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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

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 000-55039

BioTelemetry, Inc.

(Exact Name of Registrant as Specified in its Charter)

(610) 729-7000

(Registrant’s Telephone Number, including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x  No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o  No  x

As of July 29, 2014, 26,458,841 shares of the registrant’s common stock, $0.001 par value per share, were outstanding.

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BIOTELEMETRY, INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 2014

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FORWARD-LOOKING STATEMENTS

This document includes certain forward-looking statements within the meaning of the “Safe Harbor” provisions of the Private Securities Litigation Reform Act of 1995.  These statements may be identified by words such as “expect,” “anticipate,” “estimate,” “intend,” “plan,” “believe,” “promises” and other words and terms of similar meaning.  Such forward-looking statements are based on current expectations and involve inherent risks and uncertainties, including important factors that could delay, divert, or change any of these expectations, and could cause actual outcomes and results to differ materially from current expectations.  These factors include, among other things, our ability to successfully integrate the Mednet, Biomedical Systems and Radcore businesses into our business and the effect such acquisitions will have on our results of operation, our ability to successfully negotiate a settlement to the Department of Justice investigation prior to any judicial action, effectiveness of our cost savings initiatives, relationships with our government and commercial payors, changes to insurance coverage and reimbursement levels for our products, the success of our sales and marketing initiatives, our ability to attract and retain talented executive management and sales personnel, our ability to identify acquisition candidates, acquire them on attractive terms and integrate their operations into our business, the commercialization of new products, market factors, internal research and development initiatives, partnered research and development initiatives, competitive product development, changes in governmental regulations and legislation, the continued consolidation of payors, acceptance of our new products and services, patent protection, adverse regulatory action, and litigation success.  For further details and a discussion of these and other risks and uncertainties, please see our public filings with the Securities and Exchange Commission, including our latest periodic reports on Form 10-K and 10-Q.  We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise.

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

BIOTELEMETRY, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

See accompanying notes.

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BIOTELEMETRY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(In thousands, except share and per share amounts)

See accompanying notes.

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BIOTELEMETRY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

See accompanying notes.

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BIOTELEMETRY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(In thousands, except share and per share amounts)

1.   Summary of Significant Accounting Policies

Unaudited Interim Financial Data

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and the requirements of Form 10-Q and Article 10 of Regulation S-X. Accordingly, these consolidated financial statements do not include all of the information and footnotes necessary for a complete presentation of financial position, results of operations and cash flows.  In the opinion of management, these consolidated financial statements reflect all adjustments which are of a normal recurring nature and necessary for a fair presentation of BioTelemetry, Inc.’s (the “Company” or “BioTelemetry”) financial position as of June 30, 2014 and December 31, 2013, the results of operations for the three and six months ended June 30, 2014 and 2013, and cash flows for the six months ended June 30, 2014 and 2013.  The financial data and other information disclosed in these notes to the financial statements related to the three and six months ended June 30, 2014 and 2013 are unaudited. The results for the three and six months ended June 30, 2014 are not necessarily indicative of the results to be expected for any future period.

Net Loss

The Company computes net loss per share in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 260, Earnings Per Share.  The following summarizes the potential outstanding common stock of the Company at June 30, 2014 and 2013:

Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed by giving effect to all potential dilutive common shares, including stock options and warrants, as applicable.

The following table presents the calculation of basic and diluted net loss per share:

If the outstanding vested options or restricted stock units were exercised or converted into common stock, the result would be anti-dilutive for the three and six months ended June 30, 2014 and 2013. Accordingly, basic and diluted net loss per share are the same for the three and six months ended June 30, 2014 and 2013.

Fair Value of Financial Instruments

The fair value of financial instruments is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties. The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, other receivables, accounts payable and long-term debt. With the exception of the long-term debt, the carrying value of these financial instruments approximates their fair value because of their short-term nature (classified as Level 1). For our long-term debt, based on the borrowing rates currently available to us, the carrying value also approximates fair value as of June 30, 2014 (classified as Level 2).  We did not have any Level 3 assets or liabilities for the periods ended June 30, 2014 and December 31, 2013.

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Cash and Cash Equivalents

Cash and cash equivalents are held in U.S. financial institutions or in custodial accounts with U.S. financial institutions. Cash equivalents are defined as liquid investments and money market funds with maturity from date of purchase of 90 days or less that are readily convertible into cash and have minimal interest rate risk.

