-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DfOfKnmR+4dRxin/+82JalI6o+t6yKMo5dNm4PERpi19ieLYz2eBy9OXNnnMJ/Wn jytZkWckncq/JCPDsqyoTw== 0000720477-99-000021.txt : 19991115 0000720477-99-000021.hdr.sgml : 19991115 ACCESSION NUMBER: 0000720477-99-000021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IMATRON INC CENTRAL INDEX KEY: 0000720477 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 942880078 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-12405 FILM NUMBER: 99748796 BUSINESS ADDRESS: STREET 1: 389 OYSTER POINT BLVD CITY: S SAN FRANCISCO STATE: CA ZIP: 94080 BUSINESS PHONE: 4155839964 MAIL ADDRESS: STREET 1: 389 OYSTER POINT BLVD CITY: SOUTH SAN FRANCISCO STATE: CA ZIP: 94080 10-Q 1 FORM 10-Q FORM 10-Q IMATRON INC. SEPTEMBER 30, 1999 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999. Commission file number 0-12405 IMATRON INC. New Jersey I.D. No. 94-2880078 389 Oyster Point Blvd, South San Francisco, CA 94080 (650) 583-9964 Indicate by check mark whether the Registrant (1) had 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 periods 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 ----- ----- At October 25, 1999, 97,741,424 shares of the Registrant's common stock (no par value) were issued and outstanding. Total Number of Pages: 20 ================================================================================ FORM 10-Q IMATRON INC. SEPTEMBER 30, 1999 ================================================================================ IMATRON INC. Table of Contents PART 1. FINANCIAL INFORMATION PAGE Item 1. Consolidated Financial Statements Consolidated Balance Sheets 3 September 30, 1999 and December 31, 1998. Consolidated Statements of Operations 4 Three and Nine Month Periods Ended September 30, 1999 and 1998. Consolidated Statements of Cash Flows 5 Nine Month Periods Ended September 30, 1999 and 1998. Notes to Consolidated Financial Statements. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 13 Item 3. Quantitative and Qualitative Disclosures about Market Risks. 17 PART II. OTHER INFORMATION 18 SIGNATURES 20 ================================================================================ 2 FORM 10-Q IMATRON INC. SEPTEMBER 30, 1999 ==================================================================================================================================== IMATRON INC. Consolidated Balance Sheets (In thousands)
September 30, December 31, ASSETS 1999 1998 - ------ ----------------- ---------------- (unaudited) Current assets Cash and cash equivalents $ 7,256 $ 1,445 Accounts receivable (net of allowance for doubtful accounts of 2,945 and $3,272 at September 30, 1999 and December 31, 1998): Trade accounts receivable 5,200 7,228 Accounts receivable from joint venture 662 659 Inventories 11,005 14,433 Prepaid expenses 825 825 Current net assets of discontinued operations 204 -- ----------------- ---------------- Total current assets 25,152 24,590 Property and equipment, net 2,684 2,275 Goodwill, net 1,276 -- Other assets 2,751 1,631 Long-term net assets of discontinued operations 1,769 3,486 ----------------- ---------------- Total assets $ 33,632 $ 31,982 ================= ================ LIABLITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 1,420 $ 3,515 Other accrued liabilities 9,481 7,978 Capital lease obligations - due within one year 35 64 Net current liabilities of discontinued operations -- 220 ----------------- ---------------- Total current liabilities 10,936 11,777 Deferred income on sale leaseback transactions 464 875 Deferred income on service contract 230 300 Capital lease obligations 133 39 ----------------- ---------------- Total liabilities 11,763 12,991 ----------------- ---------------- Minority interest 93 331 ----------------- ---------------- Shareholders' equity Common stock, no par value; 150,000 shares authorized; 97,720 and 88,295 shares issued and outstanding in 1999 and 1998, respectively 117,042 107,475 Deferred compensation -- (170) Additional paid-in capital 9,350 9,340 Notes receivable from stockholders (488) (488) Accumulated deficit (104,128) (97,497) ----------------- ---------------- Total shareholders' equity 21,776 18,660 ------------------ --------------- Total liabilities and shareholders' equity $ 33,632 $ 31,982 ================== =============== The accompanying notes are an integral part of these consolidated financial statements.
