Attached files
file | filename |
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EX-32.1 - EX-32.1 - Pet DRx CORP | g23435exv32w1.htm |
EX-32.2 - EX-32.2 - Pet DRx CORP | g23435exv32w2.htm |
EX-31.1 - EX-31.1 - Pet DRx CORP | g23435exv31w1.htm |
EX-31.2 - EX-31.2 - Pet DRx CORP | g23435exv31w2.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
þ | 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 1-3473
PET DRX CORPORATION
(Exact name of registrant as specified in its charter)
Delaware | 56-2517815 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
215 Centerview Drive, Suite 360 Brentwood, Tennessee |
37027 | |
(Address of principal executive offices) | (Zip Code) |
(615) 369-1914
(Registrants telephone number, including area code)
(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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on
its corporate website, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (Section232.405 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 þ
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.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
At May 1, 2010, there were 23,753,460 shares of the Registrants common stock outstanding.
Table of Contents
PART I: FINANCIAL INFORMATION
Item 1. | Financial Statements. |
PET DRX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value and number of shares)
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value and number of shares)
March 31, | ||||||||
2010 | December 31, | |||||||
(unaudited) | 2009 | |||||||
ASSETS | ||||||||
Current Assets: |
||||||||
Cash and cash equivalents |
$ | 2,907 | $ | 2,650 | ||||
Trade accounts receivable, net |
372 | 385 | ||||||
Inventory, net |
881 | 901 | ||||||
Prepaid expenses and other |
1,314 | 1,155 | ||||||
Total current assets |
5,474 | 5,091 | ||||||
Property and equipment, net |
4,497 | 6,306 | ||||||
Other assets: |
||||||||
Goodwill |
26,525 | 26,525 | ||||||
Other intangible assets, net |
5,413 | 5,663 | ||||||
Restricted cash |
425 | 425 | ||||||
Other |
300 | 290 | ||||||
Total assets |
$ | 42,634 | $ | 44,300 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY | ||||||||
Current Liabilities: |
||||||||
Current portion of long-term obligations, net of debt discount |
$ | 4,334 | $ | 2,853 | ||||
Accounts payable |
1,663 | 1,583 | ||||||
Accrued payroll and other expenses |
4,308 | 4,740 | ||||||
Obligations under capital leases, current portion |
285 | 320 | ||||||
Deferred rent, current portion |
10 | 9 | ||||||
Total current liabilities |
10,600 | 9,505 | ||||||
Long-term liabilities: |
||||||||
Convertible debt, less current portion, net of debt discount |
10,689 | 11,257 | ||||||
Term notes, less current portion |
1,510 | 1,726 | ||||||
Warrant liabilities |
3,684 | 2,914 | ||||||
Obligations under capital leases, less current portion |
315 | 369 | ||||||
Deferred rent, less current portion |
591 | 549 | ||||||
Total long term liabilities |
16,789 | 16,815 | ||||||
Total liabilities |
27,389 | 26,320 | ||||||
Stockholders equity: |
||||||||
Common stock, par value $0.0001, 90,000,000 shares authorized
and 23,714,460 outstanding as of March 31, 2010 and December
31, 2009, respectively, net of treasury shares of 1,361,574
at March 31, 2010 and December 31, 2009, respectively |
2 | 2 | ||||||
Additional paid-in-capital |
86,429 | 86,345 | ||||||
Accumulated deficit |
(71,186 | ) | (68,367 | ) | ||||
Total stockholders equity |
15,245 | 17,980 | ||||||
Total liabilities and stockholders equity |
$ | 42,634 | $ | 44,300 | ||||
See Notes to Condensed Consolidated Financial Statements
1
Table of Contents
PET DRX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
Three Months Ended | ||||||||
March 31, | ||||||||
2010 | 2009 | |||||||
Revenue |
$ | 15,709 | $ | 16,722 | ||||
Direct costs |
14,411 | 15,039 | ||||||
Hospital contribution |
1,298 | 1,683 | ||||||
Selling, general, and administrative expenses |
1,838 | 2,340 | ||||||
Loss from operations |
(540 | ) | (657 | ) | ||||
Other income (expense) |
||||||||
Gain/(loss) on change in fair value of warrant liabilities |
(770 | ) | 1,972 | |||||
Interest income |
1 | 2 | ||||||
Interest expense |
(1,480 | ) | (1,333 | ) | ||||
Loss before provision for income taxes |
(2,789 | ) | (16 | ) | ||||
Provision for income taxes |
30 | 5 | ||||||
Net loss |
$ | (2,819 | ) | $ | (21 | ) | ||
Basic and diluted loss per common share |
$ | (0.12 | ) | $ | (0.00 | ) | ||
Shares used for computing basic and diluted loss per share |
23,714 | 23,660 |
See Notes to Condensed Consolidated Financial Statements
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Table of Contents
PET DRX CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Three Months Ended | ||||||||
March 31, | ||||||||
2010 | 2009 | |||||||
Cash flows used in operating activities: |
||||||||
Net loss |
$ | (2,819 | ) | $ | (21 | ) | ||
Adjustments to reconcile net loss to net cash used in operating
activities: |
||||||||
Depreciation and amortization |
993 | 678 | ||||||
Amortization of debt discount |
1,032 | 953 | ||||||
(Gain)/loss on change in fair value of warrant liabilities |
770 | (1,972 | ) | |||||
Paid-in-kind interest on loans |
217 | 118 | ||||||
Share-based compensation |
84 | 171 | ||||||
Deferred rent |
43 | 55 | ||||||
Other |
(10 | ) | | |||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
13 | (21 | ) | |||||
Inventory |
20 | 45 | ||||||
Prepaid expenses and other |
(159 | ) | 263 | |||||
Accounts payable |
80 | 176 | ||||||
Accrued payroll and other expenses |
(432 | ) | (1,606 | ) | ||||
Other |
| 5 | ||||||
Net cash used in operating activities |
(168 | ) | (1,156 | ) | ||||
Cash flows provided by/(used in) investing activities: |
||||||||
Property and equipment additions |
(72 | ) | (89 | ) | ||||
Proceeds from sale of Yucca building |
1,150 | | ||||||
Net cash provided by/(used in) investing activities |
1,078 | (89 | ) | |||||
Cash flow (used in)/provided by financing activities: |
||||||||
Payment of debt waiver fees |
| (100 | ) | |||||
Payment of debt financing costs |
| (307 | ) | |||||
Deferral of legal settlement to term loan |
| 131 | ||||||
Payments on notes payable |
(564 | ) | (549 | ) | ||||
Payments on capital lease obligations |
(89 | ) | (55 | ) | ||||
Net proceeds from 12% secured convertible notes |
| 6,475 | ||||||
Net cash (used in)/provided by financing activities |
(653 | ) | 5,595 | |||||
Increase in cash and cash equivalents |
257 | 4,350 | ||||||
Consolidated cash and cash equivalents at beginning of period |
2,650 | 1,723 | ||||||
Consolidated cash and cash equivalents at end of period |
$ | 2,907 | $ | 6,073 | ||||
Supplemental disclosures: |
||||||||
Cash paid during the period for: |
||||||||
Income taxes |
$ | | $ | | ||||
Interest |
$ | 165 | $ | 274 | ||||
Schedule of non-cash investing and financing activities: |
||||||||
Retirement of debt to offset related party receivable |
$ | | $ | 30 | ||||
Common stock warrants issued as payment of offering costs |
$ | | $ | 4,374 | ||||
Property acquired with note payable |
$ | 12 | $ | |
See Notes to Condensed Consolidated Financial Statements
3
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PET DRX CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Pet DRx Corporation
and subsidiaries (Pet DRx, the Company, we, us or our) have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission (SEC) for interim reporting. As
permitted under those rules and regulations, certain footnotes or other financial information that
are normally required by accounting principles generally accepted in the United States (GAAP) can
be condensed or omitted. In our opinion, the condensed consolidated financial statements include
all normal and recurring adjustments necessary for fair presentation and represent our accounts
after the elimination of intercompany transactions. Interim results are not necessarily indicative
of expected results for a full year.
