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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended June 30, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 001-14921
HEALTHTRONICS, INC.
(Exact name of registrant as specified in its charter)
GEORGIA 58-2210668
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1841 WEST OAK PARKWAY STE. A 30062
MARIETTA, GEORGIA
(Address of principal executive (Zip Code)
offices)
(770) 419-0691
(Registrant's telephone number, including area code)
---------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock.
10,851,171 SHARES OF NO PAR VALUE COMMON STOCK AS OF JULY 31, 2000
Transitional Small Business Disclosure Format (check one) YES [ ] NO [X]
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HEALTHTRONICS, INC.
INDEX TO FORM 10-QSB
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
June 30, 2000 (unaudited) and December 31, 1999 3
Condensed Consolidated Unaudited Income Statement for the
three months ended June 30, 2000 and 1999 and for the six
months ended June 30, 2000 and 1999 5
Condensed Consolidated Unaudited Statements of Cash Flows for
the six months ended June 30, 2000 and 1999 6
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 16
Item 4. Submission of matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 17
</TABLE>
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Part 1. Financial Information
Item 1. Financial Statements
HealthTronics, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
-------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,835,588 $ 5,024,890
Trade accounts receivable, less allowance for doubtful
accounts of $253,751 and $129,237 at June 30, 2000 and
December 31, 1999, respectively 5,392,464 4,426,973
Inventory 1,747,019 1,195,743
Due from affiliated equity partnerships 271,550 162,523
Vendor deposits 1,523,060 802,009
Prepaid expenses 50,380 48,778
Income taxes receivable 147,378 --
Deferred income taxes 375,751 375,751
-------------------------------
Total current assets 14,343,190 12,036,667
Property and equipment, at cost:
Medical devices placed in service 10,934,599 9,085,000
Office equipment, furniture and fixtures 325,373 129,942
Vehicles and accessories 1,577,335 1,340,420
-------------------------------
12,837,307 10,555,362
Less accumulated depreciation (3,501,450) (2,376,510)
-------------------------------
Net property and equipment 9,335,857 8,178,852
Partnership investments 307,341 318,150
Goodwill (net of accumulated amortization of $448,910 and
$340,700 at June 30, 2000 and December 31, 1999,
respectively) 3,556,134 2,905,540
Patent license (net of accumulated amortization of $49,992
and $44,993 at June 30, 2000 and December 31, 1999,
respectively) 50,008 55,007
Other assets 24,860 40,465
-------------------------------
Total assets $ 27,617,390 $ 23,534,681
===============================
</TABLE>
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<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
-------------------------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 2,437,372 $ 1,131,142
Customer deposits 355,800 903,352
Income taxes payable -- 141,652
Warranty accrual 615,175 513,305
Other accrued expenses 924,734 1,099,751
Deferred profit on service contracts 101,995 90,155
Current portion of long-term debt 1,338,370 1,287,054
-------------------------------
Total current liabilities 5,773,446 5,166,411
Deferred income taxes 12,977 12,977
Deferral of profit on medical device sales to related
parties 244,194 244,194
Long-term debt, less current portion 2,381,781 1,759,126
Minority interest 3,065,647 2,224,087
-------------------------------
Total liabilities 11,478,045 9,406,795
Shareholders' equity:
Common stock - no par value, voting:
Authorized - 30,000,000 shares at June 30, 2000 and
December 31, 1999
Issued and outstanding - 10,851,171 and 10,716,271
shares at June 30, 2000 and December 31, 1999,
respectively 12,979,521 12,309,181
Retained earnings 3,159,824 1,818,705
-------------------------------
16,139,345 14,127,886
-------------------------------
Total liabilities and shareholders' equity $27,617,390 $23,534,681
===============================
</TABLE>
See accompanying notes.