================================================================================ 3 FORM 10-Q IMATRON INC. SEPTEMBER 30, 1999 ==================================================================================================================================== IMATRON INC. Consolidated Statements of Operations (In thousands, except per share amounts)
Three Months ended Nine Months ended September 30, September 30, ------------------------------- ----------------------------- 1999 1998 1999 1998 -------------- -------------- --------------- ------------- Revenues unaudited) (unaudited) Product sales $ 9,363 $ $ 5,705 $ 19,105 $ $ 16,546 Service 1,590 1,626 4,970 4,672 Other product sales 147 -- 535 -- Development contracts -- -- -- 1,250 -------------- -------------- --------------- ------------ Total revenue 11,100 7,331 24,610 22,468 -------------- -------------- --------------- ------------ Cost of revenues Product sales 6,285 4,392 13,864 11,767 Service 1,589 1,508 4,352 4,721 Other product sales 144 -- 550 -- -------------- -------------- --------------- ------------ Total cost of revenues 8,018 5,900 18,766 16,488 -------------- -------------- --------------- ------------ Gross profit 3,082 1,431 5,844 5,980 Operating expenses Research and development 1,713 1,887 5,180 5,926 Marketing and sales 1,664 1,030 3,918 3,063 General and administrative 561 1,146 1,895 3,272 Goodwill amortization 35 -- 104 -- Restructuring charges -- -- 282 -- -------------- -------------- --------------- ------------ Total operating expenses 3,973 4,063 11,379 12,261 -------------- -------------- --------------- ------------ Operating loss (891) (2,632) (5,535) (6,281) Interest and other income 112 11 139 142 Interest expense (14) (4) (101) (15) -------------- -------------- --------------- ------------ Loss from continuing operations before provision for income taxes (793) (2,625) (5,497) (6,154) Provision for income taxes -- -- -- -- -------------- -------------- --------------- ------------ Loss from continuing operations (793) (2,625) (5,497) (6,154) Loss from discontinued operations (350) (1,087) (1,676) (3,662) Gain (loss) on sale of assets (518) -- 542 -- Non cash return to minority interest -- -- -- (874) -------------- -------------- --------------- ------------ Net loss $ (1,661) $ $(3,712) $ (6,631) $ $ (10,690) ============== ============== =============== ============ Net loss per common share: Loss from continuing operations - basic and diluted $ (0.01) $ (0.03) $ (0.06) $ $ (0.07) ============== ============== =============== ============ Loss from discontinued operations - basic and diluted $ (0.01) $ (0.01) $ (0.01) $ (0.04) ============== ============== =============== ============ Net loss - basic and diluted $ (0.02) $ (0.04) $ (0.07) $ $ (0.13) ============== ============== =============== ============ Number of shares used in basic and diluted per share calculations 97,642 86,997 93,168 82,450 ============== ============== =============== ============ The accompanying notes are an integral part of these consolidated financial statements.
================================================================================ 4 FORM 10-Q IMATRON INC. SEPTEMBER 30, 1999 ==================================================================================================================================== IMATRON INC. Consolidated Statements of Cash Flows (In thousands)
Nine Months Ended September 30, 1999 1998 --------------------- -------------------- (Unaudited) Cash flows from operating activities: Net loss $ (6,631) $ (10,690) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 701 292 Net loss from discontinued operations 1,134 3,662 Goodwill amortization 104 -- Amortization of deferred compensation -- 62 Non-cash return to minority interest -- 874 Warrant issued for services 10 50 Common stock issued for services 640 382 Loss on disposal of assets 22 -- Changes in operating assets and liabilities: Accounts receivable 2,321 85 Inventories 3,717 (4,267) Prepaid expenses 3 (284) Other assets 913 (394) Accounts payable (2,249) 992 Other accrued liabilities 1,337 783 Deferred income (481) (466) --------------------- -------------------- Net cash provided (used) in operating activities: 1,541 (8,919) Net cash provided by discontinued operations 1,467 1,292 --------------------- -------------------- 3,008 (7,627) --------------------- -------------------- Cash flows from investing activities: Capital expenditures (893) (203) Acquisition of subsidiary, net of cash acquired (273) -- Purchases of available-for-sale securities (2,044) (885) Maturities of available-for-sale securities -- 1,065 --------------------- -------------------- Net cash used by investing activities: (3,210) (23) --------------------- -------------------- Cash flows from financing activities: Payments of obligations under capital leases (1,460) (42) Proceeds from issuance of common stock 7,473 785 --------------------- -------------------- Net cash provided by financing activities 6,013 743 --------------------- -------------------- Net (decrease) increase in cash and cash equivalents 5,811 (6,907) Cash and cash equivalents, at beginning of the period 1,445 8,400 ===================== ==================== Cash and cash equivalents, at end of the period $ 7,256 $ 1,493 ===================== ==================== Continued ==================================================================================================================================== 5 FORM 10-Q IMATRON INC. SEPTEMBER 30, 1999 ==================================================================================================================================== IMATRON INC. Consolidated Statements of Cash Flows, continued (In thousands) Supplemental Disclosure of Noncash Investing and Financing Activities: Cash paid for interest on capital lease obligations: Continuing operations $ 14 13 =================== ==================== Discontinued operations $ 176 $ 292 =================== ==================== Conversion of HeartScan Preferred Stock to Imatron Common Stock $ -- $ 13,959 =================== ==================== Notes receivable from stockholder $ -- $ 451 =================== ==================== Cash paid for income taxes $ -- $ -- =================== ==================== The accompanying notes are an integral part of these consolidated financial statements. ==================================================================================================================================== 6
