 83,334 share
minimum - 1,000,000 share maximum basis. The initial term of the offering is 90
days from the date of this prospectus. If the minimum shares are not purchased
during the initial term, then all proceeds raised will be promptly returned to
you without paying interest and without deducting any sales commissions or
expenses of the offering. If the minimum number of shares is sold, this offering
will continue, without notice to subscribers or investors, until nine months
from the date of this prospectus or _____________, 2000, or until all offered
shares are sold, whichever event first occurs. Your checks should be made
payable to "Charter Bank as escrow agent for HealthTronics, Inc." and proceeds
from the sale of the shares will be escrowed with Charter Bank in Atlanta,
Georgia, no later than noon of the next business day following receipt. No
interest will be paid to us on funds held in the escrow account. Subscribers
will not have the use of their funds and will not earn interest on funds placed
in the escrow account unless and until the minimum offering period expires,
which may be as late as 90 days from the date of this prospectus. Officers,
directors, and controlling shareholders are not prohibited from purchasing
shares in this offering. These purchases will not be counted towards the minimum
offering, but the maximum offering will be 1,000,000 shares, including these
purchases.
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HISTORY AND BUSINESS
HISTORY
HealthTronics was incorporated in the State of Georgia on December
1, 1995. On April 29, 1996, OssaTronics, Inc., an affiliated Georgia corporation
formed on December 23, 1994, merged into HealthTronics. All references to
HealthTronics include OssaTronics, unless otherwise noted.
BUSINESS AND PROPOSED BUSINESS - PAST ACTIVITIES
Healthtronics was founded for the purpose of obtaining FDA
approval for products manufactured by HMT High Medical Technologies; in
particular, medical devices utilizing shock wave therapies known as the
LithoTron lithotripter and the OssaTron orthopedic lithotripter.
Upon FDA approval, we will have exclusive rights to market the
OssaTron orthopedic lithotripter. Both products are currently being used outside
of the United States and Canada.
BUSINESS AND PROPOSED BUSINESS - PRESENT AND FUTURE BUSINESS
It is our intent to attempt to generate revenues from the
following sources:
- Sales of the LithoTron lithotripter and the OssaTron
orthopedic lithotripter as well as related medical
devices;
- Recurring revenues from licensing fees, sales of the
NewTrode spark plug which is used in the lithotripter
and the maintenance of equipment;
- Investment income generated from partnerships and joint
ventures with physicians, dealerships and hospitals that
purchase equipment from us, as well as management fees
from these entities; and
- Income generated from equipment we own or that is owned by
consolidated subsidiaries through rental, leasing or
providing patient treatment services.
As of April 15, 1999, we had sold, leased or placed in service on
our behalf approximately 45 LithoTron lithotripters in the United States. We
market the LithoTron throughout the United States, Canada and Mexico. Our
marketing is done either by distributors or employees of Healthtronics. As a
marketer/distributor of the LithoTron, we have no costs associated with
research and development.
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MARKET OVERVIEW
Many persons each year suffer from kidney stones in the United
States. Of these, some will be treated with lithotripsy, a nonsurgical therapy
developed in Germany. There are currently active lithotripter systems in
operation in the United States that are either installed in hospitals or
outpatient centers or in mobile operation.
Publicly available information provides that a majority of
machines now in use in the United States were manufactured by Dornier Medical
Systems, Siemens or Medstone International, Inc. The retail price of a new
lithotripter made by these companies ranges from $250,000 to $800,000.
If the FDA approves the use of the orthopedic lithotripter for
orthopedic problems, HealthTronics believes there will be a demand for the
product or its services by hospitals, clinics and physician groups that offer
orthopedic services.
MARKETING STRATEGY
We market the LithoTron lithotripter primarily to hospitals and to
certain physician groups that provide mobile lithotripsy services. With respect
to ownership by physician groups, proposed regulations could have a severe
impact upon the ability of these groups to own lithotripsy devices. Four medical
centers have already purchased an OssaTron orthopedic lithotripter under the
conditions of the investigatory device exemption regulations, and have begun
investigational studies.
We provide lithotripsy services to several unaffiliated medical
centers, hospitals and physician groups in Georgia, Tennessee and Kentucky. We
charge a pre-arranged, fixed fee per patient for each treatment performed at
each facility. A typical contract requires us to transport a LithoTron into the
customer facility's operating/treatment room one day per week to treat the
hospital or doctor's kidney stone patients. We are also responsible for
providing someone to operate the equipment during the treatments and for
removing the equipment at the end of the treatment day.
GEOGRAPHIC MARKETS
Our geographic markets and potential markets consist of the United
States and its possessions, Canada and Mexico. These are the only countries for
which we have a license to market the products of HMT. As of the date of this
prospectus, no sales have been made in Canada or Mexico.
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PRODUCTS AND PROPOSED PRODUCTS
The LithoTron Lithotripter
The LithoTron lithotripter was developed by HMT. A lithotripter is
a medical device that uses shock waves to fragment kidney stones into small
pieces so that the stones may pass from the body.
After completing a four site investigatory device exemption
study for kidney and upper ureter stones, the LithoTron lithotripter pre-market
approval application was submitted to the FDA on May 15, 1997. The FDA requires
that a company or person seeking to introduce a medical treatment device must
first go through an investigational device exemption study and must afterwards
go through a pre-market approval application. The FDA will not approve any
lithotripsy device for sale that has not received pre-market approval. On July
21, 1997, we received FDA notice that the pre-market approval was approved and
that we could begin commercial distribution of the LithoTron lithotripter,
subject to regulatory restrictions on the uses, methods, controls, labeling and
the training of operators. We believe we are in full compliance with these
requirements.
The OssaTron Orthopedic Lithotripter
An orthopedic lithotripter is a medical device that uses shock
waves to treat some orthopedic problems. Orthotripsy(R), or orthopedic
lithotripsy, is the name for this process. It is an extension of the principle
used to treat kidney stones. Physiologically, Orthotripsy is believed to
stimulate bone, tendon and ligament healing by inducing microscopic injuries at
the site of the chronic injury. Subsequently, a generation of new blood vessels
enters into the area and causes bone-healing cells or tissue-healing cells to
invade the area and stimulate the healing process.
We believe, based upon the early findings of our clinical studies,
that orthopedic lithotripsy is an effective treatment in certain cases
involving:
- Chronic heel pain syndrome, also known as heel spurs.
- Fractures that have failed to heel for nine months or more
since the initial injury, also known as non-union
fractures.
- Lateral epicondylitis, also known as tennis elbow.
On May 29, 1996, we received approval from the FDA to begin
preliminary patient investigations with the OssaTron orthopedic lithotripter.
HealthTronics' clinical studies, including feasibility studies, are
FDA-regulated studies conducted according to approved investigational device
exemptions.
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- Treatment of the first patient with non-union fractures
was performed on July 18, 1996.
- Treatment of the first patient with tennis elbow was
performed on September 19, 1996.
- Treatment of the first patient with heel spurs was
performed on February 27, 1997.
We are currently the sponsor of three clinical studies involving
the OssaTron orthopedic lithotripter. These include studies involving the
OssaTron orthopedic lithotripter for treating chronic heel pain syndrome, tennis
elbow, and nonunion fractures. On February 13, 1998, we received FDA permission
to expand our tennis elbow study and our heel spur study to multiple sites.
All three studies are being regulated by the FDA, and are being
conducted in two stages. The initial feasibility study is a small, 20-patient
series intended to provide preliminary safety and effectiveness information.
The second stage is a multi-center pivotal study that includes 100 or more
patients and is intended to provide the clinical data needed to obtain FDA
approval for marketing. The studies will terminate when, under study protocol,
the data to support the study hypotheses is collected. We are unable to predict
when these studies will be completed.
Stage one feasibility studies of the OssaTron orthopedic
lithotripter for heel pain syndrome and for tennis elbow have been completed.
The FDA reviewed the results of these two feasibility studies and approved
the expansion of both studies to stage two pivotal investigations on February
13, 1998. Patient enrollment for the stage one feasibility study of the
treatment of nonunion fractures is nearly complete, and we plan to submit
findings to the FDA and request expansion to the stage two pivotal study once
all 20 patients have been treated.
The findings from the stage one feasibility studies of OssaTron
orthopedic lithotripter treatment of heel pain syndrome and tennis elbow
closely resembled findings from clinical use of the OssaTron orthopedic
lithotripter in Europe. Our findings were that approximately 85% (seventeen out
of twenty) of the feasibility study patients treated for heel pain syndrome had
a successful response to initial treatment, and that approximately 85% of the
tennis elbow patients had a successful response to treatment. The study
protocols for the Ossatron orthopedic lithotripter, as approved by the FDA,
contain defined success/fail criteria according to which a final status for
each study subject is assigned. The term "successful response to treatment"
means that a study subject met the pre-defined criteria identified in the study
protocol.
About 50% of the feasibility study patients treated for tennis
elbow required two treatments, as had been reported from European clinical
studies of OssaTron orthopedic lithotripsy treatments of tennis elbow. The
feasibility trials and our current studies reflect lower retreatment rates for
13
<PAGE> 18
the OssaTron orthopedic lithotripter than the retreatment rates reflected by
published clinical results in Europe for orthopedic shock wave devices based on
a different energy source (electromagnetic technology). Early findings from
stage two pivotal studies for heel pain indicate that patients do gain clinical
benefit from the orthotripsy treatment and that the treatment is safe.
EMPLOYEES
We employ, on a consolidated basis, forty-one persons on a
full-time basis in administration and operations. None of our employees is a
member of a labor union, and we believe labor relations to be good.
POTENTIAL MANUFACTURING
We do not currently own or operate any manufacturing facilities
and have no plans to manufacture any of our products in the immediate future. We
currently import our products from the manufacturer, HMT. We have the right to
purchase manufacturing rights from HMT for the OssaTron orthopedic lithotripter
based upon:
- Payment of a one-time fee of $1,000,000 for the
manufacturing know-how, technical drawings, descriptions
and other paperwork and associated documents necessary for
the manufacture of the OssaTron orthopedic lithotripter,
and
- A licensing fee of 10% of the net selling price for each
OssaTron orthopedic lithotripter manufactured by us.
We have the right to manufacture the LithoTron lithotripter. We
intend, however, for at least the next 12 months, to continue to purchase both
LithoTron lithotripters and OssaTron orthopedic lithotripters from HMT.
SUPPLIERS
Currently we acquire all of our inventory from HMT. We have no
plans to change this arrangement.
MAINTENANCE SERVICES
Maintenance services for our products are performed by
Servicetrends, a subsidiary of Integrated Healthcare Services. Integrated
Healthcare Services is the second largest provider of lithotripsy services in
the United States and, therefore, may be deemed a competitor of HealthTronics.
However, we are satisfied with the level of service performed by Servicetrends
and have no plans to change our arrangements with them.
14
<PAGE> 19
GOVERNMENTAL REGULATION
We will be subject to regulation by federal, state and local
statutes, ordinances, regulations and codes in many facets of our business. This
regulation includes licenses, permits, safety codes, zoning, truth-in-lending,
workmen's compensation and related laws, as well as various consumer sales
statutes and regulations. Our proposed products must be approved by the FDA
prior to marketing. In addition, we are subject to acts and regulations of the
Drug Enforcement Administration and the Health Care Financing Administration. We
will also be subject to regulation by various regulatory agencies of the states
in which we intend to sell our shares. The states impose various regulations
upon the activities of health care providers such as our customers and us. Our
compliance with any changes in these laws and regulations may have an adverse
effect upon our business. Although we presently believe that our operations will
be in compliance with applicable laws and regulations, there can be no assurance
that we will continue to be able to comply with all applicable laws and
regulations, or to do so without adverse consequences to our business.
As an importer of lithotripters we are subject to specific rules
and regulations of the FDA including, but not limited to, medical device
reporting requirements. As the holder of the pre-market approval for the
Lithotron lithotripter, we are also subject to the annual reporting requirements
of the FDA.
We have received clearance from the FDA to begin clinical trials
of the OssaTron orthopedic lithotripter and have been granted FDA approval for
commercial distribution of the LithoTron lithotripter subject to regulatory
conditions on the uses, methods, controls, labeling and the training of
operators. These restrictions involve the following:
- The sale, distribution, and use of the device are
restricted to prescription use;
- Labeling on the device must specify the requirements that
apply to the training of practitioners who may use the
device;
- We agreed to develop a protocol to collect long-term data
to study the effect of the device on hypertension. This
study has been completed as of the date of this
prospectus; and
- We are required to submit progress reports regarding the
completion of post-approval study requirements.
We believe we are in full compliance with these requirements.
Federal law regulates physician ownership of, and referral to,
health care service providers for services reimbursable under the Medicare or
Medicaid programs through two federal acts: the Medicare and Medicaid Fraud
15
<PAGE> 20
Prevention Act and the Omnibus Budget Reconciliation Acts. The Medicare and
Medicaid Fraud Prevention Act generally prohibits the payment of any
remuneration to induce or encourage the referral of patients for services
reimbursable under the Medicare or Medicaid programs. The Omnibus Budget
Reconciliation Acts prohibit referrals by physicians to entities with which the
physicians have a financial relationship for designated health services,
including inpatient and outpatient hospital services.
On January 9, 1998 the Health Care Financing Administration
published proposed regulations applicable to all designated health services.
While lithotripsy is not mentioned in the proposed regulations, accompanying
comments indicate that lithotripsy is included within the definition of
inpatient and outpatient hospital services. While there are several exceptions
and safe harbors within these federal acts and regulations, the effect may be to
limit our ability to contract with limited partnerships controlled by
physicians, because physicians would generally not be allowed to refer patients
for treatment with lithotripters in which the physicians have an ownership
interest.
COMPETITION
Our competitors, including Dornier Medical Systems, Siemens GmbH,
Medstone International, Inc., Integrated Healthcare Services, Prime Medical
Services, Inc. and Storz Medical Systems, are larger and better financed than we
are. They also enjoy a high degree of international name recognition for other
products they manufacture. It is possible that one or more of these companies
could corner the market for lithotripters through the use of extensive
advertising and product discounts, even if our products prove to be superior.
We are aware that Dornier, Siemens, Medstone and Storz, among
others, are currently working on an orthotripsy device; however, to the best of
our knowledge, we are the only company currently undergoing clinical trials in
the United States. Siemens and Dornier have received patents for the use of
shock wave therapy in orthopedics and for pain management. We, however, believe
that our technique is different from the Siemens and Dornier patents and that
VISSH's patent 4,979,501, HMT's patent 5,595,178 and our pending patent claims
covering multiple pathologies or indications of use for orthopedic shockwave
therapy do not encroach upon either the Siemens or Dornier patents.
Our pending claims were originally filed in two separate patent
applications. The first is currently being examined by the United States Patent
and Trademark Office, and the second application should undergo examination
later this year. None of the awarded patents or pending claims attempt to patent
the OssaTron; however, they focus on patenting the use of high energy shock
waves to promote healing in orthopedic problems.
Prime Medical Services owns approximately 16% of the kidney
lithotripters currently in operation in the United States, making this entity
the leading provider of lithotripsy services. Integrated Healthcare Services
holds the second position with approximately 8% of the estimated lithotripters
in the United States. The next four largest lithotripsy providers operate only
about 11% of the lithotripsy units currently in operation in the United States.
16
<PAGE> 21
We also compete with local private facilities and medical centers
that offer lithotripsy services, including hospitals that own their own machines
and local mobile service providers.
PROPERTY, EQUIPMENT AND INVENTORY
As of December 31, 1998, we owned property, equipment and
inventory, on a consolidated basis, with a net book value of $6,113,915. We
currently lease 6,275 square feet of office space in Marietta, Georgia at a
monthly rental of $3,921. Our lease expires on May 15, 2000. We intend to
perform all of our administrative functions from our current facility. We
believe this space is adequate to meet our foreseeable future needs.
Servicetrends, our current repair service provider for LithoTron and OssaTron
customers, utilizes its own facility in Kennesaw, Georgia to support our
logistics operations including final assembly of the product, warehousing
inventory units and repair parts, and shipping repair parts and complete
systems.
17
<PAGE> 22
JOINT VENTURES, SUBSIDIARIES AND DISTRIBUTORS
On March 7, 1997 HealthTronics entered into a distributorship
agreement with US Lithotripsy. This agreement granted US Lithotripsy an
exclusive license to sell, lease and distribute our products in multiple states.
On March 7, 1997 HealthTronics also entered into an entity interest agreement
with US Lithotripsy and Litho Management, Inc., the sole general partner of US
Lithotripsy. According to the entity interest agreement, we received a 40%
interest in US Lithotripsy (a 39.6% limited partnership interest plus a .4%
general partner interest) in return for 200,000 shares of HealthTronics stock.
Our stock transfer was accomplished through a Private Placement Memorandum on
June 1, 1997.
On May 1, 1998 HealthTronics became the sole general partner of US
Lithotripsy by purchasing 100% of the outstanding common stock of Litho
Management for 700,000 shares of our common stock. At the same time, the
territory in which US Lithotripsy has exclusivity was reduced to 4 states.
As of December 31, 1998, US Lithotripsy is the general partner in
twelve limited partnerships and the limited partner in six limited partnerships,
all of which provide lithotripsy services. US Lithotripsy has formed an
additional five partnerships since December 31, 1998 through the date of this
Prospectus.
On September 9, 1998 we exchanged 300,000 of our shares with three
shareholders of ours, Messrs. H. Patrick Hezmall, David Ellis and Wade Lowery,
who were also the sole shareholders of HLE Corp., a Texas corporation, in
exchange for all of the issued and outstanding shares of HLE Corp. The assets of
HLE Corp. consist of a 30% limited partnership interest in Metro I Stone
Management, Ltd., a Texas limited partnership. Because we, as sole general
partner of US Lithotripsy, have already consolidated Metro I Stone Management,
Ltd., this transaction effectively represents an acquisition of additional
interest in the operations of Metro I Stone Management, Ltd.
Florida Lithology, Inc., was incorporated in Florida on September
15, 1998. On October 23, 1998, HealthTronics became a 45.5% shareholder in
Florida Lithology, Inc. Florida Lithology, Inc. is a 55% co-general partner in
Florida Lithology, Ltd., a Florida limited partnership that provides lithotripsy
services in the state of Florida. We are also a 20% limited partner in Florida
Lithology, Ltd. Argil Wheelock, MD, our chairman and CEO, serves as the chairman
and as the president of Florida Lithology, Inc.
Each of the HealthTronics subsidiaries or consolidated entities
are shown on the following chart:
[SEE CHART ON FOLLOWING PAGE]
18
<PAGE> 23
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
HealthTronics, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bone & Joint Treatment
US LITHOTRIPSY, LP Litho Management, Inc. HLE, Inc. Centers of South FL
HealthTronics Interest 100% HealthTronics Interest 100% HealthTronics Interest 60%
--------------------------
USL has an interest in the LMI is a General Partner in the HLE is a Limited Partner in
following entities: Following partnership: the following Partnership:
- --------------------------------------- ------------------------------- ----------------------------
Metro I Stone Management, Ltd 10% US Lithotripsy, LP 0.6% Metro I Stone Management,
- --------------------------------------- ------------------------------- Ltd. 30%
Mississippi Valley I Stone Mississippi Valley I Stone ----------------------------
Management Limited 30% Management Limited 1%
- --------------------------------------- -------------------------------
AESL Limited Partnership 20%
- ---------------------------------------
East Texas Stone Management,
Ltd. 10%
- ---------------------------------------
Dallas Stone Management, LP 10%
- ---------------------------------------
Tulsa Stone Management, LP 99%
- ---------------------------------------
Tyler Stone Management, LP 31%
- ---------------------------------------
Tyler Stone Services. LP 99%
- ---------------------------------------
South Central Missouri
Management, LP 10%
- ---------------------------------------
SE Colorado Lithotripsy, LP 10%
- ---------------------------------------
Mississippi Valley II Stone
Management, LP 10%
- ---------------------------------------
Missouri Valley Lithotripsy, LP 10%
- ---------------------------------------
North Central Texas Lithotripsy,
LP 99%
- ---------------------------------------
White River Lithotripsy, LP 10%
- ---------------------------------------
Central Texas Lithotripsy, LP 99%
- ---------------------------------------
Central Dallas Lithotripsy, LP 10%
- ---------------------------------------
Western Colorado Lithotripsy, LP 99%
- ---------------------------------------
Oklahoma Lithotripsy, LP 10%
- ---------------------------------------
Central Missouri Lithotripsy, LLC 31%
- ---------------------------------------
Continued
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
HealthTronics, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tenn-Ga Prostate Lithowest, LLC Florida Lithology, Inc. Lithowest, LLC
Therapies, LLC HealthTronics Interest 50% HealthTronics Interest 45.5% HealthTronics Interest 60%
HealthTronics Interest 67%
- ---------------------------- ---------------------------- FLI is a General Partner --------------------------
in the following
partnership:
-----------------------------
Florida Lithology, Ltd.
55%
(HealthTronics is also a 20%
Limited Partner in this
partnership)
-----------------------------
</TABLE>
19
<PAGE> 24
Of the partnerships listed in the chart above in which US Lithotripsy has an
interest, the following summarizes US Lithotripsy's type of ownership interests.
USL is the General Partner in the following partnerships:
- East Texas Stone Management, Ltd
- Dallas Stone Management, LP
- Tyler Stone Management, LP
- South Central Missouri Management, LP
- SE Colorado Lithotripsy, LP
- Missouri Valley Lithotripsy, LP
- Central Dallas Lithotripsy, LP
- Oklahoma Lithotripsy, LP
- Mississippi Valley II Stone Management, LLP
USL is a Limited Partner in the following partnerships:
- Mississippi Valley I Stone Management, LP
- AESL Limited Partnership
USL is the General Partner and a Limited Partner in the following partnerships:
- Metro I Stone Management, Ltd.
- Tulsa Stone Management, LP
- Tyler Stone Services, LP
- North Central Texas Lithotripsy, LP
- Central Texas Lithotripsy, LP
- Western Colorado Lithotripsy, LP
We are currently a 67% owner of Tenn-Ga Prostate Therapies,
L.L.C., "Tenn-Ga Prostate"' a Tennessee Limited liability company that owns and
operates a mobile Prostatron device. A Prostatron is a medical device that uses
Microwave energy to treat prostate enlargement. The remaining 33% of Tenn-Ga
Prostate is owned by physicians who practice in the market served by Tenn-Ga
Prostate. Tenn-Ga Prostate provides prostate therapy services to various
hospitals in the Southeast. Argil Wheelock, M.D., our chairman and CEO, is the
chief manager of Tenn-Ga Prostate.
On December 14, 1998, we became a 60% owner of Lithowest, LLC, an
Arizona limited liability company formed on December 4, 1998, to provide
lithotripsy services in Arizona.
20
<PAGE> 25
PATENTS, TRADEMARKS AND LICENSES
The OssaTron orthopedic lithotripter, the invention subject to our
patents and patent applications, is an apparatus used, among other
considerations, for the medical treatment of the pathological state of bones.
VISSH was the holder of a patent entitled: "Method and Apparatus for Medical
Treatment of the Pathological State of Bones" (U.S. Patent Number 4,979,501).
The patents and patent applications for Australia, Canada, Hungary, South Korea,
Russia, Japan, China and the United States were sold by VISSH to HMT High
Medical Technologies. VISSH retained the Bulgarian patent. On January 21, 1997,
a U.S. Patent for a "System, Method and Apparatus for Treatment of Degenerative
Bone" was awarded to the principals of HMT, and assigned to HMT (U.S. Patent
Number 5,595,178). There is no patent for the LithoTron lithotripter.
HMT granted a license regarding U.S. Patent Number 4,979,501 and
Canadian Patent Number 1,330,580, the original license, to HealthTronics on June
3, 1995. The original license provides HealthTronics with a non-exclusive
license to make, use, lease, or sell shock wave equipment for medical treatment.
