Table of Contents
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
|
For
the quarterly period ended March 31, 2010
OR
o
|
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For
the transition period from
to
Commission File Number 001-33993
CardioNet, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware
|
|
33-0604557
|
(State or Other Jurisdiction of Incorporation or Organization)
|
|
(I.R.S. Employer Identification Number)
|
227 Washington Street
Conshohocken, Pennsylvania 19428
(Address of Principal Executive Offices, including Zip Code)
(610) 729-7000
(Registrants 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
o
Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes
o
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of large accelerated filer, accelerated filer and smaller
reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
o
|
|
Accelerated filer
x
|
|
|
|
Non-accelerated filer
o
|
|
Smaller reporting company
o
|
(Do not check if a smaller reporting company)
|
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act). Yes
o
No
x
As
of April 23, 2010, 24,124,308 shares of the registrants common stock,
$0.001 par value per share, were outstanding.
Table of
Contents
CARDIONET, INC.
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED
MARCH 31, 2010
TABLE OF CONTENTS
2
Table of Contents
FORWARD-LOOKING STATEMENTS
This document includes
certain forward-looking statements within the meaning of the Safe Harbor
provisions of the Private Securities Litigation Reform Act of 1995 regarding,
among other things, our growth prospects, the prospects for our products and
our confidence in the Companys future. These statements may be identified by
words such as expect, anticipate, estimate, intend, plan, believe,
promises and other words and terms of similar meaning. Such forward-looking
statements are based on current expectations and involve inherent risks and
uncertainties, including important factors that could delay, divert, or change
any of them, and could cause actual outcomes and results to differ materially
from current expectations. These factors include, among other things, our
efforts to address the operational issues and strategic options, effectiveness
of our cost reduction initiatives, the success of our sales and marketing
initiatives, our ability to attract and retain talented executive management
and sales personnel, our ability to identify acquisition candidates, acquire
them on attractive terms and integrate their operations into our business, the
commercialization of new products, market factors, internal research and
development initiatives, partnered research and development initiatives,
competitive product development, changes in governmental regulations and
legislation, changes to reimbursement levels for our products, the continued
consolidation of payors, acceptance of our new products and services and patent
protection and litigation. For further details and a discussion of these and
other risks and uncertainties, please see our public filings with the
Securities and Exchange Commission, including our latest periodic reports on Form 10-K
and 10-Q. We undertake no obligation to publicly update any forward-looking
statement, whether as a result of new information, future events, or otherwise.
3
Table of Contents
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
CARDIONET, INC.
CONSOLIDATED BALANCE SHEETS
(
In thousands, except shares and per
share amounts
)
|
|
(Unaudited)
|
|
|
|
|
|
March 31, 2010
|
|
December 31, 2009
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
45,255
|
|
$
|
49,152
|
|
Accounts receivable, net of allowance for doubtful
accounts of $26,745 and $22,396, at March 31, 2010 and
December 31, 2009, respectively
|
|
39,313
|
|
40,885
|
|
Prepaid expenses and other current assets
|
|
3,544
|
|
2,818
|
|
|
|
|
|
|
|
Total current assets
|
|
88,112
|
|
92,855
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
26,705
|
|
28,243
|
|
Intangible assets, net
|
|
758
|
|
939
|
|
Goodwill
|
|
45,999
|
|
45,999
|
|
Other assets
|
|
480
|
|
286
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
162,054
|
|
$
|
168,322
|
|
|
|
|
|
|
|
Liabilities and stockholders
equity
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Accounts payable
|
|
$
|
5,488
|
|
$
|
7,160
|
|
Accrued liabilities
|
|
9,280
|
|
9,919
|
|
Deferred revenue
|
|
476
|
|
393
|
|
|
|
|
|
|
|
Total current liabilities
|
|
15,244
|
|
17,472
|
|
|
|
|
|
|
|
Deferred rent and other noncurrent liabilities
|
|
1,437
|
|
1,497
|
|
|
|
|
|
|
|
Total liabilities
|
|
16,681
|
|
18,969
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
Common stock, $.001 par value; 200,000,000 shares
authorized; 24,067,005 and 23,965,405 shares issued and outstanding
at March 31, 2010 and December 31,
2009, respectively
|
|
24
|
|
24
|
|
Paid-in capital
|
|
243,771
|
|
242,320
|
|
Accumulated deficit
|
|
(98,422
|
)
|
(92,991
|
)
|
|
|
|
|
|
|
Total stockholders equity
|
|
145,373
|
|
149,353
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
162,054
|
|
$
|
168,322
|
|
See accompanying notes.
4
Table of Contents
CARDIONET, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(
In thousands, except shares and
per share amounts
)
|
|
Three Months Ended
March 31,
|
|
|
|
2010
|
|
2009
|
|
Revenues:
|
|
|
|
|
|
Net patient service revenues
|
|
$
|
31,816
|
|
$
|
35,559
|
|
Other revenues
|
|
|
|
161
|
|
|
|
|
|
|
|
Total revenues
|
|
31,816
|
|
35,720
|
|
|
|
|
|
|
|
Cost of revenues
|
|
11,749
|
|
11,838
|
|
|
|
|
|
|
|
Gross profit
|
|
20,067
|
|
23,882
|
|
Operating expenses:
|
|
|
|
|
|
General and administrative
|
|
9,677
|
|
10,508
|
|
Sales and marketing
|
|
7,997
|
|
7,547
|
|
Bad debt expense
|
|
4,640
|
|
3,817
|
|
Research and development
|
|
1,243
|
|
1,216
|
|
Integration, restructuring and other charges
|
|
1,945
|
|
2,139
|
|
|
|
|
|
|
|
Total expenses
|
|
25,502
|
|
25,227
|
|
|
|
|
|
|
|
Loss from operations
|
|
(5,435
|
)
|
(1,345
|
)
|
Other income, net
|
|
4
|
|
118
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
(5,431
|
)
|
(1,227
|
)
|
Income tax benefit
|
|
|
|
505
|
|
|
|
|
|
|
|
Net loss
|
|
(5,431
|
)
|
(722
|
)
|
|
|
|
|
|
|
Net loss per common share:
|
|
|
|
|
|
Basic
|
|
$
|
(0.23
|
)
|
$
|
(0.03
|
)
|
Diluted
|
|
$
|
(0.23
|
)
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
Weighted average number of common shares
outstanding:
|
|
|
|
|
|
Basic
|
|
23,893,140
|
|
23,600,149
|
|
Diluted
|
|
23,893,140
|
|
23,600,149
|
|
See accompanying notes.