The unaudited information included in this Quarterly Report on Form 10-Q should be read in
conjunction with our consolidated financial statements and the notes thereto contained in our
Annual Report on Form 10-K for the year ended December 31, 2009.
2. New Accounting Pronouncements
Adopted
On January 1, 2010, Pet DRx adopted changes issued by the Financial Accounting Standards Board
(FASB) to accounting for variable interest entities. These changes require an enterprise to perform
an analysis to determine whether the enterprises variable interest or interests give it a
controlling financial interest in a variable interest entity; to require ongoing reassessments of
whether an enterprise is the primary beneficiary of a variable interest entity; to eliminate the
solely quantitative approach previously required for determining the primary beneficiary of a
variable interest entity; to add an additional reconsideration event for determining whether an
entity is a variable interest entity when any changes in facts and circumstances occur such that
holders of the equity investment at risk, as a group, lose the power from voting rights or similar
rights of those investments to direct the activities of the entity that most significantly impact
the entitys economic performance; and to require enhanced disclosures that will provide users of
financial statements with more transparent information about an enterprises involvement in a
variable interest entity. The adoption of these changes had no impact on the condensed consolidated
financial statements.
On January 1, 2010, Pet DRx adopted changes issued by the FASB to accounting for transfers of
financial assets. These changes remove the concept of a qualifying special-purpose entity and
remove the exception from the application of variable interest accounting to variable interest
entities that are qualifying special-purpose entities; limit the circumstances in which a
transferor derecognizes a portion or component of a financial asset; define a participating
interest; require a transferor to recognize and initially measure at fair value all assets obtained
and liabilities incurred as a result of a transfer accounted for as a sale; and require enhanced
disclosure. The adoption of these changes had no impact on the condensed consolidated financial
statements.
Effective January 1, 2010, Pet DRx adopted changes issued by the FASB on January 6, 2010, for
a scope clarification to the FASBs previously-issued guidance on accounting for noncontrolling
interests in consolidated financial statements. These changes clarify the accounting and reporting
guidance for noncontrolling interests and changes in ownership interests of a consolidated
subsidiary. An entity is required to deconsolidate a subsidiary when the entity ceases to have a
controlling financial interest in the subsidiary. Upon deconsolidation of a subsidiary, an entity
recognizes a gain or loss on the transaction and measures any retained investment in the subsidiary
at fair value. The gain or loss includes any gain or loss associated with the difference between
the fair value of the retained investment in the subsidiary and its carrying amount at the date the
subsidiary is deconsolidated. In contrast, an entity is required to account for a decrease in its
ownership interest of a subsidiary that does not result in a change of control of the subsidiary as
an equity transaction. The adoption of these changes had no impact on the condensed consolidated
financial statements.
Effective January 1, 2010, Pet DRx adopted changes issued by the FASB on January 21, 2010, to
disclosure requirements for fair value measurements. Specifically, the changes require a reporting
entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level
2 fair value measurements and
4
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describe the reasons for the transfers. The changes also clarify
existing disclosure requirements related to how assets and liabilities should be grouped by class
and valuation techniques used for recurring and nonrecurring fair value measurements. The adoption
of these changes had no impact on the condensed consolidated financial statements.
Effective January 1, 2010, Pet DRx adopted changes issued by the FASB on February 24, 2010, to
accounting for and disclosure of events that occur after the balance sheet date but before
financial statements are issued or available to be issued, otherwise known as subsequent events.
Specifically, these changes clarified that an entity that is required to file or furnish its
financial statements with the SEC is not required to disclose the date through which subsequent
events have been evaluated. Other than the elimination of disclosing the date through which
management has performed its evaluation for subsequent events (see Note 12), the adoption of these
changes had no impact on the condensed consolidated financial statements.
Issued
In October 2009, the FASB issued changes to revenue recognition for multiple-deliverable
arrangements. These changes require separation of consideration received in such arrangements by
establishing a selling price hierarchy (not the same as fair value) for determining the selling
price of a deliverable, which will be based on available information in the following order:
vendor-specific objective evidence, third-party evidence, or estimated selling price; eliminate the
residual method of allocation and require that the consideration be allocated at the inception of
the arrangement to all deliverables using the relative selling price method, which allocates any
discount in the arrangement to each deliverable on the basis of each deliverables selling price;
require that a vendor determine its best estimate of selling price in a manner that is consistent
with that used to determine the price to sell the deliverable on a standalone basis; and expand the
disclosures related to multiple-deliverable revenue arrangements. These changes become effective
for Pet DRx on January 1, 2011. Management has determined that the adoption of these changes will
not have an impact on the condensed consolidated financial statements, as Pet DRx does not
currently have any such arrangements with its customers.