The original license was acquired for $100,000. HMT reserved the patents and
patent applications for Australia, Hungary, South Korea, Russia, Japan and
China. The original license could be terminated by either party upon default
after 30 days written notice. On August 7, 1996 the original license was amended
to specifically grant to us an exclusive license to make, use, lease or sell
shock wave equipment for medical purposes. This amended license is effective for
a term of 5 years beginning on the date pre-market approval is granted by the
FDA and is automatically renewable for subsequent 5 year terms provided that we
have met an average annual sales commitment over the preceding five years of at
least 20 OssaTron orthopedic lithotripters. If we fail to meet this sales
commitment, the amended license may be terminated by HMT upon 12 months notice
given at least 12 months prior to the expiration of the 5 year term then in
effect. The amended license also grants to us the exclusive rights to
manufacture the OssaTron orthopedic lithotripter and its accessories, spare
parts, consumables and disposables, upon payment of a fee of $1,000,000 and a
licensing fee not to exceed 10% of our net selling price for each Company
manufactured unit sold.
Subsequently, we entered into an agreement with HMT entitled:
"Second Amendment to Patent License Agreement". This agreement added Patent
Number 5,595,178 to the original license and the amended license.
Messrs. John F. Warlick, Roy S. Brown, Argil Wheelock, MD and
John Ogden, MD, a consultant to, and shareholder of, HealthTronics, have filed a
patent application with the United States Patent and Trademark Office for an
invention entitled "Method for Using Acoustic Shock Waves in the Treatment of
Medical, Dental and Veterinary Conditions." The application is still under
review. This filing is for additional uses for the OssaTron orthopedic
lithotripter and has been assigned to us for no consideration. In addition, in
1998 we filed seventy-two patent claims for additional uses for the OssaTron
orthopedic lithotripter.
21
<PAGE> 26
On November 22, 1994 HMT entered into a distributorship agreement
with HealthTronics granting HealthTronics exclusive distribution rights for the
OssaTron orthopedic lithotripter and related parts and consumables for the
United States (including Puerto Rico, the U.S. Virgin Islands and Guam), Canada
and Mexico. As part of this agreement, HealthTronics committed to purchase 10
OssaTron orthopedic lithotripter units per year over the life of the agreement
after FDA pre-market approval, and HMT agreed to warrant the OssaTron orthopedic
lithotripters for 12 months at no cost to HealthTronics. This distributorship
agreement is for an indefinite period of time and may be terminated at any time
for cause, such as bankruptcy, default in payment, failure to perform or failure
of HealthTronics to meet its purchase commitment, or upon 12 months notice by
either party, after November 11, 2000.
On January 24, 1996 HMT entered into an agreement with us granting
us exclusive distribution rights for the LithoTron lithotripter and related
parts and consumables for the United States (including Puerto Rico, the U.S.
Virgin Islands and Guam), Canada and Mexico. As part of this agreement, we
committed to purchase 12 LithoTron lithotripter units per year over the life of
the agreement after FDA pre-market approval, and HMT agreed to warrant the
LithoTron lithotripters for 12 months at no cost to us. This distributorship
agreement is for an indefinite period of time and may be terminated at any time
for cause, such as bankruptcy, default in payment, failure to perform or our
failure to meet our purchase commitment or, upon 12 months notice by either
party, after January 22, 2001. Both we and HMT have been and remain in full
compliance with this agreement.
On June 20, 1996 we received from HMT a right to manufacture both
the LithoTron lithotripter and the OssaTron orthopedic lithotripter, including
all drawings, technical descriptions, supplies and all other information
requested by us to enable us to manufacture both the LithoTron lithotripter and
the OssaTron orthopedic lithotripter. While this right does not subject us to
additional payments with respect to the LithoTron lithotripter, manufacturing of
the OssaTron orthopedic lithotripter is subject to the one-time payment of
$1,000,000 and a licensing fee not to exceed 10% of our net selling price for
each company-manufactured unit sold. We have no present plans to engage in
manufacturing activities.
We have pending trademark registrations for "Ossatripsy" and
"Osteotripsy". In addition, we have been awarded the trademark registration for
"Orthotripter", "OssaTron" orthopedic lithotripter, "Orthotripsy", "NewTrode"
and "LithoTron" lithotripter.
22
<PAGE> 27
MANAGEMENT
OFFICERS AND DIRECTORS
The name and positions of our executive officers and directors as of
the date of this prospectus are set forth below. The term of office of each
director is for a period of one year, or until the next annual shareholders,
meeting, whichever occurs first.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
Name Position Held
- -----------------------------------------------------------------
<S> <C>
Argil J. Wheelock, MD Chairman and CEO (Since July 1,
1996)
Director (Since December 23,
1994)
- -----------------------------------------------------------------
Roy S. Brown President and COO (Since May
31, 1996)
Director (Since December 31,
1995)
- -----------------------------------------------------------------
Scott Cochran Secretary/Treasurer (Since
December 23, 1994)
Director (Since December 23,
1994)
- -----------------------------------------------------------------
John F. Warlick Executive Vice President (Since
December 1, 1996)
- -----------------------------------------------------------------
Marie Marlow Vice President of Clinical and
Regulatory Affairs (Since
September 1, 1996)
- -----------------------------------------------------------------
Joachim Voss Director (Since December 23,
1994)
- -----------------------------------------------------------------
Victoria Beck Chief Financial Officer (Since
August 1, 1997)
- -----------------------------------------------------------------
Jon Burke Director (Since February 1, 1998)
- -----------------------------------------------------------------
</TABLE>
BIOGRAPHICAL INFORMATION
ARGIL J. WHEELOCK, M.D. (51) - Dr. Wheelock was a practicing, board-certified
urologist in Chattanooga, Tennessee from 1979 until 1996. Since July 1, 1996 he
has worked exclusively as chief executive officer of HealthTronics. From
November, 1994 until June 30, 1996, he worked for Phymatrix, a NASDAQ listed
company that specializes in physician practice management, in the Lithotripsy
Division. From July, 1991, until November, 1994, he was vice president in charge
of Lithotripsy Services at Coram Healthcare, a NYSE listed company engaged in
home health care. Dr. Wheelock is the president, a director and a shareholder of
NGST, a Tennessee corporation engaged in mobile lithotripsy through
partnerships; a shareholder of Cobb Regional Lithotripter Services, Inc.; the
managing general partner of TennGa Stone Group Two; the Chief Manager of Tenn-Ga
Prostate; a minority partner in TennGa Stone Group Two; and the chairman and
president of Florida Lithology, Inc., a Florida corporation engaged in providing
lithotripsy services through a limited partnership.
23
<PAGE> 28
ROY S. BROWN (51) - Mr. Brown was the president of Servicetrends, Inc., a
company that services equipment for us, until May 30, 1996. Prior to this he
served as: vice president of Sales and Marketing for Intra-Sonix of Burlington,
Massachusetts, a medical equipment manufacturing company (1994 to 1995); as the
owner of Andex products, an international business consulting firm in
Lawrenceville, Georgia (1992 through 1994); and as executive vice president of
Sales and Marketing for Dornier Medical Systems, a manufacturer of medical
equipment located in Munich, Germany (from 1984 to 1992). Mr. Brown holds the
equivalent of a B.A. in International Business from Industry and Trade School in
Hannover, Germany.
JOHN F. WARLICK (37) - Mr. Warlick, who holds a B.S. in Financial Management
from Clemson University, was the vice president of Sales for, the past president
of and a director of Servicetrends, Inc., from April, 1991 until September,
1996. Prior to this, he was the Sales operations manager of Dornier Medical
Systems (from 1985 until 1988), the vice president of Sales for Energy Four
(from 1989 until 1991) and the president of OssaTronics, our predecessor, from
its inception.
JOACHIM VOSS (60) - Mr. Voss, a resident of Germany, has an engineering degree
from the Engineering School of Bielefeld, Germany. With a background of
twenty-five years in marketing and engineering of high technology products for
aerospace and medical application, he worked from 1989 through 1996 as managing
director and as marketing director of HMT, the corporation that developed and
manufactures both the LithoTron lithotripter and the OssaTron orthopedic
lithotripter. Mr. Voss has now retired from his active role in HMT, but still
works as a consultant to HMT and its German affiliate company.
SCOTT COCHRAN (37) - Mr. Cochran is a partner with the law firm of Cochran, Camp
and Snipes in Smyrna, Georgia, and has held this position since 1988. He
received an A.A. degree from Young Harris College, a B.A. from Emory University
and a J.D. from Mercer Law School. Mr. Cochran's law firm also serves as outside
counsel to us.
MARIE MARLOW (45) - From May of 1995 until August, 1996, she served as a
Technical Advisor for Quintiles/BRI of Rockville, Maryland, a leading consultant
and evaluation entity to the medical industry with respect to FDA regulatory and
product study issues. Prior to this she served as: director of Regulatory and
Clinical Affairs for Cambridge Heart, Inc. of Bedford, Massachusetts (February
of 1994 to May, 1995); director of Regulatory Affairs for Bard
Electrophysiology, a division of C.R. Bard, Inc. of Billerica, Massachusetts, a
NYSE traded company primarily engaged in the field of medical equipment and
related technology; (September, 1993 until February, 1994); and director of
Clinical and Regulatory Affairs for Intra-Sonix, Inc. of Burlington,
Massachusetts, a Massachusetts based start-up company which developed an
integrated ultrasound and laser device for medical purposes (June, 1989 to
August, 1993). Ms. Marlow holds a diploma in Nursing from the California
Hospital School of Nursing Now the USC School of Nursing.
24
<PAGE> 29
VICTORIA BECK (43) - Ms. Beck graduated from Georgia State University in 1981
with a degree in accounting. From 1982 until mid 1987 she worked for the
international accounting firm of Price Waterhouse. From mid 1987 until mid 1994
she was the controller of Miller/Zell, a Georgia company engaged in the
manufacturing and design of visual merchandising systems. From mid 1994 until
July of 1997, Ms. Beck was an independent certified public accountant practicing
in, and certified in, the state of Georgia.
JON BURKE (52) - Mr. Burke has served as a director of HealthTronics since
February, 1998. He is presently the managing member of Capital Appreciation
Management Company, L.L.C., which is the managing general partner of an
Atlanta-based merchant banking fund specializing in acquiring controlling
interests in companies located in the southeastern United States. Mr. Burke is
also a principal with Brown Burke Capital Partners, Inc., which provides
financial advisory services to middle market companies in connection with
mergers and acquisitions and financing. Mr. Burke also serves as a director of
United Companies Financial Corporation, a financial services holding company
engaged in consumer lending. From 1973 to 1996, Mr. Burke was employed by the
Robinson-Humphrey Company, Inc., most recently serving as a senior vice
president and the head of its financial institutions/banking research.
25
<PAGE> 30
EXECUTIVE COMPENSATION
The following table sets forth the aggregate direct annual remuneration
paid to our executive officers and directors. We do not have any long-term
incentive plans or stock appreciation rights:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Long Term
Annual Compensation Compensation Awards
- ---------------------------------------------------------------------------------------------------------------------
Name & Principal Year Salary ($) Bonus Other Annual Securities Underlying
Position ($) Compensation Options(#)
($)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Argil J. Wheelock, MD Fiscal Year $ 97,440 $ 6,062 $ 0 0
Chairman & CEO Ended
12/31/98
- ---------------------------------------------------------------------------------------------------------------------
Roy S. Brown Fiscal Year 97,440 5,675 7,000 0
President & COO Ended
12/31/98
- ---------------------------------------------------------------------------------------------------------------------
John F. Warlick Fiscal Year 97,440 6,081 3,500 0
Executive Vice Ended
President 12/31/98
- ---------------------------------------------------------------------------------------------------------------------
Marie Marlow Fiscal Year 108,882 1,710 0 75,000
Vice President Ended
12/31/98
- ---------------------------------------------------------------------------------------------------------------------
Scott Cochran Fiscal Year 0 0 0 0
Secretary Ended
12/31/98
- ---------------------------------------------------------------------------------------------------------------------
Victoria Beck Fiscal Year 85,131 2,521 0 5,000
Chief Financial Officer Ended
12/31/98
- ---------------------------------------------------------------------------------------------------------------------
Jon Burke Fiscal Year 0 0 0 0
Director Ended
12/31/98
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
In addition to their annual remuneration, executive officers of ours
who are also employees may be entitled to participate in our 401(K) plan. These
amounts are shown in the "Bonus" Column above. Also shown in the "Bonus" column
are certain valuations for insurance paid by us for Messrs. Wheelock ($1,776)
and Brown ($1,389).
Mr. Cochran, as counsel to us, will also bill us for legal services
rendered to HealthTronics. Mr. Brown receives the use of a Company automobile.
We have valued this use at approximately $7,000 per annum.
26
<PAGE> 31
Certain options that may be available to Ms. Beck premised upon her
continued service to us have not been included in this table. Mr. Warlick began
receiving a car allowance of $500 per month in 1998.
Option Exercise
On December 23, 1996 the Board of Directors approved the issuance of
options for up to 350,000 shares at prices and terms to be determined at the
discretion of the Board. Subsequently, the Board increased the authorized
options to 550,000 shares at an exercise price from $1.00 to $3.00 per Share.
While no formal written option plan exists, as of the date of this prospectus,
the Board has issued options for an aggregate of 454,000 shares to 31 persons,
including promoters, officers, directors, employees and consultants to us.
Except as noted in the table below, all options expire on December 31, 2000 or
December 31, 2001. All but 108,000 of these options are currently exercisable.
On April 14, 1997 the Board of Directors granted stock options,
exercisable at $1.00 per Share (our management has valued these shares
underlying the stock options at a price of $1.00 per Share, the fair market
value of the shares at issuance as determined by our management in the absence
of a readily trading market) to Messrs. Wheelock (65,000 shares), Brown (9,000
shares) and Warlick (9,000 shares) in exchange for personal payment guarantees
provided by these officers on our behalf.
We have not issued any stock appreciation rights and do not have a
long-term incentive plan. The options held by our management as of the date of
this prospectus are exercisable as shown by the following table:
27
<PAGE> 32
OPTION GRANT TABLE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Name and Title Number of Percent of Total Exercise Price ($) Expiration Date
Securities Options Granted to
Underlying Options Employees and
Granted (#) Others
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Argil Wheelock, 90,000 19.82% $1.00 12/31/2000
MD (Chairman and
CEO)
- -----------------------------------------------------------------------------------------------------------------
Roy S. Brown 29,000 6.39% $1.00 12/31/2000
(President, COO and
Director)
- -----------------------------------------------------------------------------------------------------------------
John F. Warlick 19,000 4.18% $1.00 12/31/2000
(Executive Vice
President)
- -----------------------------------------------------------------------------------------------------------------
Marie Marlow (Vice 10,000 2.20% $1.00 12/31/2000
President of Clinical 5,000 1.10% $3.00 12/31/2001
and Regulatory 50,000 11.01% $3.00 12/31/2002
Affairs) 25,000 5.51% $3.00 12/31/2003
- -----------------------------------------------------------------------------------------------------------------
Victoria Beck 15,000 3.30% $1.00 12/31/2000
(CFO) 10,000 2.20% $1.00 12/31/2001
5,000 1.10% $3.00 12/31/2001
- -----------------------------------------------------------------------------------------------------------------
Jon Burke (Director) 50,000 11.01% $1.00 12/31/2000
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
On March 25, 1998 we entered into an incentive option agreement with
Marie Marlow, our Vice President of Regulatory and Clinical Affairs. As an
incentive to Ms. Marlow, she received additional options to purchase 75,000
shares at $3.00 per Share. The full 75,000 shares will vest on December 31,
2002. However, if we receive FDA approval of the OssaTron orthopedic
lithotripter prior to December 31, 2002, we will accelerate the vesting of
certain of the options as follows:
- if approval by December 31, 1999, then we will accelerate
options on 60,000 shares
- if approval between January 1 and March 31, 2000, then we will
accelerate options on 45,000 shares
- if approval between April 1 and June 30, 2000, then we will
accelerate options on 30,000 shares
- if approval between July 1 and September 30, 2000, then we
will accelerate options on 15,000 shares
In the event that any options vest early, any remaining options will
vest on December 31, 2002.
28
<PAGE> 33
Under Victoria Beck's employment agreement, Ms. Beck was provided with
options to purchase up to 25,000 shares at $1.00 per Share, contingent upon Ms.
Beck's continued employment with us at the time the options become vested. This
vesting schedule is as follows: 10,000 shares on July 11, 1997; 5,000 shares on
July 31, 1998; 5,000 shares on July 31, 1999 and 5,000 shares on July 31, 2000.
Employment Agreements
On July 11, 1997, HealthTronics entered into an employment agreement
with Ms. Victoria Beck to be HealthTronics Chief Financial Officer at an annual
salary of $85,000. The agreement also provided Ms. Beck with 25,000 options at
$1.00 per share awarded pursuant to a schedule of continued employment to July
31, 2000.
On September 1, 1996, HealthTronics entered into an employment
agreement with Ms. Marie Marlow to be HealthTronics Vice President of Clinical
and Regulatory Affairs at an annual salary of $108,000. The agreement also
provided Ms. Marlow with a $25,000 signing bonus.
Retirement Plan
On January 1, 1996 we adopted a 401(K) retirement plan. The Plan
provides that eligible employees may authorize us to withhold from 1% up to 12%
of compensation including up to 100% of cash bonuses paid by us, as defined in
the plan. However, the total amount withheld by us on behalf of each employee
may not exceed $10,000 for any taxable year. The plan provides that we may make
a matching contribution not to exceed 6% of the employee's compensation for
employees that have been employed for at least six months with us. We
contributed $28,111 to the plan in 1998 and $10,300 in 1997.
Compensation of Directors
Directors do not currently receive any compensation.
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of
HealthTronics' stock, as of March 31, 1999 and as adjusted to reflect the sale
of the shares offered hereby, of each person known by us to beneficially own
more than five percent of HealthTronics' outstanding stock, each current
director, each executive officer and all directors and executive officers of
HealthTronics as a group. "Beneficial ownership" is defined by the regulations
issued by the SEC as having or sharing, directly or indirectly, voting power,
which includes the power to vote or to direct the voting, and/or investment
power, which includes the power to dispose of or to direct the disposition of
the shares of the stock indicated. Shares of common stock subject to options
that are currently exercisable or exercisable within 60 days of March 31, 1999
are deemed
29
<PAGE> 34
outstanding for the purpose of computing the percentage ownership of the person
or entity holding such options, but are not treated as outstanding for the
purpose of computing the percentage ownership of any other person or entity.
Applicable percentage ownership in the table is based on 9,665,342 shares
outstanding as of March 31, 1999 and 10,665,342 shares outstanding immediately
following completion of this offering.
Each person is the record owner of the shares indicated and possesses
the sole voting and investment power with respect to shares unless otherwise
indicated.
30
<PAGE> 35
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Percentage of Class
- -------------------------------------------------------------------------------------------------------------
Name of Owner and Current Amount of Beneficial Ownership (Current) As Adjusted
Address
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Argil Wheelock, MD 1,508,800 Shares 15.47% 14.03%
425 Franklin Road, Suite 545
Marietta, GA 30067
- -------------------------------------------------------------------------------------------------------------
John F. Warlick 1,348,800 Shares 13.93% 12.62%
425 Franklin Road, Suite 545
Marietta, GA 30067
- -------------------------------------------------------------------------------------------------------------
Roy S. Brown 1,002,200 Shares 10.34% 9.37%
425 Franklin Road, Suite 545
Marietta, GA 30067
- -------------------------------------------------------------------------------------------------------------
Werner Schwarze 500,000 Shares 5.17% 4.69%
High Medical Tech.
Bachstrasse 8
CH-8280 Kreuzlingen
Switzerland
- -------------------------------------------------------------------------------------------------------------
Walter Uelbelacker 500,000 Shares 5.17% 4.69%
High Medical Tech.
Bachstrasse 8
CH-8280 Kreuzlingen
Switzerland
- -------------------------------------------------------------------------------------------------------------
Joachim Voss 500,000 Shares 5.17% 4.69%
Garlstorfer Str. 5
Egestorf, D-21272
Germany
- -------------------------------------------------------------------------------------------------------------
Karl Heinz Restle 500,100 Shares 5.17% 4.69%
High Medical Tech.
Bachstrasse 8
CH-8280 Kreuzlingen
Switzerland
- -------------------------------------------------------------------------------------------------------------
Jon Burke 75,000 Shares 0.77% 0.70%
425 Franklin Road, Suite 545
Marietta, GA 30067
- -------------------------------------------------------------------------------------------------------------
Scott Cochran 166,000 Shares 1.72% 1.56%
425 Franklin Road, Suite 545
Marietta, GA 30067
- -------------------------------------------------------------------------------------------------------------
Victoria Beck 15,000 Shares 0.15% 0.14%
425 Franklin Road, Suite 545
Marietta, GA 30067
- -------------------------------------------------------------------------------------------------------------
Marie Marlow 38,000 Shares 0.39% 0.36%
613 7th Street, NE
Washington, DC 20002
- -------------------------------------------------------------------------------------------------------------
HMT Group(8) 2,000,400 Shares 20.70% 18.75%
Bachstrasse 8
CH-8280 Kreuzlingen
Switzerland
- -------------------------------------------------------------------------------------------------------------
House Group(9) 1,140,400 Shares 11.80% 10.69%
800N. Arbrook Blvd.
Suite 320
Arlington, TX 76015
- -------------------------------------------------------------------------------------------------------------
All Officers and Directors As a 4,653,800 Shares 47.09% 42.76%
group (8 persons)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE> 36
Dr. Wheelock's beneficial ownership includes presently exercisable
options to purchase up to 90,000 shares of our stock at a purchase price of
$1.00 per share.
Mr. Warlick's beneficial ownership includes presently exercisable
options to purchase up to 19,000 shares of our stock at a purchase price of
$1.00 per share. 1,328,800 of the shares shown in the table are owned of record
by Ty Warlick, Mr. Warlick's wife. Mr. Warlick disclaims record or beneficial
ownership of any of the shares owned by Ty Warlick.
Mr. Brown's beneficial ownership includes presently exercisable options
to purchase up to 29,000 shares of our stock at a purchase price of $1.00 per
share.
Mr. Burke's beneficial ownership includes presently exercisable options
to purchase up to 50,000 shares of our stock at a purchase price of $1.00 per
share.
Mr. Beck's beneficial ownership includes options to purchase up to
15,000 shares of our stock at a purchase price of $1.00 per share, all of which
are exercisable within 60 days of March 31, 1999.
Ms. Marlow's beneficial ownership includes options to purchase up to
10,000 shares of our stock at a purchase price of $1.00 per share and 5,000
shares at a purchase price of $3.00 per share, all of which are exercisable
within 60 days of March 31, 1999.
The HMT Group consists of a group of shareholders who are party to a
stock voting agreement. The agreement was entered into on March 15, 1999,
amended and restated as of April 26, 1999 and has no termination date. The
agreement provides that each member shall vote his shares as a block with the
other members, as determined by vote of a majority of the members. The following
are the members of the HMT Group: Karl Heinz Restle, Werner Schwarze, Walter
Uelbelacker and Joachim Voss and each can be contacted at the address listed in
the table.
The House Group consists of a group of shareholders who are party to a
stock voting agreement. The agreement was entered into on September 30, 1998 and
terminates on September 30, 2003. The agreement appoints John House, M.D. as
voting trustee and gives him the exclusive right to vote any and all shares
received or to be received by the members. No other voting rights or powers are
given.
32
<PAGE> 37
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following persons may be deemed promoters of HealthTronics: John
Warlick, Karl Heinz Restle, Argil Wheelock, Scott Cochran, and Roy Brown. Each
of the promoters either has received, or is receiving, a salary from
HealthTronics except Karl Heinz Restle and Scott Cochran. Each of the promoters
has received, or beneficially owns, the following amounts of shares, including
currently excercisable options to purchase shares, of HealthTronics and has
delivered to HealthTronics the indicated consideration:
<TABLE>
<CAPTION>
Promoter Shares Consideration
-------- ------ -------------
<S> <C> <C>
John Warlick 1,348,800 $155,000 and services
Karl Heinz Restle 500,100 $ 24,280 and services
Joachim Voss 500,000 $ 23,980 and services
Argil Wheelock 1,508,800 $181,480 and services
Scott Cochran 166,000 $ 10,000 and services
Roy Brown 1,002,200 $ 37,000 and services
Werner Schwarze 500,000 $ 23,980
Walter Uebelacker 500,000 $ 23,980
</TABLE>
Karl Heinz Restle, a major shareholder of HealthTronics, is the
president of HMT. HMT owns the United States and Canadian patents that have been
licensed to us. HMT is also the supplier of LithoTron lithotripters and OssaTron
orthopedic lithotripters to us. Joachim Voss, a director of ours, works as a
consultant to HMT. During the year ended December 31, 1997 we paid $2,993,226 to
HMT and during the year ended December 31, 1998 this amount was $6,069,877.
