SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 2004
COMMISSION FILE NUMBER: 0-26625
NOVAMED, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 36-4116193 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
980 North Michigan Avenue, Suite 1620, Chicago, Illinois 60611
(Address of principal executive offices)
Registrant’s telephone, including area code: (312) 664-4100
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 and 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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of April 30, 2004, there were outstanding 21,005,862 shares of the registrant’s common stock, par value $.01 per share.
FORM 10-Q FOR QUARTERLY PERIOD ENDED MARCH 31, 2004
INDEX
2
NOVAMED, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
| March 31, 2004 |
December 31, 2003 |
|||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 13,033 | $ | 11,801 | ||||
| Accounts receivable, net of allowances of $8,806 and $7,611, respectively |
10,467 | 8,219 | ||||||
| Notes and amounts due from affiliated providers |
508 | 1,089 | ||||||
| Notes receivable from related parties |
516 | 597 | ||||||
| Inventory |
1,270 | 1,397 | ||||||
| Current tax assets, net |
537 | 542 | ||||||
| Other current assets |
995 | 1,107 | ||||||
| Total current assets |
27,326 | 24,752 | ||||||
| Property and equipment, net |
7,601 | 7,918 | ||||||
| Intangible assets, net |
26,743 | 26,749 | ||||||
| Noncurrent deferred tax assets, net |
3,259 | 4,130 | ||||||
| Other assets, net |
196 | 339 | ||||||
| Total assets |
$ | 65,125 | $ | 63,888 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 4,910 | $ | 4,078 | ||||
| Accrued expenses |
2,457 | 2,374 | ||||||
| Restructuring reserves |
225 | 260 | ||||||
| Current maturities of long-term debt |
75 | 80 | ||||||
| Current liabilities of discontinued operations |
831 | 1,068 | ||||||
| Total current liabilities |
8,498 | 7,860 | ||||||
| Long-term debt, net of current maturities |
65 | 74 | ||||||
| Minority interests |
6,416 | 5,841 | ||||||
| Commitments and contingencies |
||||||||
| Stockholders’ equity: |
||||||||
| Series E Junior Participating Preferred Stock, $0.01 par value, 1,912,000 shares authorized, none outstanding at March 31, 2004 and December 31, 2003, respectively |
— | — | ||||||
| Common stock, $0.01 par value, 81,761,465 shares authorized, 25,201,537 and 25,046,195 shares issued at March 31, 2004 and December 31, 2003, respectively |
252 | 250 | ||||||
| Additional paid-in-capital |
78,357 | 77,964 | ||||||
| Accumulated deficit |
(22,300 | ) | (23,641 | ) | ||||
| Treasury stock, at cost, 4,208,743 and 3,843,399 shares at March 31, 2004 and December 31, 2003, respectively |
(6,163 | ) | (4,460 | ) | ||||
| Total stockholders’ equity |
50,146 | 50,113 | ||||||
| Total liabilities and stockholders’ equity |
$ | 65,125 | $ | 63,888 | ||||
The notes to the interim condensed consolidated financial statements are an integral part of these statements.
3
NOVAMED, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data; unaudited)
| Three months ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Net revenue: |
||||||||
| Surgical facilities |
$ | 9,349 | $ | 8,547 | ||||
| Product sales and other |
4,876 | 4,956 | ||||||
| Total net revenue |
14,225 | 13,503 | ||||||
| Operating expenses: |
||||||||
| Salaries, wages and benefits |
5,078 | 5,240 | ||||||
| Cost of sales and medical supplies |
3,518 | 3,350 | ||||||
| Selling, general and administrative |
3,154 | 2,879 | ||||||
| Depreciation and amortization |
676 | 638 | ||||||
| Total operating expenses |
12,426 | 12,107 | ||||||
| Operating income |
1,799 | 1,396 | ||||||
| Minority interests in earnings of consolidated entities |
753 | 578 | ||||||
| Other (income) expense, net |
(200 | ) | (118 | ) | ||||
| Income before income taxes |
1,246 | 936 | ||||||
| Income tax provision |
499 | 377 | ||||||
| Net income from continuing operations |
747 | 559 | ||||||
| Net income from discontinued operations |
594 | 4 | ||||||
| Net income |
$ | 1,341 | $ | 563 | ||||
| Basic earnings per common share: |
||||||||
| Income from continuing operations |
$ | 0.03 | $ | 0.03 | ||||
| Income from discontinued operations |
0.03 | — | ||||||
| Net income |
$ | 0.06 | $ | 0.03 | ||||
| Diluted earnings per common share: |
||||||||
| Income from continuing operations |
$ | 0.03 | $ | 0.03 | ||||
| Income from discontinued operations |
0.03 | — | ||||||
| Net income |
$ | 0.06 | $ | 0.03 | ||||
| Weighted average common shares outstanding |
21,228 | 21,805 | ||||||
| Dilutive effect of employee stock options |
2,021 | 280 | ||||||
| Diluted weighted average common shares outstanding |
23,249 | 22,085 | ||||||
The notes to the interim condensed consolidated financial statements are an integral part of these statements.