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HealthTronics, Inc. and Subsidiaries
Condensed Consolidated Income Statement
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
2000 1999 2000 1999
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenue $ 8,740,974 $ 7,008,685 $ 16,364,494 $ 11,655,012
Cost of goods sold, rentals and
services provided 3,509,187 3,484,262 6,920,306 5,467,307
---------------------------------------------------------------------
5,231,787 3,524,423 9,444,188 6,187,705
Salaries, wages and benefits 517,942 679,751 1,063,890 1,066,480
General and administrative
expenses 1,735,505 1,052,038 3,323,815 1,883,443
---------------------------------------------------------------------
2,978,340 1,792,634 5,056,483 3,237,782
Equity in earnings of unconsolidated
partnerships 36,711 24,076 77,219 44,863
Minority interest (1,666,248) (965,071) (2,893,322) (1,860,397)
Interest expense (100,181) (76,046) (182,086) (176,323)
Interest income 49,454 -- 107,728 3,607
Partnership distributions from cost 122,911 34,992 160,503 54,233
based investments
Net income before income taxes 1,420,987 810,585 2,326,525 1,303,765
Provision for income taxes (586,602) (363,045) (985,406) (540,186)
---------------------------------------------------------------------
Net income $ 834,385 $ 447,540 $ 1,341,119 $ 763,579
=====================================================================
Basic and diluted income per common share:
Basic $ 0.08 $ 0.05 $ 0.12 $ 0.08
=====================================================================
Diluted $ 0.08 $ 0.05 $ 0.12 $ 0.08
=====================================================================
Weighted average common shares outstanding:
Basic 10,764,988 9,680,727 10,744,721 9,673,077
=====================================================================
Diluted 11,127,430 9,944,227 11,101,889 9,936,577
=====================================================================
</TABLE>
See accompanying notes.
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HealthTronics, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
2000 1999
-----------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,341,119 $ 763,579
Adjustments to reconcile net income to cash used in
operating activities:
Depreciation and amortization 1,238,149 783,569
Provision for doubtful accounts 124,514 118,694
Deferral of profit on medical device sales or
other revenues 11,840 54,000
Equity in earnings of unconsolidated
partnerships, net of dividends (77,219) (44,863)
Minority interest in subsidiaries, net of
distributions 841,560 226,005
Changes in operating assets and liabilities,
net of businesses acquired:
Trade accounts receivable (1,090,005) (1,351,229)
Due from affiliated equity partnerships (109,027) (31,779)
Inventory (534,726) 241,549
Vendor deposits (721,051) (19,917)
Prepaid expenses 6,325 (275,872)
Income taxes receivable (147,378) --
Trade accounts payable 1,306,230 357,301
Customer deposits (547,552) 30,000
Income taxes payable (141,652) 211,569
Warranty accrual 101,870 129,129
Accrued expenses (175,017) 438,482
-----------------------------
Net cash provided by operating activities 1,427,980 1,630,217
</TABLE>
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HealthTronics, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (continued)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
2000 1999
-----------------------------
<S> <C> <C>
INVESTING ACTIVITIES
Purchases of property and equipment, net of businesses
acquired (2,215,222) (1,518,374)
Business acquisition (850,000) --
Other assets 15,605 4,863
Purchases of partnership investments, net of cash
acquired 88,024 (12,336)
-----------------------------
Net cash used in investing activities (2,961,593) (1,525,847)
FINANCING ACTIVITIES
Proceeds from issuance of common stock 670,340 50,000
Proceeds from issuance of long-term debt 1,578,594 167,875
Principal payments on long-term debt (904,623) (701,254)
Proceeds from short-term borrowings 3,850,733 3,125,000
Principal payments on short-term borrowings (3,850,733) (2,697,133)
-----------------------------
Net cash provided by (used in) financing activities 1,344,311 (55,512)
-----------------------------
Net (decrease) increase in cash and cash equivalents (189,302) 48,858
Cash and cash equivalents at beginning of period 5,024,890 801,563
-----------------------------
Cash and cash equivalents at end of period $ 4,835,588 $ 850,421
=============================
</TABLE>
See accompanying notes.
7
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HealthTronics, Inc. and Subsidiaries
Notes To Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The accompanying consolidated financial statements include the
accounts of HealthTronics, Inc. and its subsidiaries. All significant
intercompany transactions have been eliminated.
In the opinion of HealthTronics management, the accompanying
unaudited consolidated financial statements include all the necessary
adjustments (consisting of normal recurring adjustments) for a fair
presentation of its consolidated financial position and results of
operations for the interim periods presented. The information presented
in these financial statements has not been audited but was prepared in
conformity with generally accepted accounting principles for interim
financial information and instructions for Form 10-QSB and Item 310(b)
of Regulation S-B. Although management believes that the disclosures in
these financial statements are adequate to make the information
presented not misleading, certain information and disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. These
financial statements should be read in conjunction with HealthTronics'
Annual Report on Form 10-KSB for the year ended December 31, 1999 filed
with the Securities and Exchange Commission.
Preparation of these interim consolidated financial statements
in accordance with generally accepted accounting principles requires
management to make certain estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes.