FORM 10-Q IMATRON INC. SEPTEMBER 30, 1999 ================================================================================ IMATRON INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1999 Note 1 - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for annual consolidated financial statements. In the opinion of management, adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended September 30, 1999 are not necessarily indicative of the results that may be expected for the year ended December 31, 1999. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report to Shareholders for the year ended December 31, 1998. Certain reclassifications have been made to the 1998 amounts to conform to the current period presentation. Note 2 - BASIS OF CONSOLIDATION The unaudited consolidated financial statements include the accounts of Imatron Inc. ("Imatron") and all its subsidiaries (collectively, the "Company"), after elimination of all intercompany transactions and accounts. On July 13, 1998, the Company adopted a formal plan to sell its HeartScan Imaging, Inc. ("HeartScan") subsidiary in order for the Company to focus on its core business of manufacturing, marketing/selling, and servicing the Company's proprietary Electron Beam Tomography (EBT) scanners. For all periods presented, the financial statements reflect the Company's HeartScan segment as a discontinued operation. On January 6, 1999, Imatron acquired a 100% interest in Caral Manufacturing ("Caral") in an acquisition accounted for under the purchase method of accounting (see Note 5). Beginning January 6, 1999, the financial position and operating results of Caral were consolidated with those of the Company. On January 25, 1999, the Company acquired 9,000,000 shares of common stock of Positron Corporation ("Positron") representing a 55% interest for $100. On August 18, 1999, the ownership interest of the Company in Positron was diluted to 16% as a result of the completion a private equity financing of Positron's common stock. As such, Imatron's control in Positron was temporary and accordingly, the Company accounted for its investment in Positron at cost for the nine months ended September 30, 1999. Upon the conclusion of the equity financing, Positron repaid its loan obligation of $600,000 plus accrued interest to the Company. Note 3 - NEW ACCOUNTING PRONOUNCEMENTS NEW ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133), and in July 1999 issued Financial Accounting Standard No. 137, "Accounting For Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133, an Amendment of FASB Statement No. 133" (SFAS 137). SFAS 137 delayed the effective date for SFAS 133 for fiscal years beginning after June 15, 2000. The Company does not believe that the impact of this statement will have a material effect on the financial position or results of operations upon the adoption of this accounting standard. ================================================================================ 7 FORM 10-Q IMATRON INC. SEPTEMBER 30, 1999 ================================================================================ Note 4 - inventories Inventories were as follows: September 30, December 31, 1999 1998 ----------------- ---------------- (In thousands) Purchased parts and sub-assemblies $2,880 $ 2,863 Service parts 1,485 1,883 Work-in-progress 3,463 3,177 Finished products 3,177 6,510 ----------------- ---------------- $ 11,005 $ 14,433 ================= ================ Note 5 - ACQUISITIONS CARAL MANUFACTURING On January 6th, 1999 (closing date) Imatron acquired a 100% interest in Caral Manufacturing ("Caral"). Caral was a major vendor of Imatron and manufactures custom-made parts for scanners. The purchase price of the acquisition was comprised of $275,000 in cash, 624,113 shares of common stock issued at closing plus an issuance of shares of common stock based on the market price of the Company's common stock as of July 6, 1999. The shares issued at closing were valued at $825,000 or $1.3219 per share, which is the average stock price for the period from December 7, 1998 to December 18, 1998, the period surrounding the date the terms of the acquisition were agreed. The security price of the Company's common stock as of July 6, 1999 was below $2.90 per share, and as part of the agreement, the Company issued 335,411 additional shares. In accordance with EITF 97-15, the contingency was valued at $655,450. The acquisition was accounted for using the purchase method of accounting, and accordingly, the operating results of Caral were included in the Company's consolidated financial statements from January 6, 1999 forward. The purchase price was allocated to the underlying assets and liabilities based on their respective estimated fair values at the date of acquisition. The fair value of assets acquired was $687,000 and liabilities assumed was $320,000. The excess of the aggregate purchase price over the fair market value of net assets acquired amounting to $1,380,000 is classified as goodwill, and amortized on a straight line method over 10 years. As of September 30, 1999, amortization expense on goodwill was $104,000. The following unaudited pro forma financial information presents the combined results of operations for the period ended September 30, 1998 of Imatron and Caral as if the acquisition had occurred as of the beginning of 1998, after giving effect to certain adjustments, including amortization of goodwill. The pro forma financial information does not necessarily reflect the results of operations that would have occurred had Imatron and Caral constituted a single entity during the period ended September 30,1998 (in thousands, except per share amounts): Three months ended Nine months ended September 30, 1998 September 30, 1998 ------------------ ------------------ Net sales $ 7,561 $ 24,739 ================== ================== Net loss $ (3,821) $ (10,936) ================== ================== Loss per share - basic and diluted $ (0.04) $ (0.13) ================== ================== Number of shares used in basic and diluted per share calculations 87,957 83,410 ================== ================== ================================================================================ 8 FORM 10-Q IMATRON INC. SEPTEMBER 30, 1999 ================================================================================ POSITRON CORPORATION On January 25, 1999, the Company acquired 9,000,000 shares of common stock of Positron Corporation ("Positron") representing a 55% interest for $100. On August 18, 1999, the ownership interest of the Company in Positron was diluted to 16% as a result of the completion a private equity financing of Positron's common stock. As such, Imatron's control in Positron was temporary and accordingly, the Company accounted for its investment in Positron at cost for the nine months ended September 30, 1999. In conjunction with the execution of a letter of intent and the