Accounts Receivable

Accounts receivable related to the Patient Services segment are recorded at the time revenue is recognized, net of contractual allowances, and are presented on the balance sheet net of allowance for doubtful accounts. The ultimate collection of accounts receivable may not be known for several months after services have been provided and billed. The Company records allowance for doubtful accounts based on the aging of receivables using historical payor specific data. The percentages and amounts used to record bad debt expense and the allowance for doubtful accounts are supported by various methods and analyses, including current and historical cash collections, and the aging of receivables by payor. Because of continuing changes in the healthcare industry and third party reimbursement, it is possible that the Company’s estimates of collectability could change, which could have a material impact on the Company’s operations and cash flows.

Accounts receivable related to the Product and Research Services segments are recorded at the time revenue is recognized, or when the services or products are billable, net of discounts. The Company estimates allowance for doubtful accounts on a specific account basis, and considers several factors in its analysis including customer specific information and aging of the account.

The Company writes off receivables when the likelihood for collection is remote and when the Company believes collection efforts have been fully exhausted and it does not intend to devote additional resources in attempting to collect.  The Company performs write-offs on a monthly basis.  In the Patient Services segment, the Company wrote off $2,851 and $4,637 of receivables for the six months ended June 30, 2014 and 2013, respectively.  The impact was a reduction of gross receivables and a reduction in the allowance for doubtful accounts.  There were no material write-offs in the Product and Research Services segments.  For the three and six months ended June 30, 2014, the Company recorded bad debt expense of $2,745 and $5,104, respectively.  For the three and six months ended June 30, 2013, the Company recorded bad debt expense of $1,967 and $4,434, respectively.

Inventory

Inventory consists of the following:

Inventories, which include purchased parts, materials, direct labor and applied manufacturing overhead, are stated at the lower of cost or net realizable value, with cost determined by use of the first-in, first-out method.

Goodwill

Goodwill is the excess of purchase price of an acquired business over the amounts assigned to assets acquired and liabilities assumed in a business combination. In accordance with ASC 350, Intangibles—Goodwill and Other, goodwill is reviewed for impairment annually, or when events arise that could indicate that impairment exists. The provisions of ASC 350 require that the Company perform a two-step impairment test. In the first step, the Company compares the fair value of its reporting units to the carrying value of the reporting units. If the carrying value of the net assets assigned to the reporting units exceeds the fair value of the reporting units, then the second step of the impairment test is performed in order to determine the implied fair value of the reporting units’ goodwill. If the carrying value of the reporting units’ goodwill exceeds its implied fair value, an impairment loss equal to the difference is recorded.

For the purpose of performing its goodwill impairment analysis, the Company considers its business to be comprised of three reporting units: Patient Services, Product and Research Services. The Company calculates the fair value of the reporting units utilizing a weighting of the income and market approaches. The income approach is based on a discounted cash flow methodology that includes assumptions for, among other things, forecasted income, cash flow, growth rates, income tax rates, expected tax benefits and long-term discount rates, all of which require significant judgment. The market approach utilizes the Company’s market data as well as market data from publicly traded companies that are similar to the Company. There are inherent uncertainties related to these factors and the judgment applied in the analysis. The Company believes that the combination of an income and a market approach provides a reasonable basis to estimate the fair value of its reporting units.

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Stock-Based Compensation

ASC 718, Compensation — Stock Compensation, addresses the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. ASC 718 requires that an entity measure the cost of equity-based service awards based on the grant-date fair value of the award and recognize the cost of such awards over the period during which the employee is required to provide service in exchange for the award (the vesting period). ASC 718 requires that an entity measure the cost of liability-based service awards based on current fair value that is re-measured subsequently at each reporting date through the settlement date. The Company accounts for equity awards issued to non-employees in accordance with ASC 505-50, Equity-Based Payments to Non-Employees.

As a result of stock-based compensation expense incurred, the Company’s loss before income taxes was increased by $965 and $1,968, respectively, during the three and six months ended June 30, 2014.  As a result of stock-based compensation expense incurred, the Company’s loss before income taxes was increased by $1,011 and $1,711 during the three and six months ended June 30, 2013, respectively.  For the three and six months ended June 30, 2014, the impact of stock-based compensation expense on basic and diluted earnings per share was $(0.04) and $(0.07).  For the three and six months ended June 30, 2013, the impact of stock-based compensation expense on basic and diluted earnings per share was $(0.04) and $(0.07).