In January 2010, the FASB issued changes to disclosure requirements for fair value
measurements. Specifically, the changes require a reporting entity to disclose, in the
reconciliation of fair value measurements using significant unobservable inputs (Level 3), separate
information about purchases, sales, issuances, and settlements (that is, on a gross basis rather
than as one net number). These changes become effective for Pet DRx beginning January 1, 2011.
Other than the additional disclosure requirements, management has determined these changes will not
have an impact on the condensed consolidated financial statements.
In March 2010, the FASB issued changes related to existing accounting requirements for
embedded credit derivatives. Specifically, the changes clarify the scope exception regarding when
embedded credit derivative features are not considered embedded derivatives subject to potential
bifurcation and separate accounting. These changes become effective for Pet DRx on July 1, 2010.
Management has determined these changes will not have an impact on the condensed consolidated
financial statements.
3. Goodwill and Other Intangible Assets
Goodwill represents the excess of the cost of an acquired entity over the net of the fair
value of identifiable assets acquired and liabilities assumed. The goodwill balance at March 31,
2010 was $26.5 million. No adjustments were made to goodwill during the three month period ended
March 31, 2010.
In addition to goodwill, we had amortizable intangible assets at March 31, 2010 and December
31, 2009 as follows (in thousands):
As of March 31, 2010 | As of December 31, 2009 | |||||||||||||||||||||||
Gross | Accumulated | Net | Gross Carrying | Accumulated | Net | |||||||||||||||||||
Carrying Amount | Amortization | Carrying Amount | Amount | Amortization | Carrying Amount | |||||||||||||||||||
Covenants not-to-compete |
$ | 684 | $ | (516 | ) | $ | 168 | $ | 684 | $ | (478 | ) | $ | 206 | ||||||||||
Non-contractual customer
relationships |
8,118 | (2,873 | ) | 5,245 | 8,118 | (2,661 | ) | 5,457 | ||||||||||||||||
Total |
$ | 8,802 | $ | (3,389 | ) | $ | 5,413 | $ | 8,802 | $ | (3,139 | ) | $ | 5,663 | ||||||||||
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Amortization expense related to intangible assets was approximately $0.3 million and $0.3
million for the three months ended March 31, 2010 and 2009, respectively.
The estimated amortization expense related to intangible assets for each of the five
succeeding years and thereafter as of March 31, 2010 is as follows (in thousands):
Remainder of 2010 |
$ | 735 | ||
2011 |
891 | |||
2012 |
789 | |||
2013 |
716 | |||
2014 |
657 | |||
Thereafter |
1,625 | |||
Total |
$ | 5,413 | ||
4. Property and Equipment, net
Property and equipment, net at March 31, 2010 and December 31, 2009 is as follows (in
thousands):
March 31, | December 31, | |||||||
2010 | 2009 | |||||||
Buildings |
$ | 930 | $ | 2,787 | ||||
Leasehold improvements |
1,047 | 1,047 | ||||||
Equipment |
3,937 | 3,872 | ||||||
Furniture and equipment |
606 | 606 | ||||||
Computer equipment & software |
2,359 | 2,357 | ||||||
Construction-in-progress |
53 | 37 | ||||||
Total property and equipment |
8,932 | 10,706 | ||||||
Less-accumulated depreciation and amortization |
(4,435 | ) | (4,400 | ) | ||||
Total property and equipment, net |
$ | 4,497 | $ | 6,306 | ||||
Depreciation and amortization expense, including the amortization of property under capital
leases, for the three months ended March 31, 2010 and 2009 was $0.7 million and $0.4 million,
respectively.
In January 2010, the Company completed a sale and leaseback transaction of one of its
buildings in California for $1.1 million, net of certain closing costs. The Company simultaneously
entered into a five year lease from the buyers. While the Company did not record an impairment
charge on the building, it did accelerate depreciation expense on the building, including
approximately $0.4 million of additional depreciation expense in the three month period ended March
31, 2010.
5. Long-Term Obligations
Long-term obligations consisted of the following at March 31, 2010 and December 31, 2009 (in
thousands):
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March 31, | December 31, | |||||||||
2010 | 2009 | |||||||||
Convertible notes | Convertible notes payable, maturing from
2010 to 2014, secured by substantially all
of the Companys assets, various interest
rates ranging from 7.0% to 12.5% (net of
debt discounts of $3.2 million and $3.5
million) at March 31, 2010 and December 31,
2009, respectively.
|
$ | 12,712 | $ | 11,464 | |||||
Promissory notes | Notes payable, maturing from 2010 to
2013, secured by assets and stock of
certain subsidiaries, various interest rates
ranging from 6.5% to 12.0%
|
3,640 | 4,100 | |||||||
Earn-out notes | Notes payable, various maturities through
2010, interest rates ranging from none
to 8.0%
|
182 | 272 | |||||||
Total debt obligations
|
16,534 | 15,836 | ||||||||
Less-current portion, net of debt discount
|
(4,334 | ) | (2,853 | ) | ||||||
Long-term portion
|
$ | 12,200 | $ | 12,983 | ||||||
The future payments under long-term obligations as of March 31, 2010 are as follows:
Remainder of 2010 |
$ | 3,346 | ||
2011 |
4,165 | |||
2012 |
612 | |||
2013 |
19,549 | |||
2014 |
585 | |||
Total |
$ | 28,257 | ||
Certain convertible and promissory notes have a prepayment option at the note holders demand,
for a portion or all of the outstanding balances after a certain amount of time has elapsed. As
such, those amounts that can be called on demand by note holders as of March 31, 2010 have been
classified as current maturities.
12% Senior Secured Convertible Notes
In connection with the 12% Senior Notes, which were issued in the first quarter of 2009, we
continue to accrue interest on the principal of the notes, charge interest expense for the
accretion of the 184% premium, and amortize to interest expense, certain debt discounts associated
with the notes. For the three month period ended March 31, 2010 and 2009, the Company accrued
approximately $0.2 million and $0.1 million, respectively of interest expense and added this amount
to the principal of the Senior Notes. For the three months ended March 31, 2010 and 2009, the
Company also charged to interest expense approximately $0.7 million and $0.5 million respectively,
and $0.3 million and $0.2 million, respectively, related to the accretion of the premium and
amortization of debt discount.
