<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(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, 1999
OR
[ ] 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 0-27750
-------
IMPATH INC.
(exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 8071 13-3459685
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
521 West 57th Street
New York, New York 10019
(212) 698-0300
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
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
------- -------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT JUNE 30, 1999
- ----- ----------------------------
Common Stock, par value 7,949,781
$ .005 per share
1
<PAGE>
Index
IMPATH INC. and Subsidiaries
PAGE NUMBER
-----------
Item 1. Consolidated Financial Statements (Unaudited):
<TABLE>
<CAPTION>
<S> <C> <C>
Consolidated Balance Sheets at June 30, 1999
and December 31, 1998...................................... 3
Consolidated Statements of Operations for the Three and Six
Months Ended June 30, 1999 and June 30, 1998............... 4
Consolidated Statement of Stockholders' Equity for the
Six Months Ended June 30, 1999............................. 5
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1999 and June 30, 1998............... 6
Notes to Consolidated Financial Statements................. 7-8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations........... 9-14
Item 3. Quantitative and Qualitative Disclosures about Market Risk. 15
Signatures............................................................... 16
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K........................... 17-18
</TABLE>
2
<PAGE>
Item 1. Consolidated Financial Statements (Unaudited)
IMPATH INC. and Subsidiaries
Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
June 30, Dec. 31,
1999 1998
ASSETS ----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 16,287,676 $ 45,556,005
Marketable securities, at market value 34,094,386 29,971,456
Accounts receivable, net of allowance for doubtful accounts 28,648,194 19,619,451
Prepaid expenses 959,365 442,480
Prepaid taxes - 1,758,407
Deferred tax assets, net 1,334,591 1,334,591
Other current assets 2,674,060 1,306,653
------------ ------------
Total current assets 83,998,272 99,989,043
Fixed assets, less accumulated depreciation and amortization 26,708,172 21,239,884
Deposits and other assets 245,645 203,491
Intangible assets, net of accumulated amortization 28,452,653 28,600,749
------------ ------------
Total assets $139,404,742 $150,033,167
============ ============
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
Current liabilities:
Current portion of capital lease obligations $ 3,402,222 $ 1,622,366
Current portion of note payable 1,275,206 1,271,915
Short term borrowings 2,000,000 10,000,000
Accounts payable 2,633,771 2,713,228
Deferred revenue 1,995,547 1,866,241
Income taxes payable 221,403 -
Accrued expenses 1,544,837 1,819,752
------------ ------------
Total current liabilities 13,072,986 19,293,502
------------ ------------
Capital lease obligations, net of current portion 4,112,314 3,792,833
Note payable, net of current portion 158,334 233,333
Deferred tax payable 2,126,531 2,126,531
Stockholders' equity:
Common stock 43,015 42,690
Additional paid-in capital 121,156,592 120,904,861
Retained earnings 16,183,076 12,095,622
Accumulated other comprehensive (loss) (519,984) (48,602)
------------ ------------
136,862,699 132,994,571
Less:
Cost of 653,538 and 313,688 shares of common stock
held in treasury in 1999 and 1998, respectively (16,539,002) (7,908,841)
Deferred compensation (389,120) (498,762)
------------ ------------
Total stockholders' equity 119,934,577 124,586,968
------------ ------------
Total liabilities and stockholders' equity $139,404,742 $150,033,167
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
IMPATH INC. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------- ----------------------------
1999 1998 1999 1998
------------ -------------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues:
Net diagnostic and prognostic
services $19,588,031 $13,294,827 $35,321,998 $24,897,988
Biopharmaceutical services 300,178 140,082 552,232 249,429
Tumor registry services 957,529 - 1,941,660 -
---------- ---------- ---------- ----------
20,845,738 13,434,909 37,815,890 25,147,417
---------- ---------- ---------- ----------
Operating expenses:
Salaries and related costs 7,835,466 5,396,044 14,562,788 10,125,666
Selling, general and administrative 8,118,146 5,314,352 14,475,203 10,042,999
Depreciation and amortization 1,612,380 699,682 2,974,833 1,253,139
---------- ---------- ---------- ----------
Total operating expenses 17,565,992 11,410,078 32,012,824 21,421,804
---------- ---------- ---------- ----------
Income from operations 3,279,746 2,024,831 5,803,066 3,725,613