The Company estimates the fair value of its share-based awards to employees and directors using the Black-Scholes option valuation model. The Black-Scholes option valuation model requires the use of certain subjective assumptions. The most significant of these assumptions are the estimates of the expected volatility of the market price of the Company’s stock and the expected term of the award. For the six months ended June 30, 2014 and 2013, the Company based the estimates of expected volatility on the historical average of our stock price. The expected term represents the period of time that stock-based awards granted are expected to be outstanding. Other assumptions used in the Black-Scholes option valuation model include the risk-free interest rate and expected dividend yield. The risk-free interest rate for periods pertaining to the contractual life of each option is based on the U.S. Treasury yield of a similar duration in effect at the time of grant. The Company has never paid, and does not expect to pay, dividends in the foreseeable future.

The Company utilized the Black-Scholes valuation model for estimating the fair value of stock options granted using the following weighted average assumptions:

Based on the Company’s historical experience of options that cancel before becoming fully vested, the Company has assumed an annualized forfeiture rate of 15% for all options. Under the true-up provision of ASC 718, the Company will record additional expense if the actual forfeiture rate is lower than estimated, and will record a recovery of prior expense if the actual forfeiture rate is higher than estimated.

Based on the above assumptions, the per share weighted average fair value of the options granted under the stock option plan for the six months ended June 30, 2014 and 2013 was $4.96 and $1.47, respectively.

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The following table summarizes activity under all stock award plans from December 31, 2013 through June 30, 2014:

The Employee Stock Option (ESOP) Plans have an automatic increase in the shares available for grant every January the plans are active. The increase in the shares available for grant under the ESOP plan is equal to 4% of the total shares outstanding at December 31, 2013.

Additional information regarding options outstanding is as follows:

Employee Stock Purchase Plan

In 2014, 169,610 shares were purchased in accordance with the Employee Stock Purchase Plan (ESPP). Net proceeds to the Company from the issuance of shares of common stock under the ESPP for the six months ended June 30, 2014 were $397. In January 2014, the number of shares available for grant was increased by 258,240, per the ESPP documents. At June 30, 2014, approximately 606,086 shares remain available for purchase under the ESPP.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which provides guidance for revenue recognition.  The new standard will require revenue recognized to represent the transfer of promised goods or services to customers in an amount that reflects the consideration in which the company expects to receive in exchange for those goods or services.  The standard also requires new, expanded disclosures regarding revenue recognition and is effective for the annual reporting periods beginning after December 15, 2016.  The Company is currently evaluating the impact the adoption of this standard will have on the consolidated financial statements.

2.   Business Combination

Mednet Healthcare Technologies, Inc

On January 31, 2014, the Company, through its wholly owned subsidiary CardioNet, LLC (“CardioNet”), acquired Mednet Healthcare Technologies, Inc., Heartcare Corporation of America, Inc., Universal Medical, Inc., and Universal Medical Laboratory, Inc. (together, “Mednet”).  Mednet provides cardiac monitoring services and is an original equipment manufacturer of cardiac monitoring devices.  The acquisition gave the Company access to established customer relationships.  Upon the closing of the transaction, the Company acquired all of the issued and outstanding capital stock, and Mednet became a wholly-owned subsidiary of the Company.  The Company paid $5,500 in cash at closing and 96,649 shares of the Company’s common stock, valued at $705 at closing.  In addition, as a result of the acquisition, the Company assumed indebtedness from Mednet in the aggregate amount of $9,720, including interest.  The acquisition has been included within the consolidated results of operations and financial condition from the date of the acquisition.

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The amounts below represent the preliminary fair value estimates as of June 30, 2014 and are subject to subsequent adjustment as additional information is obtained during the measurement period. The primary areas of those preliminary estimates that were not yet finalized related to certain tangible assets and liabilities acquired, as well as identifiable intangible assets. The Company expects to complete the accounting for the Mednet acquisition within a year of the acquisition date.

While the purchase price allocation has not been finalized, the estimated allocation of intangible assets is comprised of the following:

Goodwill recorded in connection with this acquisition is attributable to the assembled workforce and synergies expected to arise from cost savings opportunities.  All of the recorded goodwill is included in the Patient Services segment.