5
Table of Contents
CARDIONET, INC.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(Unaudited)
(
In thousands
)
|
|
Three Months Ended
March 31,
|
|
|
|
2010
|
|
2009
|
|
Operating activities
|
|
|
|
|
|
Net loss
|
|
$
|
(5,431
|
)
|
$
|
(722
|
)
|
Adjustments to reconcile net loss to net cash used
in operating activities:
|
|
|
|
|
|
Depreciation
|
|
2,898
|
|
2,271
|
|
Amortization of intangibles
|
|
181
|
|
238
|
|
Loss on disposal of property and equipment
|
|
118
|
|
11
|
|
(Decrease) increase in deferred rent
|
|
(60
|
)
|
8
|
|
Provision for doubtful accounts
|
|
4,640
|
|
2,453
|
|
Stock-based compensation
|
|
918
|
|
1,660
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
Accounts receivable
|
|
(3,068
|
)
|
(10,917
|
)
|
Prepaid expenses and other current assets
|
|
(726
|
)
|
(794
|
)
|
Other assets
|
|
(194
|
)
|
(42
|
)
|
Accounts payable
|
|
(1,672
|
)
|
481
|
|
Accrued and other liabilities
|
|
(556
|
)
|
724
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
(2,952
|
)
|
(4,629
|
)
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
Purchases of property and equipment
|
|
(1,478
|
)
|
(5,594
|
)
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
(1,478
|
)
|
(5,594
|
)
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
Proceeds from the exercise of employee stock
options and employee stock purchase plan contributions
|
|
533
|
|
2,487
|
|
Repayment of debt
|
|
|
|
(23
|
)
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
533
|
|
2,464
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
(3,897
|
)
|
(7,759
|
)
|
Cash and cash equivalents beginning of period
|
|
49,152
|
|
58,171
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$
|
45,255
|
|
$
|
50,412
|
|
|
|
|
|
|
|
Supplemental disclosure of cash
flow information
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
1
|
|
$
|
4
|
|
Cash paid for taxes
|
|
$
|
130
|
|
$
|
1,268
|
|
See accompanying notes.
6
Table of Contents
CARDIONET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(
In thousands, except shares and
per share amounts
)
1.
Summary of Significant Accounting Policies
Unaudited Interim Financial Data
The
accompanying unaudited consolidated financial statements have been prepared in
accordance with U.S. generally accepted accounting principles for interim
financial information and the requirements of Form 10-Q and Article 10
of Regulation S-X.
Accordingly, these consolidated financial statements
do not include all of the information and footnotes necessary for a complete
presentation of financial position, results of operations and cash flows.
In the opinion of management, these consolidated financial statements
reflect all adjustments which are of normal recurring nature and necessary for
a fair presentation of the Companys financial position as of March 31,
2010 and December 31, 2009, and the results of operations for the three
months ended March 31, 2010 and 2009. The financial data and other
information disclosed in these notes to the financial statements related to the
three months ended March 31, 2010 and 2009 are unaudited. The results for
the three months ended March 31, 2010 are not necessarily indicative of
the results to be expected for any future period.
Net Loss
The
Company computes net income (loss) per share in accordance with Financial
Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 260,
Earnings Per Share
. The following summarizes the potential
outstanding common stock of the Company at March 31, 2010 and 2009:
|
|
March 31,
2010
|
|
March 31,
2009
|
|
Common stock options and restricted stock units
outstanding
|
|
1,436,313
|
|
1,847,991
|
|
Common stock options and restricted stock units
available for grant
|
|
2,451,214
|
|
938,225
|
|
Common stock held by certain employees and
unvested
|
|
5,989
|
|
31,093
|
|
Common stock
|
|
24,067,005
|
|
23,752,292
|
|
|
|
|
|
|
|
Total
|
|
27,960,521
|
|
26,569,631
|
|
Basic
net loss per share is computed by dividing net loss by the weighted average
number of common shares outstanding during the period. Diluted net loss per
share is computed by giving effect to all potential dilutive common shares,
including stock options, warrants and convertible preferred stock, as
applicable.
The following
table presents the calculation of basic and diluted net loss per share:
|
|
Three
Months Ended
March 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
Net
loss applicable to common stockholders
|
|
$
|
(5,431
|
)
|
$
|
(722
|
)
|
Denominator:
|
|
|
|
|
|
Weighted
average common shares outstandingbasic
|
|
23,893,140
|
|
23,600,149
|
|
Dilutive
effect of the Companys employee compensation plans
|
|
|
|
|
|
Weighted
average shares used in computing diluted net income loss per share
|
|
23,893,140
|
|
23,600,149
|
|
Basic
net loss per share
|
|
$
|
(0.23
|
)
|
$
|
(0.03
|
)
|
Diluted
net loss per share
|
|
$
|
(0.23
|
)
|
$
|
(0.03
|
)
|
If the
outstanding vested options or restricted stock units were exercised or
converted into common stock, the result would be anti-dilutive for the three
months ended March 31, 2010 and 2009. Accordingly, basic and diluted net
loss attributable to common stockholders per share are identical for those
periods presented in the consolidated statements of operations.
7
Table of
Contents
CARDIONET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(
In thousands, except shares and
per share amounts
)
Goodwill
The Company considers its business to be one
reporting unit for the purpose of performing its goodwill impairment analysis.
Goodwill is reviewed for impairment annually, or when events arise that could
indicate that an impairment exists. To determine whether an impairment exists,
the Company estimates the fair value of the reporting unit using an income
approach, generally a discounted cash flow methodology, that includes
assumptions for, among other things, forecasted income, cash flow, growth rates,
income tax rates, expected tax benefits and long-term discount rates, all of
which require significant judgments. The Company also considers comparable
market data to assist in determining the fair value of its reporting unit.
There are inherent uncertainties related to these factors and the judgment
applied in the analysis. Nonetheless, the Company believes that the combination
of an income and a market approach provides a reasonable basis to estimate the
fair value of the reporting unit. If the estimated fair value of the reporting
unit is less than its carrying value, an impairment may exist and additional
analysis will be undertaken to determine the amount of impairment.