The interim results may not be indicative of the results that may be
expected for the year.
Certain prior year balances have been reclassified to conform
to the 2000 presentation.
2. Description of Business
HealthTronics, Inc. (the "Company") was incorporated in the
State of Georgia in 1995. The Company was established to pursue Food &
Drug Administration ("FDA") approval (Pre-Market Approval - "PMA") for
orthopaedic and urologic applications of extracorporeal shock wave
therapy and the marketing of medical devices for these applications in
the United States, Canada and Mexico. Certain products are already
being used outside the United States and Canada. During 1997, the
Company received FDA approval to market the LithoTron. On December 30,
1999, the Company submitted its application to the FDA requesting
pre-market approval of the OssaTron. On July 20, 2000, the Orthopaedic
and Rehabilitation Devices advisory panel to the FDA recommended to the
FDA that HealthTronics, Inc. be given approval to market the
8
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OssaTron for treatment of chronic proximal plantar fasciitis. While the
Company awaits a final decision from the FDA, the panel recommendation
in no way obligates the FDA to approve the pre-market approval of the
OssaTron, or if it gives pre-market approval, to do so without
conditions. The Company is currently establishing additional test sites
for the OssaTron FDA clinical trials for additional applications.
In 1996, High Medical Technologies AG (HMT) granted to the
Company the right to purchase the manufacturing rights to the 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,
surgery centers and hospitals that purchase equipment from the Company
as well as management fees from such entities.
In order to appropriately reflect the nature of the Company's
operations and its relationship to its subsidiaries, the accompanying
consolidated statements of income include the Company's appropriate
majority or minority equity ownership interest in the net revenues and
expenses of each of its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
3. Business Acquisition and Disposition
On January 24, 2000, the Company completed the acquisition of
the assets of Health Horizons (E.S.W.L.), L.P. for $850,000 in cash and
the assumption of certain liabilities, including a lease, trade and
accounts payable and obligations under regulatory permits. The assets
purchased included a lithotripter and related medical equipment, other
furniture, equipment, patient records and other related assets used in
New Jersey Kidney Stone Treatment Center. The purchase price was
determined and negotiated by the parties based on the expected annual
cash flow to be generated by the assets purchased. The Company financed
the acquisition with working capital generated by its business. The
Company pre-negotiated to sell its interest in the assets purchased to
a limited liability company, which will be managed by the Company and
of which the Company will own 20 to 30%. The sale of the assets from
Health Horizons (E.S.W.L.) L.P. to the newly established limited
liability company was consummated on June 1, 2000. The remaining
members will be independent of the Company. Based upon the Company's
ability to exercise control over the operating and financial policies
of the new limited liability company, the Company has consolidated the
financial position and results of operations of the new limited
liability company.
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HealthTronics, Inc. and Subsidiaries
Pro Forma Combined Condensed Statements of Income
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------------
HEALTHTRONICS, HEALTH HORIZONS PRO FORMA PRO FORMA
INC. (E.S.W.L.) L.P. ADJUSTMENTS COMBINED
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $16,364,494 $235,272 $ 0 $16,599,766
Income before income taxes $ 2,326,525 $ 78,318 $ (4,185) $ 2,400,658
Net income $ 1,341,119 $ 78,318 $(36,436) $ 1,383,001
Basic income per common share $ 0.12 $ 0.13
Diluted income per common share $ 0.12 $ 0.13
</TABLE>
HealthTronics, Inc. and Subsidiaries
Pro Forma Combined Condensed Statements of Income
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------------
HEALTHTRONICS, HEALTH HORIZONS PRO FORMA PRO FORMA
INC. (E.S.W.L.) L.P. ADJUSTMENTS COMBINED
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $11,655,012 $1,698,224 $ 0 $13,353,236
Income before income taxes $ 1,303,765 $ 708,855 $ (28,332) $ 1,984,288
Net income $ 763,579 $ 708,855 $(281,737) $ 1,190,697
Basic income per common share $ 0.08 $ 0.12
Diluted income per common share $ 0.08 $ 0.12
</TABLE>
4. Inventory
Inventory is carried at the lower of cost (first-in, first-out) or
market and consists of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
----------------------------
(UNAUDITED)
<S> <C> <C>
Medical devices and accessories $1,602,130 $1,110,163
Consumables 144,889 85,580
----------------------------
$1,747,019 $1,195,743
============================
</TABLE>
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5. Earnings Per Share Information
The following table sets forth the computation of earnings per share:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
2000 1999 2000 1999
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Numerator: Net income $ 834,385 $ 447,540 $ 1,341,119 $ 763,579
=========== ========== =========== ==========
Denominator for weighted average
shares outstanding 10,764,988 9,680,727 10,744,721 9,673,077
Basic earnings per share 0.08 0.05 0.12 0.08
Effect of dilutive securities:
Weighted average shares
outstanding 10,764,988 9,680,727 10,744,721 9,673,077
Stock options 362,442 263,500 357,168 263,500
Denominator for diluted earnings per
share 11,127,430 9,944,227 11,101,889 9,936,577
Diluted earnings per share 0.08 0.05 0.12 0.08
</TABLE>
6. Stock Options
In March 2000 and August 2000, the Company filed a Form S-8 with the
Securities and Exchange Commission to register 800,000 and 1,000,000
shares respectively, of its common stock in connection with the
Company's option plans.
