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Table of Contents

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: JUNE 30, 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 July 30, 2004, there were outstanding 21,097,022 shares of the registrant’s common stock, par value $.01 per share.

 



Table of Contents

NOVAMED, INC.

FORM 10-Q FOR QUARTERLY PERIOD ENDED JUNE 30, 2004

INDEX

 

PART OR ITEM


   PAGE

Part I.

  FINANCIAL STATEMENTS    3

Item 1.

  Interim Condensed Consolidated Financial Statements (unaudited)     
   

Condensed Consolidated Balance Sheets –June 30, 2004 and December 31, 2003

   3
   

Condensed Consolidated Statements of Operations – Three and six months ended June 30, 2004 and 2003

   4
   

Condensed Consolidated Statements of Cash Flows – Six months ended June 30, 2004 and 2003

   5
   

Notes to the Interim Condensed Consolidated Financial Statements

   6

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations    11

Item 4.

  Disclosure Controls and Procedures    19

Part II.

  OTHER INFORMATION    20

Item 4.

  Submission of Matters to a Vote of Security Holders    20

Item 6.

  Exhibits and Reports on Form 8-K    20
    Signatures    21

 

2


Table of Contents

Part I

Item 1.

 

NOVAMED, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)

 

    

June 30,

2004


   

December 31,

2003


 
     (unaudited)        

ASSETS

                

Current assets:

                

Cash and cash equivalents

   $ 6,270     $ 11,801  

Accounts receivable, net of allowances of $8,633 and $7,611, respectively

     11,267       8,219  

Notes and amounts due from affiliated providers

     509       1,089  

Notes receivable from related parties

     395       597  

Inventory

     1,364       1,397  

Current tax assets, net

     279       542  

Other current assets

     1,115       1,107  
    


 


Total current assets

     21,199       24,752  

Property and equipment, net

     7,524       7,918  

Intangible assets, net

     34,851       26,749  

Noncurrent deferred tax assets, net

     3,008       4,130  

Other assets, net

     131       339  
    


 


Total assets

   $ 66,713     $ 63,888  
    


 


LIABILITIES AND STOCKHOLDERS’ EQUITY

                

Current liabilities:

                

Accounts payable

   $ 5,121     $ 4,078  

Accrued expenses

     2,449       2,374  

Restructuring reserves

     141       260  

Current maturities of long-term debt

     180       80  

Current liabilities of discontinued operations

     672       1,068  
    


 


Total current liabilities

     8,563       7,860  
    


 


Long-term debt, net of current maturities

     167       74  
    


 


Minority interests

     6,940       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 June 30, 2004 and December 31, 2003, respectively

     —         —    

Common stock, $0.01 par value, 81,761,465 shares authorized, 25,255,765 and 25,046,195 shares issued at June 30, 2004 and December 31, 2003, respectively

     252       250  

Additional paid-in-capital

     78,425       77,964  

Accumulated deficit

     (21,471 )     (23,641 )

Treasury stock, at cost, 4,208,743 and 3,843,399 shares at June 30, 2004 and December 31, 2003, respectively

     (6,163 )     (4,460 )
    


 


Total stockholders’ equity

     51,043       50,113  
    


 


Total liabilities and stockholders’ equity

   $ 66,713     $ 63,888  
    


 


 

The notes to the interim condensed consolidated financial statements

are an integral part of these statements.

 

3


Table of Contents

NOVAMED, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share data; unaudited)

 

   

Three months ended

June 30,


   

Six months ended

June 30,


 
    2004

    2003

    2004

    2003

 

Net revenue:

                               

Surgical facilities

  $ 11,143     $ 9,281     $ 20,492     $ 17,828  

Product sales and other

    4,334       4,737       9,211       9,693  
   


 


 


 


Total net revenue

    15,477       14,018       29,703       27,521  
   


 


 


 


Operating expenses:

                               

Salaries, wages and benefits

    5,225       4,991       10,303       10,232  

Cost of sales and medical supplies

    3,719       3,442       7,238       6,792  

Selling, general and administrative

    3,358       2,949       6,512       5,829  

Depreciation and amortization

    640       657       1,316       1,294  
   


 


 


 


Total operating expenses

    12,942       12,039       25,369       24,147  
   


 


 


 


Operating income

    2,535       1,979       4,334       3,374  

Minority interests in earnings of consolidated entities

    1,177       678       1,930       1,255  

Other (income) expense, net

    (22 )     (15 )     (222 )     (133 )
   


 


 


 


Income before income taxes

    1,380       1,316       2,626       2,252  

Income tax provision

    552       526       1,050       903  
   


 


 


 


Net income from continuing operations

    828       790       1,576       1,349  

Net income from discontinued operations

    —         —         594       4  
   


 


 


 


Net income

  $ 828     $ 790     $ 2,170     $ 1,353  
   


 


 


 


Basic earnings per common share:

                               

Income from continuing operations

  $ 0.04     $ 0.04     $ 0.07     $ 0.06  

Income from discontinued operations

    —         —         0.03       —    
   


 


 


 


Net income

  $ 0.04     $ 0.04     $ 0.10     $ 0.06  
   


 


 


 


Diluted earnings per common share:

                               

Income from continuing operations

  $ 0.04     $ 0.04     $ 0.07     $ 0.06  

Income from discontinued operations

    —         —         0.03       —    
   


 


 


 


Net income

  $ 0.04     $ 0.04     $ 0.10     $ 0.06  
   


 


 


 


Weighted average common shares outstanding

    21,018       21,441       21,123       21,622  

Dilutive effect of employee stock options

    1,815       315       1,918       297  
   


 


 


 


Diluted weighted average common shares outstanding

    22,833       21,756       23,041       21,919  
   


 


 


 


 

The notes to the interim condensed consolidated financial statements are an integral part of these statements.