Stock-Based Compensation
ASC
718,
Compensation Stock Compensation
,
addresses the accounting for share-based payment transactions in which an
enterprise receives employee services in exchange for (a) equity
instruments of the enterprise or (b) liabilities that are based on the
fair value of the enterprises equity instruments or that may be settled by the
issuance of such equity instruments. ASC 718 requires that an entity measure
the cost of equity-based service awards based on the grant-date fair value of
the award and recognize the cost of such awards over the period during which
the employee is required to provide service in exchange for the award (the
vesting period). ASC 718 requires that an entity measure the cost of
liability-based service awards based on current fair value that is re-measured
subsequently at each reporting date through the settlement date. The Company
accounts for equity awards issued to non-employees in accordance with ASC
505-50,
Equity-Based Payments to Non-Employees
.
The
Companys income before and after income taxes for the three months ended March 31,
2010 was reduced by $918, and the Companys before and after-tax net income for
the three months ended March 31, 2009 was reduced by $1,660, as a result
of stock-based compensation expense incurred. The impact of stock-based
compensation expense was $(0.04) and $(0.07) on both basic and diluted earnings
per share for the three months ended March 31, 2010 and 2009,
respectively.
We
estimate the fair value of our share-based award to employees and directors
using the Black-Scholes option valuation model. The Black-Scholes option
valuation model requires the use of certain subjective assumptions. The most
significant of these assumptions are our estimates of the expected volatility
of the mark price of our stock and the expected term of the award. Because our initial
public offering (IPO) was in March 2008, sufficient historical information
prior to the third quarter of 2009 was not available to base assumptions of
volatility on our own stock. As such, prior to the third quarter of 2009, we
based our estimates of expected volatility of a group of similar entities whose
stock prices are publicly available. Beginning in the third quarter of 2009, we
began using the historical price of our own stock to estimate expected
volatility. The expected term represents the period of time that stock-based
awards granted are expected to be outstanding. As we have a history of exercise
experience for use in the calculation of expected term, we believe our
historical experience is the best estimate of our future exercise patterns.
Other assumptions used in the Black-Scholes option valuation model include the
risk-free interest rate and expected dividend yield. The risk-free interest
rate for periods pertaining to the contractual life of each option is based on
the U.S. Treasury strip yield of a similar duration in effect at the time of
grant. We have never paid, and do not expect to pay, dividends in the
foreseeable future.
8
Table of Contents
CARDIONET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(
In thousands, except shares and
per share amounts
)
The
Company utilized the Black-Scholes valuation model for estimating the fair
value of stock options granted using the following weighted average
assumptions:
|
|
Three Months Ended
March 31,
|
|
|
|
2010
|
|
2009
|
|
Expected dividend yield
|
|
0
|
%
|
0
|
%
|
Expected volatility
|
|
81
|
%
|
50
|
%
|
Risk-free interest rate
|
|
2.67
|
%
|
2.0
|
%
|
Expected life
|
|
6.25 years
|
|
6.25 years
|
|
Based
on the Companys historical experience of options that cancel before becoming
fully vested, the Company has assumed an annualized forfeiture rate of 15% for
all options. Under the true-up provision of ASC 718, the Company will record
additional expense if the actual forfeiture rate is lower than estimated, and
will record a recovery of prior expense if the actual forfeiture rate is higher
than estimated.
Based
on the above assumptions, the per share weighted average fair value of the
options granted under the stock option plan for the three months ended March 31,
2010 and 2009 was $4.76 and $12.46, respectively.
The following table
summarizes activity under all stock award plans from December 31, 2009
through March 31, 2010:
|
|
|
|
Options Outstanding
|
|
|
|
Shares
|
|
|
|
Weighted
|
|
|
|
Available
|
|
Number
|
|
Average
|
|
|
|
for Grant
|
|
of Shares
|
|
Exercise Price
|
|
Balance December 31, 2009
|
|
1,132,135
|
|
1,575,645
|
|
$
|
15.21
|
|
Additional options available for grant
|
|
1,194,094
|
|
|
|
$
|
|
|
Granted
|
|
(10,000
|
)
|
10,000
|
|
$
|
6.43
|
|
Canceled
|
|
134,985
|
|
(134,985
|
)
|
$
|
5.17
|
|
Exercised
|
|
|
|
(14,347
|
)
|
$
|
2.99
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2010
|
|
2,451,214
|
|
1,436,313
|
|
$
|
15.70
|
|
Per
the plan documents, the 2008 Non-Employee Director Stock Option (NEDS) and
Employee Stock Option (ESOP) Plans have an automatic increase in the shares
available for grant every January the plans are active. The increase in
the shares available for grant under the NEDS plan is equal to the lesser of
the number of shares issuable upon the exercise of options granted during the
preceding calendar year or such number of shares determined by the Board of
Directors. The increase in the shares available for grant under the ESOP plan
is equal to 5% of the total shares outstanding at December 31, 2009.
Additional information
regarding options outstanding is as follows:
|
|
March 31,
2010
|
|
March 31,
2009
|
|
Range
of exercise prices (per option)
|
|
$0.70 - $31.18
|
|
$1.50 - $31.18
|
|
Weighted
average remaining contractual life (years)
|
|
8.25
|
|
9.30
|
|
Employee
Stock Purchase Plan
On
March 17, 2010, 83,659 shares were purchased in accordance with the
Employee Stock Purchase Plan (ESPP). Net proceeds to the Company from the
issuance of shares of common stock under the ESPP for the three months ended March 31,
2010 were $533. In January 2010, the number of shares available for grant
was increased by 239,750, per the ESPP plan documents. At March 31, 2010,
approximately 458,584 shares remain available for purchase under the ESPP.
9
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CARDIONET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(
In thousands, except shares and
per share amounts
)
New Accounting Pronouncements
In January 2010, the FASB issued authoritative
guidance intended to improve disclosures about fair value measurements. The
guidance requires entities to disclose significant transfers in and out of fair
value hierarchy levels and the reasons for the transfers. Additionally, the
guidance clarifies that a reporting entity should provide fair value
measurements for each class of assets and liabilities and disclose the inputs
and valuation techniques used for fair value measurements using significant
other observable inputs (Level 2) and significant unobservable inputs (Level
3). Currently, the Company does not have any assets or liabilities that are
subject to this guidance. As such, this guidance did not have an impact on the
Companys results of operation or financial position. This guidance is
effective for interim and annual periods beginning after December 15,
2009.
In February 2010, the FASB issued authoritative
guidance on subsequent events. The guidance requires an SEC filer to evaluate
subsequent events through the date the financial statements are issued but no
longer requires an SEC filer to disclose the date through which the subsequent
event evaluation occurred. The guidance became effective for the Company upon
issuance and had no impact on the Companys results of operations or financial
position.