Interest income 792,097 1,043,014 1,462,994 1,384,152
Interest expense (242,858) (117,575) (414,012) (250,684)
---------- ----------- ---------- ----------
Income before income tax
expense 3,828,985 2,950,270 6,852,048 4,859,081
Income tax expense (1,531,594) (1,161,563) (2,764,594) (1,992,223)
---------- ---------- ---------- ----------
Net income available to common
stockholders $ 2,297,391 $ 1,788,707 $ 4,087,454 $ 2,866,858
=========== =========== =========== ===========
Per common and common equivalent share:
Basic:
Net income per common share $0.29 $0.23 $0.51 $0.41
=========== =========== =========== ===========
Weighted average common and common
equivalent shares outstanding 7,949,000 7,899,000 7,995,000 6,968,000
=========== =========== =========== ===========
Dilutive:
Net income per common share-assuming
dilution $0.28 $0.22 $0.50 $0.39
=========== =========== =========== ===========
Weighted average common and common
equivalent shares
outstanding-assuming dilution 8,156,000 8,274,000 8,217,000 7,380,000
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
IMPATH INC. and Subsidiaries
Consolidated Statement of Stockholders' Equity
Six Months ended June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional other
----------------- Paid-in Retained Comprehensive Treasury Deferred
Shares Amount Capital Earnings (loss) Stock Compensation Total
------ ------ ---------- -------- ------------- -------- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 8,538,345 $42,690 $120,904,861 $12,095,622 ($48,602) ($7,908,841) ($498,762) $124,586,968
Common shares issued upon
exercise of stock
options 64,761 324 250,986 251,310
Common shares issued upon
exercise of warrants 213 1 745 746
Repurchase of common shares (8,630,161) (8,630,161)
Amortization of deferred
compensation 109,642 109,642
Comprehensive income(loss):
Change in accumulated
comprehensive (loss) (471,382) (471,382)
Net income for the period
ended June 30, 1999 4,087,454 4,087,454
--------- ------- ------------ ----------- --------- ------------ --------- -------------
Total comprehensive income 3,616,072
--------- ------- ------------ ----------- --------- ------------ --------- -------------
Balance at June 30, 1999 8,603,319 $43,015 $121,156,592 $16,183,076 ($519,984) ($16,539,002) ($389,120) $119,934,577
========= ======= ============ =========== ========= ============ ========= =============
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
IMPATH INC. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------
1999 1998
-------------- -----------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 4,087,454 $ 2,866,858
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 2,974,833 1,253,139
Provision for uncollectible accounts receivable 4,093,415 2,726,021
Non-cash compensation 109,642 140,967
Changes in assets and liabilities:
(Increase) in accounts receivable (13,122,159) (6,608,117)
(Increase) in prepaid expenses and current assets (1,884,292) (650,620)
(Increase) decrease in deposits and other assets (42,154) 173,885
(Decrease) increase in accounts payable and accrued expenses (354,372) 905,338
(Decrease) in construction payments payable - (1,542,199)
Increase (decrease) in income taxes payable 1,979,810 (1,108,600)
Increase in deferred revenues 129,306 -
------------ ------------
Total adjustments (6,115,971) (4,710,186)
------------ ------------
Net cash (used in) operating activities (2,028,517) (1,843,328)
------------ ------------
Cash flows from investing activities:
Purchases of marketable securities (33,481,800) (22,136,348)
Sales/maturities of marketable securities 28,887,488 18,864,549
Capital expenditures (4,256,742) (4,255,875)
------------ ------------
Net cash (used in) investing activities (8,851,054) (7,527,674)
------------ ------------
Cash flows from financing activities:
Issuance of common stock 252,056 570,467
Repurchase of common stock (8,630,161) -
Proceeds of secondary offering, net of registration costs - 71,629,162
Payments of capital lease obligations (1,186,045) (750,298)
(Repayment) of bank loans, net (8,000,000) -
Payments of notes payable (824,608) (451,043)
------------ ------------
Net cash (used in) provided by financing activities (18,388,758) 70,998,288
------------ ------------
Net (decrease) increase in cash and cash equivalents (29,268,329) 61,627,286
Cash and cash equivalents at beginning of period 45,556,005 325,285
------------ ------------
Cash and cash equivalents at end of period $ 16,287,676 $ 61,952,571
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
IMPATH INC.
Notes to Consolidated Financial Statements
(unaudited)
General:
The accompanying unaudited consolidated financial statements have been prepared
by management in accordance with the rules and regulations of the United States
Securities and Exchange Commission.