John Warlick, Executive Vice President and a major shareholder of
HealthTronics, is a former director and the former president of Servicetrends,
Inc., a Georgia corporation that has contracted with us to provide installation
and maintenance service for the LithoTron lithotripter and OssaTron orthopedic
lithotripter. All of our installation and maintenance is currently performed by
Servicetrends. In addition, Roy S. Brown, our President, is also a
past-president of Servicetrends. Several officers and employees of Servicetrends
are shareholders of ours. During the year ended December 31, 1997 we paid
$136,242 to Servicetrends and during the year ended December 31, 1998 this
amount was $542,344.
On April 19, 1996 John F. Warlick agreed to transfer 499,800 shares to
Dr. Wheelock. This transfer primarily formalized a previous verbal agreement
between Dr. Wheelock and HealthTronics to increase the ownership level of Dr.
Wheelock to be consistent with his holdings in HealthTronics of HealthTronics.
In addition, Dr. Wheelock agreed to the following:
- The purchase by an investor group of an OssaTron orthopedic
lithotripter at a price of not less than $250,000 and the entering into of an
investigatory device exemption agreement within 90 days.
33
<PAGE> 38
- The raising of a minimum of $300,000 by purchasing or causing
outside investors to purchase 3% of the then outstanding shares at a price of
$300,000 and
- A commitment to an ongoing participation in our business.
As of the date of this prospectus, all of these conditions have been
performed by Dr. Wheelock and he continues in an ongoing participation in our
business. However, Dr. Wheelock is not contractually obligated to us per these
agreements.
In addition, on April 19, 1996 Mr. Warlick received 100,000 shares in
exchange for the cancellation of an initial loan of $100,000 to us.
On April 1, 1997 Dr. Wheelock loaned $650,000 to Tenn-Ga Prostate in
order to allow Tenn-Ga Prostate to purchase a Prostatron (a medical device that
uses microwave energy to treat prostate enlargement) and a vehicle to transport
the Prostatron. This loan was subsequently repaid to Dr. Wheelock.
Dr. Wheelock is a general partner of TennGa Stone Group Two and a
shareholder of Cobb Regional Lithotripter Services, Inc., a corporation
providing mobile lithotripsy services in Cobb County, Georgia. Dr. Wheelock is
also the chairman and president of Florida Lithology, Inc., a Florida
corporation that is a general partner in a limited partnership offering
lithotripsy services in Florida.
Atlanta Medical Center, formerly Georgia Baptist Hospital, is currently
testing the OssaTron orthopedic lithotripter. One of our shareholders is a
director of that hospital.
US Lithotripsy is a Texas limited partnership that has entered into a
distributor agreement with us. We exchanged 200,000 shares of our stock, issued
to 4 owners of US Lithotripsy, in exchange for a 40% interest in US Lithotripsy
(This 40% interest consisted of a .4% general partnership interest and a 39.6%
limited partnership interest). This exchange was effected by a private placement
memorandum dated June 1, 1997.
On May 1, 1998, we acquired 100% of the outstanding shares of Litho
Management, Inc., the other corporate general partner of US Lithotripsy for
700,000 of our shares and thus became the sole general partner of US
Lithotripsy. In addition to distributing our products, US Lithotripsy has, along
with Litho Management, Inc., organized, and US Lithotripsy shall continue to
organize, limited partnerships with practicing urologists as limited partners
for the ownership and operation of LithoTron lithotripters. As of the date of
this prospectus, US Lithotripsy has formed eighteen limited partnerships with
various urologists in exchange for limited partnership and/or general
partnership interests and a 7.5% management fee. It should be
34
<PAGE> 39
noted that proposed FDA regulations could inhibit physician ownership of these
limited partnerships. Several shareholders of HealthTronics are limited partners
in US Lithotripsy and the limited partnerships of which US Lithotripsy is the
general partner.
On September 9, 1998 we exchanged 300,000 of our shares with three
shareholders of HealthTronics (Messrs. H. Patrick Hezmall, David Ellis and Wade
Lowery) who were also the sole shareholders of HLE Corp., a Texas corporation,
for all of the issued and outstanding shares of HLE Corp. The assets of HLE
Corp. consist of a 30% limited partnership interest in Metro I Stone Management,
Ltd., a Texas limited partnership.
We, as well as some executive officers of HealthTronics (Messrs.
Wheelock, Brown and Warlick), have guaranteed approximately $2,231,215 in
debt owed by the limited partnerships in which US lithotripsy is the general
partner and a $650,000 line of credit to us extended by First Tennessee Bank
National Association. Of this amount, Messrs. Wheelock, Brown and Warlick may
be personally liable on our line of credit from First Tennessee Bank National
Association for up to $108,333 each, plus interest and some expenses. Messrs.
Wheelock, Brown and Warlick received options of HealthTronics in exchange for
their personal guarantees.
We paid consulting fees totaling $144,000 and $21,800 during 1998 and
1997, respectively, to individuals in the medical field that are shareholders of
our Company.
We believe that all of our transactions with related parties were
conducted on terms no less favorable to us than terms that were available from
unaffiliated third parties.
DILUTION
"Dilution" means the difference between the public offering price
($6.00 per Share) and the pro forma net tangible book value per Share after
giving effect to this offering. Net tangible book value per Share is determined
by dividing our tangible net worth, consisting of tangible assets less total
liabilities, by the number of shares outstanding. The following table
illustrates the dilution of a new investor's equity as of December 3, 1998.
As of December 31, 1998, we had issued 9,665,342 shares to our current
officers, directors and shareholders in exchange for $4,203,226 in cash (an
average of approximately $0.43 per Share) and for the officers and directors
efforts in organizing our Company; the exchange of a 40% ownership interest in
US Lithotripsy; a 100% ownership interest in Litho Management, Inc.; and a 100%
ownership interest in HLE Corp.
The net tangible book value of HealthTronics as of December 31, 1998
was $4,437,753 or approximately $.46 per share. If the minimum offering is sold,
our pro forma net tangible book value, after deducting offering expenses
estimated at $360,000, would be approximately $4,577,757, or approximately $.47
per Share, which represents an increase of approximately $.01 in the net
tangible book value per share to present shareholders and an immediate dilution
of $5.53 to public investors. If the maximum offering is sold, pro forma net
tangible book value would be approximately $9,417,753 after deducting estimated
35
<PAGE> 40
offering expenses of $1,020,000, or approximately $.88 per share which
represents an increase of .42 in net tangible book value per share to present
shareholders and an immediate dilution of 5.12 to public investors.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Minimum Maximum
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Public offering price per share $6.00 $6.00
- --------------------------------------------------------------------------------------------------
Net tangible book value per share before offering $0.46 $0.46
- --------------------------------------------------------------------------------------------------
Increase per share attributable to public investors $0.01 $0.42
- --------------------------------------------------------------------------------------------------
Pro forma net tangible book value per share after $0.47 $0.88
offering
- --------------------------------------------------------------------------------------------------
Dilution per Share to public investors $5.53 $5.12
- --------------------------------------------------------------------------------------------------
</TABLE>
These numbers do not assume the exercise of any of our outstanding
stock options. If the 454,000 outstanding options were exercised, dilution would
be substantially increased.
CAPITALIZATION
The following table illustrates the capitalization of HealthTronics as
of the date of this prospectus and as adjusted to reflect the sale of all the
securities offered:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Title of Class Amount Authorized Amount Outstanding as Amount to be outstanding
the date of this prospectus if this entire offering is
sold
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Stock no par value 30,000,000 9,665,342 10,665,342
- ----------------------------------------------------------------------------------------------------------------------
Stock options to purchase 550,000 454,000 454,000
stock
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Amounts outstanding and options authorized and outstanding do not
reflect warrants that have been granted to the sales agent to purchase up to
100,000 shares.
DESCRIPTION OF COMMON STOCK
GENERAL
We are currently authorized to issue 30,000,000 shares of no par value
common stock. We currently have 9,665,342 shares of our stock issued and
outstanding, held by approximately 135 persons, as well as options exercisable
on or before December 31, 2000, December 31, 2001, December 31, 2002 or
December 31, 2003 for an aggregate of 454,000 shares at prices ranging from
$1.00 to $3.00 per Share. We have not issued any other class of securities.
All shares of stock to be issued in this offering will be fully paid and
non-assessable.
36
<PAGE> 41
Our stock does not have cumulative voting power and each share is
entitled to one vote, either in person or by proxy.
There are no current provisions in our charter or by-laws that would
delay, defer or prevent a change in control of HealthTronics.
Holders of stock are entitled on liquidation to share pro rata in
assets available for distribution to shareholders after payment of corporate
debt.
SunTrust will act as the transfer agent for our stock.
DIVIDENDS
We have not paid any dividends on our stock. We do not plan to declare
any dividends in the near future, but plan instead to allocate future earnings,
if any, to the continued operations and expansion of our business. However, in
the event that we should, in the future, adopt a policy of paying dividends,
declaration and payment will be dependent on future earnings, if any, as well as
our financial condition and other relevant factors.
OPTIONS
We have granted options to certain promoters, officers, directors,
employees and consultants to purchase up to 454,000 shares. In addition to the
outstanding options, the Board of Directors may issue additional options to
purchase up to 96,000 shares to employees. The Sales agent will also receive
warrants to purchase up to 100,000 shares at $9.90 per Share at the rate of one
warrant for every ten shares sold in this offering. The options held by our
executive officers and directors are shown in the "SUMMARY COMPENSATION TABLE"
and in the "OPTION EXERCISE TABLE". None of the holders of our options to
purchase up to 454,000 shares have entered into any agreement to limit or
restrict the exercise of these options. We shall not issue options or warrants
in excess of 10% of the shares of common stock then outstanding and these
options or warrants will not have an exercise price of less than 85% of the fair
market value of the underlying common stock on the date of grant.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our Articles of Incorporation provide that no director shall have any
personal liability to us or our shareholders for monetary damages for breach of
duty of care or the other duties of a director except for any appropriation of
any business opportunity, for acts or omissions that involve intentional
misconduct or a knowing violation of law, or for any transaction from which the
director derived an improper personal benefit. Because of these provisions, we
and our shareholders may have a more limited right of action against a director
than we would have absent these provisions. In the event that a claim for
indemnification against such liabilities (other than the payment by us of
expenses incurred or paid by a director, officer or controlling person of ours
37
<PAGE> 42
in the successful defense of any action, suit or proceeding) is asserted by such
officer, director or controlling person in connection with these securities
being registered, we will, unless in the opinion of our counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue. Our articles of incorporation and bylaws are
attached as exhibits to this registration statement and may be obtained
electronically or on paper upon request.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES
ACT OF 1933 (THE "ACT") MAY BE PERMITTED TO DIRECTORS, OFFICERS AND CONTROLLING
PERSONS OF OURS PURSUANT TO THE FOREGOING PROVISIONS, OR OTHERWISE, WE HAVE BEEN
ADVISED THAT IN THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION SUCH
INDEMNIFICATION IS AGAINST PUBLIC POLICY AS EXPRESSED IN THE ACT AND IS,
THEREFORE, UNENFORCEABLE.
USE OF PROCEEDS
The following table illustrates the use of the proceeds of this
offering in the event the minimum (83,334 shares) or maximum (1,000,000 shares)
offerings are sold. If more than the minimum but less than the maximum offering
are sold, the proceeds will be used in approximately the following order of
priority.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Description of Proposed Use Minimum Maximum
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Offering Expenses $300,000 $ 300,000
- -------------------------------------------------------------------------------------------
Commissions $ 50,000 $ 600,000
- -------------------------------------------------------------------------------------------
Sales agent Expense Allowance $ 10,000 $ 120,000
- -------------------------------------------------------------------------------------------
FDA Study Expenses $140,004 $ 503,000
- -------------------------------------------------------------------------------------------
Purchase of Capital Equipment for $ 0 $ 2,000,000
Lease
- -------------------------------------------------------------------------------------------
Purchase of Inventory $ 0 $ 2,000,000
- -------------------------------------------------------------------------------------------
Working Capital $ 0 $ 477,000
- -------------------------------------------------------------------------------------------
TOTAL APPLICATION OF $500,004 $ 6,000,000
PROCEEDS
- -------------------------------------------------------------------------------------------
</TABLE>
PLAN OF DISTRIBUTION
Through a placement agent agreement we have engaged Capital Growth
Management, Inc. as our agent to sell up to 1,000,000 shares to the public on a
"best efforts" basis. This means that Capital Growth is only obligated to use
good faith efforts to sell the shares offered. Capital Growth is not obligated
to sell all or any portion of the offerings. There can be no assurance that any
of these shares will be sold. Each investor is required to purchase a minimum of
100 shares.
If Capital Growth fails to sell at least 83,334 of the offered shares
within the minimum offering period of 60 days from the date of this prospectus,
unless extended by us for an additional 30 days, the offering will be terminated
and the subscription payments will be promptly refunded in full to subscribers,
without paying interest or deducting expenses.
38
<PAGE> 43
If the minimum number of shares is sold, the offering will continue
until nine months from the date of this prospectus or until all offered shares
are sold, whichever event first occurs. In no event will this offering continue
beyond nine months from the date of this prospectus.
ALL SUBSCRIPTION PAYMENTS SHOULD BE MADE PAYABLE TO "CHARTER BANK AS
ESCROW AGENT FOR HEALTHTRONICS, INC.". THE SUBSCRIPTION PAYMENTS WILL BE
TRANSMITTED BY CAPITAL GROWTH NO LATER THAN NOON OF THE NEXT BUSINESS DAY
FOLLOWING RECEIPT, TO AN ESCROW ACCOUNT MAINTAINED BY CHARTER BANK IN ATLANTA,
GEORGIA. THE ESCROW AGENT WILL HOLD ALL SUBSCRIPTION PAYMENTS PENDING THE SALE
OF THE MINIMUM NUMBER OF SHARES WITHIN THE SPECIFIED PERIOD. SUBSCRIPTION
PAYMENTS WILL ONLY BE WITHDRAWN FROM THE ESCROW ACCOUNT FOR THE PURPOSE OF
PAYING US FOR THE SHARES, IF AT LEAST 83,334 OF THE SHARES OFFERED ARE SOLD, OR
FOR THE PURPOSE OF REFUNDING SUBSCRIPTION PAYMENTS TO SUBSCRIBERS.
NEITHER WE NOR SUBSCRIBERS WILL EARN INTEREST ON FUNDS HELD IN THE
ESCROW ACCOUNT, AND SUBSCRIBERS WILL NOT HAVE USE OR RIGHT TO RETURN OF THE
FUNDS DURING THIS PERIOD, WHICH MAY LAST AS LONG AS 90 DAYS FOR THE MINIMUM
OFFERING. IN ANY EVENT, THE OFFERING WILL TERMINATE NINE MONTHS FROM THE DATE OF
THIS PROSPECTUS UNLESS THE MINIMUM OFFERING IS NOT SOLD OR THE ENTIRE OFFERING
SELLS OUT EARLIER. IF THE MINIMUM SHARES ARE SOLD WITHIN 90 DAYS, ALL FUNDS
COLLECTED WILL BE DISBURSED TO US.
THE PUBLIC OFFERING PRICE OF THE SHARES OFFERED WAS DETERMINED BY US
BASED ARBITRARILY UPON CONSIDERATIONS WHICH INCLUDED MARKET CONDITIONS AND OTHER
FACTORS. THE PUBLIC OFFERING PRICE DOES NOT HAVE ANY RELATIONSHIP TO ASSETS,
BOOK VALUE, OR OTHER TRADITIONALLY RECOGNIZED CRITERIA OR INDICIA OF VALUE.
We have paid Capital Growth the sum of $25,000 as an advance against an
accountable expense allowance of 1% of the aggregate amount of securities sold
by Capital Growth and other brokers who contract with Capital Growth to sell
this offering. This amount was paid upon the signing of the Placement Agent
Agreement. In addition, we shall pay Capital Growth a selling commission of
eight percent (8%) of the gross funds raised by Capital Growth and its selected
dealers. Capital Growth may reallot any or all of the commission to its selected
dealers. Capital Growth is also entitled to receive a non-accountable expense
allowance of up to one percent (1%) of the gross funds raised by Capital Growth
and its selected dealers. Accountable expenses include reasonable offering
expenses for this offering such as telephone expenses, postage, travel expenses,
copying and printing charges, legal and accounting costs. In no event will the
accountable expense allowance exceed 1% of the gross funds raised by Capital
Growth. In the event this offering is terminated prior to the sale of the
minimum offering, Capital Growth shall be reimbursed only for its actual
accountable out-of-pocket expenses. Any portion of the advance on the
accountable expense allowance not accounted for will be promptly refunded to us.
We have also granted Capital Growth warrants to purchase our shares of
HealthTronics at a rate of one warrant (exercisable for one share of stock) for
each ten shares sold in this offering. The exercise price of the warrants is
equal to 165% of the public offering price of this offering ($9.90 per share).
The warrants are not exercisable for a period of one year from the effective
date of this offering. After that, however, they are and thereafter become
exercisable for a period of four years. During the first year after the
effective date of this offering, the warrants may only be transferred by Capital
Growth to its officers or to officers or partners of its selected dealers.
We and Capital Growth have also agreed to indemnify each other against
various liabilities, including those arising under the Securities Act. In the
opinion of the Securities and Exchange Commission, this indemnification is
against public policy as expressed in the Securities Act of 1933 and is
therefore unenforceable. If a claim for indemnification against these
liabilities (other than the payment by us of expenses incurred or paid by
Capital Growth in the successful defense of any action, suit or proceeding) is
asserted by Capital Growth in connection with these securities being registered,
we will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
39
<PAGE> 44
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at December 31, 1998 and 1997 and for the years then ended
as set forth in their report. They have also audited the consolidated financial
statements of Litho Management, Inc. and Subsidiaries as of and for the year
ended December 31, 1997 as set forth in their report. Our consolidated financial
statements and the financial statements of Litho Management, Inc. and
Subsidiaries, are included in this prospectus and registration statement in
reliance on Ernst & Young LLP's reports, given on their authority as experts in
accounting and auditing.
LEGAL MATTERS
Christopher J. Moran, Jr. of Atlanta, Georgia has rendered an opinion
on the legality of our no par value shares. Miller & Martin LLP acts as our
special securities counsel.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
We are a provider and distributor of extracorporeal shock wave devices
and participate in limited partnerships that market the services of these
products on a per procedure basis. To date, our consolidated revenues have come
primarily from sales of the LithoTron lithotripter.
IMPACT OF YEAR 2000
COMPLIANCE
Many currently installed computer systems and software products are
coded to accept or recognize only two digit entries in the date code field.
These systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and/or software used by many companies and governmental agencies may
need to be upgraded to comply with year 2000 requirements or risk system failure
or miscalculations causing disruptions of normal business activities. In
addition, year 2000 problems that occur with third parties with which a company
does business, such as suppliers, computer vendors, distributors and others, may
also adversely affect any given company.
STATE OF READINESS
We are in the process of evaluating the potential impact of the year
2000 issue. We are taking steps to ensure that our business systems software and
equipment will continue to function properly after December 31, 1999. In doing
so, we have formed a committee, chaired by our Executive Vice President, which
will work directly with management to:
- assess and test all internal information systems and other systems that
may be affected by the year 2000 date change;
- assess and test our products that may be affected by the year 2000 date
change;
- communicate with third parties that supply our products to ensure they
are addressing the year 2000 issue; and
- compose a contingency and disaster recovery plan to ensure resolution of
problems that may arise as a result of the year 2000 date change.
Until we complete this assessment, we will not be able to determine the
ultimate costs of becoming year 2000 compliant, the risks of non-compliance and
our ability to conduct our business under a contingency plan.
HMT, our sole inventory supplier, has provided documentation certifying
that the software for the LithoTron and OssaTron systems contain no
date-dependent functions. Therefore, our products themselves do not appear to
present any year 2000 issues. With respect to our information technology
business systems, the assessment of equipment and software was started in
September 1998. Many vendors of material hardware and software components of our
systems have indicated that the products used by us are currently year 2000
compliant.
We will commence testing shortly to determine that our internal systems
are year 2000 compliant. We expect to complete testing and establish compliance
with respect to all of our systems and products by September 30, 1999, subject
to possible equipment upgrades during 1999 and ongoing communications with third
40
<PAGE> 45
parties. We believe that this time frame will allow internal auditing and
testing of our systems, as well as further remediation, if necessary.
COSTS
To date, we have not incurred any material expenditures in connection
with identifying, evaluating or addressing year 2000 compliance issues. Most of
our past and anticipated expenses relate to the operating costs associated with
time spent by employees in the evaluation process and year 2000 compliance
matters generally. At this time, we do not possess the information necessary to
estimate the potential costs of revisions to our systems should such revisions
be required or of the replacement of third-party software, hardware or services
that are determined not to be year 2000 compliant. Although we do not anticipate
that such expenses will be material, such expenses, if higher than anticipated,
could adversely affect our financial performance.
RISKS
We are not currently aware of any year 2000 compliance problems
relating to our products and systems that would have a material adverse effect
on our business, results of operations and financial condition, taking into
account our efforts to avoid or fix such problems. There can be no assurance
that we will not discover year 2000 compliance problems in our systems that will
require substantial revision. Our specific year 2000 risks are the inability of
HMT to supply inventory and the failure of our service provider to perform
necessary services. These specific risks could result in lost revenues,
increased operating costs, the loss of customers and other business
interruptions, any of which could have a material adverse effect on our
business, results of operations and financial condition. Regardless of the year
2000 compliance of our internal systems and products, we may be adversely
affected by disruptions in the operations of the enterprises with which we
interact. These business enterprises include suppliers (both domestic and
international), clinical research organizations, joint venture partners,
governmental agencies, hospitals, physicians and other third parties. We cannot
reasonably predict the impact on our operations and financial condition if any
such businesses are adversely affected by the year 2000 issues.
Statements made above about the implementation of various phases of our
year 2000 program, the costs expected to be associated with that program and the
results we expect to achieve constitute forward-looking information. There are
many uncertainties involved in the year 2000 issue and the following important
factors, among others, could affect the impact of the year 2000 issue;
- the inherent uncertainty of the costs and timing of achieving compliance
on the systems used by us;
- the reliance on the efforts of vendors, customers, government agencies
and other third parties beyond our control to achieve adequate
compliance and avoid disruption of our business in early 2000; and
41
<PAGE> 46
- the uncertainty of the ultimate costs and consequences of any
unanticipated disruption of our business resulting from the failure of
one of our applications or of a third party's systems.
CONTINGENCY PLAN
As discussed above, we are engaged in an ongoing year 2000 assessment
and have not yet developed any contingency plans. The results of internal
testing and the responses received from third-party vendors and service
providers will be taken into account in determining the nature and extent of our
contingency plans, if any.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Since our inception in December 1995, we have devoted our principal
efforts toward obtaining FDA approval for certain medical devices, specifically
the LithoTron lithotripter, a kidney lithotripter, and the OssaTron orthopedic
lithotripter, an orthopedic lithotripter. On receipt of the July 21, 1997 FDA
pre-market approval, we began marketing the LithoTron lithotripter and
refocusing our regulatory efforts on the pursuit of the FDA pre-market approval
for the OssaTron orthopedic lithotripter.
Effective April 1, 1997 we became a co-general partner with Litho
Management, Inc., as well as a 39.6% limited partner, in US Lithotripsy, a
limited partnership formed for the purpose of developing and managing mobile
lithotripsy partnerships in the Southwest. From inception through the date of
this prospectus, US Lithotripsy has formed eighteen lithotripter partnerships in
which USL is the general partner and/or a limited partner.