2.
Integration and
Restructuring Activities
2010 Restructuring
During the first quarter of 2010, the Company
undertook an initiative to streamline its
sales and service organizations and reduce support costs company-wide.
It also
initiated plans to close its event monitoring facility in Georgia and
consolidate it with the Companys monitoring facilities in Pennsylvania and
Minnesota. The Company believes that it can realize cost efficiencies by
undertaking these initiatives
.
The restructuring plan involves the elimination of approximately
100 positions. The Company expects the restructuring to be substantially
completed by the end of
the
third quarter in 2010
, and expects the total cost of the restructuring to
be approximately $3,500, all of which is expected to result in cash charges.
The Company incurred restructuring expenses of $1,662 for the three months
ended March 31, 2010.
A summary of the reserve activity related to the 2010 restructuring
plan as of March 31, 2010 is as follows:
|
|
Initial
Reserve
Recorded
|
|
Payments
through
March 31,
2010
|
|
Balance
as of
March 31,
2010
|
|
Severance and employee related costs
|
|
$
|
1,400
|
|
$
|
466
|
|
$
|
934
|
|
Other exit activity costs
|
|
262
|
|
262
|
|
|
|
Total
|
|
$
|
1,662
|
|
$
|
728
|
|
$
|
934
|
|
The Company accounts for
expenses associated with exit or disposal activities in accordance with ASC
420,
Exit or Disposal
Cost
Obligations,
and records the expenses in
Integration,
restructuring and other charges
in its statement of operations, and
records the related accrual in the
Accrued liabilities
line of its balance sheet.
Legal and Other Costs
The Company incurred legal
and other costs of $283 for the three months ended March 31, 2010. The
legal costs are related to the Companys defense of class-action lawsuits.
Additional information regarding legal proceedings can be found in Note 5. For
the three months ended March 31, 2009, the Company incurred $2,139 of
expenses related to the departure of certain executive officers.
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CARDIONET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(
In thousands, except shares and
per share amounts
)
3.
Income Taxes
The income tax provision
for interim periods is determined using an estimated annual effective tax rate
adjusted for discrete items, if any, which are taken into account in the
quarterly period in which they occur. The Company reviews and updates its estimated
annual effective tax rate each quarter. For the three months ended March 31,
2010, the Companys estimated annual effective tax rate was primarily impacted
by a financial loss for the period, the benefit of which was offset by a
valuation allowance. Accordingly, the Company recorded no tax expense or
benefit for the three months ended March 31, 2010. The income tax benefit
totaled approximately $505 for the three months ended March 31, 2009.
As of December 31,
2009, in accordance with ASC-740, the Company maintained a full valuation
allowance against net deferred tax assets. The Company maintains a full
valuation allowance for the quarter ended March 31, 2010. The Company
implemented the provisions of ASC 740-10 on January 1, 2007 related to
accounting for uncertainty in income taxes. There has been no material change
to the amount of unrecognized tax expense or benefit reported as of March 31,
2010.
4.
Reimbursement
On July 10, 2009,
Highmark announced a reduction in the reimbursement rate for our MCOT services
to $754 per service, a reduction of approximately 33%. This new rate went into
effect on September 1, 2009. The reduction in reimbursement rates is
reflected in the
Revenue
and
Accounts
receivable
lines in the Companys financial statements.
5.
Legal Proceedings
On
March 5, 2010, West Palm Beach Police Pension Fund filed a putative class
action complaint in California Superior Court, San Diego County asserting
claims for violations of Sections 11, 12 and 15 of the Securities Act of 1933,
as amended, against CardioNet, nine current and former officers and directors
of CardioNet and six underwriters of CardioNets IPO and/or Secondary Offering
on August 6, 2008 (together with the IPO, the Offerings). The
complaint filed March 5, 2010 also asserted claims for alleged violations
of Sections 25401 and 25501 of the California Corporations Code against
defendants James M. Sweeney and Fred Middleton. The plaintiff seeks to bring
claims on behalf of all those who purchased or otherwise acquired the common
stock of CardioNet pursuant and/or traceable to the Offerings. On March 10,
2010, plaintiff filed an Amended Complaint that deleted the claims for
violations of the California Corporations Code. The claims are based on
purported misrepresentations and omissions in the Registration Statements for
the Offerings relating to alleged business decisions made by CardioNet that
were supposedly not disclosed to investors and alleged misstatements concerning
CardioNets business. On April 5, 2010, all defendants removed the
case to the Southern District of California, where it is pending. On April 7,
2010, defendants filed a Motion to Transfer the case to the Eastern District of
Pennsylvania, which Motion to Transfer is noticed for hearing on June 28,
2010. The Company believes that the claims are without merit and intends
to defend the litigation vigorously. At this time, it is not possible to
determine the likelihood or amount of liability, if any, on the part of the
Company with any degree of certainty. Consistent with the accounting for
contingent liabilities, no accrual has been recorded in the financial
statements.
Commencing
on August 26, 2009, two putative class actions were filed in the United
States District Court for the Eastern District of Pennsylvania naming
CardioNet, Randy Thurman, Chief Executive Officer and Martin P. Galvan, former
Chief Financial Officer as defendants and alleging violations of Sections 10(b) and
20(a) of the Securities Exchange Act of 1934, as amended. The complaints purport to bring claims on
behalf of a class of persons who purchased the Companys common stock between April 30,
2009 and June 30, 2009 and between April 30, 2009 and July 10,
2009. The complaints allege that the
defendants issued various materially false and misleading statements relating
to the Companys projected performance that had the effect of artificially
inflating the market price of its securities.
The complaints further allege that the alleged misstatements were
revealed to the public on June 30, 2009 and July 10, 2009 when the
Company made certain announcements regarding potential lower pricing for
commercial and Medicare reimbursement rates.
These actions were consolidated on September 9, 2009. On October 26, 2009, two competing
motions were filed for appointment of lead plaintiffs and lead counsel pursuant
to the requirements of the Private Securities Litigation Reform Act of
1995. On December 22, 2009, the
Court appointed lead plaintiff, but denied its request for appointment of lead
counsel and require lead plaintiff to file an amended motion for approval of
its selection of class counsel. Lead plaintiff filed its amended motion for
appointment of lead counsel on January 15, 2010, which was granted on February 3,
2010. Lead plaintiff filed a consolidated class action complaint on February 19,
2010 and the defendants filed a motion to dismiss on March 26, 2010. Lead
plaintiff filed its opposition to the motion to dismiss on April 30, 2010.