 

4


Table of Contents

NOVAMED, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands; unaudited)

 

    

Six months ended

June 30,


 
     2004

    2003

 

Cash flows from operating activities:

                

Net income from continuing operations

   $ 1,576     $ 1,349  

Adjustments to reconcile net income to net cash provided by continuing operations, net of effects of purchase transactions—

                

Depreciation and amortization

     1,316       1,294  

Deferred taxes

     1,050       903  

Gain on sale of minority interests

     (163 )     (115 )

Minority interests

     1,930       1,255  

Distributions to minority partners

     (1,831 )     (857 )

Changes in operating assets and liabilities—

                

Accounts receivable

     (2,544 )     (2,357 )

Inventory

     118       (211 )

Other current assets

     (157 )     315  

Accounts payable and accrued expenses

     821       (40 )

Other noncurrent assets

     61       (12 )
    


 


Net cash provided by operating activities

     2,177       1,524  
    


 


Cash flows from investing activities:

                

Payments for acquisitions, net

     (8,133 )     —    

Proceeds from sale of minority interests

     1,048       135  

Purchases of property and equipment

     (1,069 )     (1,196 )

Proceeds from sale of property and equipment

     121       38  

Proceeds from sale of securities

     74       —    
    


 


Net cash used in investing activities

     (7,959 )     (1,023 )
    


 


Cash flows from financing activities:

                

Borrowings under revolving line of credit

     —         825  

Payments under revolving line of credit

     —         (825 )

Proceeds from the issuance of common stock

     294       29  

Payments of other debt, debt issuance fees and capital lease obligations

     (52 )     (125 )
    


 


Net cash provided by (used in) financing activities

     242       (96 )
    


 


Cash flows from discontinued operations:

                

Operating activities

     (342 )     (1,732 )

Investing activities

     351       2,002  

Financing activities

     —         (1 )
    


 


Net cash provided by discontinued operations

     9       269  
    


 


Net increase (decrease) in cash and cash equivalents

     (5,531 )     674  

Cash and cash equivalents, beginning of period

     11,801       1,957  
    


 


Cash and cash equivalents, end of period

   $ 6,270     $ 2,631  
    


 


 

The notes to the interim condensed consolidated financial statements

are an integral part of these statements.

 

5


Table of Contents

NOVAMED, INC. AND SUBSIDIARIES

NOTES TO THE INTERIM

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 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 June 30, 2004 and for the three and six months ended June 30, 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

June 30,


 

Six months ended

June 30,


 
    2004

    2003

  2004

    2003

 

Supplemental cash information:

                             

Interest paid

  $ 15     $ 36   $ 32     $ 68  

Income taxes paid

    47       1     48       35  

Income tax refunds received

    (3 )     —       (18 )     (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 necessary.

 

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. INTANGIBLE ASSETS

 

Goodwill balances by reportable segment are summarized in the table below:

 

     Unamortized Goodwill

      
     Surgical
Facilities


  

Product

Sales


   Other

   Total

  

Amortized

Intangibles


 

Balance December 31, 2003

   $ 20,311    $ 5,475    $ 941    $ 26,727    $ 22  

Acquisition of ASCs

     8,113      —        —        8,113      —    

Amortization

     —        —        —        —        (11 )
    

  

  

  

  


Balance June 30, 2004

   $ 28,424    $ 5,475    $ 941    $ 34,840    $ 11  
    

  

  

  

  


 

6


Table of Contents

NOVAMED, INC. AND SUBSIDIARIES

NOTES TO THE INTERIM

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

June 30, 2004

(Dollars in thousands, except per share data; unaudited)

 

4. ACQUISITIONS

 

The Company generally acquires majority equity interests in ASCs through the purchase method of accounting. The results of operations are included in the consolidated financial statements of the Company from the date of acquisition.

 

The Company made the following acquisitions during the second quarter of 2004:

 

Acquisition


 

Location


 

Effective Date


 

Purchase

Price


ASC (51%)

  Bedford, NH   April 2004   $1.4 million

ASC (51%)

  Nashua, NH   April 2004   $1.5 million

ASC (70%)

  Altamonte Springs, FL   June 2004   $5.2 million

 

5. 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.

 

The discontinued operations reserve balance was $672 and $1,068 at June 30, 2004 and December 31, 2003, respectively. The reserve is for remaining severance payments payable through December 2004, lease commitments expiring July 2005 and other costs from exiting the PPM business. The operating results of discontinued operations are summarized below.

 

   

Three months ended

June 30,


   

Six months ended

June 30,


 
    2004

  2003

    2004

   2003

 

Net revenue

  $  —     $ 273     $  —      $ 1,421  

Operating expenses

    —       1,083       —        3,010  

Reverse valuation allowance

    —       —         958      —    
   

 


 

  


Income (loss) before income taxes

    —       (810 )     958      (1,589 )

Income tax provision (benefit)

    —       (323 )     364      (635 )
   

 


 

  


Net income (loss) from operations

    —       (487 )     594      (954 )

Net income (loss) charged to reserves

    —       (487 )     —        (958 )
   

 


 

  


Net income per statement of operations

  $  —     $ —       $ 594    $ 4  
   

 


 

  


 

7


Table of Contents

NOVAMED, INC. AND SUBSIDIARIES

NOTES TO THE INTERIM

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

June 30, 2004

(Dollars in thousands, except per share data; unaudited

 