We were unprofitable from inception through December 31, 1997 as a
result of our investment in the FDA process. After obtaining the LithoTron
lithotripter pre-market approval in July, 1997, we experienced a significant
increase in the number of devices sold. However, in accordance with generally
accepted accounting principles, we deferred sales made to certain partnerships
where we have a general partnership interest and have co-signed on the related
debt. On this basis, we deferred profits of $509,000 and $465,000 for the year
ended December 31, 1997 and for the year ended December 31, 1998, respectively,
to future periods and incurred a net loss of $418,028 for the year ended
December 31, 1997.
On May 1, 1998 we acquired 100% of the outstanding common stock of
Litho Management, Inc., our co-general partner in US Lithotripsy. We, as sole
general partner, consolidate the Litho Management, Inc. partnership interests in
our financial statements as of the acquisition date. On a consolidated basis,
the deferred profits discussed previously have been eliminated against the
related partnership assets.
42
<PAGE> 47
HealthTronics had net income of $1,205,048 for the year ended December
31, 1998.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1998
Net Revenue: Net revenue increased from $5,062,104 for the year ended
December 31, 1997 to $14,681,941 for the year ended December 31, 1998, an
increase of 190%. This is attributable to (1) additional sales as a result of
the FDA pre-market approval for the LithoTron lithotripter, received on July 21,
1997; (2) the 1998 acquisition of the remaining general partnership interest in
US Lithotripsy and the required consolidation of the related partnerships'
operations; and (3) our expansion into medical device leasing.
Cost of Goods Sold, Rentals and Services Provided: Cost of goods sold,
rentals and services provided increased from $3,263,233 for the year ended
December 31, 1997 to $6,863,506 for the year ended December 31, 1998, an
increase of 110%. This increase is directly attributable to (1) additional sales
as a result of the FDA pre-market approval for the LithoTron lithotripter,
received on July 21, 1997; (2) the 1998 acquisition of the remaining general
partnership interest in US Lithotripsy and the required consolidation of the
related partnerships' operations; and (3) our expansion into medical device
leasing.
Salaries, Wages and Benefits: Salaries, wages and benefits increased
from $723,748 for the year ended December 31, 1997 to $1,495,364 for the year
ended December 31, 1998, an increase of 107%. This increase is primarily
attributable to the 1998 acquisition of the remaining general partnership
interest in US Lithotripsy and the required consolidation of the related
partnerships' operations as well as our expansion into medical leasing.
General and Administrative Expenses: General and administrative
expenses increased from $1,463,683 for the year ended December 31, 1997 to
$2,480,012 for the year ended December 31, 1998, an increase of 69%. This
increase is primarily due to the increase in LithoTron lithotripter marketing
and expenses related to the OssaTron orthopedic lithotripter investigatory
device exemption studies in progress throughout 1998.
Equity in Earnings of Unconsolidated Partnerships: Equity in earnings
of unconsolidated partnerships increased from $4,669 for the year ended December
31, 1997 to $102,655 for the year ended December 31, 1998. This increase is
attributable to our investment in two additional partnerships accounted for on
the equity basis.
Interest Expense: Interest expense increased from $59,517 for the year
ended December 31, 1997 to $169,247 for the year ended December 31, 1998, an
increase of 184%. This increase is primarily attributable to the increase in
debt resulting from the consolidation of the subsidiary partnerships.
43
<PAGE> 48
Interest Income: Interest income increased from $21,083 for the year
ended December 31, 1997 to 24,517 for the year ended December 31, 1998, an
increase of 16%. This increase is due primarily to the earnings on funds
obtained during the July 31, 1997 private placement, which closed during the
first quarter of 1998.
Minority Interest: Minority interest increased from a $4,297 credit for
the year ended December 31, 1997 to a $2,291,675 debit for the year ended
December 31, 1998. This increase is primarily attributable to the significant
minority interest arising in the 1998 acquisition of the remaining general
partnership interest in US Lithotripsy and the required consolidation of the
related partnerships' operations.
Provision for Income Taxes: Provision for income taxes increased from
$0 for the year ended December 31, 1997 to $304,261 for the year ended December
31, 1998. As of December 31, 1998, we utilized all of the available net
operating tax loss carryforwards. In conjunction with the application of these
net operating tax losses, we adjusted the net deferred tax asset valuation
allowance to zero, resulting in a reduced effective tax rate for the year ended
December 31, 1998. In assessing the likelihood of utilization of existing net
deferred tax assets, management considered (a) our current operating environment
and (b) results of future operations to generate sufficient taxable income and
accordingly, has determined that it is more likely than not that the deferred
tax assets will be realized.
LIQUIDITY AND CAPITAL RESOURCES
Historically, we have satisfied our working capital and capital
spending needs through private placements and the sales of medical devices. The
subsidiary partnership equipment financing has been provided by term bank debt
secured by the related device and guarantees from the various partners,
including officers of our Company. In July, 1998, we obtained a $650,000 line of
credit and a $1,000,000 equipment financing line with a Tennessee bank. As of
December 31, 1998 we have $566,863 outstanding under the equipment financing
line and no outstanding balances under the line of credit.
We intend to use net proceeds to us from this offering, our existing
cash and cash equivalents, cash generated from operations and available credit
facilities to fund future purchases of inventory, capital equipment for lease,
FDA study expenses and working capital requirements. We believe the proceeds of
this offering will satisfy our cash requirements for at least the next 12
months.
In connection with the original distributorship agreements between
HealthTronics and HMT, HealthTronics is committed to purchase ten OssaTron
orthopedic lithotriptor and twelve LithoTron lithotripter units per year over
the life of the agreement after FDA pre-market approval
44
<PAGE> 49
is received by HealthTronics. Aggregate funding needed for this commitment is
approximately $7,000,000 per year based upon current market prices.
ADDITIONAL INFORMATION THAT IS AVAILABLE TO YOU
We have filed a statement registering these securities with the
Securities and Exchange Commission as required by the Securities Act of 1933.
This prospectus, which is part of the registration statement, does not contain
all the information in the registration statement and its exhibits. According to
the rules and regulations of the commission, certain items are omitted. For
further information about us and the securities, reference is made to the
registration statement and its exhibits, which may be inspected, without charge,
at the Public Reference Section of the commission located at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of all
or any portion of the registration statement may be obtained from the Public
Reference Section of the commission, Washington, D.C. 20549 (1-800- SEC-0330)
upon payment of the prescribed fees. These materials are also available for
inspection and copying at the regional offices located at Seven World Trade
Center, Suite 1300, New York, New York 10048 and at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. The commission maintains a Web site
(HTTP://WWW.SEC.GOV) that contains our complete registration statement.
Statements made in this prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete. You may be
referred to an exhibit for a more complete description of the matter involved,
and each statement shall be deemed qualified in its entirety by the reference.
We will provide without charge to each person who receives this prospectus, upon
written or oral request, a copy of any information referred to in this
prospectus. Requests should be mailed or phoned to us at the address below.
HealthTronics, INC.
425 Franklin Road, Suite 545
Marietta, Georgia 30067
(770) (419-0691)
FAX: (770) (419-9490)
Attention: Roy S. Brown, president
Upon effectiveness of the registration statement, we will become a reporting
company per Section 15 of the Securities Exchange Act of 1934. As a reporting
company, we shall file quarterly, annual and special reports with the
commission. We will provide copies of future reports and of reports filed by us
during the course of the offering period at no charge. You may also obtain this
information from the Public Reference Section of the commission at the address,
web site or telephone number shown above.
45
<PAGE> 50
INDEX TO FINANCIAL STATEMENT
CONSOLIDATED FINANCIAL STATEMENTS OF HEALTHTRONICS, INC. AND SUBSIDIARIES
<TABLE>
<S> <C>
Report of Independent Auditors F-1
Consolidated Balance Sheets as of December 31, 1998 and 1997 F-2
Consolidated Statements of Operations for the years ended December 31, 1998 and 1997 F-4
Consolidated Statements of Shareholders' Equity for the years ended December 31,
1998 and 1997 F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1998 and 1997 F-6
Notes to Consolidated Financial Statements F-8
CONSOLIDATED FINANCIAL STATEMENTS OF LITHO MANAGEMENT, INC. AND SUBSIDIARIES
Report of the Independent Auditors F-28
Consolidated Balance Sheet as of December 31, 1997 F-29
Consolidated Statement of Income for the year ended December 31, 1997 F-31
Consolidated Statement of Shareholders' Equity for the year ended December 31, 1997 F-32
Consolidated Statement of Cash Flows for the year ended December 31, 1997 F-33
Notes to Consolidated Financial Statements F-34
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS OF HEALTHTRONICS, INC
AND SUBSIDIARIES
Combined Condensed Statement of Operations for the year ended December 31, 1998
(Unaudited) F-43
Combined Condensed Statement of Operations for the year ended December 31, 1997
(Unaudited) F-44
</TABLE>
46
<PAGE> 51
Report of Independent Auditors
The Board of Directors and Shareholders
HealthTronics, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of HealthTronics,
Inc. and Subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations, shareholders' 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, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of HealthTronics,
Inc. and Subsidiaries at December 31, 1998 and 1997, and the consolidated
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Atlanta, Georgia
February 26, 1999
F-1
<PAGE> 52
HealthTronics, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
-------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 801,563 $ 1,796,694
Trade accounts receivable, less allowance for doubtful
accounts of $142,682 and $0 at December 31, 1998 and
1997, respectively 2,796,351 1,058,396
Inventory 1,179,298 1,465,887
Due from affiliated equity partnerships 126,102 1,142,143
Vendor deposits -- 42,458
Prepaid expenses 256,353 22,969
Deferred income taxes 253,273 --
-------------------------------
Total current assets 5,412,940 5,528,547
Property and equipment, at cost:
Medical devices placed in service 5,434,293 902,945
Medical devices not yet placed in service -- 207,829
Office equipment, furniture and fixtures 56,095 7,198
Vehicles and accessories 263,986 --
-------------------------------
5,754,374 1,117,972
Less accumulated depreciation (819,757) (143,090)
-------------------------------
Net property and equipment 4,934,617 974,882
Deferred income taxes 297,699 --
Partnership investments 241,848 368,502
Goodwill (net of accumulated amortization of
$124,280 at December 31, 1998) 3,121,960 --
Patent license (net of accumulated amortization of
$35,000 and $25,000 for December 31, 1998 and 1997, respectively) 65,000 75,000
Other assets 40,803 --
===============================
Total assets $ 14,114,867 $ 6,946,931
===============================
</TABLE>
F-2
<PAGE> 53
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
-------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 655,840 $ 1,477,065
Customer deposits -- 460,000
Short-term borrowings 193,256 200,000
Warranty accrual 295,829 175,600
Other accrued expenses 434,389 156,463
Current portion of long-term debt 1,209,947 145,885
-------------------------------
Total current liabilities 2,789,261 2,615,013
Deferral of profit on medical device sales to
related parties -- 508,576
Long-term debt, less current portion 2,231,215 467,974
Minority interest 1,469,678 (4,297)
-------------------------------
Total liabilities 6,490,154 3,587,266
Shareholders' equity:
Common stock - no par value, voting:
Authorized - 30,000,000 shares at
December 31, 1998 and 1997
Issued and outstanding - 9,665,342 and
8,645,342 shares at December 31, 1998 and 1997,
respectively 7,403,226 4,343,226
Retained earnings (deficit) 221,487 (983,561)
-------------------------------
7,624,713 3,359,665
-------------------------------
Total liabilities and shareholders' equity $ 14,114,867 $ 6,946,931
===============================
</TABLE>
See accompanying notes.
F-3
<PAGE> 54
HealthTronics, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997
-------------------------------
<S> <C> <C>
Net revenue $ 14,681,941 $ 5,062,104
Cost of goods sold, rentals and services
provided 6,863,506 3,263,233
-------------------------------
7,818,435 1,798,871
Salaries, wages and benefits 1,495,364 723,748
General and administrative expenses 2,480,012 1,463,683
-------------------------------
3,843,059 (388,560)
Equity in earnings of unconsolidated
partnerships 102,655 4,669
Interest expense (169,247) (59,517)
Interest income 24,517 21,083
-------------------------------
Income (loss) before minority
interest and income taxes 3,800,984 (422,325)
Minority interest (2,291,675) 4,297
-------------------------------
Income (loss) before income taxes 1,509,309 (418,028)
Provision for income taxes 304,261 --
-------------------------------
Net income (loss) $ 1,205,048 $ (418,028)
===============================
Basic and diluted net income (loss) per
common share:
Basic $ 0.13 $ (0.05)
===============================
Diluted $ 0.13 $ (0.05)
===============================
Weighted average common shares
outstanding:
Basic 9,223,671 8,010,068
===============================
Diluted 9,445,537 8,010,068
===============================
</TABLE>
See accompanying notes.
F-4
<PAGE> 55
HealthTronics, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------------- RETAINED TOTAL
NUMBER OF EARNINGS SHAREHOLDERS'
SHARES AMOUNT (DEFICIT) EQUITY
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1997 7,706,600 $1,927,000 $ (565,533) $ 1,361,467
Common stock issued in
exchange for partnership
investment 200,000 200,000 -- 200,000
Common stock issued via private
placement memorandum 738,742 2,216,226 -- 2,216,226
Net loss -- -- (418,028) (418,028)
-----------------------------------------------------------------------
Balance at December 31, 1997 8,645,342 4,343,226 (983,561) 3,359,665
Common stock issued via private
placement memorandum 20,000 60,000 -- 60,000
Common stock issued in
connection with the acquisition
of businesses 1,000,000 3,000,000 -- 3,000,000
Net income -- -- 1,205,048 1,205,048
-----------------------------------------------------------------------
Balance at December 31, 1998 9,665,342 $7,403,226 $ 221,487 $ 7,624,713
=======================================================================
</TABLE>
See accompanying notes.
F-5
<PAGE> 56
HealthTronics, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997
-------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 1,205,048 $ (418,028)
Adjustments to reconcile net income (loss)
to cash provided by (used in) operating
activities:
Depreciation and amortization 814,670 153,090
Provision for doubtful accounts 142,682 --
Deferred income taxes (550,972) --
Deferral of profit on medical device sales
to related parties 464,803 508,576
Equity in earnings of unconsolidated
partnerships (102,655) (4,669)
Minority interest in subsidiaries, net of
distributions to minority interests 904,098 (4,297)
Changes in operating assets and
liabilities, net of businesses acquired:
Trade accounts receivable (1,216,104) (591,396)
Due from affiliated equity
partnerships 983,522 (1,142,143)
Inventory 286,589 (1,335,887)
Vendor deposits 42,458 331,792
Prepaid expenses (223,119) (10,824)
Trade accounts payable (1,810,961) 1,135,867
Customer deposits (460,000) (40,000)
Warranty accrual 120,229 155,600
Accrued expenses 217,056 125,264
-------------------------------
Net cash provided by (used in) operating
activities 817,344 (1,137,055)
</TABLE>
F-6
<PAGE> 57
HealthTronics, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997
-------------------------------
<S> <C> <C>
INVESTING ACTIVITIES
Purchases of property and equipment (3,175,630) (865,889)
Acquisition of partnership interest (34,853) (163,833)
Acquisition of businesses, net of cash
acquired 345,552 --
Other assets (40,077) --
-------------------------------
Net cash used in investing activities (2,905,008) (1,029,722)
FINANCING ACTIVITIES
Proceeds from issuance of common stock 60,000 2,216,226
Proceeds from long-term debt 1,965,204 650,000
Principal payments on long-term debt (925,927) (36,141)
Proceeds from short-term borrowings 1,943,256 625,000
Principal payments on short-term
borrowings (1,950,000) (425,000)
-------------------------------
Net cash provided by financing activities 1,092,533 3,030,085
-------------------------------
Net (decrease) increase in cash and cash equivalents
(995,131) 863,308
Cash and cash equivalents at beginning of year
1,796,694 933,386
===============================
Cash and cash equivalents at end of year $ 801,563 $ 1,796,694
===============================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid for interest $ 169,247 $ 59,000
===============================
Cash paid for taxes $ 762,626 $ --
===============================
</TABLE>
See accompanying notes
F-7
<PAGE> 58
HealthTronics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1998
1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
HealthTronics, Inc. (the "Company") was incorporated in the State of Georgia in
1995. The Company was founded for the purpose of obtaining approval (Pre-Market
Approval - "PMA") from the Food & Drug Administration ("FDA") for certain
products manufactured by HMT High Medical Technologies GmbH ("HMT"), a Swiss
corporation, in particular, certain medical devices utilizing shock wave
therapies, known as the LithoTron and the OssaTron. Both products are already
being used outside the United States and Canada. During 1997, the Company
received approval for the LithoTron. The Company is currently establishing test
sites for the OssaTron FDA clinical trials.
In 1996, HMT granted to the Company the right to purchase the manufacturing
rights to the LithoTron and OssaTron medical devices. The Company also operates
under the terms of a distribution agreement with HMT that grants the Company
the exclusive right to make, use, sell and lease the LithoTron and OssaTron and
related parts in the United States, Canada and Mexico.
With each FDA approval, it is the Company's intent to generate revenues from
three sources: 1) sales of medical devices including related accessories; 2)
recurring revenues from licensing fees, sales of consumable products and
maintenance of equipment; and 3) investment income generated from partnerships
and joint ventures with physicians, dealerships and hospitals that purchase
equipment from the Company, as well as management fees from such entities.
In January 1997, the Company formed a wholly-owned subsidiary, Tenn-Ga Prostate
Therapies, LLC ("TGP"), a Georgia limited liability company. TGP owns and
leases a prostate therapy medical device to various hospitals in the Southeast.
During September 1997, the Company transferred 33% of TGP to certain
individuals in exchange for the personal guarantees of such individuals of
TGP's long-term debt.
Effective April 1, 1997, the Company entered into a Distributor Agreement and
an Entity Interest Agreement with U.S. Lithotripsy, LP ("USL"), a Texas limited
partnership, and with Litho Management, Inc. ("LMI"). This Distributorship
Agreement grants USL an exclusive right to sell, use, lease and distribute the
Company's products in a 19 state area and a non-exclusive right (subject to
approvals by the Company) to sell, use, lease and distribute the Company's
products in other states. The Entity Interest Agreement granted the Company a
40% ownership interest (0.4% general partnership ownership interest and
F-8
<PAGE> 59
HealthTronics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION (CONTINUED)
39.6% limited partnership ownership interest) in USL in return for the issuance
of 200,000 no par value shares of the Company's common stock valued at $1.00
per share as determined by management in absence of a readily trading market.
The Entity Interest Agreement also granted LMI a 0.6% general partnership
ownership interest in USL (the remaining 59.4% limited partnership interest in
USL is owned by independent shareholders).
The April 1, 1997 Entity Interest Agreement constituted the formation of USL as
a limited partnership entity. Subsequent to April 1, 1997, USL made a number of
investments as the sole general partner in several separate partnerships with
equity interests ranging from 10% to 99% (the "second tier partnerships"),
formed for the purpose of purchasing, owning and operating certain medical
devices utilizing shock wave therapies. As the sole general partner, USL
consolidates the second tier partnerships. The Company used the equity method
of accounting for their investment in USL as the Company was not the majority
general partner.
On May 1, 1998, the Company purchased 100% of the outstanding stock of LMI in
exchange for 700,000 no par value shares of the Company's common stock valued
at $3.00 per share as determined by management in absence of a readily trading
market. The acquisition has been recorded using the purchase method of
accounting, and accordingly, the purchase price has been allocated to the
assets acquired and liabilities assumed of LMI (consolidated with USL as LMI is
the majority general partner of USL) based on their estimated fair values as of
the date of acquisition. The total purchase price (including the value of the
200,000 shares previously issued to USL) in excess of the market value of net
tangible assets and identifiable intangible assets acquired of approximately
$2,352,000 was recorded as goodwill and is being amortized over 15 years.
In order to appropriately reflect the nature of the Company's operations and
its relationship to its subsidiaries, Tenn-Ga Prostate Therapies, LLC, LMI, USL
and the second tier partnerships, the accompanying consolidated statements of
operations include the Company's majority equity ownership interest in the net
revenues and expenses of
F-9
<PAGE> 60
HealthTronics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION (CONTINUED)
TGP, the Company's minority equity interest in USL and the second tier
partnerships for the four months ended April 30, 1998, and the Company's
majority interest in the net revenues and expenses of LMI and USL and the
second tier partnerships for the eight months ended December 31, 1998. All
significant intercompany accounts and transactions have been eliminated in
consolidation. See Note 4 for discussion of minority interests.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform to the 1998
presentation.
REVENUE RECOGNITION AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
For sales of medical devices to unaffiliated entities, revenue is recognized
upon arrival at the destination; for miscellaneous sales of consumables,
revenue is recognized at the time of shipment by the Company. As discussed in
Note 4 and Note 5, sales of medical devices to certain equity partnerships in
which the Company was a minority general partner and has guaranteed certain
long-term obligations of the partnerships were deferred at the time of the
sale. The Company deferred approximately $465,000 and $509,000 of gross profit
related to the sale of medical devices to equity partnerships during the years
ended December 31, 1998 and 1997, respectively. As a result of the additional
acquisition of LMI and resulting consolidation of LMI, USL and the second tier
partnerships, the deferred profit and the difference between retail and cost of
the medical devices at the partnership level have been eliminated in
consolidation for the year ended December 31, 1998.
F-10
<PAGE> 61
HealthTronics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION AND ALLOWANCE FOR DOUBTFUL ACCOUNTS (CONTINUED)
Net revenue also includes leasing fees for the rental of the LithoTron and
other medical devices in the clinical setting. Revenue is generated primarily
from rental contracts with various medical facilities; the Company does not
contract directly with any third party payors including governmental programs
or health maintenance organizations. Net revenue under these facility
agreements is recorded at established billing rates reduced by an allowance for
contractual adjustments. Contractual adjustments arise due to the terms of
certain facility agreements which reduce revenue from established billing rates
to amounts estimated to be reimbursable under the individual facility
agreement. Such adjustments are recognized in the period the services are
rendered. Differences in estimates recorded and final settlements are reported
during the period final settlements are made.
An allowance for doubtful accounts is established for revenue estimated to be
uncollectible and is adjusted periodically based upon management's evaluation
of current economic conditions, historical collection experience, and other
relevant factors which, in the opinion of management, deserve recognition in
estimating such allowance.
INVENTORY
Inventory is carried at the lower of cost (first-in, first-out) or market and
consists of medical devices and consumables.
PARTNERSHIP INVESTMENTS
During 1997 and 1998, the Company made a number of investments in various
general and limited partnerships. The majority of these investments are
consolidated (See Note 4). The remaining investments totaling $241,848 at
December 31, 1998 were recorded using the cost or equity method of accounting,
depending upon the Company's ability to exercise significant influence over the
operating and financial policies of the investment partnership.
F-11
<PAGE> 62
HealthTronics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PATENT LICENSE
The original cost of the patent license is being amortized on a straight-line
basis over a period of ten years, which approximates the life of the patent.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed based on the
straight-line method over the five-year estimated useful lives of the related
equipment. Accelerated depreciation methods are generally used for tax
purposes.
WARRANTY ACCRUAL
The Company accrues a full year of service and parts warranty expense on the
sale of each medical device.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that are expected to be in effect when the
differences are expected to be recovered or settled.
COMMON STOCK
In the absence of a readily traded market, management estimates the fair value
of the common stock of the Company. Such estimates were used to record the
value of common stock transactions in the accompanying consolidated financial
statements.
F-12
<PAGE> 63
HealthTronics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
CONCENTRATIONS OF CREDIT RISK
The Company sells its products primarily in the United States, Canada and
Mexico. Credit is extended based on an evaluation of the customer's financial
condition and collateral is generally not required.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments are comprised principally of cash and cash
equivalents, trade accounts receivable, vendor deposits, amounts due from
affiliated partnerships, trade accounts payable, customer deposits, short-term
borrowings and long-term debt. The carrying amounts of these financial
instruments approximate their fair values.
LONG-LIVED ASSETS
Goodwill represents the excess of cost over the market value of net tangible
assets and identifiable intangible assets acquired and is amortized using the
straight-line method over fifteen years.