The unaudited pro forma information below presents combined results of operations as if the acquisition had occurred at the beginning of the periods presented instead of January 31, 2014. The pro forma information presented below does not include anticipated synergies or certain other expected benefits of the acquisition and should not be used as a predictive measure of our future results of operations. Mednet contributed $6,164 and $10,636 in revenue for the three and six months ended June 30, 2014.

Biomedical Systems Corporation

On April 3, 2014, the Company, through its wholly-owned subsidiary CardioNet, LLC, completed the acquisition of substantially all of the assets of Biomedical Systems Corporation’s (“BMS”) cardiac event monitoring, Holter monitoring and mobile telemetry monitoring services.  The acquisition gave the Company access to internally developed Holter software and to established customer relationships.  The Company paid $8,000 in cash at closing and 62,859 shares of the Company’s common stock, valued at $650 at closing.  The acquisition has been included within the consolidated results of operations and financial condition from the date of the acquisition.

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The amounts below represent the preliminary fair value estimates as of June 30, 2014 and are subject to subsequent adjustment as additional information is obtained during the measurement period. The primary areas of those preliminary estimates that were not yet finalized related to certain tangible assets and identifiable intangible assets. The Company will complete the accounting for the BMS acquisition within a year of the acquisition date.

While the purchase price allocation has not been finalized, the estimated allocation of intangible assets is comprised of the following:

Goodwill recorded in connection with this acquisition is attributable to synergies expected to arise from cost savings opportunities.  All of the recorded goodwill is included in the Patient Services segment.

Other Acquisitions

On June 3, 2014, the Company, through its wholly owned subsidiary CardioCore Lab, LLC (“CardioCore”), acquired the assets of RadCore Lab, LLC (“RadCore”), an imaging core lab serving the biopharmaceutical and medical device research market. This acquisition broadens the Companys offerings and adds new oncology, musculoskeletal and neurological imaging capabilities, supported by a state-of-the-art, cloud-based analysis platform. The Company paid $400 in cash at closing and 22,513 shares of the Company’s common stock, valued at $200 at closing.  While this acquisition provides growth potential, the acquisition of RadCore did not have a material effect on our financial condition, results of operations or cash flows.

3. Goodwill and Intangible Assets

Goodwill was recognized at the time of the Company’s acquisitions. The carrying amounts of goodwill as of June 30, 2014 and December 31, 2013 are $29,503 and $16,469, respectively.

The changes in the carrying amounts of goodwill by segment were as follows:

At December 31, 2013, the Company performed its required annual impairment test of goodwill. Based on this impairment test, the Company determined that none of the reporting unit’s goodwill was impaired.

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The gross carrying amounts and accumulated amortization of the Company’s intangible assets as of June 30, 2014 and December 31, 2013 are as follows:

The estimated amortization expense for the next five years is summarized as follows at June 30, 2014:

Amortization expense for the three months ended June 30, 2014 and 2013 was $871 and $574, respectively, and amortization expense for the six months ended June 30, 2014 and 2013 was $1,559 and $1,193, respectively.  The increase in amortization expense is primarily driven by the current year acquisitions.

4.              Integration, Restructuring and Other Charges

The Company accounts for expenses associated with exit or disposal activities in accordance with ASC 420, Exit or Disposal Cost Obligations, and records the expenses in Integration, restructuring and other charges in its statement of operations, and records the related accrual in the Accrued expenses line of its balance sheet.

For the three and six months ended June 30, 2014 and 2013, the Company incurred expenses related to restructuring, integration and other activities. These expenses were primarily a result of the Company’s recent patent litigation, the Civil Investigative Demand, as well as the activities surrounding the Company’s acquisitions. A summary of these expenses is as follows:

5.              Income Taxes

The income tax provision for interim periods is determined using an estimated annual effective tax rate adjusted for discrete items, if any, which are taken into account in the quarterly period in which they occur. The Company reviews and updates its estimated annual effective tax rate each quarter. For the six months ended June 30, 2014, the Company’s estimated annual effective tax rate was zero. The Company recorded $2,869 of a tax benefit for the six months ended June 30, 2014 related to the Mednet acquisition that occurred in January 2014.

As of June 30, 2014, in accordance with ASC 740, the Company maintained a full valuation allowance against net deferred tax assets, with exception to the deferred tax liability recorded for indefinite lived intangibles. The Company will continue to maintain a full valuation allowance until such time it can reasonably estimate the probability of realizing a benefit from the deferred tax assets.