Amendment to Convertible Note
On March 29, 2010, one of our note holders amended their note that was issued in connection
with the purchase of Valley Animal Medical Center effective July 1, 2008 (2nd
Amendment). The 2nd Amendment delays the maturity date of the principal portion of the
note from September 30, 2010 to April 1, 2011 and changes the interest rate owed on the principal
portion of the loan from 8% to 10% starting April 1, 2010. Additionally, under the 2nd
Amendment, the Company had to pay any outstanding interest accrued and unpaid as of the date of the
amendment within 5 business days of the amendment taking effect. As a result of the 2nd
Amendment, the Company has reclassified the $1.0 million principal amount from current portion of
long-term debt, net of debt discount to Convertible Debt, net of debt discount in long-term
liabilities in the accompanying condensed consolidated balance sheets at both March 31, 2010 and
December 31, 2009.
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6. Stockholders Equity
As of March 31, 2010, there were 90,000,000 shares of common stock of Pet DRx authorized, with
23,714,460 shares outstanding. Additionally, 1,361,574 shares of common stock are held as treasury
shares. The Company also had 10,000,000 shares of preferred stock authorized of which none were
outstanding at March 31, 2010.
Common Stock Warrants
The Company has issued warrants to purchase common shares of the Company either as
compensation for consultants and vendors or as additional incentive for investors and lenders. The
value of warrants issued for compensation is accounted for as a non-cash expense to the Company at
the fair value of the warrants issued. The
value of warrants issued in conjunction with financing events is either a reduction in
paid-in-capital for common issuances or as a discount for debt issuances. The Company values the
warrants at fair value as calculated by using the Modified Black-Scholes-Merton option-pricing
model.
The following table summarizes all activities of common stock warrants during the three months
ended March 31, 2010:
Number of | ||||||||
Common | Weighted | |||||||
Stock | Average | |||||||
Warrants | Price | |||||||
Outstanding, December 31, 2009 |
23,870,685 | $ | 2.11 | |||||
Granted |
| | ||||||
Exercised |
| | ||||||
Cancelled |
(7,645,833 | )1 | $ | 6.00 | ||||
Outstanding and exercisable, March 31, 2010 |
16,224,852 | $ | 0.28 | |||||
(1) | On March 17, 2010, these warrants expired by their terms and are no longer deemed outstanding. |
The following table summarizes information about the warrants outstanding at March 31, 2010:
Remaining | ||||||||
Contractual | ||||||||
Warrants | Life | |||||||
Exercise Price | Outstanding | (years) | ||||||
$0.00
|
11,796 | 7.13 | ||||||
$0.10
|
15,320,986 | 5.83 | ||||||
$2.72
|
89,845 | 5.58 | ||||||
$3.11
|
740,160 | 5.83 | ||||||
$6.16
|
62,065 | 7.58 | ||||||
16,224,852 | ||||||||
7. Calculation of Loss Per Common Share
Basic and diluted net loss per share is presented in conformity with the FASBs guidance for
earnings per share for all periods posted. Diluted net loss per share reflects the potential
dilution that could occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that then shares in the
losses of the Company.
The following common stock equivalents were excluded from the calculation of diluted loss per
share since their effect would have been anti-dilutive (in thousands):
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Three Months Ended | ||||||||
March 31, | ||||||||
2010 | 2009 | |||||||
Convertible debenture notes, if converted to common stock |
2,654 | 731 | ||||||
Warrants for common stock |
16,225 | 23,872 | ||||||
Options for common stock |
3,606 | 3,480 | ||||||
Total |
22,485 | 28,083 | ||||||
Options and warrants, had they been dilutive, would have been included in the computation of
diluted net loss per share using the treasury stock method.
Basic and diluted loss per common share was calculated as follows (in thousands, except per
share amounts):
Three Months Ended | ||||||||
March 31, | ||||||||
2010 | 2009 | |||||||
Net loss |
(2,819 | ) | (21 | ) | ||||
Weighted average common shares outstanding: |
||||||||
Basic |
23,714 | 23,660 | ||||||
Effect of dilutive common stock equivalents |
| | ||||||
Diluted |
23,714 | 23,660 | ||||||
Basic and diluted net loss per common share |
$ | (0.12 | ) | $ | (0.00 | ) | ||
8. Share-Based Compensation
Under the 2004 Employee Stock Option Plan (2004 Plan), up to 2,255,175 shares of our common
stock were eligible to be granted to key employees. The 2004 Plan permitted the issuance of new
shares or shares from treasury upon the exercise of options. In January 2008, in conjunction with
the Merger, the Company adopted the Pet DRx 2007 Stock Incentive Plan (2007 Plan), which
authorized another 2,700,000 shares of our common stock to be granted as options. On July 28,
2009, at our annual meeting of stockholders, our shareholders approved an amendment to the 2007
Plan that increased the number of shares of the Companys common stock reserved for issuance under
the 2007 Plan by 2,500,000 shares to an aggregate of 5,200,000 shares (the 2007 Amendment). Our
Board of Directors had authorized the termination of the 2004 Plan, which took effect upon the
approval and the implementation of the 2007 Amendment. Accordingly, no additional awards may be
made under the 2004 Plan; however, the validity of options issued and outstanding under the 2004
Plan as of the termination date will not be affected.
We classify stock-based compensation in the same expense line items as cash compensation.