The Company periodically evaluates the recoverability of non-current tangible
and intangible assets and measures the amount of impairment, if any, by
assessing current and future levels of income and cash flows as well as other
factors, such as business trends and prospects and market and economic
conditions.
F-13
<PAGE> 64
HealthTronics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings Under Share ("SFAS No. 128"). SFAS No. 128 replaced the
calculation of primary and fully diluted income (loss) per share with basic and
diluted income (loss) per share. Unlike primary income (loss) per share, the
calculation of basic income (loss) per share excludes the dilutive effects of
options, warrants, and convertible securities. Diluted income (loss) per share
is very similar to the previously reported fully diluted income (loss) per
share.
The Company's per share amounts for all periods have been presented in
accordance with the provisions of SFAS No. 128. Basic and diluted income (loss)
per share are computed based on the weighted average number of common shares
outstanding. Common share equivalents (which may consist of options, warrants
and convertible debentures) are excluded from the computation of diluted income
(loss) per share if the effect would be antidilutive.
3. INVENTORY
Inventory consists of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
--------------------------------
<S> <C> <C>
Medical devices $1,091,498 $1,400,000
Consumables 87,800 65,887
================================
$1,179,298 $1,465,887
================================
</TABLE>
F-14
<PAGE> 65
HealthTronics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. PARTNERSHIP INVESTMENTS
As discussed in Note 1, as a result of the Company's May 1, 1998 acquisition of
LMI, the Company maintains a 40.6% interest in USL (1.0% general partnership
ownership interest and a 39.6% limited partnership ownership interest) and is
the sole general partner of USL. USL also maintains the sole general
partnership interest in several second tier partnerships. Based upon the
Company's ability to exercise control over the operating and financial policies
of USL and the second tier partnerships through its acquisition of LMI, the
Company has consolidated the majority financial position and results of
operations of the individual partnerships for the eight months ended December
31, 1998.
On September 9, 1998, the Company exchanged 300,000 of its no par value shares
of common stock valued at $3.00 per share as determined by the Board of
Directors in absence of a readily traded market with three shareholders of the
Company who were also the sole shareholders of HLE Corporation ("HLE"), a Texas
corporation, in exchange for all of the issued and outstanding shares of HLE.
The assets of HLE consists of a 30% limited partnership interest in Metro I
Stone Management, Ltd., a Texas limited partnership. Because the Company, as
sole general partner of USL, was already consolidating Metro I Stone
Management, Ltd., this transaction effectively represents an acquisition of
additional interest in the earnings of Metro I Stone Management, Ltd. The total
purchase price in excess of the market value of net tangible assets and
identifiable intangible assets acquired of approximately $900,000 was recorded
as goodwill and is being amortized over 15 years.
F-15
<PAGE> 66
HealthTronics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. PARTNERSHIP INVESTMENTS (CONTINUED)
The partnerships and the Company's effective ownership at December 31, 1998 are
summarized as follows:
<TABLE>
<CAPTION>
EFFECTIVE EFFECTIVE
OWNERSHIP VOTING
PARTNERSHIP DATE OF FORMATION INTEREST INTEREST
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Lithotripsy, L.P. April 1, 1997 40.6% 100%
Metro I Stone Management, Ltd. May 28, 1996 34.1% 100%
Mississippi Valley I Stone
Management, L.P. November 1, 1996 12.6% 100%
East Texas I Stone Management, Ltd. July 29, 1997 4.1% 100%
Dallas Stone Management, L.P. December 1, 1997 4.1% 100%
S.C. Missouri Stone Management, L.P. April 1, 1998 4.1% 100%
Tulsa Stone Management, L.P. February 1, 1998 40.2% 100%
Tyler Stone Services, L.P. March 1, 1998 40.2% 100%
SE Colorado Lithotripsy, L.P. September 30, 1998 4.1% 100%
AESL, L.P. (unconsolidated) May 5, 1998 8.1% 0%
Tyler Stone Management, L.P. September 15, 1998 16.2% 100%
Missouri Valley Stone
Management, L.P. October 25, 1998 4.1% 100%
Mississippi Valley II
Stone Management, L.P. October 25, 1998 4.1% 100%
North Central Texas
Stone Management, L.P. October 15, 1998 40.2% 100%
</TABLE>
F-16
<PAGE> 67
HealthTronics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. PARTNERSHIP INVESTMENTS (CONTINUED)
Condensed individual financial information of the partnerships accounted for
under the equity method of accounting, before eliminations, as of December 31,
1997 is summarized below:
<TABLE>
<CAPTION>
TOTAL TOTAL NET GROSS NET INCOME
PARTNERSHIP ASSETS LIABILITIES REVENUE PROFIT (LOSS)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Lithotripsy, L.P. ............ $ 177,872 $441,200 $138,133 $ -- $(129,911)
Metro I Stone Management, Ltd. .... 1,179,520 646,225 976,866 833,017 665,590
Mississippi Valley I Stone
Management, L.P. ............... 502,303 384,810 418,924 381,924 225,230
East Texas I Stone Management, Ltd. 48,750 23,156 29,250 29,250 25,594
Dallas Stone Management, L.P. ..... 608,338 599,003 10,238 10,238 9,336
</TABLE>
F-17
<PAGE> 68
HealthTronics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. PARTNERSHIP INVESTMENTS (CONTINUED)
The following unaudited condensed pro forma information for the years ended
December 31, 1998 and 1997 is presented as if LMI (consolidated with USL) and
HLE Corporation had been acquired on January 1, 1997. This information does not
purport to be indicative of the results that would have actually been obtained
if the acquisitions had occurred on such dates.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1997
----------------------------------
<S> <C> <C>
Net revenue $ 15,911,792 $ 6,498,859
Net income (loss) 1,422,576 (413,307)
Net income (loss) per common share
Basic 0.15 (0.05)
Diluted 0.14 (0.05)
</TABLE>
During 1997, the Company purchased partnership interests in Bone & Joint
Treatment Centers of South Florida, Ltd. (48.5%), Lithotripsy Leasing (6 of 45
partnership "units") and Chesapeake Lithotripsy - West (5 of 65 partnership
"units"). As of December 31, 1998, operations of these partnerships were not
significant, and no distributions were made to the partners. The Company is
using the equity method of accounting for the investment in Bone & Joint
Treatment Centers of South Florida, Ltd. and the cost method of accounting for
the investments in Lithotripsy Leasing and Chesapeake Lithotripsy.
Lithowest, LLC, an Arizona Limited Liability Corporation, was formed on
December 4, 1998. On December 14, 1998 the Company entered into an Operating
Agreement whereby the Company contributed equipment, a one year warranty and
the exclusive rights of the use of the LithoTron in the state of Arizona to
Lithowest, LLC in exchange for a 60% interest. Florida Lithology, Inc. ("FLI")
was incorporated in Florida on September 15, 1998. On October 23, 1998, the
Company became a 45.5% shareholder in FLI. FLI is a 55% co-general partner in
Florida Lithology, Ltd. ("FLL"), a Florida limited partnership that provides
lithotripsy services in the state of Florida. The Company is also a 20% limited
partner in FLL. As of December 31, 1998, operations of these partnerships had
not fully commenced.
F-18
<PAGE> 69
HealthTronics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. RELATED PARTY TRANSACTIONS
During the years ended December 31, 1998 and 1997, the Company recorded sales
of medical devices to the second tier partnerships. The second tier
partnerships obtained third party financing, payable generally over five years
or less, to satisfy their obligations to the Company under these sales.
However, as the Company is a general partner of USL, and USL is the sole
general partner of the second tier partnerships, the Company could be required
to support the obligations of USL and the second tier partnerships to an extent
greater than the Company's proportionate interest in the second tier
partnerships. Thus, the Company has not transferred substantially all of the
risks and rewards of ownership related to the medical devices sold to the
second tier partnerships. As a result, the Company has not recorded the sales
or the related cost of goods sold and has deferred approximately $465,000 and
$509,000 of gross profit related to these sales for the years ended December
31, 1998 and 1997, respectively. As a result of the additional acquisition of
LMI and resulting consolidation of LMI, USL and the second tier partnerships,
the deferred profit and the difference between retail and cost of the medical
devices at the partnership level have been eliminated in consolidation for the
year ended December 31, 1998. Depreciation expense is recognized in
consolidation based upon the cost of the asset over the estimated useful life
of five years.
Several of the Company's major shareholders are also the officers of the
Company's supplier, HMT. Other shareholders of the Company are also limited
partners in USL and the second tier partnerships.
Several of the Company's shareholders are employees of a company that
contracted with the Company to provide installation and warranty service.
Payments to this company were $542,000 and $137,000 for 1998 and 1997,
respectively.
Trade accounts payable due to the Company's supplier, HMT, totaled $406,000 and
$965,000 as of December 31, 1998 and 1997, respectively. During 1998 and 1997,
the Company made payments totaling $6,070,000 and $2,993,000, respectively, to
HMT for medical devices, related parts and consumables purchases.
Consulting fees totaling $144,000 and $21,800 were paid during 1998 and 1997,
respectively, to individuals in the medical field that were shareholders of the
Company.
F-19
<PAGE> 70
HealthTronics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. SHORT-TERM BORROWINGS
Short-term borrowings at December 31, 1997 consisted of a line credit agreement
with a Georgia bank that provided for borrowings up to $500,000. Such line of
credit agreement expired July 10, 1998 and was secured by the Company's
accounts receivable, inventory, property and equipment, and personal guarantees
from certain officers of the Company. Amounts outstanding under the line of
credit agreement bore interest at 9.75%. The line of credit was paid off in
May, 1998.
Short-term borrowings at December 31, 1998 consist of a line of credit
agreement with a Texas bank that provides for borrowings up to $100,000. Such
line of credit agreement requires monthly interest payments on outstanding
balances and expires on October 28, 1999 with principal and accrued interest
due on that date. The interest rate on the line of credit is variable. At
December 31, 1998, the Company has drawn $80,604 on the line of credit.
Short-term borrowings at December 31, 1998 also include a $112,652 note payable
to a Missouri bank, with principal and interest due in monthly installments of
$4,761 through July 1999 and a balloon payment of the remaining principal and
interest balance due in August 1999. The interest rate on the note payable is
8.75% and the note is secured by all accounts receivable, equipment and
inventory of USL.
On July 1, 1998, the Company obtained a $650,000 line of credit with a
Tennessee bank. The Company had no outstanding balances under this line as of
December 31, 1998.
7. LONG-TERM DEBT
On July 1, 1998, the Company obtained a $1,000,000 equipment financing line
with a Tennessee bank. The $650,000 line of credit and the $1,000,000 equipment
financing line are personally guaranteed by certain officers of the Company for
amounts representing up to 50% of the outstanding indebtedness plus interest.
Interest under these lines are variable. At December 31, 1998, the Company has
drawn $566,863 under the equipment financing line.
The line of credit and the equipment financing line contain various financial
and non-financial covenants that must be met by the Company (excluding USL and
the second tier partnerships). The Company was in compliance with such
covenants at December 31, 1998.
F-20
<PAGE> 71
HealthTronics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. LONG-TERM DEBT (CONTINUED)
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
------------------------------
<S> <C> <C>
Term loan, interest at 8.35%, principal and interest payments of $15,975 due
monthly through September, 2001, secured by personal guarantees of
certain TGP shareholders $ 467,782 $613,859
Equipment note payable, variable interest rate (7.75% at December 31, 1998),
principal and interest due in monthly installments of $16,000 through
December 2000, secured by the equipment under loan, and through
guarantees from the general partner and personal guarantees from
certain limited partners 424,526 -
Equipment note payable, variable interest rate (7.75% at December 31, 1998),
principal and interest due in monthly installments of $9,287 through
November 1999, balloon payment of remaining principal and interest balance
due December 1999, secured by the equipment under loan, and through
guarantees from the general partner and personal guarantees from certain
limited partners 307,592 -
Equipment note payable, variable interest rate (7.75% at December 31, 1998),
principal and interest due in monthly installments of $16,250 through May
2001, secured by the equipment under loan, and through guarantees from the
general partner and personal guarantees from certain limited partners and
the Company 463,076 -
Equipment note payable, interest at 12%, principal and interest due in monthly
installments of $14,200 through March, 2004, secured by the equipment under
loan, and through guarantees from the general partner and personal guarantees
from certain limited partners 627,918 -
Equipment note payable to bank, interest at 8.25%, principal and interest due in
monthly installments of $9,583 through December 2001, secured by the
equipment under loan 304,682 -
Equipment note payable to bank, interest at 8.25%, principal and interest due in
monthly installments of $8,246 through December 2001, secured by the
equipment under loan 262,181 -
Note payable to bank, interest at 8.25%, principal and interest due in monthly
installments of $14,025 through November, 2002, secured by the equipment
under loan 540,000 -
Other 43,405 -
------------------------------
3,441,162 613,859
Less current portion 1,209,947 145,885
------------------------------
$2,231,215 $467,974
==============================
</TABLE>
F-21
<PAGE> 72
HealthTronics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. LONG-TERM DEBT (CONTINUED)
Future maturities of long-term debt at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Fiscal Year
<S> <C>
1999 $1,209,947
2000 1,040,023
2001 746,987
2002 285,608
2003 and thereafter 158,597
-----------------
$3,441,162
=================
</TABLE>
8. INCOME TAXES
A reconciliation of the provision (credit) for income taxes to the federal
statutory rate of 34% for 1998 and 1997 is:
<TABLE>
<CAPTION>
1998 1997
-----------------------------------
<S> <C> <C>
Statutory federal income tax expense
(benefit) $1,292,335 $ (145,051)
State income taxes, net of federal benefit 150,519 (16,894)
Other 104,121 6,818
Change in valuation allowance for deferred
tax assets (372,793) 155,127
Minority interest (869,921) -
----------------------------------
$ 304,261 $ -
==================================
</TABLE>
F-22
<PAGE> 73
HealthTronics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax assets and liabilities as
of December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------------------
<S> <C> <C>
Current deferred tax assets:
Accrued liabilities and other $134,648 $ 10,586
Warranty reserve 118,625 66,658
Operating loss carryforwards - 103,307
----------------------------------
253,273 180,551
Valuation allowance - (372,793)
Long term deferred tax assets:
Property and equipment 294,748 190,051
Other 2,951 2,191
----------------------------------
297,699 192,242
----------------------------------
Net deferred tax asset $550,972 $ -
==================================
</TABLE>
Included in net long term deferred tax assets associated with property and
equipment is approximately $310,000 of temporary differences as a result of
deferred revenue on sales to the second tier partnerships. The amount of the
deferred tax asset associated with the minority shareholders will be allocated
directly to tax expense over the life of the asset.
For financial reporting purposes, a valuation allowance was recognized at
December 31, 1997 to reduce the net deferred tax asset to zero to reflect
limitations on the Company's ability to currently utilize net operating loss
carryforwards. At December 31, 1997, the Company had a net operating loss
carryforward available to offset future taxable income of approximately $304,000
which expires through the year 2011.
F-23
<PAGE> 74
HealthTronics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. INCOME TAXES (CONTINUED)
As of December 31, 1998, the Company has applied all remaining net operating tax
loss carryforwards. In conjunction with the application of the net operating tax
losses, the Company adjusted the tax asset valuation allowance to zero,
resulting in a reduced effective tax rate for the year ended December 31, 1998.
In assessing the likelihood of utilization of existing net deferred tax assets,
management considered (a) its current operating environment and (b) results of
future operations to generate sufficient taxable income and, accordingly, has
determined that it is more likely than not that the deferred tax assets will be
realized.
9. EMPLOYEE BENEFIT PLAN
In 1996, the Company established a defined contribution 401(k) plan for all
eligible employees. The plan provides for a deferral of up to 12% of the
employee's qualifying compensation under Section 401(k) of the Internal Revenue
Code. The Company provides a discretionary match up to a maximum of 6% of
employee compensation. The Company recognized $28,111 and $10,300 in expense
related to the 401(k) plan in 1998 and 1997, respectively.
10. SHAREHOLDERS' EQUITY
During June 1997, the Company issued 200,000 shares of no par value common stock
valued at $1.00 per share as determined by management in absence of a readily
trading market in exchange for a 40% ownership interest US Lithotripsy (USL), a
Texas limited partnership.
During July 1997, subsequent to the notice of FDA approval of the LithoTron, the
Company conducted a Private Placement of its common stock. Pursuant to this
Private Placement, the Company sold an aggregate of 758,742 shares at $3 per
share through December 31, 1998.
During May 1998, the Company issued 700,000 shares of no par value common stock
in exchange for 100% of the outstanding stock of LMI. During September 1998, the
Company issued 300,000 shares of no par value common stock in exchange for 100%
of the outstanding stock of HLE. Both of these issuances were valued at $3.00
per share as determined by management in absence of a readily trading market.
F-24
<PAGE> 75
HealthTronics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. STOCK OPTIONS
During 1996, the Company initiated a Warrants and Options Program. As of
December 31, 1998, the Board of Directors has approved options to purchase up to
550,000 shares of common stock.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations in
accounting for employee stock options and adopted the disclosure-only provisions
of Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation" ("FAS 123") for option grants to employees. The Company
generally grants stock options for a fixed number of shares to employees with an
exercise price equal to the fair value of the shares at the date of grant, and,
accordingly, recognizes no compensation expense for the employee stock option
grants.
Certain stock options have been granted to non-employees. In accordance with the
requirements of FAS 123, which requires the accounting recognition of the fair
value of options granted to non-employees, the Company recorded $13,900 and
$21,000 in expense during 1998 and 1997, respectively.
A total of 50,000 options, expiring on December 31, 2000 and exercisable at $1
per share, were granted during 1996 to a non-employee and were exercisable as of
December 31, 1996. During 1997, 218,000 options were granted to employees and
79,000 were granted to non-employees. Such 1997 grants expire on December 31,
2000 and 2001 and have exercise prices of $1 or $3. 335,000 options were
exercisable as of December 31, 1997.
During 1998, 108,000 options were granted to employees. 75,000 of such options
vest through 2003 but can accelerate upon the obtainment of certain performance
goals. Options granted in 1998 expire on December 31, 2001 or 2003 and have
exercise prices of $3.00 or $6.00. Options vest at various dates through
December 31, 2003. No options were exercised or terminated during 1998 or 1997.
The weighted-average exercise price and remaining contractual life for the
options granted in 1998 and 1997 are approximately $1.22 and $3.11 per share and
2.22 and 4.40 years, respectively. The weighted-average exercise price for the
options outstanding at December 31, 1998 and 1997 are approximately $1.76 and
$1.46, respectively.
F-25
<PAGE> 76
HealthTronics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. STOCK OPTIONS (CONTINUED)
For the Company, pro forma information regarding net income is required by FAS
123 and has been determined as if the Company had accounted for its employee
stock options granted under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a minimum value
option pricing model with the following weighted-average assumptions for 1998
and 1997: risk-free interest rate of 5.55% and 7%, expected life of the option
of three or four years, and no dividend yield. The weighted-average fair value
of options granted under the Warrants and Options Program was $0.43 and $0.23
for 1998 and 1997. Had the employee option grants been accounted for under the
fair value method of FAS 123, net loss would have been $467,442 or $49,414 more
than recorded in the accompanying 1997 consolidated statement of operations,
resulting in a $0.06 basic and diluted net loss per share. Net income would be
$1,180,898, or $24,150 less than recorded in the accompanying 1998 consolidated
statements of operations, and would have no effect on basic or diluted income
per share.
The pro forma disclosures above are not likely to be representative of the
effects on net income in future years.
The effect of dilutive stock options represented an increase of 221,866 in the
denominator for the calculation of earnings per share for the year ended
December 31, 1998.
12. OPERATING LEASES
The Company leases office space at a monthly rental of $3,900 under a lease
agreement that expires May 2000. The lease is personally guaranteed by certain
shareholders of the Company. Rental expense for 1998 and 1997 was $55,700 and
$41,800, respectively.
Aggregate future minimum lease payments under operating lease agreements for
terms greater than one year as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Fiscal Year
<S> <C>
1999 $ 85,600
2000 34,400
2001 and thereafter 2,500
-----------------
$122,500
=================
</TABLE>
F-26
<PAGE> 77
HealthTronics, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. COMMITMENTS AND CONTINGENCIES
In connection with the original distributorship agreements between the Company
and HMT, the Company committed to purchase ten OssaTron orthopedic lithotriptor
and twelve LithoTron lithotripter units per year over the life of the agreement
after FDA PMA approval is received by the Company. Aggregate funding needed for
this commitment is approximately $7,000,000 per year based upon current market
prices.
Physicians and technicians who use the Company's products are exposed to the
risk of liability and malpractice claims. Those claims could also name the
Company, based on a theory of malpractice or product liability. Although the
Company has not experienced any malpractice or product liability claims, an
award for damages could exceed the limits of its applicable insurance coverage.
Successful liability claims asserted against the Company, to the extent not
covered by insurance, could affect the Company's ability to operate profitably.
While management believes the Company's current level of insurance is adequate,
there can be no assurance of this.
F-27
<PAGE> 78
Report of Independent Auditors
The Board of Directors and Shareholders
Litho Management, Inc.
We have audited the accompanying consolidated balance sheet of Litho Management,
Inc. and Subsidiaries as of December 31, 1997, and the related consolidated
statements of income, shareholders' equity, and cash flows for the year 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Litho Management,
Inc. and Subsidiaries at December 31, 1997 and the consolidated results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
/S/ Ernst & Young LLP
Atlanta, Georgia
August 7, 1998
F-28
<PAGE> 79
Litho Management, Inc. and Subsidiaries
Consolidated Balance Sheet
December 31, 1997
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents $ 97,296
Accounts receivable, less allowance for doubtful accounts
of $7,500 315,521
Inventory 100,000
Prepaid expenses 11,463
-----------
Total current assets 524,280
Property and equipment, at cost:
Medical devices placed in service 2,200,480
Vehicles and accessories 48,894
-----------
2,249,374
Less accumulated depreciation (294,380)
-----------
Net property and equipment 1,954,994
Other assets 4,726
===========
Total assets $ 2,484,000
===========
</TABLE>
F-29
<PAGE> 80
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C>
Current liabilities:
Accounts payable $ 28,395
Accrued expenses 18,689
Accrued interest 4,897
Amounts due to related parties 833,862
Current portion of long-term debt 952,383
----------
Total current liabilities 1,838,226
Long-term debt, less current portion 217,000
Minority interest 423,151
Commitments and contingencies
Shareholders' equity:
Common stock - $1 par value, voting:
Authorized shares- 1,000; Issued and outstanding shares 1,000
1,000
Retained earnings 4,623
----------
Total shareholders' equity 5,623
==========
Total liabilities and shareholders' equity $2,484,000
==========
</TABLE>
See accompanying notes.
F-30
<PAGE> 81
Litho Management, Inc. and Subsidiaries
Consolidated Statement of Income
Year ended December 31, 1997
<TABLE>
<S> <C>
Net revenue $ 1,436,755
Cost of revenue 245,326
-----------
1,191,429
Operating expenses:
Salaries 81,102
Professional fees 59,616
Insurance expense 22,275
Provision for bad debts 7,500
General and administrative expenses 140,461
-----------
Total operating expenses 310,954
Income from operations 880,475
Other income (expense):
Interest expense (82,041)
Interest income 272
-----------
Income before minority interest 798,706
Minority interest (796,975)
-----------
Net income $ 1,731
===========
</TABLE>
See accompanying notes.
F-31
<PAGE> 82
Litho Management, Inc. and Subsidiaries
Consolidated Statement of Shareholders' Equity
Year ended December 31, 1997
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------------- TOTAL
NUMBER OF RETAINED SHAREHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1997 1,000 $1,000 $2,892 $3,892
Net income - - 1,731 1,731
==========================================================================
Balance at December 31, 1997 1,000 $1,000 $4,623 $5,623
==========================================================================
</TABLE>
See accompanying notes.