7. Line of Credit
The Company is currently negotiating with a bank for a $5,000,000 line
of credit.
Item 2. Management's Discussion And Analysis Of Financial Condition
And Results Of Operations
The following discussion and analysis of financial condition and
results of consolidated operations should be read in conjunction with the
unaudited financial statements included elsewhere in this Form 10-QSB.
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RESULTS OF CONSOLIDATED OPERATIONS
GENERAL
On January 24, 2000, HealthTronics, Inc. (the "Company") completed the
acquisition of the assets of Health Horizons (E.S.W.L.), L.P. for $850,000 in
cash and the assumption of certain liabilities, including a lease, trade and
accounts payable and obligations under regulatory permits. The assets purchased
included a lithotripter and related medical equipment, other furniture,
equipment, patient records and other related assets used in New Jersey Kidney
Stone Treatment Center. The purchase price was determined and negotiated by the
parties based on the expected annual cash flow to be generated by the assets
purchased. The Company had pre-negotiated to sell a majority of its interest in
the assets purchased to a limited liability company which will be managed by the
Company and of which the Company will own 20 to 30%. The remaining members will
be independent of the Company. The Company financed the acquisition with working
capital generated by its business. Based upon the Company's ability to exercise
control over the operating and financial policies of the new limited liability
company, the Company has consolidated the financial position and results of
operations of the new limited liability company.
In January 2000 the Company and the minority partners of a subsidiary
made additional contributions to the subsidiary. The contributions were used to
pay off the balance of the subsidiary's long-term debt which totaled $309,617 at
December 31, 1999.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
Net Revenue: Net revenue increased from $11,655,012 for the six months
ended June 30, 1999 to $16,364,494 for the six months ended June 30, 2000, an
increase of 40%. This increase is attributable to (1) the acquisition of the
assets of Health Horizons in January 2000, (2) the addition of the LithoTron
Ultra product line, (3) the addition of a service contract product line (4) the
increase in the number of and the revenue growth of existing US Lithotripsy
partnerships and (5) the increase in lease revenues from corporate-owned
equipment.
Cost of Goods Sold, Rentals and Services Provided: Cost of goods sold,
rentals and services provided increased from $5,467,307 for the six months ended
June 30, 1999 to $6,920,306 for the six months ended June 30, 2000, an increase
of 27%. This increase is attributable to (1) the acquisition of the assets of
Health Horizons in January 2000, (2) the addition of the LithoTron Ultra product
line, (3) the addition of a service contract product line (4) the increase in
the number of and the revenue growth of existing US Lithotripsy partnerships and
(5) the increase in lease revenues from corporate-owned equipment.
Salaries, Wages and Benefits: Salaries, wages and benefits decreased
from $1,066,480 for the six months ended June 30, 1999 to $1,063,890 for the six
months ended June 30, 2000, a decrease of .2%. This minimal decrease is due to
the Company's maintenance of a relatively consistent staff except for service
technicians and engineers.
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General and Administrative Expenses: General and administrative
expenses increased from $1,883,443 for the six months ended June 30, 1999 to
$3,323,815 for the six months ended June 30, 2000, an increase of 76%. This
increase is attributable to (1) additional expenses related to the operation of
the lithotripsy venture purchased in January 2000, (2) additional professional
and filing expenses as a result of being a publicly held company and (3) an
increase in general operating expenses due to the growth of the Company.