In the opinion of IMPATH Inc. (the "Company" or "IMPATH"), the accompanying
unaudited consolidated financial statements contain all adjustments, consisting
only of normal recurring adjustments necessary for the fair presentation of the
financial information for all periods presented. Results for the interim periods
are not necessarily indicative of the results for an entire year and do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. These consolidated
financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto contained in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
Net Income Per Share:
Net income per share, basic is based on the weighted average number of shares of
common stock outstanding. Diluted earnings per share is based on the weighted
average number of shares of common stock and common equivalent shares
outstanding. Common equivalent shares from stock options and warrants are
included in the computation assuming the related options and warrants had been
exercised to the extent their effect is dilutive.
Comprehensive net income is equal to the net income reported adjusted for the
unrealized net depreciation of marketable securities, net of related deferred
taxes. Comprehensive net income for the three months ended June 30, 1999 and
1998 was $1,889,997 and $1,758,884 respectively. Comprehensive net income for
the six months ended June 30, 1999 and 1998 was $3,616,072 and $2,883,347
respectively.
Investment:
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 115,
the Company's investments (consisting primarily of government and corporate
fixed income securities) were classified as available for sale. As a result,
the unrealized depreciation is recorded as a separate component of stockholders'
equity, net of related deferred taxes. At June 30, 1999, approximately
$15,000,000 of securities with original maturities of three months or less were
included as cash equivalents. The remaining securities included in the
investment portfolio with original maturities that exceed three months are
included in current assets.
Accounts Receivable, Net of Allowance for Doubtful Accounts:
In accordance with Generally Accepted Accounting Principles ("GAAP") and
consistent with healthcare industry practices, IMPATH presents its accounts
receivable at net realizable value. Net accounts receivable balances are
comprised of the following as of June 30, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
-------------- ------------------
<S> <C> <C>
Gross accounts receivable .............. $ 52,038,202 $ 35,138,046
Allowance for doubtful accounts ........ (4,806,120) (3,958,235)
Contractual allowance reserve........... (18,583,888) (11,560,360)
------------ ------------
$ 28,648,194 $ 19,619,451
============ ============
</TABLE>
The growth in the contractual allowance reserve (contractual allowances are
provided against revenues) is due to the increasing shift to managed care
contracts from traditional fee for service billing.
7
<PAGE>
Recent Acquisitions
On July 29, 1998 the Company purchased certain assets of Biologic & Immunologic
Science Laboratories, Inc. ("BIS"), a privately held cancer diagnostics company
based in Reseda, California for $3.6 million. The terms provided for an initial
payment of $2.0 million, and $800,000 payable in three equal semi-annual
installments beginning December 1998, after which another $800,000 is payable in
three equal semi-annual installments contingent on achievement of previously
established revenue targets, with interest accruing at 8% per annum. This
transaction will allow IMPATH to expand its core diagnostic and prognostic
business and build on IMPATH's scientific leadership in lymph node and bone
marrow micrometastases detection in early and late stage cancer. Additionally,
BIS will further enhance the Company's ability to provide unique cancer
information to physicians for evaluating and treating cancer patients and to the
biopharmaceutical industry in assessing biologically relevant characteristics
for targeted drug development and in selecting patients for clinical trials and
in evaluating the efficacy of various therapies.
On August 31, 1998 the Company acquired Medical Registry Services, Inc. ("MRS")
for the issuance of 550,000 shares of IMPATH common stock valued at
$13,750,000. After the consideration of certain other expenses related to the
acquisition and after recording net tangible assets of MRS, the Company recorded
approximately $17.3 million in intangibles. MRS is a leading developer and
marketer of cancer registry software products that are currently utilized in
over 400 hospitals throughout the United States. The products are used to
collect and manage critical diagnostic, treatment, follow-up and outcomes data
on cancer patients. The Company and MRS, which at the time of the acquisition
had approximately 200 common clients, began a relationship through a strategic
joint venture in January, 1997. The acquisition of MRS significantly enhances
IMPATH's oncology information capabilities by matching its diagnostic and
prognostic data with treatment and outcomes information from MRS. Additionally,
it provides IMPATH with an ongoing link to its clients as its ability to supply
hospitals and oncologists with critical information for optimal disease
management will continue to expand. MRS's revenues are derived from licensing
fees paid by hospitals utilizing its proprietary tumor registry software.