The Company believes the claims are without merit and intends to defend the
litigation vigorously. At this time, it is not possible to determine the
likelihood or amount of liability, if any, on the part of the Company with any
degree of certainty. Consistent with the accounting for contingent liabilities,
no accrual has been recorded in the financial statements.
11
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On
April 2, 2009 CardioNet entered into a Merger Agreement to acquire
(Biotel) Inc. for $14,000. On July 14, 2009, CardioNet exercised its
contractual right to terminate the Merger Agreement due to Biotels breach of
certain covenants in the agreement. The next day, CardioNet notified Biotel of
its obligation to pay the Company $1,400 for a termination fee and expenses in
accordance with the Merger Agreement. On or about July 16, 2009, Biotel
subsequently commenced litigation against CardioNet in Minnesota District Court
in Hennepin County, Fourth Judicial District, alleging that CardioNet had
breached and improperly terminated the Merger Agreement. CardioNet removed the
action to the United States District Court for the District of Minnesota on the
basis of diversity jurisdiction, and Biotel did not seek to remand the action.
Biotel is seeking specific performance and damages in an amount in excess of
$10,000. CardioNet has counterclaimed under the terms of the Merger Agreement
for its termination fee and associated expenses; the current amount of that
counterclaim is $1,400. The case is to be ready for trial by July 15,
2010. Discovery is underway. The Company plans to vigorously defend its
position and prosecute its counterclaim. At this time, it is not possible to
determine the likelihood or amount of liability, if any, on the part of the
Company with any degree of certainty. Consistent with the accounting for contingent
liabilities, no accrual has been recorded in the financial statements.
Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion and
analysis should be read in conjunction with our Annual Report on Form 10-K
for the year ended December 31, 2009, and in conjunction with the
accompanying quarterly unaudited condensed consolidated financial statements.
This discussion contains certain forward-looking statements that involve risks
and uncertainties. The Companys actual results and the timing of certain
events could differ materially from those discussed in these forward-looking
statements as a result of certain factors, including, but not limited to, those
set forth herein and elsewhere in this report and in the Companys other
filings with the Securities and Exchange Commission. See the Forward Looking
Statements section at the beginning of this report.
Company Background
CardioNet is a leading
provider of ambulatory, continuous, real-time outpatient management solutions
for monitoring relevant and timely clinical information regarding an
individuals health. The Companys efforts have initially been focused on the
diagnosis and monitoring of cardiac arrhythmias, or heart rhythm disorders,
with a solution that it markets as Mobile Cardiac Outpatient Telemetry
(MCOT). The Company actively began developing its product platform in April 2000,
and since that time, has devoted substantial resources in advancing its patient
monitoring solutions. The platform successfully integrates a wireless data
transmission network, internally developed software, FDA-cleared algorithms and
medical devices, and a 24-hour monitoring service center.
The Companys Conshohocken location has been an approved Independent
Diagnostic Testing Facility (IDTF) by Medicare since it received 510(k) clearance
for the first and second generation of its core MCOT devices in 2002. The
CardioNet Monitoring Center commenced operations in Conshohocken, Pennsylvania
in 2002, concurrent with its first FDA approval, and all of the Companys MCOT
arrhythmia monitoring activities are currently conducted at that location. The
Company received FDA 510(k) clearance for the proprietary algorithm
included in its third generation product, or C3, in October 2005.
Subsequently in November 2006, the Company received FDA 510(k) clearance
for its C3 system which it has incorporated as part of its monitoring solution.
The Company continues to pursue innovation of new and existing medical solutions
through investments in research and development. The Company received FDA 510(k) clearance
for its next generation platform in April 2010 and expects the product
launch to occur in late 2010.
In March 2007, the
Company acquired all of the outstanding capital stock of PDSHeart. The
acquisition of PDSHeart provided three additional product lines to compliment
MCOT: event, Holter and Pacer monitoring solutions. In addition, the
acquisition supplied the Company with existing sales channels and relationships
in geographic areas that previously had not been penetrated prior to the
acquisition. In March 2008, the Company completed an initial public
offering of its common stock for proceeds of approximately $46.7 million,
net of underwriter commissions and estimated offering expenses.
nPhase Supplier Agreement
The Company established a
relationship with nPhase, formerly Qualcomm Inc., in May 2003. nPhase
is the sole provider of wireless cellular data connectivity solutions and data
hosting and queuing services for the Companys monitoring network. The Company
has no fixed or minimum financial commitment as it relates to network usage or
volume activity. However, if the Company fails to maintain an agreed-upon
number of active cardiac monitoring devices on the nPhase network or it
utilizes the monitoring and communications services of a provider other than
nPhase, nPhase has the right to terminate its relationship with the Company.
Reimbursement
In October 2008, the
Centers for Medicare and Medicaid Services (CMS) established reimbursement
rates covering MCOT services. The reimbursement rates applicable to the
Category I CPT codes (93228 and 93229) established by the American Medical
Association (AMA) for MCOT became effective on January 1, 2009.
Highmark Medicare Services (Highmark) is responsible for setting the
reimbursement rate on behalf of CMS for code 93229, which is the code for the
technical component of our services. The new billing codes allow for automated
claims adjudication, substantially simplifying the reimbursement process for
physicians and payors compared to the previous process. Reimbursement prior to
the use of the new CPT codes was obtained through non-specific billing codes
which require various narratives that, in most cases, involve semi-automated or
manual processing, as well as additional review by payors.
After receiving the CPT code
in the first quarter of 2009, the Company received pressure from several
commercial payors to renegotiate reimbursement rate contracts. This pressure
led to a substantial decline in our average commercial reimbursement rates in
the first half of 2009. During the second half of 2009, and into the first
quarter of 2010, we have seen commercial reimbursements stabilize.
12
Table of Contents
On July 10, 2009,
Highmark announced a reduction in the reimbursement rate for our MCOT services
to $754 per service, a reduction of approximately 33%. This new rate went into
effect on September 1, 2009. The decline in reimbursement rate has had a
negative impact on the Companys revenue and operating results, and has
presented significant challenges to the viability of the Companys current
business model. Several strategic initiatives are currently being implemented,
including cost efficiency measures. The Company intends to continue to work
with CMS to achieve an appropriate national rate in the future, and will
continue to evaluate its strategic options.