6. RESTRUCTURING RESERVES

 

Commitments under restructuring reserves expire through May 2005. The following represents activity during the first six months of 2004:

 

    

Reserve at

December 31,

2003


  

Charges

Utilized


   

Reserve at

June 30,

2004


Lease Commitments

   $ 143    $ (56 )   $ 87

Asset Impairments

     94      (61 )     33

Other

     23      (2 )     21
    

  


 

Total reserve balance

   $ 260    $ (119 )   $ 141
    

  


 

 

7. OTHER (INCOME) EXPENSE

 

    

Three months ended

June 30,


   

Six months ended

June 30,


 
     2004

    2003

    2004

    2003

 

Interest expense

   $ 27     $ 40     $ 56     $ 77  

Interest income

     (21 )     (38 )     (54 )     (80 )

(Gain) loss on sale of minority interests

     27       —         (163 )     (115 )

Other, net

     (55 )     (17 )     (61 )     (15 )
    


 


 


 


Other (income) expense, net

   $ (22 )   $ (15 )   $ (222 )   $ (133 )
    


 


 


 


 

During the first quarter of 2004 the Company sold a 22.5% minority interest in its Chattanooga, TN ASC to four physicians and sold an additional 10% interest in its New Albany, IN ASC to an affiliate of its existing minority partners, thereby increasing minority ownership in this ASC to 30%. During the second quarter of 2004, the Company sold an additional 8% minority interest in its Chattanooga, TN ASC to a fifth physician increasing minority ownership in this ASC to 30.5%.

 

8. REVOLVING CREDIT FACILITY

 

At June 30, 2004, the Company had no outstanding borrowings under its revolving credit facility. The maximum commitment available under the Company’s credit facility is $30 million. The credit agreement expires on June 30, 2006.

 

Under the facility, interest on borrowings under the credit agreement is payable at an annual rate equal to the Company’s lender’s published base rate plus the applicable borrowing margin ranging from 0% to .50% or LIBOR plus a range from 1.25% to 2.0%, varying upon the Company’s ability to meet financial covenants. In addition, a fee ranging from .175% to .250% is charged on the unused portion of the commitment. The credit agreement contains covenants that include limitations on indebtedness, liens, capital expenditures, acquisitions and affiliations and ratios that define borrowing availability and restrictions on the payment of dividends. As of June 30, 2004, the Company was in compliance with all its credit agreement covenants.

 

At June 30, 2004 the Company had an outstanding letter of credit issued to one of its optical products buying group vendors in the amount of $200 that expires on March 31, 2005.

 

8


Table of Contents

NOVAMED, INC. AND SUBSIDIARIES

NOTES TO THE INTERIM

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

June 30, 2004

(Dollars in thousands, except per share data; unaudited)

 

9. STOCK BASED COMPENSATION

 

The Company accounts for its stock-based employee compensation plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to or above the market value of the underlying common stock at the date of grant. During the first quarter of 2004, the Company granted its employees options to purchase 525,000 shares with an exercise price of $4.45 per share and granted four of its outside directors options to purchase 100,000 shares with an exercise price of $4.45 per share. During the second quarter of 2004, the Company granted an additional outside director options to purchase 25,000 shares with an exercise price of $4.07 per share. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation.

 

   

Three months ended

June 30,


   

Six months ended

June 30,


 
    2004

    2003

    2004

    2003

 

Net income – as reported

  $ 828     $ 790     $ 2,170     $ 1,353  

Deduct: Total stock based compensation expense, net of related tax effects

    (181 )     (382 )     (563 )     (754 )
   


 


 


 


Pro forma net income

  $ 647     $ 408     $ 1,607     $ 599  
   


 


 


 


Earnings per share:

                               

Basic — as reported

  $ 0.04     $ 0.04     $ 0.10     $ 0.06  
   


 


 


 


Basic — pro forma

  $ 0.03     $ 0.02     $ 0.08     $ 0.03  
   


 


 


 


Diluted — as reported

  $ 0.04     $ 0.04     $ 0.10     $ 0.06  
   


 


 


 


Diluted — pro forma

  $ 0.03     $ 0.02     $ 0.07     $ 0.03  
   


 


 


 


 

10. SUBSEQUENT EVENTS

 

Effective July 1, 2004, the Company sold a 5% and a 2.5% minority interest in its Chattanooga, TN ASC to two of its existing partners, increasing their minority interest ownership to 10% and 5%, respectively and increasing total minority ownership interest in this ASC to 38%. This will result in a $67 pretax loss on the sale of minority interests in the third quarter of 2004.

 

Effective July 1, 2004, the Company repurchased the 20% minority interest of one of its Kansas City, MO ASCs from two physician partners who each held a 10% interest and performed the majority of the surgical procedures at this ASC. The Company is currently working to attract new physicians to this ASC.

 

Effective July 27, 2004, the Company acquired a 51% majority interest in an ASC located in Oak Lawn, IL and effective July 31, 2004, the Company acquired a 60% majority interest in an ASC located in Lake Worth, FL. The aggregate purchase price of these two ASCs was $13.2 million which was funded from the Company’s existing cash and credit facility.