On September 2, 1998 the Company acquired Physician Choice, Inc. ("PCI") for
the sum of $1.0 million, with $400,000 payable immediately, an additional
$400,000 payable in four equal semi-annual installments beginning March, 1999
with interest accruing at 8% per annum and $200,000 payable in IMPATH common
stock. An initial 1,980 shares of common stock, having a fair market value of
$50,000, were issued on September 2, 1998, with the remaining shares to be
issued in three equal annual installments beginning September 2, 1999. PCI is a
leading provider of post-clinical, pre-marketing, cost-benefit analyses to
pharmaceutical and biotechnology companies in connection with new oncology drugs
entering the marketplace. By focusing on cancer, and utilizing health care
outcomes and other efficacy measures, PCI has achieved a better understanding of
the way healthcare is delivered in that specialty. PCI's revenues are generated
on a per project basis from pharmaceutical and biotechnology companies.
The aforementioned acquisitions have been accounted for using the purchase
method with results of operations of the respective entities being included with
the results of the Company since the respective acquisition dates. The excess
of the purchase price over the net assets acquired on both the BIS and PCI
acquisitions principally relate to customer lists, which are included in
intangible assets on the Company's consolidated balance sheet and are being
amortized over periods of up to fifteen years. The excess of the purchase price
over the net assets acquired for the MRS purchase primarily relates to the
customer list, trade name, software and goodwill which are included in
intangible assets on the accompanying balance sheets and are being amortized
over periods of 5 to 20 years.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Months Ended June 30, 1999
Compared with Three Months Ended June 30, 1998
The Company's total revenues for the three months ended June 30, 1999 and 1998
were $20,846,000 and $13,435,000, respectively, representing an increase of
$7,411,000, or 55.2%, in 1999. This growth was primarily attributable to a 23.9%
increase in case volume resulting from increased sales and marketing activities.
Revenue growth was also facilitated by the successful integration of the
Company's 1998 acquisitions of certain assets of BIS, PCI and the purchase of
MRS. Additionally, revenue realization per case increased as a result of product
mix changes toward cases which carry higher reimbursement rates and a continuing
payor mix shift towards third party billing.
Salaries and related costs for the three months ended June 30, 1999 and 1998
were $7,835,000 and $5,396,000, respectively, representing an increase of
$2,439,000, or 45.2%, in 1999. This increase was the result of increased
personnel headcount due to the increase in case volume, as well as personnel
costs incurred in connection with the Company's expansion. As a percentage of
total revenues, salaries and related costs decreased to 37.6% in 1999 from 40.2%
in 1998. This decrease was facilitated by the Company's successful expansion
strategy of incorporating complementary and synergistic technologies, combined
with a higher revenue realization per case, as well as the streamlining of
operational and administrative duties.
Selling, general and administrative expenses for the three months ended June 30,
1999 and 1998 were $8,118,000 and $5,314,000, respectively, representing an
increase of $2,804,000, or 52.8 %, in 1999. The largest component of this
increase was $1,072,000 in incremental courier and laboratory supply costs due
to increased case volume growth and product mix shift. The Company also
incurred an additional $786,000 of increased bad debt expense associated with
increased revenues. Additionally, $741,000 of the increase was a result of
increased operating expenses incurred in connection with the Company's
acquisitions. The Company also incurred $137,000 in incremental marketing
expenses associated with expanded sales activities. As a percentage of total
revenues, selling, general and administrative expenses decreased to 38.9% in
1999 from 39.6% in 1998 due to the implementation of certain operating
efficiencies combined with a higher revenue realization per case.
Depreciation and amortization expense for the three months ended June 30, 1999
and 1998 was $1,612,000 and $700,000, respectively, representing an increase of
$912,000, or 130.3%, in 1999. This increase was primarily due to an additional
$299,000 in depreciation and amortization expense associated with increased
capital equipment requirements and $276,000 related to Phase I of the Company's
internally developed information systems. The Company also incurred an
additional $336,000 in amortization of intangible assets associated with the
Company's 1998 acquisitions. Due to the incremental depreciation associated with
the Company's new information systems and increasing amortization of intangible
assets, depreciation and amortization as a percentage of revenues, increased to
7.7% in 1999 from 5.2% in 1998.
Income from operations for the three months ended June 30, 1999 and 1998 was
$3,280,000 and $2,025,000, respectively, representing an increase of $1,255,000,
or 62.0%, in 1999. The 1999 figure reflects an increase in company operating
margins from its core diagnostic and prognostic services and recent acquisitions
partially mitigated by increased depreciation and amortization. As a percentage
of total revenues, income from operations increased to 15.7% in 1999 from 15.1%
in 1998.