Information about stock-based compensation included in the results of operations for the three
months ended March 31, 2010 and 2009:
Three Months Ended | ||||||||
March 31, | ||||||||
2010 | 2009 | |||||||
Direct costs |
$ | 7 | $ | 10 | ||||
Selling, general and administrative expenses |
77 | 161 | ||||||
Total |
$ | 84 | $ | 171 | ||||
Stock Option Activity
A summary of our stock option activity is as follows (in thousands, except weighted-average
exercise price and weighted-average remaining contractual life):
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Weighted | |||||||||||||||||||||
Stock | Average | ||||||||||||||||||||
Options | Weighted | Remaining | |||||||||||||||||||
Available | Average | Contractual | Aggregate | ||||||||||||||||||
for | Stock Options | Exercise | Life | Intrinsic | |||||||||||||||||
Grant | Outstanding | Price | (years) | Value | |||||||||||||||||
Balance as of December 31, 2009 |
2,890 | 3,205 | $ | 2.05 | $ | | |||||||||||||||
Granted |
(425 | ) | 425 | 0.40 | |||||||||||||||||
Exercised |
| | | ||||||||||||||||||
Forfeited or canceled |
24 | (24 | ) | 0.35 | |||||||||||||||||
Balance as of March 31, 2010 |
2,489 | 3,606 | $ | 1.86 | 8.51 | $ | 161 | ||||||||||||||
Vested at March 31, 2010 |
| 3,581 | $ | 1.87 | 8.51 | $ | 161 | ||||||||||||||
Exercisable at March 31, 2010 |
| 2,086 | $ | 2.38 | 8.25 | $ | 99 | ||||||||||||||
The following table summarizes information about the options outstanding at March 31, 2010 (in
thousands, except exercise prices and the weighted average remaining contractual life):
Number | Weighted | Number | ||||||||||||||||||||||
Outstanding | Average | Weighted | Exercisable | Weighted | ||||||||||||||||||||
As of | Remaining | Average | As of | Average | ||||||||||||||||||||
March 31, | Contractual | Exercise | March 31, | Exercise | ||||||||||||||||||||
Range of Exercise Price | 2010 | Life (years) | Price | 2010 | Price | |||||||||||||||||||
$0.20 |
$ | 0.20 | 976 | 8.96 | $ | 0.20 | 653 | $ | 0.20 | |||||||||||||||
$0.28 |
$ | 0.40 | 943 | 9.46 | $ | 0.34 | 161 | $ | 0.29 | |||||||||||||||
$0.50 |
$ | 1.00 | 770 | 8.69 | $ | 0.88 | 570 | $ | 0.84 | |||||||||||||||
$2.50 |
$ | 6.50 | 859 | 6.85 | $ | 5.98 | 663 | $ | 6.10 | |||||||||||||||
$6.70 |
$ | 6.70 | 58 | 7.78 | $ | 6.70 | 39 | $ | 6.70 | |||||||||||||||
$0.20 |
$ | 6.70 | 3,606 | 8.51 | $ | 1.86 | 2,086 | $ | 2.38 | |||||||||||||||
As of March 31, 2010, there was $0.9 million of total unrecognized compensation cost related
to non-vested share-based compensation arrangements related to stock options. The costs are
expected to be recognized over a weighted-average period of 1.6 years.
Calculation of Fair Value
The fair value of our options to employees is estimated on the date of grant using the
Modified Black-Scholes-Merton option-pricing model. We amortize the fair value of employee options
on a straight-line basis over the requisite service period. The fair value of options to
nonemployees is estimated throughout the requisite service period using the Modified
Black-Scholes-Merton option-pricing model and the amount of share-based compensation expense
recorded is affected each reporting period by changes in the estimated fair value of the underlying
common stock until the options vest. We use historical data to estimate pre-vesting option
forfeitures. We recognize share-based compensation only for those awards that we expect to vest.
The following assumptions were used to determine the fair value of those options valued:
March 31, | December 31, | |||||||
2010 | 2009 | |||||||
Weighted- average volatility (1) |
29.0 | % | 44.5 | % | ||||
Expected dividends |
0.0 | % | 0.0 | % | ||||
Expected term employees (2) |
4.0 years | 4.7 years | ||||||
Risk-free rate employees (3) |
1.9 | % | 2.6%-3.3 | % |
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(1) | In 2009 and 2010, we estimated the volatility of our common stock on the valuation date based on historical volatility of the common stock of a peer group of public companies as the Company has limited stock price history and it would not be practical to use internal volatility. | |
(2) | The expected term represents the period of time that we expect the options to be outstanding. We estimate the expected term for employees based on the simplified method. The expected term presented for nonemployees is based upon the option expiration date at the date of grant. |
9. Fair Value
Effective January 1, 2009, we adopted the FASBs changes of fair valuing our nonfinancial
assets and nonfinancial liabilities measured on a non-recurring basis. We adopted the changes for
measuring the fair value of our financial assets and liabilities during 2008. As defined by these
changes, fair value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. We utilize
market data or assumptions that we believe market participants would use in pricing the asset or
liability, including assumptions about risk and the risks inherent in the inputs to the valuation
technique. The FASBs fair value guidance establishes a three-tiered fair value hierarchy which
prioritizes the inputs used in measuring fair value as follows:
Level 1 Observable inputs such as quoted prices in active markets;
Level 2 Inputs, other than quoted prices, that are observable for the asset or liability,
either directly or indirectly. These include quoted
prices for similar assets or liabilities in
active markets and quoted prices for identical or similar assets or liabilities in markets that are
not active; and
Level 3 Unobservable inputs in which there is little or no market data, which require the
reporting entity to develop its own assumptions.
The carrying amount of our cash and equivalents, receivables, and accounts payable reported in the
condensed consolidated balance sheets approximates fair value because of the short maturity of
those instruments.
The fair value of our current and long-term debt instruments at March 31, 2010 is undeterminable
due to the related party nature of the obligations and/or the financial circumstances around the
issuance of the debt instruments
10. Contingencies
We have certain contingent liabilities resulting from litigation and claims incidental to the
ordinary course of our business that we believe will not have a material adverse effect on our
future consolidated financial position, results of operations, or cash flows.
11. Warrant Liabilities
As a result of adopting certain changes to the FASBs guidance on embedded features of a
convertible debt instrument, 892,070 of our issued and outstanding common stock warrants as of
December 31, 2008 that were previously treated as equity pursuant to the derivative treatment
exemption, were no longer afforded equity treatment. Upon adoption of the change in accounting for
the embedded features, we reclassified the fair value of the common stock warrants, which have
exercise price reset features, from equity to liabilities as if these warrants had been treated as
a derivative liability since their date of issue. On January 1, 2009, as a cumulative effect
adjustment, we reduced additional paid-in-capital by $1.9 million, increased beginning accumulated
deficit by $1.9 million and recorded $18,000 to a long-term warrant liability to recognize the fair
value of such warrants on the date of
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adoption. Additionally, the Company issued 15,320,986
warrants during the first quarter of 2009, which also qualified as derivative liabilities upon
adoption of the changes.