 

9


Table of Contents

NOVAMED, INC. AND SUBSIDIARIES

NOTES TO THE INTERIM

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

June 30, 2004

(Dollars in thousands, except per share data; unaudited)

 

11. OPERATING SEGMENTS

 

The table below presents information about operating data and segment assets as of and for the three and six months ended June 30, 2004 and 2003:

 

    

Surgical

Facilities


  

Product

Sales


   Other

    Corporate

    Total

Three months ended June 30, 2004

                                    

Net revenue

   $ 11,143    $ 2,653    $ 1,681     $ —       $ 15,477

Income before income taxes

     2,274      501      83       (1,478 )     1,380

Depreciation and amortization

     461      46      28       105       640

Interest income

     1      —        —         20       21

Interest expense

     1      —        —         26       27

Capital expenditures

     510      26      —         37       573

Identifiable assets

     40,752      11,647      2,355       11,959       66,713
    

  

  


 


 

Three months ended June 30, 2003

                                    

Net revenue

   $ 9,281    $ 2,704    $ 2,033     $ —       $ 14,018

Income before income taxes

     2,282      545      (46 )     (1,465 )     1,316

Depreciation and amortization

     437      72      31       117       657

Interest income

     9      —        —         29       38

Interest expense

     3      —        —         37       40

Capital expenditures

     792      42      2       6       842

Identifiable assets

     31,000      11,318      2,314       17,837       62,469
    

  

  


 


 

Six months ended June 30, 2004

                                    

Net revenue

   $ 20,492    $ 5,451    $ 3,760     $ —       $ 29,703

Income before income taxes

     4,311      1,114      265       (3,064 )     2,626

Depreciation and amortization

     922      100      61       233       1,316

Interest income

     1      —        —         53       54

Interest expense

     2      —        —         54       56

Capital expenditures

     910      69      20       70       1,069

Identifiable assets

     40,752      11,647      2,355       11,959       66,713
    

  

  


 


 

Six months ended June 30, 2003

                                    

Net revenue

   $ 17,828    $ 5,603    $ 4,090     $ —       $ 27,521

Income before income taxes

     4,327      1,106      (172 )     (3,009 )     2,252

Depreciation and amortization

     863      141      61       229       1,294

Interest income

     19      —        —         61       80

Interest expense

     5      —        —         72       77

Capital expenditures

     1,050      70      2       74       1,196

Identifiable assets

     31,000      11,318      2,314       17,837       62,469
    

  

  


 


 

 

10


Table of Contents

ITEM 2.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis presents our consolidated financial condition at June 30, 2004 and the results of operations for the three and six months ended June 30, 2004 and 2003. You should read the following discussion together with our consolidated financial statements and the related notes contained elsewhere in this quarterly report. In addition to the historical information provided below, we have made certain estimates and forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated or implied by these estimates and forward-looking statements as a result of certain factors, including those discussed in the CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS on page 18 of this quarterly report.

 

Overview

 

We consider our core business to be the ownership and operation of ambulatory surgery centers (ASCs). As of June 30, 2004, we owned and operated 20 ASCs of which 17 were jointly owned with physician-partners. We also own other businesses including an optical laboratory, an optical products purchasing organization, and a marketing products and services company. We also provide management services to two eye care practices.

 

Year-to-Date Financial Highlights:

 

  Consolidated revenue increased 7.9% to $29.7 million. Surgical facilities revenue increased 14.9% to $20.5 million (same-facility surgical revenue increased 7.9% to $18.0 million).

 

  Operating income increased 28.5% to $4.3 million.

 

  Cash balance of $6.3 million with zero debt outstanding under our credit facility at June 30, 2004.

 

  Acquired majority interests in three ASCs during the second quarter of 2004.

 

  Sold minority interests in two ASCs resulting in cash proceeds of $1.0 million.

 

Results of Operations

 

The following table summarizes our operating results as a percentage of net revenue:

 

    

Three months ended

June 30,


   

Six months ended

June 30,


 
     2004

    2003

    2004

    2003

 

Net Revenue:

                        

Surgical facilities

   72.0 %   66.2 %   69.0 %   64.8 %

Product sales and other

   28.0     33.8     31.0     35.2  
    

 

 

 

Total net revenue

   100.0     100.0     100.0     100.0  
    

 

 

 

Operating expenses:

                        

Salaries, wages and benefits

   33.8     35.6     34.7     37.2  

Cost of sales and medical supplies

   24.0     24.6     24.4     24.7  

Selling, general and administrative

   21.7     21.0     21.9     21.1  

Depreciation and amortization

   4.1     4.7     4.4     4.7  
    

 

 

 

Total operating expenses

   83.6     85.9     85.4     87.7  
    

 

 

 

Operating income

   16.4     14.1     14.6     12.3  
    

 

 

 

Minority interests in earnings of consolidated entities

   7.6     4.8     6.5     4.6  

Other (income) expense

   (0.1 )   (0.1 )   (0.7 )   (0.5 )
    

 

 

 

Income before income taxes

   8.9     9.4     8.8     8.2  

Income tax provision

   3.6     3.8     3.5     3.3  
    

 

 

 

Net income from continuing operations

   5.3     5.6     5.3     4.9  

Net income from discontinued operations

   —       —       2.0     —    
    

 

 

 

Net income

   5.3 %   5.6 %   7.3 %   4.9 %
    

 

 

 

 

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Table of Contents

Three Months Ended June 30, 2004 Compared to the Three Months Ended June 30, 2003

 

Net Revenue

 

Consolidated. Total net revenue increased 10.4% from $14.0 million to $15.5 million. Net revenue by segment is discussed below.

 

Surgical Facilities. The table below summarizes surgical facilities net revenue and procedures performed for the second quarter of 2004 and 2003. Revenues generated from surgical facilities are derived from the fees charged for the procedures performed in our ASCs and through our laser services agreements. Our procedure volume is directly impacted by the number of ASCs we operate, the number of excimer lasers in service, and their respective utilization rates. Net surgical facilities revenue increased 20.1% from $9.3 million to $11.1 million. This increase was primarily the result of $1.2 million of net revenue from ASCs acquired or developed after April 1, 2003 (“new ASCs”) and a $0.7 million increase from ASCs that we owned for the entire comparable reporting periods (“same-facility”). The increase in same-facility revenue was primarily the result of a 14.7% increase in the total number of procedures performed.