consummation of the purchase business combination with Positron, the Company made working capital advances to Positron under a $600,000 credit facility at an interest rate 1/2% over the prime. As of September 30, 1999, Positron has paid up its obligation of $600,000 including $59,000 of interest to the Company. Note 6 - RESTRUCTURING AND REORGANIZATION CHARGES On February 8, 1999, the Company implemented a restructuring plan to reduce costs and improve operating efficiencies. The plan included elimination of approximately 20% of the Company's workforce in various departments and its HeartScan subsidiary including disposal of its HeartScan operations (see Note 9). In addition, the Company put a moratorium on salary increases for its executive management team effective until the Company meets its financial goals and objectives. The cost associated with this reduction in staff, consisting primarily of severance and related benefits, was $282,000 and was recorded in the first quarter of 1999. Note 7 - NET LOSS PER SHARE The Company computes and discloses its net loss per share in accordance with SFAS No. 128, "Earnings per Share." SFAS No. 128 establishes standards for computing and presenting earnings per share. Basic loss per share is computed based on the weighted average number of common shares outstanding, and diluted loss per share is computed based on the weighted average number of common shares and dilutive potential common shares outstanding during the period. ================================================================================ 9 FORM 10-Q IMATRON INC. SEPTEMBER 30, 1999 ================================================================================ Stock options and warrants have not been included in the computation as their effect would have been antidilutive. The computation of basic and diluted loss per share for both continuing and discontinued operations for the periods ended September 30, 1999 and 1998, are as follows:
Three Months ended Nine Months ended September 30, September 30, ---------------------------- ---------------------------- 1999 1998 1999 1998 ------------ ------------ ------------- ------------ (In thousands, except per share amounts) Loss from continuing operations $ (793) $ (2,625) $ (5,497) $ (6,154) ============ ============= ============= ============ Loss from discontinued operations $ (868) $ (1,087) $ (1,134) $ (3,662) ============ ============= ============= ============ Net loss $ (1,661) $ (3,712) $ (6,631) $ (10,690) ============ ============= ============= ============ Weighted average common shares - basic and diluted 97,642 86,997 93,168 82,450 ============ ============= ============= ============ Basic and diluted loss per share: Loss from continuing operations $ (0.01) $ (0.03) $ (0.06) $ (0.07) ============ ============= ============= ============ Loss from discontinued operations $ (0.01) $ (0.01) $ (0.01) $ (0.04) ============ ============= ============= ============ Net loss $ (0.02) $ (0.04) $ (0.07) $ (0.13) ============ ============= ============= ============ Antidilutive options and warrants not included in calculation 313 806 225 1,184 ============ ============= ============= ============
Note 8 -SEGMENT DISCLOSURES The Company operates in three industry segments. Imatron operates in one industry segment in which it designs, manufactures, services and markets a computed tomography scanner; HeartScan operates centers that perform the coronary artery scan procedures; and Caral engages in the business of machining and fabrication of metal and plastic components. The Company is currently selling its interests in HeartScan (see Note 9). The accounting policies of the segments are the same as those described in the summary of significant accounting policies included in the Company's consolidated financial statements and notes thereto for the year ended December 31, 1998. The Company evaluates performance based on profit or loss from operations before income taxes not including non-recurring gains and losses. The Company accounts for intersegment sales and transfers as if the sales or transfers were to third parties, that is, at current market prices. ================================================================================ 10 FORM 10-Q IMATRON INC. SEPTEMBER 30, 1999 ================================================================================ The following table summarizes the results of operations for the Company's two major continuing business segments for the nine month periods ended September 30, (in thousands):
Imatron Caral Eliminations Consolidated ------------------ ------------ ------------- ---------------- 1999: Revenues from external customers $ 24,075 $ 535 $ -- $ 24,610 Intersegment revenues -- 471 (471) -- Total revenue 24,075 1,006 (471) 24,610 Operating loss (5,366) (142) (27) (5,535) Total assets as of September 30, 1999 31,254 596 (191) 31,659 1998: Revenues from external customers $ 22,468 $ -- $ -- $ 22,468 Intersegment revenues -- -- -- -- Total revenue 22,468 -- -- 22,468 Operating loss (6,281) -- -- (6,281) Total assets as of December 31, 1998 28,496 -- -- 28,496
Note 9 - DISCONTINUED OPERATION -- SALE OF HEARTSCAN SUBSIDIARY On July 13, 1998 (the measurement date), the Company adopted a formal plan to sell its HeartScan subsidiary in order for the Company to focus on its core business of manufacturing, marketing/selling, and servicing the Company's proprietary EBT scanners. Accordingly, the operating results of the HeartScan operations are reflected as discontinued operations for all periods presented in the Company's statements of operations and as net assets (liabilities) of discontinued operations in the September 30, 1999 and December 31, 1998 balance sheets. HeartScan statements of operations data for the periods ended September 30, 1999 and 1998 are as follows (in thousands):
Three Months ended Nine Months ended ---------------------------- ---------------------------- 1999 1998 1999 1998 ------------ ------------ ----------- ------------- >C> Revenues $ 434 $ 994 $ 1,684 $ 3,115 Costs and expenses (784) (2,081) (3,360) (6,777) ------------ ------------ ----------- ------------- Loss before income taxes (350) (1,087) (1,676) (3,662) Gain (loss) on sale of discontinued operations (518) -- 542 -- Provision for income taxes -- -- -- -- ============ ============ =========== ============= Loss from discontinued operations $ (868) $ (1,087) $ (1,134) $ (3,662) ============ ============ =========== =============