4
NOVAMED, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands; unaudited)
| Three months ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income from continuing operations |
$ | 747 | $ | 559 | ||||
| Adjustments to reconcile net income to net cash provided by continuing operations, net of effects of purchase transactions— |
||||||||
| Depreciation and amortization |
676 | 638 | ||||||
| Deferred taxes |
499 | 377 | ||||||
| Gain on sale of minority interests |
(190 | ) | (115 | ) | ||||
| Minority interests |
753 | 578 | ||||||
| Distributions to minority partners |
(928 | ) | (222 | ) | ||||
| Changes in operating assets and liabilities— |
||||||||
| Accounts receivable |
(2,158 | ) | (1,696 | ) | ||||
| Inventory |
127 | (11 | ) | |||||
| Other current assets |
112 | 529 | ||||||
| Accounts payable and accrued expenses |
814 | (610 | ) | |||||
| Other noncurrent assets |
53 | 14 | ||||||
| Net cash provided by operating activities |
505 | 41 | ||||||
| Cash flows from investing activities: |
||||||||
| Purchases of property and equipment |
(496 | ) | (354 | ) | ||||
| Proceeds from sale of property and equipment |
121 | 38 | ||||||
| Proceeds from sale of minority interests |
970 | 135 | ||||||
| Net cash provided by (used in) investing activities |
595 | (181 | ) | |||||
| Cash flows from financing activities: |
||||||||
| Borrowings under revolving line of credit |
— | 325 | ||||||
| Payments under revolving line of credit |
— | (325 | ) | |||||
| Proceeds from the issuance of common stock |
225 | 25 | ||||||
| Payments of other debt, debt issuance fees and capital lease obligations |
(14 | ) | (31 | ) | ||||
| Net cash provided by (used in) financing activities |
211 | (6 | ) | |||||
| Cash flows from discontinued operations: |
||||||||
| Operating activities |
(241 | ) | (850 | ) | ||||
| Investing activities |
162 | 1,547 | ||||||
| Financing activities |
— | (2 | ) | |||||
| Net cash provided by (used in) discontinued operation |
(79 | ) | 695 | |||||
| Net increase in cash and cash equivalents |
1,232 | 549 | ||||||
| Cash and cash equivalents, beginning of period |
11,801 | 1,957 | ||||||
| Cash and cash equivalents, end of period |
$ | 13,033 | $ | 2,506 | ||||
The notes to the interim condensed consolidated financial statements are an integral part of these statements.
5
NOVAMED, INC. AND SUBSIDIARIES
NOTES TO THE INTERIM
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
(Dollars in thousands, except per share data; unaudited)
1. BASIS OF PRESENTATION
The information contained in the interim consolidated financial statements and notes is condensed from that which would appear in the annual consolidated financial statements. Accordingly, the interim condensed consolidated financial statements included herein should be read in conjunction with the consolidated financial statements as of and for the year ended December 31, 2003, filed by NovaMed, Inc. with the Securities and Exchange Commission on Form 10-K. The unaudited interim condensed consolidated financial statements as of March 31, 2004 and for the three months ended March 31, 2004 and 2003, include all normal recurring adjustments which management considers necessary for a fair presentation. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the entire fiscal year.
2. STATEMENT OF CASH FLOWS - SUPPLEMENTAL
| Three months ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Supplemental cash information: | ||||||||
| Interest paid |
$ | 17 | $ | 32 | ||||
| Income taxes paid |
1 | 34 | ||||||
| Income tax refunds received |
(15 | ) | (217 | ) | ||||
During the first quarter of 2004, the Company received $237 as a cash settlement from a physician for the early termination of a laser services agreement. The laser provided under this agreement was one of eight lasers whose procedures count toward our minimum annual procedure requirement under our supply agreement with Alcon Laboratories. Because the Company continues to have obligations to Alcon for all eight lasers, the Company has established a reserve for $237 which will be evaluated quarterly and adjusted as our minimum procedure counts are satisfied.
Non cash investing and financing activities:
The Company received 365,344 shares of its common stock from a former affiliated physician during the first quarter of 2004 to repay a $1,533 note receivable against which the company had established a $958 valuation allowance. Treasury shares were recorded at $1,703, additional paid-in-capital was increased by $170 and the valuation allowance was reversed and reported as income from discontinued operations.
3. DISCONTINUED OPERATIONS
During the first quarter of 2004 a former affiliated physician repaid a note secured by shares of the Company’s stock by the tendering of such shares. (For additional information regarding the note please refer to Note 2 above and the Company’s 2003 Annual Report on Form 10K — Note 17 “Related Party Transactions.”) When the Company adopted its Plan of Discontinued Operations and Restructuring the market value of the shares with which the loan was secured was significantly below the value of the note. Included in the initial discontinued operations charge was the establishment of a valuation allowance against the note to adjust it to its secured value based on the then current market value of the collateral shares. When shares were tendered in repayment of the note, the market value of the shares exceeded the original secured value. The Company reversed the valuation allowance established on the note and has reported it as income from discontinued operations.
6
NOVAMED, INC. AND SUBSIDIARIES
NOTES TO THE INTERIM
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
March 31, 2