F-32
<PAGE> 83
Litho Management, Inc. and Subsidiaries
Consolidated Statement of Cash Flows
Year ended December 31, 1997
OPERATING ACTIVITIES
<TABLE>
<S> <C>
Net income $ 1,731
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization 245,326
Minority interest in subsidiaries' net income, net of
distributions 297,528
Provision for bad debts 7,500
Changes in operating assets and liabilities:
Accounts receivable (171,544)
Prepaid expenses (6,408)
Inventory (100,000)
Other assets (1,113)
Accounts payable 18,569
Accrued interest and other accrued expenses 16,229
Amounts due to related parties 672,462
-----------
Net cash provided by operating activities 980,280
INVESTING ACTIVITIES
Purchases of property and equipment (1,249,373)
Purchases of partnership investments, net of cash acquired
18,639
-----------
Net cash used in investing activities (1,230,734)
FINANCING ACTIVITIES
Proceeds from issuance of debt 696,394
Principal payments on debt (348,644)
-----------
Net cash provided by financing activities 347,750
-----------
Net increase in cash and cash equivalents 97,296
Cash and cash equivalents at beginning of year --
-----------
Cash and cash equivalents at end of year $ 97,296
===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest $ 82,067
===========
</TABLE>
See accompanying notes.
F-33
<PAGE> 84
Litho Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1997
1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
Litho Management, Inc. (the "Company") was incorporated in the State of Texas on
October 25, 1996. Prior to April 1, 1997, The Company's primary activity
included ownership of a 1% general partnership interest in Mississippi Valley I
Stone Management, L.P. ("Mississippi Valley"), a limited partnership formed for
the purpose of purchasing, owning and operating certain medical devices
utilizing shock wave therapies, specifically the LithoTron. On April 1, 1997,
the Company entered into a Distributor Agreement and an Entity Interest
Agreement with U.S. Lithotripsy, L.P. ("USL"), a Texas limited partnership, and
with HealthTronics, Inc. ("HealthTronics"). The Distributorship Agreement
(entered into between USL and Healthtronics) grants USL an exclusive right to
sell, use, lease and distribute HealthTronics' products in a 19 state area and a
non-exclusive right (subject to approvals by HealthTronics) to sell, use, lease
and distribute HealthTronics' products in other states. The Entity Interest
Agreement granted the Company a 0.6% general partnership ownership interest in
USL (0.4% general partnership interest and 39.6% limited partnership interest is
owned by HealthTronics and the remaining 59.4% limited partnership interest is
owned by independent partners). Through its general partnership interest, the
Company effectively controls USL.
The April 1, 1997 Entity Interest Agreement constituted the formation of USL as
a limited partnership entity. Concurrent with the formation of USL, USL acquired
the 1% general partnership interest in Mississippi Valley from the Company.
Subsequent to April 1, 1997, USL made a number of investments as the sole
general partner in several separate partnerships with equity interests ranging
from 10% to 99% (the "second tier partnerships"), also formed for the purpose of
purchasing, owning and operating certain medical devices utilizing shock wave
therapies. Each of the partnership agreements are for terms of 40 years. As USL
is the sole general partner of these second tier partnerships, it will
consolidate these entities.
As the majority-owned general partner of USL, the Company provides exclusive
management and administration of USL and the second tier partnerships'
day-to-day business operations. Authority retained by the Company as
majority-owned general partner includes exclusive authority over all
decision-making for ongoing major or central operations, including (i) the scope
of services, (ii) pricing of services, (iii) negotiation and execution of
contracts, (iv) issuance of debt and (v) establishment and approval of operating
and capital budgets. Each of the partnership agreements grants the majority
F-34
<PAGE> 85
Litho Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION (CONTINUED)
general partner sole and absolute discretion over the actions of the partnership
and do not provide for the existence of any super majority voting rights,
unanimous approval, or limited partner veto power.
In order to appropriately reflect the nature of the Company's operations and its
relationship to USL and the second tier partnerships, the accompanying
consolidated financial statements include the accounts of USL and the second
tier partnerships from the date of the formation of USL, April 1, 1997. The
operations of Mississippi Valley have been included for the full year ended
December 31, 1997 as the Company was the general partner prior to the purchase
of the general partnership interest by USL. All significant intercompany
accounts and transactions have been eliminated in consolidation. See Note 3 for
discussion of minority interests.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
NET REVENUE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Net revenue includes leasing fees for the rental of the LithoTron and other
medical devices in the clinical setting. Revenue is generated primarily from
rental contracts with various medical facilities; the Company does not contract
directly with any third party payors including governmental programs or health
maintenance organizations. Net revenue under these facility agreements is
recorded at established billing rates reduced by an allowance for contractual
adjustments. Contractual adjustments arise due to the terms of certain facility
agreements which reduce revenue from established billing rates to amounts
estimated to be reimbursable under the individual facility agreement. Such
adjustments are recognized in the period the services are rendered. Differences
in estimates recorded and final settlements are reported during the period final
settlements are made.
F-35
<PAGE> 86
Litho Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET REVENUE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS (CONTINUED)
An allowance for doubtful accounts is established for revenue estimated to be
uncollectible and is adjusted periodically based upon management's evaluation of
current economic conditions, historical collection experience, and other
relevant factors which, in the opinion of management, deserve recognition in
estimating such allowance.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
INVENTORY
Inventory is carried at the lower of cost (first-in, first-out) or market and
consists of a medical device.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed based on the
straight-line method over the five-year estimated useful lives of the related
equipment and is included in cost of revenue in the accompanying consolidated
statement of income. Accelerated depreciation methods are generally used for tax
purposes.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that are expected to be in effect
when the differences are expected to reverse. The Company has not recorded a
provision for income taxes in the accompanying consolidated income statement as
earnings and losses from the partnerships are passed through to the individual
partners for income tax purposes. In addition, there were no significant
differences between financial reporting and tax bases of assets and liabilities
for the year ended December 31, 1997.
F-36
<PAGE> 87
Litho Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES (CONTINUED)
The Company made no payments for income taxes during 1997.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to significant
concentrations of credit risk consist principally of cash equivalents and
accounts receivable.
The Company maintains cash and cash equivalents with various financial
institutions. These financial institutions are located throughout the
Southeastern United States, Texas and Missouri and the Company's policy is
designed to limit its exposure at any one institution. The Company performs
periodic evaluations of the relative credit standings of those financial
institutions that are considered in the Company's investment strategy. At
December 31, 1997, substantially all of the Company's cash and cash equivalents
are invested in non-interest bearing depository cash accounts.
Substantially all revenue is earned in the Southeastern United States, Texas and
Mississippi. The Company generally does not require collateral or other security
in extending credit to facilities under contract. The Company's two largest
facility contracts accounted for approximately 67% and 29%, respectively of net
revenue during 1997.
CARRYING VALUE OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of", the Company records
impairment losses on long-lived assets used in operations when events and
circumstances indicate that such assets might be impaired and the undiscounted
cash flows estimated to be generated by those assets are less that the assets'
net book values. SFAS No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. SFAS No. 121 had no impact on the
accompanying consolidated financial statements.
F-37
<PAGE> 88
Litho Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," which is effective for fiscal years beginning
after December 15, 1997. SFAS 130 establishes guidelines for the reporting and
display of comprehensive income and its components in financial statements.
Management does not believe the adoption of SFAS 130 will have a significant
impact on the Company's consolidated financial statements.
3. PARTNERSHIP INVESTMENTS
As discussed in Note 1, at December 31, 1997, the Company maintained a 0.6%
general partnership interest in USL; while USL maintained general partnership
interests in several second tier partnerships. Based upon the Company's ability
to exercise control over the operating and financial policies of USL and the
second tier partnerships, the Company has consolidated the financial position
and results of operations of the individual partnerships for the year ended
December 31, 1997. The partnerships and the Company's effective ownership at
December 31, 1997 are summarized as follows:
<TABLE>
<CAPTION>
EFFECTIVE EFFECTIVE
DATE OF OWNERSHIP VOTING
PARTNERSHIP FORMATION INTEREST INTEREST
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Lithotripsy, L.P. April 1, 1997 0.6% 60%
Metro I Stone Management, Ltd. May 28, 1996 0.06% 60%
Mississippi Valley I Stone Management, L.P.
November 1, 1996 0.186% 60%
East Texas I Stone Management, Ltd. July 29, 1997 0.06% 60%
Dallas Stone Management, L.P. December 1, 1997 0.06% 60%
</TABLE>
The consolidated statements of operations include the operating results of the
above partnerships from the date of formation of each partnership, except for
Metro I Stone Management Ltd. which is included from April 1, 1997 (the date USL
acquired the 1.0% general partnership interest and a 9.0% limited partnership
interest) through December 31, 1997, and Mississippi Valley which is included at
a 1.0% effective
F-38
<PAGE> 89
Litho Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. PARTNERSHIP INVESTMENTS (CONTINUED)
ownership interest from January 1, 1997 through March 31, 1997 (as the Company
was the 1.0% general partner during this time period) and at 0.186% from April
1, 1997 through December 31, 1997 (as USL purchased the 1.0% general partnership
interest from the Company and an additional 30% limited partnership interest on
April 1, 1997).
USL's purchase of the additional equity interests in Metro I Stone Management,
Ltd. and Mississippi Valley was accounted for under the purchase method of
accounting. There was no goodwill recognized in these transactions as the
purchase price approximated the fair value of the partnerships' net assets at
the date of purchase.
Condensed individual financial information of the Company and the consolidated
partnerships as of December 31, 1997 is summarized below:
<TABLE>
<CAPTION>
TOTAL TOTAL NET NET INCOME
PARTNERSHIP ASSETS LIABILITIES REVENUE (LOSS)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Lithotripsy, L.P. $ 177,872 $441,200 $138,133 $(129,911)
Metro I Stone Management, Ltd. 1,179,520 646,225 976,866 665,590
Mississippi Valley I Stone
Management, L.P. 502,303 384,810 418,924 225,230
East Texas I Stone Management,
Ltd. 48,750 23,156 29,250 25,594
Dallas Stone Management, L.P. 608,338 599,003 10,238 9,336
</TABLE>
As general partner, USL provides exclusive management and administration of the
second tier partnerships' day-to-day business operations. For the year ended
December 31, 1997 fees charged to the second tier partnerships by USL were
$131,641 and were based upon approximately 7.5% of the partnerships' net
revenues. Management fee receivables of $41,983 have been recorded by USL at
December 31, 1997. In addition, USL recognized revenue of $14,476 on sales of
certain consumables to the second tier partnerships. Each of these transactions
have been fully eliminated in consolidation.
F-39
<PAGE> 90
Litho Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. RELATED PARTY TRANSACTIONS
Several of the Company's major shareholders are also limited partners in USL and
the second tier partnerships. USL leases space from one of the Company's
shareholders. Total rental expense charged by the shareholder amounted to $6,174
for the year ended December 31, 1997.
Concurrent with the formation of USL, a limited partner of USL contributed a
medical device held as inventory, valued at $100,000 based upon current market
conditions, and a $296,595 note payable. The difference between the value of the
inventory and the total notes payable is included in minority interest in the
accompanying statement of income.
Accounts payable through the consolidated partnerships to HealthTronics relating
to purchases of medical devices and related parts totaled $796,100 as of
December 31, 1997. Amounts owed to HealthTronics at December 31, 1997 were paid
in full through March 1998 as the consolidated partnerships obtained long-term
financing with third party banks. During 1997, the Company, through its
consolidated partnerships made payments totaling $382,000 to HealthTronics, Inc.
for medical devices, related parts and consumables purchases.
Amounts due to related parties include a $26,000 unsecured note payable to one
of the Company's major shareholders. The note bears interest monthly at 8.50%
and was paid in full in April 1998. In addition, amounts due to related parties
of $11,762 represent net non-interest bearing borrowings from certain
shareholders for expenses paid on behalf of the individual partnerships.
Subsequent to December 31, 1997, USL entered into a $250,000 unsecured note
payable to HealthTronics. The note includes interest at 8.5% and is due in
monthly installments through September, 2003.
F-40
<PAGE> 91
Litho Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. LONG-TERM DEBT
Long-term debt at December 31, 1997 consists of the following:
<TABLE>
<S> <C>
Equipment note payable, variable interest rate (8.50% at December 31, 1997),
principal and interest due in monthly installments through December 2000,
secured by the equipment under loan, and through guarantees from the general
partner and personal guarantees from certain limited partners $ 409,000
Equipment note payable, variable interest rate (8.50% at December 31, 1997),
principal and interest due in monthly installments of $9,287 through November
1998, balloon payment of remaining principal and interest balance due
December 1998, secured by the equipment under loan, and through guarantees
from the general partner and personal guarantees from certain limited
partners 381,788
Equipment note payable, interest at 8.75%, principal and interest due in monthly
installments of $4,743 through July 1998, balloon payment of remaining
principal and interest balance due August 1998, secured by all accounts
receivable, equipment and inventory of the partnership 148,121
Note payable to bank, interest at 8.75%, principal and interest due in monthly
installments of $4,761 through July 1998, balloon payment of remaining
principal and interest balance due August 1998, secured by all accounts
receivable, equipment and inventory of the partnership 148,474
Line of credit, variable interest rate (8.50% at December 31, 1997), interest
payable monthly, principal due in full on October 28, 1998, unsecured 80,000
Other 2,000
----------
1,169,383
Less current portion (952,383)
----------
$ 217,000
==========
</TABLE>
F-41
<PAGE> 92
Litho Management, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. LONG-TERM DEBT (CONTINUED)
Aggregate future principal payments for all short term borrowings and long-term
debt as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1998 $ 952,383
1999 192,000
2000 25,000
----------
$1,169,383
==========
</TABLE>
7. SUBSEQUENT EVENTS
On May 4, 1998, HealthTronics entered into an Agreement and Plan of Share
Exchange with the Company and the sole shareholders of the Company, whereby
HealthTronics acquired all of the issued and outstanding capital stock of the
Company in exchange for 700,000 shares of voting capital stock of HealthTronics.
The effective date of the transaction is May 1, 1998. The HealthTronics shares
issued in the Share Exchange have been valued at approximately $2,100,000, as
determined by management and the Board of Directors of HealthTronics in absence
of a readily trading market.
F-42
<PAGE> 93
HealthTronics, Inc. and Subsidiaries
Pro Forma Combined Condensed Statements of Operations
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------
LITHO HLE
HEALTHTRONICS, MANAGEMENT, CORPORATION PRO FORMA PRO FORMA
INC. INC. (1) (2) ADJUSTMENTS COMBINED
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenue $ 14,681,941 $ 1,229,851 $ -- 15,911,792
Cost of goods sold, rentals and
services provided 6,863,506 403,283 -- (56,053)(4) 7,210,736
--------------------------------------------------------- ------------
7,818,435 826,568 -- 56,053 8,701,056
Operating costs and expenses:
Salaries, wages and benefits 1,495,364 94,781 -- 1,590,145
Corporate, general and 2,480,012 139,986 -- 97,139 (3) 2,717,137
administrative --------------------------------------------------------- ------------
Income/(loss) from operations 3,843,059 591,801 -- (41,086) 4,393,774
Equity in earnings of
unconsolidated partnerships 102,655 28,672 258,109 (258,109)(5) 131,327
Interest income (expense) (144,730) (40,420) -- (185,150)
--------------------------------------------------------- ------------
Net income/(loss) before minority
interest and income taxes 3,800,984 580,053 258,109 (299,195) 4,339,951
Minority interest (2,291,675) (579,548) -- 258,109 (5) (2,613,114)
--------------------------------------------------------- ------------
Net income/(loss) before income 1,509,309 505 258,109 (41,086) 1,726,837
taxes
Provision for income taxes 304,261 -- -- 304,261
--------------------------------------------------------- ------------
Net income/(loss) $ 1,205,048 $ 505 $258,109 $ (41,086) $ 1,422,576
========================================================= ============
Net income per share/(loss) per share:
Basic $ 0.13 $ 0.15
============ ============
Diluted $ 0.13 $ 0.14
============ ============
Weighted average number of common
and common equivalent shares
Basic 9,223,671 9,662,849
============ ============
Diluted 9,445,537 9,884,716
============ ============
</TABLE>
- --------------------
1. The historical results for Litho Management, Inc. are for the period
January 1, 1998 to May 1, 1998 adjusted to conform with HealthTronics'
presentation of revenue and expenses.
2. The historical results for HLE Corporation are for the period from
January 1, 1998 to September 9, 1998. However, historical results for
Florida Lithology, Inc. ("FLI") and Lithowest, LLC ("Lithowest") have
not been included on the basis of materiality.
3. Adjustment represents additional amortization arising from goodwill
recorded as part of the purchases of Litho Management, Inc. on May 1,
1998 and HLE Corporation on September 9, 1998.
4. Adjustment represents the reduction in depreciation expense from retail
to cost for equipment sold to related party partnerships.
5. Adjustment represents the reclassification of HLE Corporation's
recognition of equity interest in Metro I Stone Management, Ltd. as a
reduction in minority interest as the operations of HealthTronics, Inc.
and Subsidiaries presently includes Metro I Stone Management, Ltd.
F-43
<PAGE> 94
HealthTronics, Inc. and Subsidiaries
Pro Forma Combined Condensed Statements of Operations
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------
LITHO HLE
HEALTHTRONICS, MANAGEMENT, CORPORATION PRO FORMA PRO FORMA
INC. INC. (1) (1) ADJUSTMENTS COMBINED
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenue $5,062,104 $1,436,755 $ - 6,498,859
Cost of goods sold and services
provided 3,263,233 245,326 - (19,729) (3) 3,488,830
------------------------------------------------------ ---------------
1,798,871 1,191,429 19,729 3,010,029
Operating costs and expenses:
Salaries, wages and benefits 723,748 81,102 - 804,850
Corporate, general and
administrative 1,463,683 229,852 - 216,416 (2) 1,909,951
------------------------------------------------------ ---------------
Income/(loss) from operations (388,560) 880,475 - (196,687) 295,228
Equity in earnings of
unconsolidated partnerships 4,669 199,677 (199,677) (4)
Interest income (expense) -
Other income (expense): (38,434) (81,769) - (115,534)
------------------------------------------------------ ---------------
Net income/(loss) before minority
interest and income taxes (422,325) 798,706 199,677 (396,364) 179,694
Minority interest 4,297 (796,975) - 199,677 (4) (593,001)
------------------------------------------------------ ---------------
Net income/(loss) before income
taxes (418,028) 1,731 199,677 (196,687) (413,307)
------------------------------------------------------ ---------------
Provision for income taxes - - - -
====================================================== ===============
Net income/(loss) $ (418,028) $ 1,731 199,677 $(196,687) $ (413,307)
====================================================== ===============
Basic net income per share/(loss)
per share $ (0.05) $ (0.05)
Weighted average number of common
and common equivalent shares 8,010,068 9,010,068
=============== ===============
</TABLE>
- --------------------
1. The historical results for Litho Management, Inc. and HLE Corporation
are for the period January 1, 1997 to December 31, 1997 adjusted to
conform with HealthTronics' presentation of revenue and expenses.
However, historical results for Florida Lithology, Inc. ("FLI") and
Lithowest, LLC ("Lithowest") have not been included in the pro forma on
the basis of materiality of operations.
2. Adjustment represents additional amortization arising from goodwill
recorded as part of the purchase of Litho Management, Inc.
3. Adjustment represents the reduction in depreciation expense from retail
to cost for equipment sold to related party partnerships.
4. Adjustment represents the reclassification of HLE Corporation's
recognition of equity interest in Metro I Stone Management, Ltd. as a
reduction in minority interest as the operations of HealthTronics, Inc.
and Subsidiaries presently includes Metro I Stone Management, Ltd.
F-44
<PAGE> 95
Until __________, 1999 (90 days after the effective date of this
prospectus), all dealers that effect transactions in these securities, whether
or not participating in this offering may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
CAPITAL GROWTH MANAGEMENT, INC.
1827 POWERS FERRY ROAD, BUILDING #2
ATLANTA, GEORGIA 30339
The date of this prospectus is ___________, 1999.
<PAGE> 96
PART II
Information Not Required in Prospectus
ITEM 24 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The HealthTronics' articles of incorporation provide that no director shall have
any personal liability to HealthTronics or its shareholders for monetary damages
for breach of duty of care or the other duties of a director except for any
appropriation of any business opportunity, for acts or omissions that involve
intentional misconduct or a knowing violation of law, or for any transaction
from which the director derived an improper personal benefit. Copies of
HealthTronics' articles of incorporation and bylaws are available for inspection
by any potential investor or his representative. (See "Additional Information"
in HealthTronics' prospectus). Because of these provisions, HealthTronics and
its shareholders may have a more limited right of action against a director than
they would have absent these provisions. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of HealthTronics pursuant to the
foregoing provisions, or otherwise, HealthTronics has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by HealthTronics of expenses incurred or
paid by a director, officer or controlling person of HealthTronics in the
successful defense of any action, suit or proceeding) is asserted by such
officer, director or controlling person in connection with these securities
being registered, HealthTronics will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The cross-indemnification provisions contained in Article 9 of the
Sales agent Agreement filed as Exhibit 1.1 to the Registration Statement may
limit the liability of controlling persons, officers or directors of
HealthTronics to Capital Growth Management, Inc.
II-1
<PAGE> 97
ITEM 25 OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following sets forth the anticipated costs and expenses to be
incurred in connection with the issuance and distribution of the securities to
be registered.
Each amount, except for SEC and NASD fees, is estimated.
<TABLE>
<S> <C>
SEC registration fee......................... $ 1,668.00
Blue Sky fees (excluding legal fees)......... $ 15,000.00
NASD fee..................................... $ 1,625.00
Accounting fees and expenses................. $170,000.00
Legal fees and expenses...................... $ 70,000.00
Printing and engraving....................... $ 30,000.00
Escrow Agent fee............................. $ 500.00
Miscellaneous expenses....................... $ 11,207.00
-----------
Total ....................................... $300,000.00
===========
</TABLE>
ITEM 26 RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, Registrant sold the following unregistered
securities (all of these securities were no par value shares):
(a)(1) On December 31, 1995 OssaTronics, Inc., an affiliated Georgia
corporation formed on December 23, 1994 was merged into HealthTronics. The plan
of merger was approved by the shareholders of both OssaTronics and HealthTronics
on March 4, 1995 and was finalized with the Office of the Secretary of State of
Georgia on April 29, 1996. Pursuant to the plan of merger, 100,000 shares were
issued to 5 investors, all of whom were existing shareholders of HealthTronics.
(a)(2) Between June 24 and December 4, 1996, 1,407,000 shares were
sold at $1.00 per Share to 75 investors pursuant to a private placement
memorandum.
(a)(3) On November 22, 1996, HealthTronics granted Jon Burke stock
options to purchase 50,000 shares of HealthTronics, exercisable at $1.00 per
share for consulting services to HealthTronics.
(a)(4) On January 1, 1997, HealthTronics granted Thomas Johnson
stock options to purchase 10,000 shares of HealthTronics, exercisable at $1.00
per share for consulting services to HealthTronics.
(a)(5) On January 1, 1997, HealthTronics granted Rubye Davie stock
options to purchase 1,000 shares of HealthTronics, exercisable at $1.000 per
share for consulting services to HealthTronics.
(a)(6) On January 28, 1997, HealthTronics granted Kei Leyson stock
options to purchase 10,000 shares of HealthTronics, exercisable at $1.00 and
$3.00 per share for consulting services to HealthTronics.
(a)(7) On March 13, 1997, HealthTronics granted Richard Thiele MD
stock options to purchase 10,000 shares of HealthTronics, exercisable at $2.50
per share for consulting services to HealthTronics.
(a)(8) On March 13, 1997, HealthTronics granted Dr. Reiner
Schultheiss stock options to purchase 10,000 shares of HealthTronics,
exercisable at $2.50 per share for consulting services to HealthTronics.
(a)(9) On March 13, 1997, HealthTronics granted Wolfgang Schaden
stock options to purchase 10,000 shares of HealthTronics, exercisable at $2.50
per share for consulting services to HealthTronics.
(a)(10) On June 1, 1997, HealthTronics offered an aggregate of
200,000 shares in an exchange offer to the owners of US Lithotripsy, a limited
partnership that is a distributor of HealthTronics' products, in exchange for a
40% interest in US Lithotripsy. The exchange offer was accepted by the 6 owners
of US Lithotripsy.