 

    

Three Months Ended

June 30,


   Increase  

Dollars in millions

 

   2004

   2003

   (Decrease)

 

Surgical Facilities:

                      

Same-facility:

                      

Net revenue

   $ 9.9    $ 9.2    $ 0.7  

# of procedures

     12,637      11,014      1,623  

New ASCs:

                      

Net revenue

   $ 1.2    $ —      $ 1.2  

# of procedures

     1,311      —        1,311  

Laser services agreement terminations:

                      

Net revenue

   $ —      $ 0.1    $ (0.1 )

# of procedures

     —        141      (141 )

 

In early 2004, two of our physician-partners in one of our Kansas City, Missouri ASCs informed us that they intended to begin performing their surgical procedures at a new ASC that was being developed closer to their practice locations. As a result, we entered into an agreement with these physicians in which they purchased from us a release from their restrictions on owning competing facilities. These two physicians performed the majority of the surgical procedures at this ASC and their departure in April has had a negative impact on procedure volume, revenue, and operating income at this ASC during the second quarter of 2004. We exercised our option to repurchase their equity interests in this ASC effective July 1, 2004. Although we are currently working to attract new physicians to this ASC, the negative impact on our cash flow from operations is expected to continue until this occurs. The negative financial impact is being mitigated, in part, by the payments the physicians are making for the release of their restrictive covenants.

 

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Table of Contents

Product Sales and Other. The table below summarizes net product sales and other revenue by significant business component. Product sales and other revenue decreased 8.5% from $4.7 million to $4.3 million. Net revenue from our ophthalmology practice decreased $0.3 million, or 17.6%, from 2003 primarily due to the divestiture of one of our practice locations in Chattanooga, TN.

 

    

Three Months Ended

June 30,


   Increase  

Dollars in millions

 

   2004

   2003

   (Decrease)

 

Product Sales:

                      

Optical laboratories

   $ 1.3    $ 1.2    $ 0.1  

Optical products purchasing organization

     0.5      0.5      —    

Marketing products and services

     0.4      0.5      (0.1 )

Optometric practice/retail store

     0.4      0.5      (0.1 )
    

  

  


       2.6      2.7      (0.1 )
    

  

  


Other:

                      

Ophthalmology practice

     1.6      1.9      (0.3 )

Other

     0.1      0.1      —    
    

  

  


       1.7      2.0      (0.3 )
    

  

  


Total Net Product Sales and Other Revenue

   $ 4.3    $ 4.7    $ (0.4 )
    

  

  


 

Salaries, Wages and Benefits

 

Consolidated. Salaries, wages and benefits expense increased 4.7% from $5.0 million to $5.2 million. As a percentage of net revenue, salaries, wages and benefits expense decreased from 35.6% to 33.8%. Salaries, wages and benefits expense by segment is discussed below.

 

Surgical Facilities. Salaries, wages and benefits expense in our surgical facilities segment increased 29.5% from $1.8 million to $2.3 million. The increase was the result of costs attributed to new ASCs and an increase in procedures performed at same-facility ASCs.

 

Product Sales and Other. Salaries, wages and benefits expense in our product sales and other segments decreased 15.8% from $2.0 million to $1.7 million. The decrease was primarily the result of the divestiture of our practice location in Chattanooga, TN and staff reductions within our optical laboratory business.

 

Corporate. Salaries, wages and benefits expense remained flat at $1.2 million.

 

Cost of Sales and Medical Supplies

 

Consolidated. Cost of sales and medical supplies expense increased 8.1% from $3.4 million to $3.7 million. As a percentage of net revenue, cost of sales and medical supplies expense decreased from 24.6% to 24.0%. Our product sales segment has lower profit margins than our surgical facilities segment. Accordingly, the decrease as a percentage of revenue is due to product sales revenue decreasing to 17.1% of total revenue in 2004, down from 19.3% in 2003. Cost of sales and medical supplies expense by segment is discussed below.

 

Surgical Facilities. Cost of sales and medical supplies expense in our surgical facilities segment increased 16.8% from $2.2 million to $2.6 million. As a percentage of net revenue, cost of sales and medical supplies expense decreased from 23.8% to 23.1%. The expense increase was the result of costs associated with our new ASCs and an increase in procedures performed at same-facility ASCs.

 

Product Sales and Other. Cost of sales and medical supplies expense in our product sales and other segments decreased 7.4% from $1.2 million to $1.1 million. This decrease is primarily a result of a reduction in the costs of sales at our optical laboratory business due to variable labor reductions.

 

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Table of Contents

Selling, General and Administrative

 

Consolidated. Selling, general and administrative expense increased 13.9% from $2.9 million to $3.4 million. As a percentage of net revenue, selling, general and administrative expense increased from 21.0% to 21.7%. Selling, general and administrative expense by segment is discussed below.

 

Surgical Facilities. Selling, general and administrative expense in our surgical facilities segment increased 24.0% from $1.8 million to $2.3 million. The increase is due to costs associated with our new ASCs, increased professional liability insurance premiums and higher management and billing/collections fees charged to the ASCs for services rendered by corporate personnel.

 

Product Sales and Other. Selling, general and administrative expense in our product sales and other segments decreased 4.6% from $0.9 million to $0.8 million. The decrease is primarily due to the divestiture of our practice location in Chattanooga, TN.