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6.              Credit Agreement

On August 29, 2012, the Company entered into a Credit and Security Agreement (“Credit Agreement”) with MidCap Financial, LLC to provide revolving loan borrowings with a loan commitment of up to $15,000, with an option by the Company to increase to a maximum loan commitment of $30,000. Interest on borrowings under the Credit Agreement is based on the London Interbank Offered Rate (“LIBOR”) plus an applicable margin of 4.75%. An unused line fee of 0.50% per annum is payable on any unused line balance, determined as the total loan commitment of $15,000 minus the average daily balance of the sum of the revolving loan borrowings outstanding during the preceding month. Furthermore, if the Company terminates the agreement at any point prior to the loan expiration date, the Company will incur a loan origination fee of 1.00% of the loan commitment due immediately preceding the termination. The Credit Agreement is secured by the Company’s personal property, inventory and other assets and expires in August 2016.  The Company withdrew $8,000 on April 3, 2014 to fund the BMS acquisition.  As of June 30, 2014, the Company’s outstanding balance on the credit agreement was $8,000.

On February 21, 2014, the Company entered into a Credit and Security Agreement (the “Credit Agreement”) with The Bancorp Bank for an aggregate amount of $9,830.  The proceeds were used to pay off the assumed debt of $8,563 associated with the Mednet acquisition. The Loans bear interest at an annual rate of 3.25% until March 1, 2019, and thereafter will bear interest at an annual rate equal to the greater of (1) 3.25% or (2) the prime rate as published in the “Money Rates” section of The Wall Street Journal or the highest prime rate if more than one is published.  Beginning April 1, 2014, the principal amount of the Loans will be repaid, on a monthly basis, in installments of $38, plus accrued interest, until April 1, 2019, when the principal amount of the Loans will be repaid, on a monthly basis, in installments of $75, plus accrued interest, until paid in full on or before March 1, 2024 or such earlier date upon an acceleration of the Loans by Lenders upon an event of default or termination of the Borrowers.  As of June 30, 2014, the Company’s outstanding balance on the credit agreement was $9,636.

7.              Segment Information

The Company operates under three segments: Patient Services, Product and Research Services. The Patient Services business segment’s principal focus is on the diagnosis and monitoring of cardiac arrhythmias or heart rhythm disorders, through its core Mobile Cardiac Outpatient Telemetry™ (“MCOT™”), wEvent, event, Holter and Pacemaker monitoring services, as well as INR services in a healthcare setting.  INR monitoring is a measurement of blood coagulation in the circulatory system and is prescribed for patients on long term warfarin therapy.  The Product business segment focuses on the development, manufacturing, testing and marketing of medical devices to medical companies, clinics and hospitals.  The Research Services segment is engaged in central core laboratory services providing cardiac monitoring, imaging, scientific consulting and data management services for drug and medical device trials..  Intercompany revenue relating to the manufacturing of devices by the Product segment for the other segments is included on the intersegment revenue line.

Expenses that can be specifically identified with a segment have been included as deductions in determining pre-tax segment income. Any remaining expenses including research and development costs as well as the elimination of costs associated with intercompany revenue are included in Corporate and Other. Also included in Corporate and Other is the Department of Justice settlement, as well as net financing expenses and other income which consist principally of interest expense and other financing expenses less interest income.  The Company does not allocate assets to the individual segments.  Mednet and BMS are primarily included in the Patient Services segment; with the manufacturing and product sales parts of the businesses being included in the Product segment.  Radcore is included in the Research Services segment.

For the three months ended:

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For the six months ended:

8.              Civil Investigative Demand

On August 25, 2011, the Company received a Civil Investigative Demand (“CID”) issued by the U.S. Department of Justice, Western District of Washington. The CID states that it was issued as part of an investigation under the Federal False Claims Act and sought documents for the period January 1, 2007 through the date of the CID. The CID indicates that the investigation concerns allegations that the Company may have used inappropriate diagnosis codes when submitting claims for payment to Medicare for its real-time, MCOT™ services.  During the second quarter of 2014, the Company reached an agreement in principle for a potential settlement; however, the pending settlement is subject to satisfactory negotiation and completion of a settlement agreement.  As result, in addition to the $3,100 recorded in the first quarter of 2014, the Company recorded an additional non-operating charge of $3,300, reflecting an estimated total cash settlement amount of $6,400.  This reserve was recorded to Interest and other loss, net in the consolidated statements of operations and is included in Accrued liabilities on the balance sheet.  Additionally, the Company has incurred $1,720 in related legal and consulting expenses to date.