(a)(11) On May 22, 1997, HealthTronics granted Suzanne Setzer stock
options to purchase 5,000 shares of HealthTronics, exercisable at $1.00 per
share as additional compensation for services to HealthTronics.
(a)(12) On May 22, 1997, HealthTronics granted Suzanne Setzer stock
options to purchase 5,000 shares of HealthTronics, exercisable at $1.00 per
share as additional compensation for services to HealthTronics.
II-2
<PAGE> 98
(a)(13) On May 27, 1997, HealthTronics granted Kim Butler stock
options to purchase 3,000 shares of HealthTronics, exercisable at $1.00 per
share as additional compensation for services to HealthTronics.
(a)(14) On June 10, 1997, HealthTronics granted Devonne Pavlak stock
options to purchase 3,000 shares of HealthTronics, exercisable at $1.00 per
share as additional compensation for services to HealthTronics.
(a)(15) On July 11, 1997, HealthTronics granted Carl Frisina MD
stock options to purchase 5,000 shares of HealthTronics, exercisable at $1.00
per share for consulting services to HealthTronics.
(a)(16) On July 11, 1997, HealthTronics granted Victoria Beck stock
options to purchase 25,000 shares of HealthTronics, exercisable at $1.00 per
share pursuant to her employment agreement as compensation for services to
HealthTronics.
(a)(17) On July 14, 1997, HealthTronics granted John Jedrosko stock
options to purchase 1,000 shares of HealthTronics, exercisable at $1.00 per
share as additional compensation for services to HealthTronics.
(a)(18) On July 15, 1997, HealthTronics granted John Harris stock
options to purchase 1,000 shares of HealthTronics, exercisable at $1.00 per
share as additional compensation for services to HealthTronics.
(a)(19) Between July 31, 1997 and February 12, 1998, HealthTronics
sold an aggregate of 758,742 shares at $3.00 per share to 67 investors pursuant
to a private placement memorandum.
(a)(20) On September 16, 1997, HealthTronics granted Kathy Marshall
stock options to purchase 1,000 shares of HealthTronics, exercisable at $3.00
per share as additional compensation for services to HealthTronics.
(a)(21) On November 28, 1997, HealthTronics granted Cascade
Lithotripsy stock options to purchase 33,000 shares of HealthTronics,
exercisable at $3.00 per share in conjunction with Cascade's purchase of a
LithoTron lithotripter.
(a)(22) On December 25, 1997, HealthTronics granted Julie Dodd, Kim
Butler, John Harris, John Jedrosko, Kei Leyson, Devonne Pavlak and Suzy Setzer
each stock options to purchase 2,000 shares of HealthTronics, exercisable at
$3.00 per share as additional compensation for services to HealthTronics.
(a)(23) On December 25, 1997, HealthTronics granted Kathy Marshall
and James Lanham each stock options to purchase 1,000 shares of HealthTronics,
exercisable at $3.00 per share as additional compensation for services to
HealthTronics.
(a)(24) On December 25, 1997, HealthTronics granted Marie Marlow
stock options to purchase 5,000 shares of HealthTronics, exercisable at $3.00
per share as additional compensation for services to HealthTronics.
(a)(25) On January 15, 1998, HealthTronics granted Willie Davis and
Herbert Stansbury each stock options to purchase 500 shares of HealthTronics,
exercisable at $3.00 per share for consulting services to HealthTronics.
(a)(26) On March 25, 1998, HealthTronics granted Marie Marlow stock
options to purchase 75,000 shares of HealthTronics, exercisable at $3.00 per
share as additional compensation for services to HealthTronics.
(a)(27) On April 1, 1998, HealthTronics granted Brad Devine stock
options to purchase 2,000 shares of HealthTronics, exercisable at $3.00 per
share for consulting services to HealthTronics.
(a)(28) On April 14, 1998, HealthTronics granted stock options
exercisable at $1.00 per share to Argil Wheelock (65,000 shares), Roy Brown
(9,000 shares) and John Warlick (9,000 shares) in exchange for payment
guarantees on behalf of HealthTronics.
(a)(29) On May 1, 1998 HealthTronics acquired Litho Management, Inc.
in exchange for 700,000 shares.
(a)(30) On June 1, 1998, HealthTronics granted John Rudnik stock
options to purchase 2,000 shares of HealthTronics, exercisable at $3.00 per
share as additional compensation for services to HealthTronics.
(a)(31) On July 1, 1998, HealthTronics granted Julie Dodd, Devonne
Pavlak, Denise Ballew, Suzanne Setzer, Kim Butler and Kathy Marshall each stock
options to purchase 2,000 shares of HealthTronics, exercisable at $3.00 per
share as additional compensation for services to HealthTronics.
(a)(32) On July 1, 1998, HealthTronics granted Jim Lanham, Robert
DeBord and Paula Willingham each 1,000 shares of HealthTronics, exercisable at
$3.00 per share as additional compensation for services to HealthTronics.
(a)(33) On September 9, 1998, HealthTronics executed an Agreement
and Plan of Share Exchange (the "Exchange Offer") with the three shareholders of
HLE Corp., a Texas corporation. Pursuant to the Exchange Offer, the shareholders
of HLE Corp. Exchanged all of the issued and outstanding shares of HLE for
300,000 shares of HealthTronics.
(a)(34) On October 1, 1998, HealthTronics granted Steve Norman and
Greg Dehnert each stock options to purchase 2,000 shares of HealthTronics,
exercisable at $6.00 per share as additional compensation for services to
HealthTronics.
(a)(35) Pursuant to this offering, HealthTronics is granting warrants
to Capital Growth Management, Inc. equal to one warrant for one share of
HealthTronics for each ten shares of HealthTronic's stock subscribed in this
offering as additional compensation for Capital Growth's services as sales
agent.
(a)(36) January 15, 1998, HealthTronics granted two technicians each
500 shares of HealthTronics, exercisable at $3.00 per share for consulting
services to HealthTronics.
(a)(37) On May 27, 1997, HealthTronics granted Roy Brown 20,000
shares of HealthTronics, exercisable at $1.00 per share as additional
compensation for services.
(a)(38) On May 27, 1997, HealthTronics granted John Warlick 10,000
shares of HealthTronics, exercisable at $1.00 per share as additional
compensation for services.
(a)(39) On May 27, 1997, HealthTronics granted Marie Marlow 10,000
shares of HealthTronics, exercisable at $1.00 per share as additional
compensation for services.
(a)(40) On May 30, 1997, HealthTronics granted Argil Wheelock 25,000
shares of HealthTronics, exercisable at $1.00 per share as additional
compensation for services.
(b) No underwriter was involved in any of these offerings.
HealthTronics sold these Shares or granted or issued these options to its
officers, directors, promoters, employees, distributors (including the officers,
directors and certain employees of its distributors), doctors, family and
friends of HealthTronics' officers and directors.
(c) The Shares described in (a) (1), (a) (10), (a) (29) and (a) (33)
above were sold to the promoters and existing shareholders of HealthTronics for
their interest in OssaTronics, Inc. and the interest of the owners of US
Lithotripsy in US Lithotripsy, and the interest of the owners of Litho
Management, Inc. in Litho Management, Inc. and the interest of the owners of HLE
Corp. in HLE Corp., as well as for the services of the promoters of, and
consultants to, HealthTronics in organizing HealthTronics. The Shares described
in (a) (2) and (a) (19) above were sold for an aggregate of $3,682,826 in cash.
II-3
<PAGE> 99
(d) Exemption for the transactions described in paragraphs (a) (1)
through (a) (40) above is claimed pursuant to Section (4) (2) of the Securities
Act of 1933. In the transactions described in paragraphs (a)(2), (a)(10) and
(a)(19) the Registrant relied on Rule 506 of Regulation D promulgated pursuant
to Section (4)(2). Each of the Company's investors received a private placement
memorandum containing the information that would be contained in a Regulation A
filing or in a registration statement. Each of the investors executed an
appropriate subscription agreement/letter of investment intent. Each Share
issued bears the appropriate restrictive legend. In addition, Form D was filed
with the Securities and Exchange Commission for the transactions described in
paragraphs (a)(2) through (a)(4) above. Furthermore, the Company's Shares were
sold to no more than 35 non-accredited investors in any single private offering
and no advertising or public solicitation was employed by the Company in the
sale of its Shares.
ITEM 27 EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibit
-------------- ----------------------
<S> <C>
1.1 Sales agent Agreement. (1)
3.1 Articles of Incorporation of HealthTronics, Inc.
(1)
3.2 Restated By Laws of HealthTronics, Inc. (1)
3.3 By Laws of OssaTronics, Inc. (1)
3.4 Specimen Stock Certificate.
3.5 Agreement and Plan of Merger of OssaTronics, Inc.
into HealthTronics, Inc. (1)
3.6 Amended Articles of Incorporation of
HealthTronics, Inc. (1)
3.7 Subscription Agreement (1)
5 Opinion of Christopher J, Moran, Jr., as to the
legality of the securities being registered. (1)
9.1 House Group Stock Voting Agreement.
9.2 HMT Group Stock Voting Agreement.
</TABLE>
II-4
<PAGE> 100
10.1 Escrow Agreement.
10.2 Entity Interest Agreement between HealthTronics
and USL. (1)
10.3 Distributorship Agreement between HealthTronics
and USL and amendments thereto. (1)
10.4 Patent License Agreement dated June 3, 1995
between OssaTronics, Inc. and HMT High Medical
Technologies GmbH along with amendments thereto.
(1)
10.4(a) Patent Purchase Agreement between VISSH
Voennomedicinsky Institut and HMT. (1)
10.4(b) U.S. Patent Number 4.979.501 for a method and an
apparatus for medical treatment of the
pathological state of bones. (1)
10.4(c) Provisional Patent Application for the use of
acoustic shock waves, in the treatment of medical,
dental and veterinary conditions. (1)
10.4(d) U.S. Patent Number 5,595,178 for a system and an
apparatus for treatment of degenerative bone. (1)
10.4(e) Second Amendment to Patent License Agreement. (1)
10.5 Distributorship and Manufacturing Agreements
between HealthTronics and HMT for both the
OssaTron(R) (11/22/94) and the LithoTron(R)
(1/24/96) and amendments to both agreements dated
March 1, 1996 and August 7, 1996. (1).
10.6 HealthTronics' 401(k) plan. (1)
II-5
<PAGE> 101
10.7 Agreement dated February 15, 1995 between
OssaTronics, Inc., John Warlick, Argil Wheelock,
M.D., Karl-Heinz Restle and Scott A. Cochran. (1)
10.8 Manufacturing Agreement dated June 20, 1996
between HealthTronics and HMT. (1).
10.9 Agreement and Plan of Share Exchange with HLE
Corp. (1)
10.10 Limited Partnership Agreement of US Lithotripsy,
L.P. (1)
10.11 Employment Agreement with Ms. Beck. (1)
10.12 LithoTron Service Agreement with Servicetrends.
10.13 Employment Agreement with Ms. Marlow. (1)
10.14 OssaTron Service Contract with Servicetrends.
10.15 Manufacturer's Service Representative Agreement
with Servicetrends.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Christopher J. Moran, Jr. (contained in
his opinion filed as Exhibit 5). (1)
24.1 Power of Attorney.
27.1 Financial Data Schedule.
99.1 Letter from FDA dated 6/13/97 approving the PMA
for the LithoTron(TM) Lithotripsy System, subject
to certain conditions. (1)
II-6
<PAGE> 102
(1) Previously filed.
ITEM 28 UNDERTAKINGS
The undersigned HealthTronics hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement: (i) to include
any prospectus required by Section 10(a)(3) of the Act; (ii) to reflect in the
Prospectus any facts or events arising after the effective date of the
Registration Statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement; and (iii) to include any
material information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change to such
information in the Registration Statement;
(2) That, for the purpose of determining any liability under the
Act, each such post-effective amendment shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof; and
(3) To remove from registration by means of post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of HealthTronics
pursuant to the foregoing provisions (See Item 24), or otherwise, HealthTronics
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by HealthTronics of expenses incurred
or paid by a director, officer or controlling person of HealthTronics in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, HealthTronics will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-7
<PAGE> 103
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has duly caused this Amended
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Marietta, and the state of Georgia, on April 26,
1999.
(Registrant).......................................HealthTronics, Inc.
By (Signature and Title).........................../s/ Roy S. Brown
--------------------------
Roy S. Brown
President and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on January 26, 1999.
<TABLE>
<CAPTION>
Signature Date Title
- --------- ---- -----
<S> <C> <C>
/s/ Argil J. Wheelock, M.D. April 26, 1999 Chairman and CEO
- ----------------------------------- (principal executive
Argil J. Wheelock, M.D. officer)
/s/ Victoria Beck April 26, 1999 Chief Financial
- ----------------------------------- Officer (principal
Victoria Beck financial and
accounting officer)
/s/ Roy S. Brown April 26, 1999 Director
- -----------------------------------
Roy S. Brown
* Scott Cochran April 26, 1999 Director
- ----------------------------------
Scott Cochran
</TABLE>
II-8
<PAGE> 104
<TABLE>
<S> <C> <C>
*Joachim Voss April 26, 1999 Director
----------------------------------
Joachim Voss
Director
---------------------------------
Jon Burke
*By: /s/ Roy S. Brown
------------------------------
Roy S. Brown, attorney-in-fact
</TABLE>
II-9
<PAGE> 105
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibit Rule 403(d) Page Number
- -------------- ---------------------- -----------------------
<S> <C> <C>
3.4 Specimen Stock Certificate.
9.1 House Group Stock Voting Agreement.
9.2 HMT Group Stock Voting Agreement.
10.1 Escrow Agreement.
10.12 LithoTron Service Agreement with Servicetrends, Inc.
10.14 OssaTron Service Contract with Servicetrends.
10.15 Manufacturer's Service Representative Agreement with
Servicetrends.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP.
24.1 Powers of Attorney.
27.1 Financial Data Schedule.
</TABLE>
II-10
<PAGE> 1
EXHIBIT 3.4
<TABLE>
<S> <C> <C>
[LOGO]
[NUMBER] HealthTronics, Inc. [SHARES]
INCORPORATED UNDER THE LAWS OF THE STATE OF GEORGIA
AUTHORIZED COMMON STOCK 30,000,000 SHARES
THIS CERTIFIES THAT __________________________________________________________________________________________________ is the
registered holder of _________________________________________________________________________________________________ Shares
OF THE AUTHORIZED COMMON STOCK OF HealthTronics, Inc. WHICH ARE FULLY PAID AND NON-ASSESSABLE AND WHICH ARE
transferable only on the books of the Corporation by the holder hereof in
person or by Attorney upon surrender of this Certificate properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be signed
by its duly authorized officers and its Corporate Seal to be hereunto affixed
this _________________________________ day of _________________________________ A.D. 19__
_____________________________ _____________________________
PRESIDENT SECRETARY
</TABLE>
<PAGE> 2
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- _____________ Custodian ___________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act __________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, __________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
_______________________________________________________________________________
_______________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
_______________________________________________________________________________
_______________________________________________________________________________
________________________________________________________________________ Shares
represented by the within Certificate, and do hereby irrevocably constitute
and appoint ____________________________________________________________________
________________________________________________________________________________
Attorney to transfer the said shares on the books of the within-named Corpora-
tion with full power of substitution in the premises.
Dated, ___________________________
_______________________________________
In presence of
__________________________________
<PAGE> 1
EXHIBIT 9.1
STOCK VOTING AGREEMENT
The undersigned, constituting all of the shareholders of Litho
Management, Inc. and all of the limited partners of U.S. Lithotripsy, L.P.
("USL"), do hereby appoint John House, M.D., as voting agent for the undersigned
and do convey to John House, M.D. the exclusive right to vote any and all shares
that have been received, and to be received by the undersigned from
HealthTronics, Inc., for a period not to exceed five (5) years.
The purpose of this Stock Voting Agreement is to ensure consistency in
the vote of the former shareholders of Litho Management, Inc. and of the limited
partners of USL.
This Stock Voting Agreement has been entered into in the city of
Arlington, State of Texas, on September 30, 1998.
/s/ Steven K. House
---------------------------
Steven K. House
/s/ John M. House, M.D.
---------------------------
John M. House, M.D.
---------------------------
Scott Spoerl
---------------------------
H. Patterson Hezmall, M.D.
---------------------------
David Ellis, M.D.
<PAGE> 2
STOCK VOTING AGREEMENT
The undersigned, constituting all of the shareholders of Litho
Management, Inc. and all of the limited partners of U.S. Lithotripsy, L.P.
("USL"), do hereby appoint John House, M.D., as voting agent for the undersigned
and do convey to John House, M.D. the exclusive right to vote any and all shares
that have been received, and to be received by the undersigned from
HealthTronics, Inc., for a period not to exceed five (5) years.
The purpose of this Stock Voting Agreement is to ensure consistency in
the vote of the former shareholders of Litho Management, Inc. and of the limited
partners of USL.
This Stock Voting Agreement has been entered into in the city of
Arlington, State of Texas, on September 30, 1998.
---------------------------------
Steven K. House
/s/ John M. House, M.D.
---------------------------------
John M. House, M.D.
---------------------------------
Scott Spoerl
/s/ H. Patterson Hezmall, M.D.
---------------------------------
H. Patterson Hezmall, M.D.
---------------------------------
David Ellis, M.D.
<PAGE> 3
STOCK VOTING AGREEMENT
The undersigned, constituting all of the shareholders of Litho
Management, Inc. and all of the limited partners of U.S. Lithotripsy, L.P.
("USL"), do hereby appoint John House, M.D., as voting agent for the undersigned
and do convey to John House, M.D. the exclusive right to vote any and all shares
that have been received, and to be received by the undersigned from
HealthTronics, Inc., for a period not to exceed five (5) years.
The purpose of this Stock Voting Agreement is to ensure consistency in
the vote of the former shareholders of Litho Management, Inc. and of the limited
partners of USL.
This Stock Voting Agreement has been entered into in the city of
Arlington, State of Texas, on September 30, 1998.
---------------------------------
Steven K. House
/s/ John M. House, M.D.
---------------------------------
John M. House, M.D.
---------------------------------
Scott Spoerl
---------------------------------
H. Patterson Hezmall, M.D.
/s/ David Ellis, M.D.
---------------------------------
David Ellis, M.D.
<PAGE> 4
STOCK VOTING AGREEMENT
The undersigned, constituting all of the former shareholders of Litho
Management, Inc. and all of the limited partners of U.S. Lithotripsy, L.P.
("USL"), do hereby appoint John House, M.D., as voting agent for the undersigned
and do convey to John House, M.D. the exclusive right to vote any and all shares
that have been received, and are to be received by the undersigned from
HealthTronics, Inc., for a period not to exceed five (5) years.
The purpose of this Stock Voting Agreement is to ensure consistency in
the vote of the former shareholders of Litho Management, Inc. and of the limited
partners of USL.
This Stock Voting Agreement was originally entered into in the city of
Arlington, State of Texas, on September 30, 1998.
-----------------------------------
Steven K. House
/s/ John M. House, M.D.
-----------------------------------
John M. House, M.D.
-----------------------------------
Scott Spoerl, CPA
-----------------------------------
H. Patterson Hezmall, M.D.
-----------------------------------
David Ellis, M.D.
/s/ Paul Thompson, M.D.
-----------------------------------
Paul Thompson, M.D.
<PAGE> 1
EXHIBIT 9.2
RESTATED STOCK VOTING AGREEMENT
The undersigned, constituting all of the shareholders of HMT High Medical
Technologies AG, a Swiss corporation, collectively own 2,000,100 shares of
HealthTronics, Inc., a Georgia corporation. The undersigned mutually agree,
beginning April 26, 1999, to vote our shares as a block with respect to all
matters. We will vote these shares according to the decision of holders of a
majority of the shares subject to this agreement. This agreement replaces the
Stock Voting Agreement that was effective as of May 1, 1998.
Name of Shareholder: Number of Shares of HealthTronics, Inc. Date of Signature:
Beneficially Owned on March 15, 1999:
________________________________________________________________________________
/s/ KARL HEINZ RESTLE 500,100 April 26, 1999
- ---------------------
Karl Heinz Restle
/s/ WERNER SCHWARZE 500,000 April 24, 1999
- ---------------------
Werner Schwarze
/s/ WALTER UEBELACKER 500,000 April 25, 1999
- ---------------------
Walter Uebelacker
/s/ JOACHIM VOSS 500,000 April 24, 1999
- --------------------
Joachim Voss
<PAGE> 1
EXHIBIT 10.1
ESCROW AGREEMENT
THIS ESCROW AGREEMENT, dated the 26th day of January 1999, by and
between HealthTronics, a Georgia corporation (the "Company"), Capital Growth
Management, Inc. as Placement Agent (the "Placement Agent"), and (Name of
bank), (the "Escrow Agent"), a banking association.
W I T N E S S:
WHEREAS, the Company proposes to offer and sell up to 1,000,000 Shares
of Common Stock (referred to as the "Shares") to investors pursuant to Section
5 of the Securities Act of 1933, as amended and Form SB-2 promulgated
thereunder; and
WHEREAS, the Company will agree with subscribers for such shares that
the subscription price paid in cash by such subscribers will be refunded to them
if less than an aggregate of $500,004 has been raised from the sale of Shares,
and payments therefore received, by _________________, 1999, if the offering is
extended by the Company and you receive written notice to that effect on or
before the Closing Date (the "Extended Closing Date") and
WHEREAS, the Company desires to establish an escrow for such funds,
and the Escrow Agent is willing to serve as Escrow Agent upon the terms and
conditions herein set forth:
NOW, THEREFORE, in consideration of the promises and other good and
valuable considerations, the receipt and sufficiency of which is hereby
acknowledged by the parties, the parties covenant and agree as follows:
1. DEPOSIT WITH ESCROW AGENT: The Escrow Agent agrees that it
will from time to time accept as Escrow Agent funds (the "Escrow Deposit")
received by it representing the subscription amount paid in cash by subscribers
for the Company's Shares. Subscription Agreements for the Shares and
accompanying checks received by the Placement Agent at its offices shall be
reviewed for accuracy by the Placement Agent and, immediately thereafter, the
Placement Agent shall deliver such checks to Escrow Agent pursuant to this
Agreement. Accompanying each such check shall be information describing (1) the
name, address and Federal Tax Identification
1
<PAGE> 2
Number of the Subscriber, (2) the number of Shares subscribed for, and (3) the
subscription price.
2. DISTRIBUTION OF ESCROW DEPOSIT: The Escrow Agent shall
distribute the Escrow Deposit in the amounts, at the times, and upon the
conditions hereinafter set out:
2.1 If at any time on or prior to the Closing Date or
the Extended Closing Date, said $500,004 in aggregate amount of Shares have
been sold, then upon the happening of such event, the Escrow Agent shall
deliver 90% of the Escrow Deposit by a certified or cashier's check made
payable to "HealthTronics, Inc." or by wire transfer to said account which
shall be maintained at (Name of bank). At the same time, the Escrow Agent shall
deliver 10% of the Escrow Deposit by a certified or cashier's check made
payable to "Capital Growth Management, Inc." or by wire transfer to said
account which shall be maintained at (Name of bank). An Affidavit or
certification from the Company that an aggregate of $500,004 of Shares have
been timely sold and the receipt by Escrow Agent of $500,004 hereunder shall
constitute sufficient evidence for the purposes of this Agreement that such
event has occurred.
2.2 If the Escrow Deposit does not, on or prior to the
or the Extended Closing Date, become deliverable to the Company pursuant to
Paragraph 2.1 above, the Escrow Agent shall return the Escrow Deposit to the
respective subscribers in amounts equal to the subscription amount theretofore
paid by each of them without interest and without deductions.