Other income, net for the three months ended June 30, 1999 and 1998 was $549,000
and $925,000, respectively, representing a decrease of $376,000, or 40.6%, in
1999. The decrease was the result of increased interest expense primarily due to
additional capital lease obligations and acquisition-related debt, as well as
the sales of interest bearing securities, the proceeds of which were used to
finance the Company's Treasury stock buyback program.
9
<PAGE>
The tax provision for the three months ended June 30, 1999 of $1,532,000
reflects federal, state and local income tax expense. The Company has estimated
its annual effective tax rate for 1999 to be approximately 40.0%, as compared
to 39.4% in 1998.
Net income for the three months ended June 30, 1999 and 1998 was $2,297,000 and
$1,789,000, respectively, representing an increase of $508,000, or 28.4%, in
1999. As a percentage of total revenues, net income decreased to 11.0% in 1999
from 13.3% in 1998. The decrease was primarily due to increased goodwill
amortization associated with the Company's 1998 acquisitions of certain assets
of BIS, PCI and the purchase of MRS,and due to a decrease in non-operating
income.
10
<PAGE>
Six Months Ended June 30, 1999
Compared with Six Months Ended June 30, 1998
The Company's total revenues for the first six months of June 30, 1999 and 1998
were $37,816,000 and $25,147,000, respectively, representing an increase of
$12,669,000, or 50.4%, in 1999. This growth was primarily attributable to a
24.9% increase in case volume resulting from increased sales and marketing
activities and to the successful integration of the Company's 1998 acquisitions
of certain assets of BIS, PCI and the purchase of MRS. Additionally, revenue
realization per case increased as a result of product mix changes toward cases
which carry higher reimbursement rates and a continuing payor mix shift towards
third party billing.
Salaries and related costs for the first six months of June 30, 1999 and 1998
were $14,563,000 and $10,126,000, respectively, representing an increase of
$4,437,000, or 43.8%, in 1999. This increase was the result of increased
personnel headcount due to case volume growth, as well as personnel costs
incurred in connection with the Company's expansion. Salaries and related
costs, as a percentage of total revenues decreased to 38.5% in 1999 from 40.3%
in 1998. This decrease was facilitated by the Company's successful expansion
strategy of incorporating complementary and synergistic technologies, combined
with a higher revenue realization per case, as well as the streamlining of
operational and administrative duties.
Selling, general and administrative expenses for the first six months of June
30, 1999 and 1998 were $14,475,000 and $10,043,000, respectively, representing
an increase of $4,432,000, or 44.1%, in 1999. The largest component of this
increase was $1,778,000 in incremental courier and laboratory supply costs due
to rapid case volume growth and product mix shift. The Company also incurred an
additional $1,367,000 of increased bad debt expenses associated with higher
revenues. Additionally, $738,000 of the increase was the result of additional
operating expenses incurred in connection with the Company's acquisitions. The
Company also incurred $236,000 in incremental travel related expenses and
professional fees associated with expanded sales, marketing and investor
relations activities. Selling, general and administrative expenses as a
percentage of total revenues decreased to 38.3% in 1999 from 40.0% in 1998 due
to the implementation of certain operating efficiencies combined with higher
revenue realization per case.
Depreciation and amortization expense for the first six months of June 30, 1999
and 1998 was $2,975,000 and $1,253,000, respectively, representing and increase
of $1,722,000,or 137.4%, in 1999. This increase was primarily due to an
additional $722,000 in depreciation and amortization expense associated with
increased capital equipment requirements and $340,000 related to Phase I of the
Company's internally developed information systems. The Company also incurred an
additional $657,000 in amortization of intangible assets associated with the
Company's 1998 acquisitions. Due to the incremental depreciation associated with
the Company's new information systems and increasing amortization of intangible
assets, depreciation and amortization as a percentage of revenues, increased to
7.9% in 1999 from 5.0% in 1998.
Income from operations for the first six months of June 30, 1999 and 1998 was
$5,803,000 and $3,726,000, respectively, representing an increase of
$2,077,000, or 55.7%, in 1999. The 1999 figure reflects increased company
operating margins from its core diagnostic and prognostic services and recent
acquisitions partially mitigated by increased depreciation and amortization. As
a percentage of total revenues, income from operations increased to 15.3% in
1999 from 14.8% in 1998.
Other income, net for the first six months of June 30, 1999 and 1998 was
$1,049,000 and $1,133,000, respectively, representing a decrease of $84,000 in
1999. The decrease was the result of increased interest expense primarily due to
additional capital lease obligations and acquisition-related debt, as well as
the sales of interest bearing securities, the proceeds of which were used to
finance the Company's Treasury stock buyback program.