The final outcome of any current or future litigation or governmental or internal investigations, including the potential settlement described above, cannot be accurately predicted, nor can the Company predict any resulting penalties, fines or other sanctions that may be imposed at the discretion of federal or state regulatory authorities. The Company records accruals for such contingencies to the extent that it concludes it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2013, and in conjunction with the accompanying quarterly unaudited condensed consolidated financial statements. This discussion contains certain forward-looking statements that involve risks and uncertainties. The Company’s actual results and the timing of certain events could differ materially from those discussed in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth herein and elsewhere in this report and in the Company’s other filings with the Securities and Exchange Commission. See the “Forward-Looking Statements” section at the beginning of this report.

Company Background

BioTelemetry operates under three segments: Patient Services, Product and Research Services. The Patient Services segment is focused on the diagnosis and monitoring of cardiac arrhythmias, or heart rhythm disorders. The Company offers cardiologists and electrophysiologists with a full spectrum of solutions which provides them with a single source of cardiac monitoring services.  These services range from the differentiated Mobile Cardiac Outpatient Telemetry™ (“MCOT™”) service to wEvent, event, Holter, Pacemaker and International Normalized Ratio (“INR”) monitoring. INR monitoring is a measurement of blood coagulation in the circulatory system and is prescribed for patients on long-term warfarin therapy. The Product business segment focuses on the development, manufacturing, testing and marketing of medical devices to medical companies, clinics and hospitals. The Research Services segment is engaged in central core laboratory services providing cardiac monitoring, scientific consulting and data management services for drug and medical device trials.

As of July 31, 2013, we reorganized to create a holding company structure. CardioNet, Inc., which was previously the public company, became a wholly owned subsidiary of a newly formed entity, BioTelemetry, Inc., a Delaware corporation, and all the outstanding shares of stock of CardioNet, Inc. was exchanged, on a one for one basis, for stock of BioTelemetry, Inc. Our new holding company began trading on August 1, 2013 on NASDAQ under our same symbol “BEAT”.

Recent Acquisitions

On January 31, 2014, the Company, through its wholly owned subsidiary CardioNet, LLC (“CardioNet”), acquired Mednet Healthcare Technologies, Inc., Heartcare Corporation of America, Inc., Universal Medical, Inc., and Universal Medical Laboratory, Inc. (together, “Mednet”). Pursuant to the terms of the Purchase Agreement, CardioNet purchased all of the outstanding capital stock of the Mednet entities from the Seller for consideration of $5.5 million in cash and 96,649 shares of the Company’s common stock, valued at $0.7 million at closing. In addition, as a result of the acquisition, the Company, through CardioNet, assumed indebtedness from the Mednet entities in the aggregate amount of $9.7 million, including interest.

On April 3, 2014, the Company, through its wholly-owned subsidiary CardioNet, LLC, completed the acquisition of substantially all of the assets of the cardiac monitoring business of Biomedical Systems Corporation (“BMS”).  Pursuant to the terms of the Purchase Agreement, CardioNet acquired substantially all of the assets relating to BMS’s cardiac event monitoring, Holter monitoring and mobile telemetry monitoring services (other than certain ECG services and monitoring in connection with clinical trials) in consideration of $8.0 million in cash and $0.7 million of the Company’s common stock (based on the trailing average closing stock price for the 20 trading days ending immediately prior to the closing date).  Of this amount, $1.1 million (consisting of cash and shares of common stock) will be deposited in escrow for a period of 12 to 18 months as security for any breach of the representations, warranties and covenants of the Seller contained in the Purchase Agreement.  The $8.0 million cash was funded through the revolving loan commitment with Midcap Financial.

On June 3, 2014, the Company, through its wholly owned subsidiary CardioCore Lab, LLC (“CardioCore”), acquired the assets of RadCore Lab, LLC (“RadCore”), an imaging core lab serving the biopharmaceutical and medical device research market. This acquisition broadens the Companys offerings and adds new oncology, musculoskeletal and neurological imaging capabilities, supported by a state-of-the-art, cloud-based analysis platform. The Company paid $0.4 million in cash at closing and 22,513 shares of the Company’s common stock, valued at $0.2 million at closing.  While this acquisition provides growth potential, the acquisition of RadCore did not have a material effect on our financial condition, results of operations or cash flows.

Revenue Recognition

Patient Services