3. LIABILITY OF ESCROW AGENT:
3.1 In performing any of its duties under this Escrow
Agreement, or upon the claimed failure to perform its duties hereunder, Escrow
Agent shall not be liable to anyone for any damages, losses, or expenses which
they may incur as a result of the Escrow Agent so acting, or failing to act;
provided, however, Escrow Agent shall be liable for damages arising out of its
willful default or gross negligence under this Agreement. Accordingly, Escrow
Agent shall not incur any such liability with respect to (I) any action taken
or omitted to be taken in good faith upon advise of its counsel or counsel for
the Company given with respect to any questions relating to the duties and
responsibilities of the Escrow Agent hereunder or (ii) to any action taken or
omitted to be taken in reliance upon any document, including any written notice
or
2
<PAGE> 3
instructions provided for in this Escrow Agreement, not only as to its due
execution and to the validity and effectiveness of its provisions but also as
to the truth and accuracy of any information contained therein, which the
Escrow Agent shall in good faith believe to be genuine, to have been signed or
presented by proper person or persons and to conform with the provisions of
this Agreement.
3.2 The Company hereby agrees to indemnify and hold
harmless Escrow Agent against any and all losses, claims, damages, liabilities
and expenses, including, without limitation, reasonable costs of investigation
and counsel fees and disbursements which may be incurred by it resulting from
any act or omission of the Company; except, that if Escrow Agent shall be found
guilty of willful default or gross negligence under this Agreement by any court
of competent jurisdiction, then, in that event, Escrow Agent shall bear all
such losses, claims, damages and expenses.
3.3 In the event of the breach by the Company of any
covenant contained herein or a dispute between any of the parties hereto
sufficient in the discretion of Escrow Agent to justify its doing so, the
Escrow Agent shall be entitled to tender into the registry or custody of any
court of competent jurisdiction all money or property in its hands under the
terms of this Agreement, together with such legal proceedings as it deems
appropriate, and thereupon to be discharged from all further duties under this
Agreement. Any such legal action may be brought in any such court as Escrow
Agent shall determine to have jurisdiction thereof. The filing of any such
legal proceedings shall not deprive Escrow Agent of its compensation earned
prior to such filing or after the filing of such legal proceedings if the
Escrow Agreement remains effective; and the Company shall indemnify Escrow
Agent against its court costs and attorneys' fees incurred in filing such legal
proceedings.
4. INABILITY TO DELIVER: In the event that checks for
subscriptions delivered to the Escrow Agent by the Placement Agent pursuant to
this Escrow Agreement are not cleared, the Escrow Agent shall deliver such
uncleared checks to the Company unless the Escrow Deposit is returned to
subscribers pursuant to 2.2 above, in which case Escrow Agent shall mail such
uncleared checks to the subscribers. Escrow Agent shall have no responsibility
to collect, or to institute any action with respect to, any checks.
3
<PAGE> 4
5. NOTICES: All notices, requests, demands and other
communications or deliveries required or permitted to be given hereunder shall
be in writing and shall be deemed to have been duly given if delivered
personally, given by prepaid telegram or deposited for mailing, first class,
postage prepaid, registered or certified mail, as follows:
A) If to the subscribers for the Company's Shares:
To their respective addresses as specified in their
Subscription Agreements or as furnished to Escrow Agent
pursuant to Paragraph 1 of this Agreement.
B) If to the Company:
HealthTronics, Inc.
425 Franklin Road, Suite 545
Marietta, Georgia 30067
Attention: Roy S. Brown,
President
C) If to the Placement Agent:
Capital Growth Management, Inc.
1827 Powers Ferry Road, Building #2
Atlanta, Georgia 30339
Attention: Charles G.
Maton, President
D) If to the Escrow Agent:
Charter Bank and Trust Co.
--------------------------------------------------------------
1920 Powers Ferry Rd.
--------------------------------------------------------------
Marietta, GA 30067
--------------------------------------------------------------
Attention: William K. Hilley, V.P.
---------------------------------------------------
6. GENERAL:
6.1 This Escrow Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Georgia.
6.2 The section headings contained herein are for
reference purposes only and shall not in any way affect the meaning of
interpretation of this Escrow Agreement.
4
<PAGE> 5
6.3 This escrow agreement sets forth the entire
agreement and understanding of the parties in respect to this escrow
transaction except as to fees and out-of-pocket expenses of escrow agent which
are referred to in Section 7 below and supersedes all prior agreements,
arrangements and understandings relating to the subject matter hereof.
6.4 This Escrow Agreement may be amended, modified,
superseded or canceled, and any of the terms or conditions hereof may be
waived, only by a written instrument executed by each party hereto or, in the
case of a waiver, by the party waiving compliance. The failure of any party at
any time or times to require performance of any provision hereof shall in no
manner affect the right at a later time to enforce the same. No waiver of any
party of any condition, or of the breach of any term contained in this Escrow
Agreement, whether by conduct or otherwise, in any one or more instances shall
be deemed to be or construed as a further or continuing waiver of any such
condition or breach of a waiver of any other condition or of the breach of any
other terms of this Escrow Agreement.
6.5 This Escrow Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
6.6 This Escrow Agreement shall inure to the benefit of
the several parties and their respective executors, administrators, successors,
heirs and assigns.
7. FEES OF ESCROW AGENT: The Company agrees to pay the Escrow
Agent as compensation for services hereunder by separate agreement. (See
Exhibit "A", attached.)
8. REPRESENTATION OF THE COMPANY: The Company hereby
acknowledges that the status of the Escrow Agent with respect to the offering
of the Shares is that of agent only for the limited purposes herein set forth,
and hereby agrees it will not represent or imply that Escrow Agent, by serving
as Escrow Agent hereunder or otherwise, has investigated the desirability or
advisability of investment in the Company, or has approved, endorsed or passed
upon the merits of the Shares of the Company, nor shall the Company use the
name of Escrow Agent in any manner whatsoever in connection with the offer or
sale of the Shares other than by acknowledgment
5
<PAGE> 6
that it has agreed to serve as Escrow Agent for the limited purposes herein set
forth.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
HealthTronics, Inc.
"COMPANY"
By: /s/ Argil J. Wheelock
-----------------------------------------
Argil J. Wheelock, MD
Chairman & CEO
Capital Growth Management, Inc.
"PLACEMENT AGENT"
By: /s/ Edward C. Bonawitz
-----------------------------------------
Edward C. Bonawitz, CEO
(Name of bank)
"ESCROW AGENT"
By: /s/ William K. Hilley
-----------------------------------------
William K. Hilley, V.P.
6
<PAGE> 1
EXHIBIT 10.12
[Service Trends Letterhead]
LITHOTRON SERVICE AGREEMENT
CONTRACT NUMBER: 970076
CUSTOMER NAME AND ADDRESS HealthTronics Inc.
425 Franklin Rd. Ste. 545
Marietta, GA 30067
CONTACT PERSON: Dr. Argil Wheelock
CEO
DATE QUOTE WAS ISSUED: September 29, 1997
QUOTE IS FIRM UNTIL: December 29, 1997
SERVICE CHARGES: $24,000/LithoTron Full Maintenance
Labor and Logistics/Per Machine
DESCRIPTION OF SERVICE: See Terms and Conditions and Exhibits A for
Details
The period of this contract is for one year commencing on OCTOBER 1, 1997.
Please select method of payment:
____I would like to be billed in four (4) equal quarterly installments.
X I would like to be billed in twelve (12) equal monthly installments.
- ----
Accepted by Customer: Accepted by Service Company:
/s/ /s/ Steven DeBrock
- ------------------------- ----------------------------
Signature Signature
CEO 10/14/97 COO 10/14/97
- ------------------------- ----------------------------
Title Date Title Date
<PAGE> 2
[Service Trends Letterhead]
EXHIBIT A
Upon execution of this agreement, Servicetrends will provide the following
Services to HealthTronics Inc.:
LITHOTRON FULL MAINTENANCE PROGRAM
LABOR AND LOGISTICS (INCLUDING "C" ARM)
PRICE: $24,000.00/PER MACHINE
A) UNLIMITED SERVICE CALLS (24 HOURS A DAY, 7 DAYS A WEEK) AND TWO (2)
PREVENTIVE MAINTENANCE INSPECTIONS PER YEAR:
Performed at a time convenient to the HealthTronics, including weekends or
evenings so as not to interfere with patient scheduling.
B) INSTALLATION/TRAINING:
For first two (2) installations into a Servicetrends' FSE territory,
Servicetrends will insure availability of FSE for two (2) days in order to
assist in the installation of and training on the LithoTron. Installation and
all costs associated therewith (travel, hotel, labor, etc.) shall be the sole
responsibility of Servicetrends.
C) LOGISTICS:
Servicetrends will handle all dispatch responsibilities and stock all spare
parts supplied by HealthTronics.
D) SHOCKWAVE GENERATOR SERVICE:
Servicetrends will provide unlimited shockwave generator service for each system
under contract.
E) REPORTING:
Servicetrends agrees to provide timely reports with respect to inventory,
service call activity.
F) NO-RISK, 30-DAY GUARANTEE:
HealthTronics and/or Servicetrends may cancel Service Contract with thirty (30)
days written notice during the first quarter and ninety (90) days written
notice thereafter.
<PAGE> 3
[SERVICE TRENDS LETTERHEAD]
EXHIBIT B
Upon execution of this agrement, HealthTronics will provide the following
Services to Servicetrends:
A) FACTORY TRAINING:
HealthTronics agrees to establish factory training for three (3) to five (5)
Servicetrends' Field Service Engineers on the Philip's "C" arm; and should
HealthTronics sell any other brand of "C" arm with their LithoTron, they
agree to obtain factory training for Servicetrends on that particular brand
as well.
B) SHOCKWAVE GENERATORS:
HealthTronics will provide Servicetrends with specifications on the new spark
gap for the shockwave generator; and they will also provide factory
certification of Servicetrends' shockwave generator shop and personnel.
HealthTronics will additionally provide any required modules needed to test
refurbished shockwave generators.
<PAGE> 4
[HealthTronics Letterhead]
July 20, 1998
Mr. Steven DeBrock
Servicetrends, Inc.
2130 Barrett Park Drive, NE
Suite 103
Kennesaw, GA 30144
Dear Steven:
Per our recent conversation, please allow me to reiterate in writing the
revised terms of the service agreement between Servicetrends and HealthTronics.
According to the original LithoTron Service Agreement (970076) signed and dated
October 14, 1997, paragraph F of Exhibit A states that both HealthTronics and
Servicetrends must provide ninety (90) days notice of cancellation after the
first quarter of the contract period ha elapsed. Under the revised cancellation
policy, Servicetrends is still required to provide 90 days written notification
of its intent to cancel the service agreement, however HealthTronics is only
required to provide thirty (30) days written notice of cancellation.
Should Servicetrends choose to cancel the service agreement with HealthTronics,
Servicetrends guarantees that the quality of service being provided to
HealthTronics will not decrease during the final 90 days. If during the final
90 days of the service agreement, HealthTronics judges the quality of service
provided by Servicetrends to be unsatisfactory (as determined by its LithoTron
and OssaTron customers), Servicetrends agrees to refund HealthTronics'
quarterly service payment.
Also, if Servicetrends cancels the service agreement with HealthTronics,
Servicetrends agrees to return the entire inventory of LithoTron and OssaTron
parts to HealthTronics within 24 hours at no charge. Servicetrends acknowledges
that the stock of LithoTron and OssaTron parts in inventory at Servicetrends'
facility is the property of HealthTronics and that the $11,000 annually per
machine which Servicetrends pays to HMT is solely to cover the cost of HMT
repairing, replacing and replenishing inventory used by Servicetrends to
maintain the LithoTron and OssaTron units in North America.
Should these terms be suitable to you, please sign and date below and return at
your earliest convenience. Please keep a copy for your records. If you have any
questions, please feel free to call me.
Kindest regards, Accepted by Servicetrends
/s/ John Warlick /s/ Steven DeBrock
- ------------------------ ---------------------------
John Warlick Signature
Executive Vice President COO 7/21/98
---------------------------
Title Date
<PAGE> 1
EXHIBIT 10.14
[HealthTronics Letterhead]
FAX TRANSMISSION
TO: COMPANY: Servicetrends
ATTENTION: Steven DeBrock
FAX NUMBER: (770) 514-0232
FROM: John Warlick
DATE: June 26, 1998
SUBJECT: OssaTron Service Contracts
NO. OF PAGES INCLUDING THIS ONE: 1
---
- ------------------------------------------------------------------------------
Dear Steven:
Per our conversation yesterday, HealthTronics does hereby authorize
Servicetrends to commence annual service contracts (labor only) for the
OssaTron devices in Miami, Atlanta and Chattanooga/Birmingham. Please be
advised that two contracts (for the Miami and Chattanooga/Birmingham units)
will have an effective date of June 1, 1998. The contract for the Atlanta unit
will commence on July 1, 1998.
As agreed, the cost of each service contract will be $20,000 per year for
unlimited service and courtesy calls. Should you have any questions regarding
this matter, please feel free to contract me at your convenience.
Kindest regards,
/s/ John Warlick
John Warlick
Executive Vice President
CC: Argil
Roy
Vikki
<PAGE> 2
[HealthTronics]
July 16, 1998
Mr. Steven DeBrock
Servicetrends, Inc.
2130 Barrett Park Drive, NE
Suite 103
Kennesaw, GA 30144
Dear Steven:
Enclosed please find signed copies of OssaTron(R) Service Agreement 980088.
Please note that we have stricken one paragraph from the exhibit page and have
attached an addendum as well. Should you have any questions regarding these
changes, please feel free to contact me. Otherwise, I look forward to receiving
a fully executed copy of the service agreement at your earliest convenience.
Thank you.
Kindest regards,
/s/ John Warlick
- ------------------------
John Warlick
Executive Vice President
<PAGE> 3
[Service Trends Letterhead]
OSSATRON SERVICE AGREEMENT
CONTRACT NUMBER: 980088
CUSTOMER NAME AND ADDRESS: HealthTronics Inc.
425 Franklin Rd. Ste. 545
Marietta, GA 30067
CONTACT PERSON: Dr. Argil Wheelock
CEO
DATE QUOTE WAS ISSUED: June 1, 1998
QUOTE IS FIRM UNTIL: September 1, 1998
SERVICE CHARGES: $20,000 / OssaTron Full Maintenance
Labor and Logistics / Per Machine
DESCRIPTION OF SERVICE: See Terms and Conditions and Exhibit A
for Details.
The period of this contract is for one year commencing on June 1, 1998.
Please select method of payment:
________ I would like to be billed in four (4) equal quarterly installments.
X I would like to be billed in twelve (12) equal monthly installments.
- --------
Accepted by Service Company: Accepted by Customer:
/s/ /s/
- --------------------------- ----------------------------
Signature Signature
C.E.O. 7/16/98 C.O.O. 7/20/98
- --------------------------- ----------------------------
Title Date Title Date
<PAGE> 4
[LOGO]
[Service Trends Letterhead]
EXHIBIT A
Upon execution of this agreement, Servicetrends will provide the following
Services to HealthTronics Inc.:
OSSATRON FULL MAINTENANCE PROGRAM
LABOR AND LOGISTICS
PRICE: $20,000.00/PER MACHINE
A) UNLIMITED SERVICE CALLS (24 HOURS A DAY, 7 DAYS A WEEK) AND TWO (2)
PREVENTIVE MAINTENANCE INSPECTIONS PER YEAR:
Performed at a time convenient to the HealthTronics, including weekends or
evenings so as not to interfere with patient scheduling.
B) [PARAGRAPH STRICKEN]
C) LOGISTICS:
Servicetrends will handle all dispatch responsibilities and stock all spare
parts supplied by HealthTronics.
D) REPORTING:
Servicetrends agrees to provide timely reports with respect to inventory,
service call activity.
E) NO-RISK, 30-DAY GUARANTEE:
HealthTronics and/or Servicetrends may cancel Service Contract with thirty (30)
days written notice during the first quarter and ninety (90) days written
notice thereafter.
<PAGE> 5
[SERVICE TRENDS LETTERHEAD]
ADDENDUM TO
OSSATRON(R) SERVICE AGREEMENT 980088
OssaTron Service Agreement 980088 applies only to:
1. OSSATRON 014
SHARED BETWEEN THESE TWO FACILITIES:
Memorial Hospital HealthSouth Medical Center
2525 deSales Avenue 1201 11th Avenue South
Chattanooga, TN 37404-1102 Birmingham, AL 35205-5299
2. OSSATRON 013
HealthSouth Doctor's Hospital
5000 University Drive
Coral Gables, FL 33134-6990
The remaining OssaTron installations will be handled as follows:
OSSATRON 021 NOTES
Georgia Baptist Medical Center Contract commencement date is 8/1/98.
303 Parkway Drive NE
Atlanta, GA 30312
OSSATRON 012
Regional Lithotripter Services No contract
501 North Graham, Suite LL165
Portland, OR 97227
Accepted by Servicetrends Accepted by HealthTronics
/s/ /s/
--------------------------- ---------------------------
Signature Signature
C.O.O. 7/20/98 C.E.O. 7/16/98
--------------------------- ---------------------------
Title Date Title Date
<PAGE> 1
EXHIBIT 10.15
[SERVICE TRENDS LETTERHEAD]
MANUFACTURER'S SERVICE REPRESENTATIVE AGREEMENT
This Agreement has been concluded between HEALTHTRONICS, INC. (hereinafter
referred to as "HI") and SERVICETRENDS, INC. (hereinafter referred to as
"STI") for the purpose of cooperation in the field of service and support of
medical equipment.
Upon execution of this agreement, HI will agree to the following terms:
1.) The original labor and logistics contract signed November 1997 will
remain in effect for the first year of all installed units for
warranty service, with one exception; the parts contract between HMT
and HI will be transferred to STI and will be billed back to HI for
the warranty period.
2.) After the first year warranty expires, STI will assume all
responsibility for obtaining service contracts with LithoTron
owners. Thus, STI will have complete liability for tech support,
parts, billing and collections.
3.) HI agrees all LithoTron customers, when in need of service or spare
parts, will be directed to STI for these support needs.
In exchange for the aforementioned, STI agrees to the following:
1.) STI agrees to pay HI ten percent (10%) of contract and time and
material revenues generated from HI lithotripters no longer under
warranty.
2.) Provide a WEEKLY Critical Accounts List to HI and a MONTHLY Summary
of All Service Calls and Performance Tests to both HI and HMT. In
addition, HI will be notified IMMEDIATELY of all "Down" units and all
calls (regardless of Class type) for critical accounts.
3.) Provide a MONTHLY Inventory Report to HI. In addition, HI will be
notified IMMEDIATELY of any "on-hand" quantities which fall below
acceptable levels.
4.) Follow all HMT or HI SOPs for service, for example: conduct
Performance Tests upon completion of installation and immediately
following the exchange or repair of any shockwave generating chain
components.
5.) Provide LithoTron installations at a price of $5,500 each. This will
include, but not be limited to, modification of "C" arms, shipping,
Performance Testing and installation at customer site.
6.) Continually consult with HI in setting pricing for both service
contracts and time and material rates so as to assure competitive
pricing in the industry.
7.) Effective date of this agreement shall be April 1, 1998
/s/ 4/2/98
- ------------------------------------- ---------------------------------
Signature Date Title
/s/ C.O.O.
- ------------------------------------- ---------------------------------
Signature Date Title
<PAGE> 1
EXHIBIT 21.1
HEALTHTRONICS, INC.
SCHEDULE OF SUBSIDIARIES
(as of the date of this Prospectus)
<TABLE>
<S> <C> <C>
Tenn-Ga Prostate Therapies, LLC Limited Liability Corporation TN
Litho Management, Inc. Corporation TX
HLE Corporation Corporation TX
U.S. Lithotripsy, L.P. Limited Partnership TX
Metro I Stone Management, Ltd. Limited Partnership TX
Mississippi Valley I Stone Management, L.P. Limited Partnership MO
East Texas I Stone Management, Ltd. Limited Partnership TX
Dallas Stone Management, L.P. Limited Partnership TX
S.C. Missouri Stone Management, L.P. Limited Partnership MO
Tulsa Stone Management, L.P. Limited Partnership OK
Tyler Stone Services, L.P. Limited Partnership TX
Tyler Stone Management, L.P. Limited Partnership TX
SE Colorado Lithotripsy, L.P. Limited Partnership CO
Mississippi Valley II Stone Management, L.P. Limited Partnership MO
Missouri Valley Lithotripsy, L.P. Limited Partnership MO
North Central Texas Lithotripsy, L.P. Limited Partnership TX
Central Missouri Lithotripsy, LLC Limited Liability Corporation MO
White River Lithotripsy, LP Limited Partnership CO
Central Texas Lithotripsy, LP Limited Partnership TX
Central Dallas Lithotripsy, L.P. Limited Partnership TX
Western Colorado Lithotripsy, LP Limited Partnership CO
Oklahoma Lithotripsy, LP Limited Partnership OK
Lithowest, LLC Limited Liability Corporation AZ
Florida Lithology, Inc. Corporation FL
Florida Lithology, Ltd. Limited Partnership FL
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated February 26, 1999 and August 7, 1998, with respect to
the consolidated financial statements of HealthTronics, Inc. and Subsidiaries
and of Litho Management, Inc. and Subsidiaries, respectively, included in
Amendment No. 2 to the Registration Statement Form SB-2 (No. 333-66977) and
the related Prospectus of HealthTronics, Inc. for the registration of 1,000,000
shares of its common stock.
/s/ Ernst & Young LLP
------------------------
Atlanta Georgia
April 23, 1999
<PAGE> 1
EXHIBIT 24.1
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
amendment to the Registration Statement to be signed on its behalf by the
thereunto duly authorized, in the City of Marietta, and the state
of Georgia, on November 9, 1998.
(Registrant)..............................................HealthTronics, Inc.
/s/ ROY S. BROWN
By (Signature and Title)..................................----------------------
Roy S. Brown
President and Director
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Roy S. Brown
as his true and lawful attorney-in-fact and agent with full power of
substitution, for him and in his name, in any and all capacities, to sign any or
all amendments (including post-effective amendments) to the SB-2 Registration
Statement filed by HealthTronics, Inc., to file the same with the Securities and
Exchange Commission, hereby ratifying and confirming all that said
attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on November 9, 1998.
<TABLE>
<CAPTION>
Signature Date Title
<S> <C> <C>
/s/ ARGIL J. WHEELOCK, M.D. 11/9/98 Chairman and CEO
- --------------------------- -------
Argil J. Wheelock, M.D.
/s/ ROY S. BROWN 11/9/98 President, COO and Director
- --------------------------- -------
Roy S. Brown
/s/ JOHN F. WARLICK 11/3/98 Executive Vice President
- --------------------------- -------
John F. Warlick
/s/ SCOTT COCHRAN 11/9/98 Secretary/Treasurer and Director
- --------------------------- -------
Scott Cochran
Vice President
- --------------------------- -------
Marie Marlow
Director
- --------------------------- -------
Joachim Voss
/s/ VICTORIA BECK 11/9/98 Chief Accounting Officer
- --------------------------- -------
Victoria Beck
</TABLE>
II-9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF HEALTHTRONICS, INC. FOR THE YEAR ENDED DECEMBER 31, 1997
AND 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-END> DEC-31-1997 DEC-31-1998
<CASH> 1,796,694 801,563
<SECURITIES> 0 0
<RECEIVABLES> 1,058,396 2,796,351
<ALLOWANCES> 0 0
<INVENTORY> 1,465,887 1,179,298
<CURRENT-ASSETS> 5,528,547 5,412,940
<PP&E> 1,117,972 5,754,374
<DEPRECIATION> 143,090 819,757
<TOTAL-ASSETS> 6,946,931 14,114,867
<CURRENT-LIABILITIES> 2,615,013 2,789,261
<BONDS> 0 0
0 0
0 0
<COMMON> 4,343,226 7,403,226
<OTHER-SE> (983,561) 221,487
<TOTAL-LIABILITY-AND-EQUITY> 6,946,931 14,114,867
<SALES> 5,062,104 14,681,941
<TOTAL-REVENUES> 5,062,104 14,681,941
<CGS> 3,263,233 6,863,506
<TOTAL-COSTS> 5,450,664 10,838,882
<OTHER-EXPENSES> (8,966) 2,189,020
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 38,434 144,730
<INCOME-PRETAX> (418,028) 1,509,309
<INCOME-TAX> 0 304,261
<INCOME-CONTINUING> (418,028) 1,205,048
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (418,028) 1,205,048
<EPS-PRIMARY> (0.05) 0.13
<EPS-DILUTED> (0.05) 0.13
</TABLE>