We have successfully secured
contracts with many national and regional commercial payors. We increased the
number of MCOT contracts with commercial payors to 259 at March 31, 2010,
compared to 203 at March 31, 2009. The current estimated total of 200
million covered lives for Medicare and commercial lives for which we had
reimbursement contracts as of March 31, 2010 represents approximately 78%
of the total covered lives in the United States. The MCOT contracts also cover
event, Holter and Pacer service pricing. In addition, as of March 31, 2010
there were approximately 90 contracts with commercial payors that pertained
only to event, Holter and Pacer service pricing, and did not cover MCOT. The
majority of the remaining covered lives are insured by a relatively small
number of large commercial insurance companies that deemed MCOT to be
experimental and investigational and do not currently reimburse us for
services provided to their beneficiaries.
Restructuring Activities
During the first quarter of 2010, the Company
undertook an initiative to streamline its
sales and service organizations and reduce support costs Company-wide.
It also
initiated plans to close its event monitoring facility in Georgia and
consolidate it with the Companys monitoring facilities in Pennsylvania and
Minnesota. The Company believes that it can realize cost efficiencies by
undertaking these initiatives.
The total cost of the restructuring plan is expected
to be approximately $3.5 million, of which $1.7 million was incurred to date
and is expected to be substantially complete by the end of the third quarter of
2010.
Results of Operations
Three Months Ended March 31, 2010 and 2009
Revenues.
Total revenues
for the three months ended March 31, 2010 decreased to $31.8 million
from $35.7 million for the three months ended March 31, 2009, a
decrease of $3.9 million, or 10.9%. MCOT revenue was lower by
$3.3 million due to a decrease in MCOT reimbursement rates, offset by an
increase in volume of 23%. Additionally, there was a decrease in event, Holter
and other revenue of $0.6 million for the three months ended March 31,
2010 compared to the three months ended March 31, 2009.
Gross Profit.
Gross profit
decreased to $20.1 million for the three months ended March 31, 2010
from $23.9 million for the three months ended March 31, 2009. The
decrease of $3.8 million was due to a decrease in revenue, offset slightly by a
decrease in cost of sales of $0.1 million for the three months ended March 31,
2010 compared to the three months ended March 31, 2009. Gross profit as a
percentage of revenue declined to 63.1% for the three months ended March 31,
2010 compared to 66.9% for the three months ended March 31, 2009.
General and Administrative Expense.
General and
administrative expense remained constant at $14.3 million for the three months
ended March 31, 2010 and 2009. An increase in bad debt and legal expense
was offset by a reduction in stock compensation and bonus expense. As a
percentage of total revenues, general and administrative expense was 45.0% for
the three months ended March 31, 2010 compared to 40.1% for the three
months ended March 31, 2009.
Sales and Marketing Expense.
Sales and
marketing expense was $8.0 million for the three months ended March 31,
2010 compared to $7.5 million for the three months ended March 31,
2009. The increase of $0.5 million, or 6.7%, was largely due to increased
marketing efforts. As a percent of total
revenues, sales and marketing expense was 25.1% for the three months ended March 31,
2010 compared to 21.1% for the three months ended March 31, 2009.
Research and Development Expense.
Research and
development expense remained constant at $1.2 million for the three months
ended March 31, 2010 and 2009. As a percent of total revenues, research
and development expense was 3.9% for the three months ended March 31, 2010
compared to 3.4% for the three months ended March 31, 2009.
Integration, Restructuring and Other
Charges.
The
Company incurred restructuring costs of $1.7 million and other charges of $0.3
million for the three months ended March 31, 2010. The restructuring costs
included $1.4 million of severance and employee related costs and $0.3 million
of other charges related to the 2010 restructuring plan. The 2010 restructuring
plan included the consolidation of the Companys sales and service
organizations, the closure of the Companys event monitoring facility in
Georgia and consolidation with its monitoring facilities in Pennsylvania and
Minnesota, and an overall reduction of administrative costs company-wide.
Integration, restructuring and other charges were 6.1% of total revenues for
the three months ended March 31, 2010. The other charges related to legal
costs and other miscellaneous items.
13
Table of Contents
The Company incurred severance charges related to
executive employee terminations of $2.1 million for the three months ended March 31,
2009.
Other Income.
There was no
interest income for the three months ended March 31, 2010, down from $0.1
million for the three months ended March 31, 2009. The decline was due
primarily to lower short term interest rates and a lower average cash balance
in the three months ended March 31, 2010 compared to the three months
ended March 31, 2009.
Income Taxes.
The Company
recorded no tax benefit for the three months ended March 31, 2010,
compared to a tax benefit of $0.5 for the three months ended March 31,
2009. The effective tax rate for the three months ended March 31, 2010 was
0.0%, compared to 41.1% for the three months ended March 31, 2009.
Net Income.
The Company
incurred a net loss of $5.4 million for the three months ended March 31,
2010 compared to a net loss of $0.7 million for the three months ended March 31,
2009.
Liquidity and Capital Resources
The Companys Annual
Report on Form 10-K for the year ended December 31, 2009 includes a
detailed discussion of our liquidity, contractual obligations and commitments.
The information presented below updates and should be read in conjunction with
the information disclosed in that Form 10-K.
As of March 31,
2010, our principal source of liquidity was cash and cash equivalents of $45.3
million and net accounts receivable of $39.3 million. The Company has no short
or long-term debt and does not anticipate needing to secure financing from
external sources for cash to operate the business. The Company had working
capital of $72.9 million as of March 31, 2010. We believe that our
existing cash and cash equivalent balances will be sufficient to meet our
anticipated cash requirements for the foreseeable future.
The
Company used $3.0 million of its cash in its operations for the three months
ended March 31, 2010. Cash was used primarily to fund the Companys
ongoing operations during the three month period that resulted in a $5.4
million net loss, and to fund its net working capital requirements of $1.6
million. The Companys working capital requirements were driven primarily by
the prepayment of certain licenses and insurances costs that routinely occur in
the first quarter of the fiscal year and the repayment of certain payor
overpayments that were recorded in accounts payable. These working capital
requirements were offset by favorable cash collections related to the Companys
accounts receivables. The net loss and net working capital requirements were
offset by non-cash items related to deprecation and stock compensation
expense.
The Company used $1.5 million for the investment in
medical devices for use in its ongoing operations for the three months ended March 31,
2010.
If the Company determines
that it needs to raise additional capital, such capital may not be available on
reasonable terms, or at all. If the Company raises additional funds by issuing
equity securities, its existing stockholders ownership will be diluted. If the
Company raises additional funds by incurring additional debt financing, the
terms of the debt may involve significant cash payment obligations as well as
covenants and specific financial ratios that may restrict the ability to
operate its business.