HeartScan statements of operations include costs of sales related to transactions with Imatron in the amount of $60,000 and $260,000 for three and nine months ending September 30, 1999, respectively and $120,000 and $482,000 for three and nine months ending September 30, 1998, respectively. ================================================================================ 11 FORM 10-Q IMATRON INC. SEPTEMBER 30, 1999 ================================================================================ A summary of the net assets of discontinued operation is as follows: September 30, December 31, 1999 1998 -------------- ---------------- (In thousands, except per share amounts) Cash and cash equivalents $ 1,069 $ 1,273 Accounts receivable - net and other current assets 185 327 Other current liabilities (29) (92) Lease obligations - current (1,021) (1,728) -------------- ---------------- Net current assets (liabilities) of discontinued operation 204 (220) -------------- ---------------- Property, plant and equipment, net 3,106 6,381 Other assets 5 5 Lease obligations-long-term portion (1,342) (2,900) -------------- ---------------- Long-term net assets of discontinued operation $ 1,769 $ 3,486 ============== ================ The Company expects that the discontinued operation will continue to operate at a loss through the disposal date. On February 10, 1999, the Company sold its HeartScan - San Francisco center and related C-150 scanner and other equipment. The sale resulted in a net gain of approximately $1,492,000 which was included in the "Gain (loss) on sale of assets" in the Condensed Consolidated Statements of Operations for the nine months ended September 30, 1999. On June 17, 1999, the Company sold its HeartScan - Pittsburgh center and related C-150 scanner and other equipment resulting in a net loss of approximately $432,000 which was included in the "Gain (loss) on sale of assets" in the Condensed Consolidated Statements of Operations for the nine months ended September 30, 1999. On July 8, 1999, the Company sold the C-150 scanner formerly used by HeartScan - Seattle. The sale resulted in a net loss of approximately $518,000 which was included in the "Gain (loss) on sale of assets" in the Condensed Consolidated Statements of Operations for the nine months ended September 30, 1999. The Company is selling the three remaining centers either individually or in combination. The sales of the Houston, Washington, D.C. and Portugal business operations of HeartScan are expected to be completed in 1999. Note 10 - EQUITY TRANSACTIONS On June 15, 1999, the Company issued 3,767,713 shares of Imatron common stock to the president of the Company, Mr. Terry Ross, for $3,025,000. The per share closing price of the stock purchase was determined to be 90% of the 10 day average per share closing bid price from May 4, 1999 through May 17, 1999 or approximately $0.803 per share. In addition, the Company issued to Mr. Ross, an option to purchase up to an additional $3,000,000 of common stock in increments of $500,000 at a price equal to 125% of the closing price or $1.003 per share. In relation to the private placement, the Company also issued to Mr. Ross, a warrant to purchase 360,000 shares of common stock with an exercise price set at 130% of the closing price or $1.044 per share. The warrant vests on June 30, 2000 and expires on June 15, 2004. On July 23, 1999, the Company closed a private placement offering of the Company's common stock whereby 3,000,000 shares of common stock and a warrant to purchase 1,000,000 shares of common stock at $1.25 per share were sold for $3,000,000. Proceeds from the private placements will be used for general corporate purposes. ================================================================================ 12 FORM 10-Q IMATRON INC. SEPTEMBER 30, 1999 ================================================================================ 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 the Company's Condensed Consolidated Financial Statements and related Notes thereto contained elsewhere with this document. Operating results for the three and nine month periods ended September 30, 1999 are not necessarily indicative of the results that may be expected for any future periods, including the full fiscal year. Reference should also be made to the Annual Consolidated Financial Statements, Notes thereto, and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998. This Form 10-Q contains forward-looking statements which are subject to risks and uncertainties. The Company's actual results may differ significantly from the results projected in the forward-looking statements as a result of certain risk factors set forth in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998. The Company expressly disclaims any obligation to update any forward-looking statements. Results of Continuing Operations: Three months ended September 30, 1999 versus 1998 Overall revenues for the three months ended September 30, 1999 of $11,100,000 increased $3,769,000 or 51% compared to revenues of $7,331,000 for the same period in 1998. Net product revenues increased to $9,363,000 in 1999 from $5,705,000 in 1998 due to shipment of six scanners in 1999 compared to four in 1998. In addition, the sales price for two scanners sold in 1998 was lower as they did not include a full complement of scanner components. Service revenues slightly decreased in 1999 to $1,590,000 from $1,626,000 in 1998 due to a decrease in shipment of spare parts. Other product sales of $147,000 in 1999 represent revenues from Caral's machining and fabrication services. Total cost of revenues as a percent of revenues for the three months of 1999 was 72% as compared with 80% in 1998. Product cost of revenues as a percent of product revenues decreased to 67% in 1999 from 77% in 1998 due to higher margins on scanners shipped during the three month period in 1999. Service cost of revenues as a percent of service increased to 100% in 1999 as compared to 93% in 1998 due to an increase in overhead expenses to support scanner service contracts. Operating expenses for the three months of 1999 decreased 2% to $3,973,000, or 36% of revenues, compared to $4,063,000, or 55% of revenues in 1998. Research and development expenses of $1,713,000 in 1999 decreased from $1,887,000 in 1998 due to a reduction in headcount and completion of certain R&D projects. Marketing and sales expenses increaed to $1,664,000 in 1999 from $1,030,000 in 1998 primarily due to an increase in headcount. Administrative expenses decreased to $561,000 in 1999 from $1,146,000 in 1998 due primarily to decreases in the bad debt provision relating to certain distributors and investor relations expenses. Goodwill amortization amounting to $35,000 in 1999 represents the amortized portion of goodwill related to the acquisition of Caral. The loss on sale of assets of $518,000 relates to the loss recognized from the sale of