Equity in Earnings of Unconsolidated Partnerships: Equity in earnings
of unconsolidated partnerships increased from $44,863 for the six months ended
June 30, 1999 to $77,219 for the six months ended June 30, 2000, a increase of
72%. This increase is primarily attributable to the growth of two equity-based
US Lithotripsy partnerships in which the Company invested during 1999.
Interest Expense: Interest expense increased from $176,323 for the six
months ended June 30, 1999 to $182,086 for the six months ended June 30, 2000,
an increase of 3%. This is attributable to the debt of partnerships the Company
invested in during the first six months of 2000.
Interest Income: Interest income increased from $3,607 for the six
months ended June 30, 1999 to $107,728 for the six months ended June 30, 2000,
an increase of 2886%. This increase is due to the investment of excess cash
balances resulting from initial public offering completed during the third
quarter of 1999.
Minority Interest: Minority interest increased from $1,860,397 for the
six months ended June 30, 1999 to $2,893,322 for the six months ended June 30,
2000, an increase of 56%. This increase is attributable to the increase in the
number of minority investors in the Company's consolidated subsidiaries as well
as the increase in the income growth of the new and existing subsidiaries.
Partnership Distributions from Cost - Based Investments: Partnership
distributions from cost - based investments increased from $54,233 for the six
months ended June 30, 1999 to $160,503 for the six months ended June 30, 2000,
an increase of 196%. This increase is attributable to the four cost - based
partnership investments added during the fourth quarter of 1999 and the growth
in distributions by existing partnerships accounted for on the cost basis.
Provision for Income Taxes: Provision for income taxes increased from
$540,186 for the six months ended June 30, 1999 to $985,406 for the six months
ended June 30, 2000, an increase of 82%. The increase is attributable to the
increase in taxable income over the first six months of 1999.
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
Net Revenue: Net revenue increased from $7,008,685 for the three months
ended June 30, 1999 to $8,740,974 for the three months ended June 30, 2000, an
increase of 25%. This increase is attributable to (1) the acquisition of the
assets of Health Horizons in January 2000, (2) the addition of the LithoTron
Ultra product line, (3) the addition of a service contract product
13
<PAGE> 14
line, (4) the increase in the number of and the revenue growth of existing US
Lithotripsy partnerships and (5) the increase in lease revenues from
corporate-owned equipment.
Cost of Goods Sold, Rentals and Services Provided: Cost of goods sold,
rentals and services provided increased from $3,484,262 for the three months
ended June 30, 1999 to $3,509,187 for the three months ended June 30, 2000, an
increase of 1%. This increase is attributable to (1) the acquisition of the
assets of Health Horizons in January 2000, (2) the addition of the LithoTron
Ultra product line, (3) the addition of a service contract product line (4) the
increase in the number of and the revenue growth of existing US Lithotripsy
partnerships and (5) the increase in lease revenues from corporate-owned
equipment.
Salaries, Wages and Benefits: Salaries, wages and benefits decreased
from $679,751 for the three months ended June 30, 1999 to $517,942 for the three
months ended June 30, 2000, a decrease of 24%. This decrease is primarily
attributable to the 1999 second quarter bonus accrual and the elimination of
three employment positions that existed in 1999.
General and Administrative Expenses: General and administrative
expenses increased from $1,052,038 for the three months ended June 30, 1999 to
$1,735,505 for the three months ended June 30, 2000, an increase of 65%. This
increase is attributable to (1) additional expenses related to the operation of
the lithotripsy venture purchased in January 2000, (2) additional professional
and filing expenses as a result of being a publicly held company and (3) an
increase in general operating expenses due to the growth of the Company.
Equity in Earnings of Unconsolidated Partnerships: Equity in earnings
of unconsolidated partnerships increased from $24,076 for the three months ended
June 30, 1999 to $36,711 for the three months ended June 30, 2000, a increase of
52%. This increase is attributable to the growth of two equity-based US
Lithotripsy partnerships in which the Company invested during 1999.
Partnership Distributions from Cost - Based Investments: Partnership
distributions from cost - based investments increased from $34,992 for the three
months ended June 30, 1999, to $122,911 for the three months ended June 30,
2000, an increase of 251%. This increase is attributable to the addition of four
cost - based partnership investments during the fourth quarter of 1999 and the
growth in distributions by existing partnerships accounted for on the cost
basis.
Interest Expense: Interest expense increased from $76,046 for the three
months ended June 30, 1999 to $100,181 for the three months ended June 30, 2000,
a increase of 32%. This increase is attributable to the increase in certain long
- term debt of HealthTronics.