 

Corporate. Corporate selling, general and administrative expense remained flat at $0.2 million. Occupancy and temporary staffing cost savings were offset by additional costs associated with being a public company. We anticipate incurring additional costs associated with being a public company over the remainder of 2004 and in future years.

 

Depreciation and Amortization. Depreciation and amortization expense remained flat at $0.6 million. Increases in depreciation associated with our new ASCs and capital expenditures in our surgical facilities segment were offset by decreases within the product sales segment.

 

Minority Interests and Other (Income) Expense. Minority interests in the earnings of our ASCs were $1.2 million in 2004 as compared to $0.7 million in 2003. Minority interests are expected to continue to be higher during 2004 due to ASCs acquired in 2004, the full year impact of the 2003 sale of minority interests and additional sale of minority interests in 2004.

 

Provision for Income Taxes. Our effective tax rate was unchanged at 40.0%. Our effective tax rate is affected by expenses that are deducted from operations in arriving at pre-tax income that are not allowed as a deduction on our federal income tax return.

 

Six Months Ended June 30, 2004 Compared to the Six Months Ended June 30, 2003

 

Net Revenue

 

Consolidated. Total net revenue increased 7.9% from $27.5 million to $29.7 million. Net revenue by segment is discussed below.

 

Surgical Facilities. The table below summarizes surgical facilities net revenue and procedures performed for the first six months of 2004 and 2003. Revenues generated from surgical facilities are derived from the fees charged for the procedures performed in our ASCs and through our laser services agreements. Our procedure volume is directly impacted by the number of ASCs we operate, the number of excimer lasers in service, and their respective utilization rates. Net surgical facilities revenue increased 14.9% from $17.8 million to $20.5 million. This increase was primarily the result of $1.5 million of net revenue from ASCs acquired or developed after January 1, 2003 (“new ASCs”) and a $1.3 million increase from ASCs that we owned for the entire comparable reporting periods (“same-facility”). The increase in same-facility revenue was primarily the result of a 14.0% increase in the total number of procedures performed.

 

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Table of Contents
    

Six Months

Ended June 30,


   Increase  

Dollars in millions

 

   2004

  2003

   (Decrease)

 

Surgical Facilities:

                     

Same-facility:

                     

Net revenue

   $ 19.0   $ 17.6    $ 1.4  

# of procedures

     23,957     21,010      2,947  

New ASCs:

                     

Net revenue

   $ 1.5   $ —      $ 1.5  

# of procedures

     1,616     —        1,616  

Laser services agreement terminations:

                     

Net revenue

   $     $ 0.2    $ (0.2 )

# of procedures

     —       446      (446 )

 

In early 2004, two of our physician-partners in one of our Kansas City, Missouri ASCs informed us that they intended to begin performing their surgical procedures at a new ASC that was being developed closer to their practice locations. As a result, we entered into an agreement with these physicians in which they purchased from us a release from their restrictions on owning competing facilities. These two physicians performed the majority of the surgical procedures at this ASC and their departure in April has had a negative impact on procedure volume, revenue, and operating income at this ASC during the first six months of 2004. We exercised our option to repurchase their equity interests in this ASC effective July 1, 2004. Although we are currently working to attract new physicians to this ASC, the negative impact on our cash flow from operations is expected to continue until this occurs. The negative financial impact is being mitigated, in part, by the payments the physicians are making for the release of their restrictive covenants.

 

Product Sales and Other. The table below summarizes net product sales and other revenue by significant business component. Product sales and other revenue decreased 5.0% from $9.7 million to $9.2 million. Net revenue from our ophthalmology practice decreased $0.3 million, or 7.3%, from 2003 primarily due to the divestiture of one of our practice locations in Chattanooga, TN. Net revenue at our marketing products and services business decreased $0.2 million, or 17.9%, from 2003. This decrease is attributed to the high demand in 2003 for marketing products supporting a new refractive technology.

 

   

Six Months

Ended June 30,


   Increase  

Dollars in millions

 

  2004

  2003

   (Decrease)

 

Product Sales:

                    

Optical laboratories

  $ 2.6   $ 2.6    $ —    

Optical products purchasing organization

    1.1     1.0      0.1  

Marketing products and services

    0.9     1.1      (0.2 )

Optometric practice/retail store

    0.9     0.9      —    
   

 

  


      5.5     5.6      (0.1 )
   

 

  


Other:

                    

Ophthalmology practice

    3.5     3.8      (0.3 )

Other

    0.2     0.3      (0.1 )
   

 

  


      3.7     4.1      (0.4 )
   

 

  


Total Net Product Sales and Other Revenue

  $ 9.2   $ 9.7    $ (0.5 )
   

 

  


 

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Table of Contents

Salaries, Wages and Benefits

 

Consolidated. Salaries, wages and benefits expense increased 0.7% from $10.2 million to $10.3 million. As a percentage of net revenue, salaries, wages and benefits expense decreased from 37.2% to 34.7%. Salaries, wages and benefits expense by segment is discussed below.

 

Surgical Facilities. Salaries, wages and benefits expense in our surgical facilities segment increased 19.5% from $3.6 million to $4.3 million. The increase was the result of costs attributed to new ASCs and an increase in procedures performed at same-facility ASCs.

 

Product Sales and Other. Salaries, wages and benefits expense in our product sales and other segments decreased 14.5% from $4.2 million to $3.6 million. The decrease was primarily the result of the divestiture of our practice location in Chattanooga, TN and staff reductions within our optical laboratory business.