During the three months ended March 31, 2010, we recognized a total net loss of $0.8 million
related to the first quarter mark-to-market adjustment of the warrant liabilities. These amounts
were recorded in gain/(loss) on change in the fair value of warrant liabilities in the accompanying
condensed consolidated statement of operations.
These warrant liabilities have been measured in accordance with the FASBs guidance of fair
value. The valuation assumptions above are classified within Level 1 inputs. The following table
represents the Companys warrant liability activity:
December 31, 2009
|
$ | 2,914 | ||
Mark-to-market adjustment to fair value at March 31, 2010
|
770 | |||
March 31, 2010
|
$ | 3,684 | ||
These warrants were not issued with the intent of effectively hedging any future cash flow,
fair value of any asset, liability or any net investment in a foreign operation. The warrants do
not qualify for hedge accounting, and as such, all future changes in the fair value of these
warrants will be recognized currently in earnings until such time as the warrants are exercised or
expire. The following assumptions were used to determine the fair value of warrants at March 31,
2010 and December 31, 2009:
March 31, 2010 | December 31, 2009 | |||||||
Weighted- average volatility (1) |
28.9 | % | 29.9 | % | ||||
Expected dividends |
0.0 | % | 0.0 | % | ||||
Expected term (2) |
2.8-7.6 years | 3.0-7.8 years | ||||||
Risk-free rate (3) |
1.5%-3.4 | % | 1.7%-3.5 | % |
(1) | We estimated the volatility of our common stock on the valuation date based on historical volatility of the common stock of a peer group of public companies as the Company has limited stock price history and it would not be practical to use internal volatility. | |
(2) | The expected term represents the period of time that we expect the options to be outstanding. | |
(3) | The risk-free interest rate is based on the implied yield in effect on U.S. Treasury zero-coupon issues with equivalent remaining terms. |
12. Subsequent Events
Management evaluated all activity through the issue date of the condensed consolidated
financial statements and concluded that no other subsequent events have occurred that would
require recognition in the condensed consolidated financial statements or disclosure in the Notes
to the condensed consolidated financial statements.
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations. |
The following discussion should be read in conjunction with our condensed consolidated
financial statements and notes thereto provided under Part I, Item 1 of this Quarterly Report on
Form 10-Q (the Form 10-Q). The Companys disclosure and analysis in this Form 10-Q contain some
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995 that set forth anticipated results based on managements plans and assumptions. From time to
time, the Company also provides forward-looking statements in other materials it releases to the
public, as well as oral forward-looking statements. Such statements give the Companys current
expectations or forecasts of future events; they do not relate strictly to historical or current
facts. The Company has tried, wherever possible, to identify such statements by using words such as
anticipate, estimate, expect, project, intend, plan, believe, will, target,
forecast and similar expressions in connection with any discussion of future operating or
financial performance or business plans or prospects. In particular, these include statements
relating to future actions, business plans and prospects, future performance or results of current
and anticipated services, sales efforts, expenses, interest rates, the outcome of contingencies,
such as legal proceedings, and financial results.
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The Company cannot guarantee that any forward-looking statement will be realized. Achievement
of future results is subject to risks, uncertainties and potentially inaccurate assumptions. Should
known or unknown risks or uncertainties materialize, or should underlying assumptions prove
inaccurate, actual results could differ materially from past results and those anticipated,
estimated or projected. Investors should keep this in mind as they consider forward-looking
statements. Factors that may cause our plans, expectations, future financial condition and results
to change are described under the heading Risk Factors in Item 1A of our Annual Report on Form
10-K for the year ended December 31, 2009 filed with the SEC on March 31, 2010.
The forward-looking information set forth in this Quarterly Report on Form 10-Q is as of the
date of this report, and the Company undertakes no obligation to publicly update forward-looking
statements, whether as a result of new information, future events or otherwise. Investors are
advised, however, to consult any further disclosures the Company makes on related subjects in its
reports to the SEC filed after the date hereof at the SECs website at www.sec.gov .
Overview
General
The Company is a provider of primary and specialty veterinary care services to companion
animals through a network of veterinary hospitals. As of March 31, 2010, we owned and operated
twenty-three veterinary hospitals located in northern and southern California. Our hospital
operations are conducted by our subsidiaries.
Our hospitals offer a full range of general medical treatment for companion animals, including
(i) preventative care, such as vaccinations, examinations, spaying/neutering, and dental care, and
(ii) a broad range of specialized diagnostic and medical services, such as x-ray, ultra-sound,
internal medicine, surgery, cardiology, ophthalmology, dermatology, oncology, neurology and other
services. Our hospitals also sell pharmaceutical products, pet food and pet supplies.
We intend to grow and enhance our profitability by expanding same-store revenue and
capitalizing on economies of scale and cost reduction efficiencies and by acquiring established
veterinary practices in select regions throughout the United States.
Business Strategy
Our objective is to deliver a broad scope of high-quality services to our customers through a
hub and spoke network of veterinary hospitals within select local markets. Specifically, we
offer, through specialty and emergency hospitals (hubs), a wide range of medical, diagnostic and
specialty-medical services and use the traditional smaller general practices as spokes to feed to
the hub units patients requiring more specialized services than a general practice is equipped to
provide. We pursue the following strategies to achieve our objectives:
| recruit and retain top veterinary professionals; |
| provide high quality veterinary care to our customers; |
| increase veterinary hospital visits through advertising, market positioning, consumer education, wellness programs and branding; |
| increase veterinary hospital margins through same-store revenue growth and cost savings realized through consolidated purchasing arrangements for high volume items such as food and medical supplies and generally lower costs through economies of scale; |
| increase veterinary hospital productivity through professional development and training, integration of performance data collection systems, application of productivity standards to previously under-managed operations and removal of administrative burdens from veterinary professionals; |
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| pursue acquisitions of additional veterinary hospitals, with a focus on continuing to develop hub and spoke networks that will improve customer service; and | ||
| capture valuation arbitrage differentials between individual practice value and larger consolidated enterprise value. |
Seasonality
The practice of veterinary medicine is subject to seasonal fluctuation. In particular, demand
for veterinary services is slightly higher during the warmer months because pets spend a greater
amount of time outdoors where they are more likely to be injured and are more susceptible to
disease and parasites. In addition, use of veterinary services may be affected by levels of flea
infestation, heartworm and ticks, and the number of daylight hours. The seasonality we experience
at our clinics varies throughout the year depending on the geographic region of those locations.