Interest Income: Interest income increased from $0 for the three months
ended June 30, 1999 to $49,454 for the three months ended June 30, 2000. This
increase is due to the investment of excess cash balances resulting from the
initial public offering completed during the third quarter of 1999.
Minority Interest: Minority interest increased from $965,071 for the
three months ended June 30, 1999 to $1,666,248 for the three months ended June
30, 2000, an increase of 73%. This increase is attributable to the increase in
the number of minority investors in the Company's
14
<PAGE> 15
consolidated subsidiaries as well as the increase in the income growth of the
new and existing subsidiaries.
Provision for Income Taxes: Provision for income taxes increased from
$363,045 for the three months ended June 30, 1999 to $586,602 for the three
months ended June 30, 2000, an increase of 62%. The increase is attributable to
the increase in taxable income over the first quarter of 1999.
LIQUIDITY AND CAPITAL RESOURCES
Historically, we have satisfied our working capital and capital
spending needs through private placements and the sales of medical devices.
Subsidiary partnership equipment financing has typically been provided by term
bank debt secured by the related devices and guarantees from the various
partners, including HealthTronics. In July 1998 we obtained a $650,000 line of
credit and a $1,000,000 equipment financing line with a Tennessee bank. On July
31, 1999 HealthTronics renewed the Tennessee bank financing through June 30,
2000 with an increase in the line of credit availability from $650,000 to
$1,200,000. The Company is currently negotiating with a bank for a $5,000,000
line of credit. At June 30, 2000, we have no balances outstanding under these
lines of credit. All other borrowings are similar to those in place at December
31, 1999.
In January 2000, the Company negotiated a seven-year lease for
office/warehouse space at a monthly rental expense of $17,800 (straight-line)
that expires in March 2007. The rental payments of $10,300 began in April 2000,
when the Company took occupancy, and graduate over the life of the lease.
CAUTIONARY STATEMENTS
Included in this report are forward-looking statements that reflect
management's current outlook for future periods. As always, these expectations
and projections are based on currently available competitive, financial, and
economic data, along with operating plans, and are subject to future events and
uncertainties.
15
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PART II. Other Information
Item 2. Changes in Securities and Use of Proceeds
On June 30 and March 31, 2000 an additional 1,118 and 1,182,
respectively, restricted shares of the Company's common stock were issued to a
consultant for services rendered to the Company during the period in a
transaction exempt under Section 4(2) of the Securities Act of 1933.
Item 4. Submission of Matters to a Vote of Security Holders
A. The annual meeting of shareholders was held on May 15, 2000.
B. The following directors were elected to the board of
directors:
Roy S. Brown
Jon Burke
Scott Cochran
John House
Russ Maddox
Argil J. Wheelock
C. The following matters were voted upon at the annual meeting:
<TABLE>
<CAPTION>
For Against Abstain
--------- --------- ---------
<S> <C> <C> <C> <C>
1. To elect the following
directors to serve for the
ensuing year:
Roy S. Brown 7,063,813 3,500 510,100
Jon Burke 7,062,913 4,400 510,100
Scott Cochran 7,062,913 4,400 510,100
John House 7,063,813 3,500 510,100
Russ Maddox 7,062,913 4,400 510,100
Argil J. Wheelock 7,063,813 3,500 510,100
2. To approve adoption of the
Company's 2000 Employee Stock
Option Plan and the
reservation of 1,000,000 shares
of common stock for issuance
thereunder. 7,565,750 9,963 1,700
3. To ratify the appointment of
Ernst & Young LLP as
independent auditors for the
fiscal year ending December
31, 2000. 7,577,113 0 300
</TABLE>
16
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - See Exhibit Index on Page 18
(b) Reports on Form 8-K - Reported pursuant to ITEM 2 of Form 8-K
dated May 15, 2000 and reported pursuant to ITEM 2 of Form 8-K
dated June 16, 2000 the disposition of the assets acquired
from Health Horizons (E.S.W.L.), L.P. to a newly formed
limited liability company.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
HEALTHTRONICS, INC.
By: /s/ Victoria W. Beck
---------------------------
Victoria W. Beck
Chief Financial Officer
Date: August 9, 2000
17
<PAGE> 18
HEALTHTRONICS, INC.
INDEX TO EXHIBITS
No. Exhibit
27 Financial Data Schedule, June 30, 2000
18