 

Corporate. Salaries, wages and benefits expense remained flat at $2.4 million.

 

Cost of Sales and Medical Supplies

 

Consolidated. Cost of sales and medical supplies expense increased 6.6% from $6.8 million to $7.2 million. As a percentage of net revenue, cost of sales and medical supplies expense decreased from 24.7% to 24.4%. Our product sales segment has lower profit margins than our surgical facilities segment. Accordingly, the decrease as a percentage of revenue is due to product sales revenue decreasing to 18.4% of total revenue in 2004, down from 20.4% in 2003. Cost of sales and medical supplies expense by segment is discussed below.

 

Surgical Facilities. Cost of sales and medical supplies expense in our surgical facilities segment increased 14.0% from $4.3 million to $4.9 million. As a percentage of net revenue, cost of sales and medical supplies expense decreased from 23.9% to 23.7%. The expense increase was the result of costs associated with our new ASCs and an increase in procedures performed at same-facility ASCs. The increase was partially offset by the termination of laser services agreements during 2003.

 

Product Sales and Other. Cost of sales and medical supplies expense in our product sales and other segments decreased 6.5% from $2.6 million to $2.4 million. The decrease is primarily a result of a reduction in the costs of sales at our optical laboratory business due to variable labor reductions.

 

Selling, General and Administrative

 

Consolidated. Selling, general and administrative expense increased 11.7% from $5.8 million to $6.5 million. As a percentage of net revenue, selling, general and administrative expense increased from 21.1% to 21.9%. Selling, general and administrative expense by segment is discussed below.

 

Surgical Facilities. Selling, general and administrative expense in our surgical facilities segment increased 21.9% from $3.5 million to $4.3 million. The increase is due to costs associated with our new ASCs, increased professional liability insurance premiums and higher management and billing/collections fees charged to the ASCs for services rendered by corporate personnel. The increase in expense was partially offset by reductions related to termination of laser services agreements during 2003.

 

Product Sales and Other. Selling, general and administrative expense in our product sales and other segments decreased 6.6% from $1.8 million to $1.7 million. The decrease is primarily due to the divestiture of our practice location in Chattanooga, TN.

 

Corporate. Corporate selling, general and administrative expense remained flat at $0.5 million. Occupancy and temporary staffing cost savings were offset by additional costs associated with being a public company. We anticipate incurring additional costs associated with being a public company over the remainder of 2004 and in future years.

 

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Table of Contents

Depreciation and Amortization. Depreciation and amortization expense remained flat at $1.3 million. Increases in depreciation associated with our new ASCs and capital expenditures in our surgical facilities segment were offset by decreases within the product sales segment.

 

Minority Interests and Other (Income) Expense. Minority interests in the earnings of our ASCs were $1.9 million in 2004 as compared to $1.3 million in 2003. Minority interests are expected to continue to be higher during 2004 due to ASCs acquired in 2004, the full year impact of the 2003 sale of minority interests and additional sale of minority interests in 2004. Other (income) expense is primarily net gains on the sale of minority interests of $0.2 million in 2004 as compared to $0.1 million in 2003.

 

Provision for Income Taxes. Our effective tax rate was unchanged at 40.0%. Our effective tax rate is affected by expenses that are deducted from operations in arriving at pre-tax income that are not allowed as a deduction on our federal income tax return.

 

Liquidity and Capital Resources

 

Operating activities for 2004 generated $2.2 million in cash flow from continuing operations compared to $1.5 million in 2003. The increase in operating cash flow from continuing operations resulted primarily from an increase in earnings and working capital management, offset by increased cash distributions to our minority interest partners.

 

Investing activities in 2004 resulted in negative cash flow of $8.0 million. Investing activities include the acquisition of three ASCs for $8.1 million and the purchase of property and equipment for $1.1 million. These investments were partially offset by proceeds from the sale of minority equity interests in two of our ASCs of $1.0 million and proceeds of $0.1 million from the sale of certain assets of our ophthalmology practice location in Chattanooga, TN. As of June 30, 2004 we had cash and cash equivalents of $6.3 million and working capital of $12.6 million.

 

At June 30, 2004, we had no borrowings outstanding under our revolving credit facility. We entered into a new amended and restated credit facility effective June 26, 2003. The maximum commitment available under our facility is $30 million. Interest on borrowings under the credit agreement is payable at an annual rate equal to our lender’s published base rate plus the applicable borrowing margin ranging from 0% to .5% or LIBOR plus a range from 1.25% to 2.0%, varying upon our ability to meet financial covenants. In addition, a fee ranging from .175% to .250% is charged on the unused portion of the commitment. The credit agreement contains covenants that include limitations on indebtedness, liens, capital expenditures, acquisitions and affiliations and ratios that define borrowing availability and restrictions on the payment of dividends. As of June 30, 2004, we were in compliance with all of our credit agreement covenants. The credit agreement expires on June 30, 2006.

 

We expect our cash flow from operations, our existing cash balance and funds available under our existing credit facility to be sufficient to fund our operations for at least 12 months. Our future capital requirements and the adequacy of our available funds will depend on many factors, including the timing of our acquisition and expansion activities, capital requirements associated with our surgical facilities, and the future cost of surgical equipment.