For example, clinics in the desert region of California experience their highest sales volume in
the winter months. However, revenue may be impacted significantly from quarter to quarter by
natural disasters, such as earthquakes, landslides and fires, and other factors unrelated to such
adverse events, such as changing economic conditions.
Overview of Our Financial Results
(Amounts relate to continuing operations unless otherwise note)
For the three month period ended March 31, 2010, net revenue was $15.7 million, a decrease of
6.1% over the same time period in the prior year. The net loss for the three month period ended
March 31, 2010 was approximately $2.8 million, versus a net loss in the prior year first quarter of
$21,000. Basic and diluted net loss per share was $(0.12) for the three months ended March 31,
2010 as compared to a net loss per share of $(0.00) for the three months ended March 31, 2009.
The revenue decrease in the first three months of 2010 versus 2009 was primarily due to a
continued decrease in volume of business resulting from the economic decline in California during
the first quarter of 2010. The increase in net loss and net loss per share was primarily a result
of non-cash losses sustained during the first quarter of 2010 from the change in fair value of the
warrant liabilities in the amount of $0.8 million compared with a net gain in the same time period
one year ago of $2.0 million.
Cash used in operations in the first quarter of 2010 of $168,000 was primarily a result of the
$2.8 million net loss incurred in that period offset by non-cash charges of $1.0 million, $1.0
million, and $0.8 million for depreciation and amortization, amortization of debt discounts, and
loss on change in fair value of warrant liabilities, respectively. Cash used in operations for
the three months ended March 31, 2009 was $1.2 million and was primarily driven by the net loss of
$21,000, the $2.0 million gain on change in fair value of warrant liabilities, and the $1.6 million
reduction in accrued payroll and other expenses during the quarter, offset by non-cash expenses for
depreciation and amortization as well as debt discount amortization of $0.7 million and $1.0
million, respectively. Cash provided by investing activities during the first quarter of 2010 of
$1.1 million was primarily from the net proceeds received from the sale of one of the Company-owned
buildings in January 2010. Cash used in investing activities during the first quarter of 2009 was
for purchases of property and equipment at the corporate headquarters and various animal hospital
locations. Cash used in financing activities for the first quarter of 2010 was for recurring
payments on outstanding term loans and capital leases. Cash provided by financing activities in
the first quarter of 2009 was primarily a result of the $6.5 million received from the sale by the
Company of its 12% Senior Secured Convertible Notes.
We had a working capital deficit of $5.1 million at March 31, 2010 as compared to a working
capital deficit of $4.4 million at December 31, 2009.
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Results of Our Operations
Three Months Ended March 31, 2010 and 2009
(In millions, except percentages)
Revenue
For The Three Months ended | ||||||||||||
March 31, | % | |||||||||||
2010 | 2009 | Change | ||||||||||
Revenue |
$ | 15.7 | $ | 16.7 | (6.1) | % |
Revenues decreased $1.1 million, or 6.1%, during the three months ended March 31, 2010 as
compared to the same time period in the prior year. The decrease in revenue was primarily a result
of continued decreased volumes as a result of the economic environment of California where all of
our hospitals are located.
Direct Costs
For The Three Months ended | ||||||||||||
March 31, | % | |||||||||||
2010 | 2009 | Change | ||||||||||
Total direct costs |
$ | 14.4 | $ | 15.0 | (4.2) | % | ||||||
Hospital Contribution Margin as a percentage of total net revenue |
8.3 | % | 10.1 | % |
Direct costs decreased $0.6 million, or 4.2%, in the first three months of 2010 as compared to
the first three months of 2009. The decrease in direct costs was partially due to a $0.5 million
reduction in total compensation paid to veterinarians due to the lower revenues achieved, coupled
with reductions in both employed and contracted veterinarian staff. Further decreasing direct
costs was a reduction in hospital staff costs, which decreased $0.4 million also as a result of
lower customer traffic. Additionally, as a result of the reduction in both veterinarian and staff
wages, the associated payroll related taxes and benefits incurred by the Company decreased by
approximately $0.3 million from the first quarter of 2010 as compared to first quarter of 2009.
The reduction in direct costs was offset by a $0.4 million one-time acceleration of
depreciation expense as a result of the sale and leaseback transaction we entered into in January
2010. In addition to the increase in depreciation, there was an increase of $0.1 million in cost
of goods sold resulting from vendor price increases introduced at the beginning of 2010.
Selling, General and Administrative (SG&A)
For The Three Months ended | ||||||||||||
March 31, | % | |||||||||||
2010 | 2009 | Change | ||||||||||
Selling, general and administrative |
$ | 1.8 | $ | 2.3 | (21.5) | % | ||||||
As a percentage of total net revenue |
11.7 | % | 14.0 | % |
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SG&A expenses decreased by $0.5 million, or 21.5%, for the three months ended March 31,
2010 as compared to the same time period in the prior year. The decrease in SG&A was primarily due
to a decrease of $0.3 million in staff and other payroll related costs at the corporate level as a
result of a small reduction in the total number of staff in response to the lower revenue levels as
a result of the ailing economy. Further reducing SG&A
expenses was a reduction in stock compensation expense incurred in the first quarter of 2010
versus 2009, which decreased approximately $0.1 million due to reduction in the level of stock
option grants issued in 2009 as compared to previous years. Additionally, many of the largest
stock option amounts granted in previous years were fully vested by the end of 2009.
Interest Expense
For The Three Months ended | ||||||||||||
March 31, | % | |||||||||||
2010 | 2009 | Change | ||||||||||
Interest expense |
$ | 1.5 | $ | 1.3 | 11.0 | % | ||||||
As a percentage of total net revenue |
9.4 | % | 8.0 | % |
The increase in interest expense of $0.1 million from the three months ended March 31,
2010 compared to the same period in 2009 was a result of the Companys 12% Senior Notes that were
sold by the Company during the first quarter of 2009 being outstanding for a full quarter in 2010
versus a partial quarter in 2009 coupled with the increase in the principal amount of the 12%
Senior Notes as a result of the interest incurred in 2009 being added to the principal balance of
the note by the end of 2009.