HeartScan-Seattle scanner. Other income increased to $112,000 for the three months ending September 30, 1999 from $11,000 in the comparable period of 1998. The increase was attributable to higher cash balances and investments in interest-bearing securities, including $59,000 interest income earned from cash advances to Positron. Interest expense represents interest incurred on capital lease obligations on certain office equipment. Nine months ended September 30, 1999 versus 1998 Overall revenues for the nine months ended September 30, 1999 of $24,610,000 increased $2,142,000 or 10% compared to revenues of $22,468,000 for the same period in 1998. Net product revenues increased to $19,105,000 in 1999 from $16,546,000 in 1998 due to twelve scanners shipped in 1999 compared to eleven in 1998. In addition, upgrade revenues increased to $1,195,000 in 1999 from $336,000 in 1998. Service revenues increased 6% to $4,970,000 in 1999 from $4,672,000 in 1998 due to an increase in scanners under service contract offset by a decrease in spare parts shippped. Development contract revenue of $1,250,000 recorded in 1998 represented a non-refundable payment received from Siemens to compensate the Company for its research and development efforts for which Siemens received certain rights under the three year Memorandum of Understanding. There were no payments received from Siemens for the second quarter of 1999 as the Memorandum of Understanding expired on April 1, 1998. ================================================================================ 13 FORM 10-Q IMATRON INC. SEPTEMBER 30, 1999 ================================================================================ Total cost of revenues as a percent of revenues for the first nine months of 1999 was higher at 76% as compared with 73% in 1998. Product cost of revenues as a percent of product revenues increased to 73% in 1999 from 71% in 1998 due to shipment of twelve scanners with slightly lower gross margins compared to eleven shipments in 1998. Gross margins were adversely affected by a smaller build plan during the first half of fiscal 1999, due to the Company's effort to reduce finished goods inventory. With fewer units manufactured the cost per unit increased. Service cost of revenues as a percent of service revenue decreased to 88% in 1999 from 101% in 1998 due to a decrease in overhead expenses to support scanner service contracts. In 1998, revenues on spare parts shipped to Imatron Japan, a major customer, were deferred and related costs were recognized due to the customer's difficulty in paying as a result of the economic and currency uncertainties in Japan. As a major customer, the Company extended credit beyond the normal terms to ensure the continued service for its 25 installed scanners purchased from the Company. Operating expenses for the nine months of 1999 decreased 7% to $11,379,000, or 46% of revenues, compared to $12,261,000, or 55% of revenues in 1998. Research and development expenses of $5,180,000 in 1999 decreased from $5,926,000 in 1998 due to a reduction in headcount and completion of certain R&D projects. Marketing and sales expenses increased to $3,918,000 in 1999 from $3,063,000 in 1998 primarily due to an increase in headcount. Administrative expenses decreased to $1,895,000 in 1999 from $3,272,000 in 1998 due primarily to a decrease in the bad debt provision relating to certain distributors. Goodwill amortization amounting to $104,000 in 1999 represents the amortized portion of goodwill related to the acquisition of Caral. Restructuring charges of $282,000 relates to severance and other benefits recorded by the Company during the first quarter of 1999 as part of it's reorganization plan. Other income decreased to $139,000 for the first nine months of 1999 from $142,000 in the comparable period of 1998. The decrease was attributable to lower cash balances and investments in interest-bearing securities. Interest expense represents interest incurred on capital lease obligations on certain office equipment. The Company incurred a non-cash charge to income of $874,000 recorded as return to minority interest expense for the six months ended September 30, 1998, in connection with certain beneficial conversion features granted to the holders of the HeartScan convertible Series A Preferred Stock. Discontinued operation: On July 13, 1998, the Company announced its intention to divest its HeartScan subsidiary. Accordingly, the Company restated its financial statements to reflect the classification of HeartScan as a discontinued operation for all periods presented. During the nine months of 1999 and 1998, the Company reported losses from its discontinued operation of $1,134,000 and $3,662,000, respectively, which relate to the discontinued operations of the HeartScan subsidiary. The decrease in operating loss was primarily due to the closure of the Seattle center and the sale of the San Francisco and Pittsburgh centers which had been consistently operating at a loss. The closure of the Seattle center and the sale of the San Francisco and Pittsburgh centers generated a net gain of $542,000. The Company expects that the discontinued operation will continue to operate at a loss through the disposal date. However, management's current best estimate indicates that gains will result from the disposal of the individual centers comprising the remaining discontinued operation. ================================================================================ 14 FORM 10-Q IMATRON INC. SEPTEMBER 30, 1999 ================================================================================ Liquidity and Capital Resources: At September 30, 1999, working capital increased to $14,216,000 compared to December 31, 1998 working capital of $12,813,000. The current ratio increased to 2.3:1 at September 30, 1999 from 2.1:1 December 31, 1998. The Company's total assets increased to $33,632,000 for the nine month period ending September 30, 1999 compared to December 31, 1998 total assets of $31,982,000. Cash and cash equivalents increased to $7,256,000 in 1999 from $1,445,000 in 1998 due primarily to issuance of certain equity instruments. Cash provided by continuing operations was $1,541,000 for nine months ended September 30, 1999 compared to cash used of $8,919,000 for the same period in 1998. Cash was mainly provided by collection of accounts receivables, decrease in inventory purchases, offset by a reduction in accounts payable. The decrease in inventory resulted from a decrease in the number of scanners in finished goods to 2 in 1999 from 8 during the same period in 1998. In 1998, scanner orders were either delayed or canceled due to the financial instability in the Asia/Pacific market, resulting