 

We are a party to option agreements with various physicians pursuant to which the physicians have the right to purchase or sell equity interests in four of our ASCs. These are summarized as follows:

 

  One of our former affiliated physicians who owns a 5% interest in our River Forest, IL ASC has the option to acquire an additional 5% interest, exercisable on or before July 1, 2005;

 

  Two of our former affiliated physicians who own a 49% interest in our Overland Park, KS ASC have an option to purchase our remaining 51% interest. We have received notice of their intention to purchase and anticipate finalizing the transaction on April 15, 2005;

 

  One of our former affiliated physicians who owns a 49% interest in our Merrillville, IN ASC has an option to purchase our remaining 51% interest, exercisable at periodic intervals beginning March 1, 2005 through March 1, 2008;

 

  One of our existing physician-partners who owns a 40% interest in our Thibodaux, LA ASC has the right to sell us up to a 10% interest in the ASC in November 2004 and up to an additional 10% interest in November 2006.

 

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Table of Contents

In the event the options to purchase are exercised, we will receive cash proceeds from these sales. In many of these instances, we also have corresponding rights to sell the stated equity interests to the physicians at the same timing intervals. Moreover, depending on the circumstances, we may also agree in the future from time to time to sell equity interests in one or more of our ASCs to the physicians who are parties to these option agreements on terms and at timing intervals different than those set forth in these agreements.

 

We have a nonexclusive supply agreement with Alcon Laboratories, Inc. pursuant to which we can procure and utilize excimer lasers and other equipment manufactured by Alcon. Through the termination date of December 31, 2006, we will pay Alcon monthly based on the number of procedures performed on each of our APEX/Infinity lasers and LADARVision Systems. We are required to pay for a minimum number of annual procedures on each LADARVision System during the remaining term, whether or not these procedures are performed. Assuming we don’t procure additional LADARVision Systems under the agreement, the annual minimum commitment for each of the next three years commencing with 2004 would be approximately $1.0 million, $1.2 million and $0.9 million, respectively.

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS. This Form 10-Q contains certain forward-looking statements that reflect our current expectations about our future results of operations, performance and achievements. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. We have tried, wherever possible, to identify these forward-looking statements by using words such as “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends” and similar expressions. These statements reflect our current beliefs and are based on information currently available to us. Accordingly, these statements are subject to certain risks, uncertainties and contingencies that could cause our actual results, performance or achievements in 2004 and beyond to differ materially from those expressed in, or implied by, such statements. These risks and uncertainties include: our ability to acquire, develop or manage a sufficient number of profitable surgical facilities, including facilities that are not exclusively dedicated to eye-related procedures; reduced prices and reimbursement rates for surgical procedures; our ability to maintain successful relationships with the physicians who use our surgical facilities; our future profitability could decrease because of existing agreements with physicians that may require us to sell additional equity interests in our ASCs at varying future intervals; the application of existing or proposed government regulations, or the adoption of new laws and regulations that could limit our business operations and require us to incur significant expenditures; the continued acceptance of laser vision correction and other refractive surgical procedures; and demand for elective surgical procedures generally and in response to a protracted economic downturn. See “Management’s Discussion and Analysis of Financial Conditions and Results of Operations – Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2003 for further discussion. We undertake no obligation to update or revise any such forward-looking statements that may be made to reflect events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events.

 

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Table of Contents

Item 4. Disclosure Controls and Procedures

 

We maintain a system of disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chairman and Chief Executive Officer and Executive Vice President and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

 

We have carried out an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chairman and Chief Executive Officer and Executive Vice President and Chief Financial Officer (its principal executive officer and principal financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures. Based on their evaluation, the Chairman and Chief Executive Officer and Executive Vice President and Chief Financial Officer concluded that these controls and procedures were effective as of the end of the period covered by this report, in all material respects, to ensure that required information will be disclosed on a timely basis in our reports filed under the Exchange Act.

 

In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply their judgment in evaluating the cost-benefit relationship of possible controls and procedures. We believe our disclosure controls and procedures provide such reasonable assurance.

 

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Table of Contents

PART II. OTHER INFORMATION

 

Item 4. Submission of Matters to a Vote of Security Holders

 

We held our 2004 Annual Meeting of Stockholders on May 26, 2004 at which the stockholders voted to elect two Class II directors for a term of three years expiring at our 2007 Annual Meeting of Stockholders. Results of the voting were as follows:

 

Directors


   For

  

Authority

Withheld


Robert J. Kelly

   18,093,176    162,480

C.A. Lance Piccolo

   18,092,576    163,080

 

The remaining directors, Stephen J. Winjum, R. Judd Jessup, Scott H. Kirk, M.D. and Steven V. Napolitano, all continued their terms of office as directors of the Company after the 2004 Annual Meeting of Stockholders. The election of two Class II directors was the only item submitted to and voted upon by the stockholders.

 

Item 6. Exhibits and Reports on Form 8-K

 

A. Exhibits

 

21   Subsidiaries of the Registrant
31.1   Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2   Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32   Certification of the CEO and CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

B. Reports on Form 8-K

 

We furnished a report on Form 8-K dated May 5, 2004 during the second quarter of 2004 disclosing our press release that announced our results of operations for the first quarter ended March 31, 2004.

 

We furnished a report on Form 8-K dated May 7, 2004 during the second quarter of 2004 disclosing additional information about tax fees reported in our proxy statement for our 2004 Annual Meeting of Stockholders at the request of Institutional Shareholder Services.

 

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Table of Contents

SIGNATURE

 

Pursuant to the requirement 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.

 

NOVAMED, INC.    

/s/ Scott T. Macomber


 

August 13, 2004

Scott T. Macomber

 

Date

Executive Vice President and

   

Chief Financial Officer

   

(on behalf of Registrant and as principal financial officer)

   

/s/ John P. Hart


 

August 13, 2004

John P. Hart

 

Date

Vice President, Corporate Controller

   

(as principal accounting officer)

   

 

21