Liquidity and Capital Resources
As of March 31, 2010, we had cash and cash equivalents of $2.9 million and a working capital
deficit of $5.1 million. Management believes that the Company has sufficient cash to meet its
operating needs for 2010.
Cash Flows from Operating Activities
Our largest source of operating cash flows is cash collections from our customers for
purchases of veterinary healthcare services. We usually receive payment at the time of service. Our
primary uses of cash for operating activities include corporate and hospital personnel, facilities
related expenditures including the purchase of inventory, and costs associated with outside support
and services.
Cash used in operating activities for the first three months of 2010 was $0.2 million as
compared to $1.2 million in the same time period one year ago. The $0.2 million of net cash used
in the operating activities was primarily the result of the $2.8 million net loss incurred by the
Company, offset by certain non-cash expenses including $1.0 million, $1.0 million, and $0.8 million
for depreciation and amortization expenses, amortization of certain debt discounts, and from the
change in fair value of warrant liabilities, respectively. The $1.2 million of net cash used in
operating activities for the first quarter of 2009 resulted from the $21,000 net loss, the $2.0
million gain on change in fair value of warrant liabilities, and the $1.6 million decrease in
accrued payroll and other expenses as the Company paid down certain expenses that built up while
the Company was anticipating the closing of the 12% Secured Convertible Notes. These fluctuations
were offset somewhat by the $0.7 million and $1.0 million of non-cash expenses from depreciation
and amortization and amortization of debt discounts, respectively.
Cash Flows from Investing Activities
Cash provided by investing activities in the first three months of 2010 of $1.1 million was
primarily from the net proceeds received from the sale of one of its Company-owned buildings,
offset by purchases of equipment for various hospital locations. Cash used in investing activities
of $0.1 million during the first quarter of 2009 was for purchases of equipment at various hospital
locations.
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Cash Flows from Financing Activities
Cash used in financing activities in the first quarter of 2010 of $0.7 million was a result of
recurring payments made on certain term loans and capital leases. Cash provided by financing
activities during the first quarter of 2009 was primarily attributable to the $6.5 million of net
proceeds received from the sale of the 12% Senior Notes, offset by $0.5 million of payments on term
notes issued in prior years in conjunction with the purchase of animal hospitals and $0.3 million
of fees incurred in connection with issuance of the 12% Senior Notes.
Other Metrics
The non-GAAP metric of adjusted earnings before interest, gain on change in fair value of
warrant liabilities, income taxes, depreciation and amortization (Adjusted EBITDA) is an
important performance measure for us and we believe that it is a useful metric to investors and
management of the ability of our business to generate cash and to repay and incur additional debt.
Computations of Adjusted EBITDA may differ from company to company. Therefore, Adjusted EBITDA
should be used as a compliment to, and in conjunction with, our condensed consolidated financial
statements included elsewhere in this report.
The following table presents a reconciliation of our computation of Adjusted EBITDA for the
three months ended March 31, 2010 and 2009 (in thousands):
March 31, | March 31, | |||||||
2010 | 2009 | |||||||
Net loss |
$ | (2,819 | ) | $ | (21 | ) | ||
Depreciation |
743 | 412 | ||||||
Amortization |
250 | 266 | ||||||
Gain/(loss) on change in fair value of warrant liabilities |
770 | (1,972 | ) | |||||
Interest expense, net |
1,479 | 1,333 | ||||||
Income taxes |
30 | 5 | ||||||
Adjusted EBITDA |
$ | 453 | $ | 23 | ||||
Additionally, the Company also reviews the non-GAAP metric of hospital contribution before
depreciation and amortization expense (Hospital EBITDA) as an ability of our hospitals being able
to individually generate cash without the burden of corporate spending. Computations of Hospital
EBITDA may differ from company to company. Therefore, Hospital EBITDA should be used as a
compliment to, and in conjunction with, our condensed consolidated financial statements included
elsewhere in this report.
The following table presents a reconciliation of our computation of Hospital EBITDA for the
three months ended March 31, 2010 and 2009 (in thousands):
March 31, | March 31, | |||||||
2010 | 2009 | |||||||
Hospital contribution |
$ | 1,298 | $ | 1,683 | ||||
Depreciation at hospitals |
325 | 325 | ||||||
Amortization at hospitals |
250 | 266 | ||||||
Hospital EBITDA |
$ | 1,873 | $ | 2,274 | ||||
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable.
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Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our
management, including our principal executive officer and principal financial officer, regarding
the effectiveness of the design and operation of our disclosure controls and procedures. Based
upon this evaluation, our principal executive officer and principal financial officer concluded, as
of the end of the period covered by this Quarterly Report on Form 10-Q, March 31, 2010, that our
disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) that occurred during
our last fiscal quarter that have materially affected, or that are reasonably likely to materially
affect, our internal control over financial reporting.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings.
We are involved in various claims and legal actions arising in the ordinary course of
business. We do not believe that the ultimate resolution of these matters will have a material
adverse effect on our business, results of operations, financial condition, or cash flows.
However, the results of these matters cannot be predicted with certainty, and an unfavorable
resolution of one or more of these matters could have a material adverse effect on our business,
results of operations, financial condition, cash flows and prospects.
Item 1A. Risk Factors.
There have not been any material changes to the risk factors previously disclosed in our
Annual Report on Form 10-K for the year ended December 31, 2009.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None
Item 6. Exhibits.
Exhibit No. | Description | |
31.1*
|
Section 302 Certification from Gene E. Burleson. | |
31.2*
|
Section 302 Certification from Harry L. Zimmerman. | |
32.1*
|
Section 906 Certification from Gene E. Burleson. | |
32.2*
|
Section 906 Certification from Harry L. Zimmerman. |
* | Filed or furnished herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PET DRX CORPORATION |
||||
Date: May 14, 2010 | By: | /s/ Harry L. Zimmerman | ||
Harry L. Zimmerman | ||||
Executive Vice President and Chief Financial Officer |
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EXHIBIT INDEX
Exhibit No. | Description | |
31.1*
|
Section 302 Certification from Gene E. Burleson. | |
31.2*
|
Section 302 Certification from Harry L. Zimmerman. | |
32.1*
|
Section 906 Certification from Gene E. Burleson. | |
32.2*
|
Section 906 Certification from Harry L. Zimmerman. |
* | Filed or furnished herewith. |
20