in an increase in the number of scanners in finished goods. Accounts payable decreased as a result of a decrease in inventory purchases. Cash provided by discontinued operations increased to $1,467,000 for the nine months ended September 30, 1999 compared to $1,292,000 during the same period in 1998 due to the proceeds from sale of HeartScan centers partially offset by the buy-out of HeartScan scanners on lease during 1999. Losses from discontinued operations for the nine month period ended September 30, 1999 decreased to $1,134,000 as compared to $3,662,000 for the same period in 1998 due to the closure of Seattle and the sale of the San Francisco and Pittsburgh HeartScan business operations in 1999. The Company's investing activities for the nine months ended September 30, 1999 included acquisition of Caral amounting to $273,000 (net of cash acquired) and purchases of marketable securities and equipment amounting to $2,044,000 and $893,000, respectively. Capital expenditures included approximately $250,000 for the purchase and installation of the MK Enterprise Resource Planning System. In 1998, the primary source of cash from investing activities was $1,065,000 of proceeds from the sale and maturity of investments in marketable securities. This was offset by acquisitions of equipment totaling $203,000 and the purchase of $885,000 of investments in marketable securities. Cash provided by financing activities was $6,013,000 for the nine month period ended September 30, 1999 as compared with $743,000 for the same period in 1998. Significant sources of cash in financing activities were proceeds of $7,473,000 and $785,000 from issuance of common stock under the Company's stock option and employee stock purchase plans during the nine month period ended September 30, 1999 and 1998, respectively. The Company's liquidity is affected by many factors, some based on the normal ongoing operations of the business and others related to the uncertainties of the industry and global economies. Although the cash requirements will fluctuate based on timing and extent of these factors, management believes that cash, and cash equivalents existing at September 30, 1999 together with the proceeds from the impending sale of HeartScan, and the estimated proceeds from ongoing sales of products and services in 1999 will provide the Company with sufficient cash for operating activities and capital requirements through December 31, 1999. To satisfy the Company's capital and operating requirements beyond 1999, profitable operations, additional public or private financing or the incurrence of debt may be required. If future public or private financing is required by the Company, holders of the Company's securities may experience dilution. There can be no assurance that equity or debt sources, if required, will be available or, if available, will be on terms favorable to the Company or its shareholders. The Company does not believe that inflation has had a material effect on its revenues or results of operations. ================================================================================ 15 FORM 10-Q IMATRON INC. SEPTEMBER 30, 1999 ================================================================================ YEAR 2000 COMPLIANCE The Company's State of Readiness In 1997, the Company established a project team to coordinate existing Year 2000 activities and address remaining Year 2000 issues. The team has focused its efforts on three areas: (1) information systems software and hardware; (2) software and operating systems included in the C-150 scanner and (3) third-party relationships. The Company has reviewed its primary financial and other business information systems and it believes that the systems will be able to manage and manipulate all material data involving the transition from 1999 to 2000 without functional or data abnormality and without inaccurate results related to such data. The Company has successfully converted to the Y2K compliant Manufacturing Knowledge (MK) computer system for its Enterprise Resource Planning (ERP). The main purpose of the upgrade is to accommodate additional users to the system and increase data storage and processing. A series of comprehensive training classes for the MK system started in March 1999. The conversion from ASK to MK started in June 1999 and implementation was completed in August 1999. As of September 30, 1999, the Company has incurred approximately $500,000 in Y2K costs. The Company has reviewed the software associated with the operation of its scanners to ensure Year 2000 compliance. The Company has upgraded its software with the release of Series 12.4 software that allows 4-digit space on its images and compatibility with previous software image data. Series 12.4 completed its beta testing and was released in the first quarter of 1999. This software is workable on XP systems only. For non-XP systems, a hardware upgrade is necessary in order for the Series 12.4 software to function. Although images from scanners will have "00" for the year 2000, it will not affect their functionality. Should the customer elect not to purchase the upgrade, the Company is currently formulating a "functional workaround procedure" which will likely involve manual labeling of images to indicate the corrected dates. The Company has communicated this procedure to all its affected customers. The Company has contacted all its suppliers, especially sole-source vendors, and a review is underway to ensure Year 2000 compliance. While the Company believes the issues associated with Year 2000 compliance are being addressed, there remains the risk that suppliers may encounter disruptions due to Year 2000 compliance or the costs associated with implementing computer system changes. To date, the Company has received formal responses from all of its critical suppliers. Most of them have responded that they expect to address all their significant Y2K issues on a timely basis. The Company regularly reviews and monitors the suppliers' Y2K readiness plans and performance. Based on the Company's risk assessment, selective on-site reviews may be performed. Risk analysis has been completed with the Company's base of suppliers and contingency plans are now being developed and tested. In some cases, to meet Y2K readiness, the Company has replaced suppliers or eliminated suppliers from consideration for new business. The Company has also contracted with multiple transportation companies to provide product delivery alternatives. The Company's Risks and Contingency Plan The Company is working to identify and analyze the most likely worst-case scenarios for third-party relationships affected by Y2K. These scenarios could include