Item 3. Quantitative and
Qualitative Disclosures about Market Risk.
Our cash and cash equivalents as of March 31,
2010 were $45.3 million and consisted primarily of cash and money market funds
with maturities of less than 90 days.
The primary objective of our investment activities is to preserve our
capital for the purpose of funding operations while, at the same time,
maximizing the income we receive from our investments without significantly
increasing risk. To achieve this objective, our investment policy allows us to
maintain a portfolio of cash equivalents and short term investments in a
variety of securities including money market funds and corporate debt
securities. Due to the short term nature of our investments, we believe we have
no material exposure to interest rate risk.
Item 4. Controls and Procedures.
Evaluation
of Disclosure Controls and Procedures
The Company maintains
disclosure controls and procedures designed to ensure information required to
be disclosed in Company reports filed under the Securities Exchange Act of
1934, as amended (the Exchange Act), is recorded, processed, summarized, and
reported within the time periods specified in the SECs rules and
forms. Disclosure controls and procedures are designed to provide
reasonable assurance that information required to be disclosed in Company
reports filed under the Exchange Act is accumulated and communicated to
management, including the Companys Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure.
14
Table of Contents
The Companys management,
with the participation of the Companys Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of the Companys disclosure
controls and procedures pursuant to Rule 13a-15(b) of the Exchange
Act as of the end of the period covered by this report. Based on
that evaluation, the Companys Chief Executive Officer and Chief Financial
Officer have concluded that the Companys disclosure controls and procedures
were effective as of March 31, 2010 to ensure that information required to
be disclosed in Company reports filed under the Exchange Act is (i) recorded,
processed, summarized and reported within the time periods specified in the SEC
rules and forms and (ii) accumulated and communicated to management,
including the Companys principal executive officer and principal financial
officer, as appropriate to allow timely decisions regarding required
disclosure.
Changes
in Internal Control over Financial Reporting
There were no changes in
the Companys internal control over financial reporting during the three months
ending March 31, 2010, that have materially affected, or are reasonably
likely to materially affect, the Companys internal control over financial
reporting.
PART II - OTHER INFORMATION.
Item 1. Legal
Proceedings.
On
March 5, 2010, West Palm Beach Police Pension Fund filed a putative class
action complaint in California Superior Court, San Diego County asserting
claims for violations of Sections 11, 12 and 15 of the Securities Act of 1933,
as amended, against CardioNet, nine current and former officers and directors
of CardioNet and six underwriters of CardioNets intial public offering (IPO)
consummated March 25, 2008 and/or Secondary Offering on August 6,
2008 (together with the IPO, the Offerings). The complaint filed March 5,
2010 also asserted claims for alleged violations of Sections 25401 and 25501 of
the California Corporations Code against defendants James M. Sweeney and Fred
Middleton. The plaintiff seeks to bring claims on behalf of all those who
purchased or otherwise acquired the common stock of CardioNet pursuant and/or
traceable to the Companys IPO and/or Secondary Offering. On March 10,
2010, plaintiff filed an Amended Complaint that deleted the claims for
violations of the California Corporations Code. The claims are based on
purported misrepresentations and omissions in the Registration Statements for
the Offerings relating to alleged business decisions made by CardioNet that
were supposedly not disclosed to investors and alleged misstatements concerning
CardioNets business. On April 5, 2010, all defendants removed the
case to the Southern District of California, where it is pending at docket no.
10-cv-00711-L-NLS. On April 7, 2010, defendants filed a Motion to
Transfer the case to the Eastern District of Pennsylvania, which Motion to
Transfer is noticed for hearing on June 28, 2010. On April 12,
2010, all parties filed a Joint Stipulation agreeing that plaintiff shall file
and serve its Motion to Remand on or before May 4, 2010; opposition papers
on Defendants Motion to Transfer and Plaintiffs Motion to Remand shall be
filed and served on May 28, 2010; reply briefs on Defendants Motion to
Transfer and Plaintiffs Motion to Remand shall be filed and served on June 14,
2010; and Plaintiff shall notice its Motion to Remand for hearing on the June 28,
2010 for the same date and time as Defendants Motion to Transfer is currently
noticed. The Joint Stipulation further provides that defendants are not
currently required to respond to the Amended Complaint and sets forth a schedule
for defendants response depending on whether Plaintiffs Motion to Remand is
granted. On April 15, 2010, the Court granted in part and denied in
part the dates proposed in the Joint Stipulation. It approved all dates
other than the proposed extension of time to respond to the complaint, which it
denied for failure to show good cause. The denial was without prejudice
if the action is remanded or transferred. On April 30, 2010, Defendants
filed an unopposed motion to extend time for their responses to the Amended
Complaint that set forth a good cause basis for their proposed extension. The Company believes that the claims are
without merit and intends to defend the litigation vigorously.
Commencing on August 26,
2009, two putative class actions were filed in the United States District Court
for the Eastern District of Pennsylvania naming CardioNet, Randy Thurman and
Martin P. Galvan as defendants and alleging violations of Sections 10(b) and
20(a) of the Securities Exchange Act of 1934, as amended. The complaints purport to bring claims on
behalf of a class of persons who purchased the Companys common stock between April 30,
2009 and June 30, 2009 and between April 30, 2009 and July 10,
2009. The complaints allege that the
defendants issued various materially false and misleading statements relating
to the Companys projected performance that had the effect of artificially
inflating the market price of its securities.
The complaints further allege that the alleged misstatements were
revealed to the public on June 30, 2009 and July 10, 2009 when the
Company made certain announcements regarding potential lower pricing for
commercial and Medicare reimbursement rates.
These actions were consolidated on September 9, 2009 under docket
number 09-3894. On October 26,
2009, two competing motions were filed for appointment of lead plaintiffs and
lead counsel pursuant to the requirements of the Private Securities Litigation
Reform Act of 1995. On December 22,
2009, the Court appointed lead plaintiff, but denied its request for
appointment of lead counsel and require lead plaintiff to file an amended
motion for approval of its selection of class counsel. Lead plaintiff filed
their amended motion for appointment of lead counsel on January 15, 2010,
which was granted on February 3, 2010. Lead plaintiff filed a consolidated
class action complaint on February 19, 2010 and the defendants filed a
motion to dismiss on March 26, 2010. Lead plaintiff filed its opposition
to the motion to dismiss on April 30, 2010. The Company believes the
claims are without merit and intends to defend the litigation vigorously.