possible infrastructure collapse, the failure of power and water supplies, major transportation disruptions, unforeseen product shortages due to hoarding of products and sub-assemblies and failures of communications and financial systems. Any one of these scenarios could have a major and material effect on the Company's ability to build its products and deliver services to its customers. While the Company has contingency plans in place to address most issues under its control, an infrastructure problem outside of its control or some combination of several of these problems could result in a delay in product shipments depending on the nature and severity of the problems. The Company would expect that most utilities and service providers would be able to restore service within days although more pervasive system problems involving multiple providers could last two to four weeks or more depending on the complexity of the systems and the effectiveness of their contingency plans. Although the Company is dedicating substantial resources towards attaining Y2K readiness, there is no assurance it will be successful in its efforts to identify and address all Y2K issues. Even if the Company acts in a timely manner to complete all of its assessments; identifies, develops and implements remediation plans believed to be adequate; and develops contingency plans believed to be adequate, some problems may not be identified or corrected in time to prevent material adverse consequences to the Company. ================================================================================ 16 FORM 10-Q IMATRON INC. SEPTEMBER 30, 1999 ================================================================================ Estimated Costs The Company does not expect the costs associated with its Year 2000 efforts to be substantial. Less than $1,000,000 has been allocated to address the Year 2000 issue, of which approximately $500,000 has been incurred through September 30, 1999. The Company's aggregate cost estimate does not include time and costs that may be incurred by the Company as a result of the failure of any third parties, including suppliers, to become Year 2000 compliant or costs to implement any contingency plans. The discussion above regarding estimated completion dates, costs, risks and other forward-looking statements regarding Y2K is based on the Company's best estimates given information that is currently available and is subject to change. As the Company continues to progress with its Y2K initiatives, it may discover that actual results will differ materially from these estimates. ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS In the past the Company has held investments consisting of interest bearing investment grade instruments consistent with the Company's investment portfolio. The Company has also entered into credit facilities and leasing arrangements. At September 30, 1999, the Company had money market mutual funds, certificates of deposit and commercial paper which mature in less than fifteen months. Additionally, the Company maintained leases for other equipment that have been accounted for as capital leases with a total obligation of $168,000 as of September 30, 1999. The Company's foreign sales are denominated in U.S. Dollars. The Company does not believe that it is subject to any material exposure to interest rate, foreign currency or other market risks. ================================================================================ 17 FORM 10-Q IMATRON INC. SEPTEMBER 30, 1999 ================================================================================ PART II. OTHER INFORMATION Item 1. Legal Proceedings Not applicable. Item 2. Changes in Securities Not applicable. Item 3. Defaults upon Senior Securities Not applicable. Item 4. Submission of Matters to a vote of Security Holders The Company's Annual Meeting of Shareholders was held on June 18, 1999. At the meeting all existing directors were re-elected. In addition, the following proposals were approved: a) Proposal to approve an amendment to the Company's 1993 Employee Stock Option Plan to increase the shares authorized thereunder from 5,500,000 common shares to 11,500,000 common shares. b) Proposal to approve an amendment to the Company's 1994 Employee Stock Purchase Plan to increase the shares authorized thereunder from 1,800,000 common shares to 2,300,000 common shares. c) Proposal to approve an amendment to the Bonus Incentive Plan to increase the shares authorized thereunder from 1,200,000 common shares to 2,200,000 common shares. d) Proposal to approve an amendment to the 1998 Amended and Restated Non-Employee Directors' Stock Option Plan to increase the shares authorized thereunder from 1,000,000 common shares to 1,500,000 common shares; to approve the increase in the number of shares granted in the Initial Option to each newly elected eligible director from 25,000 common shares to 40,000 common shares; and to approve the increase in the number of shares granted in the Annual Option to each eligible director from 25,000 common shares to 40,000 common shares. On October 29, 1999, the Company held a special shareholders' meeting approving the sale of the Company's common stock to its president, Terry Ross and appointing KPMG LLP as the Company's external auditors. Item 5. Other Information Not applicable. ================================================================================ 18 FORM 10-Q IMATRON INC. SEPTEMBER 30, 1999 ================================================================================ PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K Exhibits: No. 27 - Financial Data Schedule as of September 30, 1999. Form 8-K Reports: None. ================================================================================ 19 FORM 10-Q IMATRON INC. SEPTEMBER 30, 1999 ================================================================================ SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: November 12, 1999 IMATRON INC. (Registrant) S. Lewis Meyer Chief Executive Officer ================================================================================ 20 EX-27 2 FINANCIAL DATA SCHEDULE SEPTEMBER 30, 1999
5 The Schedule Contains Summary Financial Information Extracted From Imatron Inc.'s Consolidated Condensed Statements Of Income And Consolidated Condensed Balance Sheets And Is Qualified In Its Entirety By Reference To Such Financial Statements. 0000720477 Imatron Inc. 1,000 U.S.Dollars 9-MOS Dec-31-1999 Jan-1-1999 Sep-30-1999 1 7256 0 8,807 (2,945) 11,005 25,152 10,150 (7,466) 33,632 10,936 0 0 0 117,042 0 33,632 19,105 24,610 18,766 30,145 0 0 101 (5,497) 0 (5,497) (1,134) 0 0 (6,631) (0.07) (0.07)
-----END PRIVACY-ENHANCED MESSAGE-----