15
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On April 2,
2009 CardioNet entered into a Merger Agreement to acquire (Biotel) Inc.
for $14.0 million. On July 14, 2009, CardioNet exercised its
contractual right to terminate the Merger Agreement due to Biotels breach of
certain covenants in the agreement. The next day, CardioNet notified Biotel of
its obligation to pay the Company $1.4 million for a termination fee and
expenses in accordance with the Merger Agreement. On or about July 16,
2009, Biotel subsequently commenced litigation against CardioNet in Minnesota
District Court in Hennepin County, Fourth Judicial District, alleging that
CardioNet had breached and improperly terminated the Merger Agreement.
CardioNet removed the action to the United States District Court for the
District of Minnesota on the basis of diversity jurisdiction, and Biotel did
not seek to remand the action. Biotel is seeking specific performance and
damages in an amount in excess of $10.0 million. CardioNet has
counterclaimed under the terms of the Merger Agreement for its termination fee
and associated expenses; the current amount of that counterclaim is
$1.4 million. The case is to be ready for trial by July 15, 2010.
Discovery is underway. The Company plans to vigorously defend its position and
prosecute its counterclaim.
Item 1A. Risk Factors.
In evaluating an
investment in our common stock, investors should consider carefully, among
other things, the risk factors previously disclosed in Part I, Item 1A of
our Annual Report on Form 10-K for the year ended December 31, 2009,
as well as the information contained in this Quarterly Report and our other
reports and registration statements filed with the SEC. Material changes from the risk factors
previously disclosed under Risk Factors in Part I, Item 1A of our Annual
Report on Form 10-K for the year ended December 31, 2009 are
discussed below.
Legislation and
policy changes reforming the United States healthcare system may have a
material adverse effect on our operating results and financial condition.
On March 23, 2010, the Patient Protection and
Affordable Care Act was signed into law and on March 30, 2010, the Health
Care and Education Reconciliation Act of 2010 was signed into law. Together,
the two measures make the most sweeping and fundamental changes to the United
States health care system since the creation of Medicare and Medicaid. The
Health Care Reform laws include a large number of health-related provisions to
take effect over the next four years, including expanding Medicaid eligibility,
requiring most individuals to have health insurance, establishing new
regulations on health plans, establishing health insurance exchanges, requiring
manufacturers to report payments or other transfers of value made to physicians
and teaching hospitals, and modifying certain payment systems to encourage more
cost-effective care and a reduction of inefficiencies and waste, including
through new tools to address fraud and abuse.
In addition, various healthcare reform proposals
have also emerged at the state level. We cannot predict the effect that newly
enacted laws or any future legislation or regulation will have on us. However,
the implementation of new legislation and regulation may lower reimbursements
for our products, reduce medical procedure volumes and adversely affect our
business, possibly materially. The enacted excise tax may materially and
adversely affect our operating expenses and results of operations.
Item 2. Unregistered Sales of Equity
Securities and Use of Proceeds
The initial public offering of our common stock was effected through a
Registration Statement on Form S-1 (File No. 333-145547) that was
declared effective by the Securities and Exchange Commission on March 18,
2008, which registered an aggregate of 5,175,000 shares of our common stock,
including 675,000 shares that the underwriters had the option to purchase to
cover over-allotments. On March 25, 2008, 3,000,000 shares of common stock
were sold on our behalf and 1,500,000 shares of common stock were sold on
behalf of a selling stockholder at an initial public offering price of $18.00
per share, for an aggregate gross offering price of $54.0 million to us,
and $27.0 million to the selling stockholders. On April 8, 2008,
1,014,286 shares of common stock were sold on behalf of the selling stockholder
upon a partial exercise of the underwriters over-allotment option, at an
initial public offering price of $18.00 per share, for an aggregate gross
offering price of $1.8 million to the selling stockholder. Following the
sale of the shares in connection with the over-allotment closing of our initial
public offering, the offering terminated.
We paid to the underwriters underwriting discounts and commissions
totaling approximately $3.8 million in connection with the offering. In
addition, we incurred additional costs of approximately $3.2 million in
connection with the offering, which when added to the underwriting discounts
and commissions paid by us, amounts to total fees and costs of approximately
$7.0 million. Thus, the net offering proceeds to us, after deducting underwriting
discounts and commissions and offering costs, were approximately
$46.7 million. No offering costs were paid directly or indirectly to any
of our directors or officers (or their associates) or persons owning ten
percent or more of any class of our equity securities or to any other
affiliates.
16
Table of Contents
As
of March 31, 2010, we had invested $26.2 million of net proceeds from
the offering in money market funds. We have used the net proceeds from the
offering to fund our operations for the three months ended March 31, 2010,
the purchase of capital equipment during fiscal year 2009 and the three months
ended March 31, 2010, repay our outstanding long-term debt balance and
related fees of $2.7 million and to pay $5.0 million owed to former
stockholders of PDSHeart holding certificates of subordinated contingent
payment interest to fully extinguish our obligations under such certificates.
We intend to use the remaining proceeds for our working capital needs, research
and development, to invest in infrastructure, pursue new markets and product
applications and to pursue strategic opportunities. We cannot specify with
certainty all of the particular uses for the net proceeds from our initial
public offering. Accordingly, our management will have broad discretion in the
application of the net proceeds.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Removed and Reserved
Item
5. Other Information
Not applicable.
17
Table of Contents
Item 6. Exhibits.
EXHIBIT INDEX
Exhibit
Number
|
|
|
|
|
|
10.1
|
|
First Amendment to Lease dated February 24, 2010 between the
Registrant and OCC, LLC.
|
31.1
|
|
Certification of Chief Executive Officer pursuant to
Rules 13a-14(a) and 15d-14(a) promulgated under the Securities
and Exchange Act of 1934, as amended.
|
31.2
|
|
Certification of Chief Financial Officer pursuant to
Rules 13a-14(a) and 15d-14(a) promulgated under the Securities
and Exchange Act of 1934, as amended.
|
32.1
|
|
Certification of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
18
Table of
Contents
CardioNet, Inc.
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.
|
|
CARDIONET, INC.
|
|
|
|
|
|
|
|
|
Date: May 4,
2010
|
|
By:
|
/s/ Heather C.
Getz
|
|
|
|
Heather C. Getz,
CPA
|
|
|
|
Chief
Financial Officer
(Principal
Financial Officer and authorized officer of the Registrant)
|
19
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