The tax provision for the first six months of June 30, 1999 of approximately
$2,765,000 reflects federal, state and local income tax expense. The Company
has estimated its annual effective tax rate for 1999 to be approximately 40.4%
as compared to 40.1% in 1998.
11
<PAGE>
Net income for the first six months of June 30, 1999 and 1998 was $4,087,000 and
$2,867,000, respectively, representing an increase of $1,220,000, or 42.6% in
1999. As a percentage of total revenues, net income decreased to 10.8% in 1999
from 11.4% in 1998. This decrease was primarily due to increased goodwill
amortization associated with the Company's 1998 acquisitions of certain assets
of BIS, PCI and the purchase of MRS, and due to a decrease in non-operating
income.
12
<PAGE>
Liquidity and Capital Resources
Since inception, the Company has financed its operations through public
offerings of common stock, the private issuance of convertible preferred stock,
secured term loans and operating and capital equipment leases. In March 1998
the Company raised approximately $72,000,000 of capital through an underwritten
secondary public offering of Common Stock. The Company's working capital and
capital expenditure needs have increased and are expected to continue to
increase as the Company expands its existing facilities and pursues its growth
strategy.
The Company's cash and cash equivalent balances at June 30, 1999 and December
31, 1998 were $16,288,000 and $45,556,000 respectively, representing a decrease
of $29,268,000 in 1999. This decrease was primarily due to the repayment of
short term line of credit bank borrowings of $8,000,000 and the repurchase by
the Company of Common Stock for approximately $8,630,000 under a share buyback
program that was initiated in December 1998. The Company also invested
approximately $4,594,000 in marketable securities and used approximately
$2,011,000 to satisfy its current debts obligations.
For the six months ended June 30, 1999, net cash used in operating activities
was approximately $2,029,000. This was primarily due to an increase in accounts
receivable net of allowance for bad debt of approximately $9,029,000. The
increase in net accounts receivable was primarily due to rapid sales growth as
well as claims filing delays associated with the transition to the Company's new
billing system. The continuing shift away from direct hospital billing and
towards private insurance, which carries a higher revenue realization per case
and requires additional time for obtaining patient billing information, also
contributed to this increase. In addition, as a result of increased case volume
growth and the introduction of several new products, laboratory supply inventory
increased approximately $1,082,000. The Company also reduced its accounts
payable and accrued expenses by approximately $354,000. These activities were
partially offset by higher net income, as well as an increase in income taxes
payable of $1,980,000.
For the six months ended June 30, 1999, the Company invested approximately
$4,594,000 in marketable securities, resulting in a balance of approximately
$34,094,000 of marketable securities at June 30, 1999. Additionally, the Company
incurred approximately $4,257,000 in capital expenditures associated with the
development of the Company's outcomes database, network infrastructure and the
Company's expansion of its laboratory and office facilities.
The Company received approximately $252,000 for the six months ended June 30,
1999 through the issuance of Common Stock upon the exercise of Company stock
options and warrants. The Company used approximately $1,186,000 to satisfy its
capital lease obligations, and approximately $825,000 to meet its note
obligations resulting from its asset acquisitions.
In March 1998, the Company established an unsecured line of credit for an
aggregate principal amount of $10,000,000 with Fleet Bank. Borrowing under the
line bears interest at LIBOR plus 2.25%. In June 1999, the aggregate principal
amount of this line was increased to $15,000,000. The new line bears interest
at LIBOR plus 2.0%. As of June 30, 1999, the Company had $2,000,000 outstanding
under this line. The line of credit has certain financial covenants which the
Company was in compliance with at June 30, 1999.
The Company's growth strategy is anticipated to be financed through its current
cash resources and existing third-party credit facilities. The Company believes
the combination of these sources will be sufficient to fund its operations and
satisfy the Company's cash requirements for the next 12 months and the
foreseeable future. There may be circumstances, however, that would accelerate
the Company's use of proceeds from the follow on offering. If this occurs, the
Company may, from time to time, incur additional indebtedness or issue, in
public or private transactions, equity or debt securities. However, there can
be no assurance that suitable debt or equity financing will be available to the
Company.
13
<PAGE>
Impact of Inflation and Changing Prices
The impact of inflation and changing prices on the Company has been primarily
limited to salary, laboratory and operating supplies and rent increases and has
not been material to date to the Company's operations. In the future, the
Company's revenue realization per case may not be sufficient to cover the cost
of inflation, although the Company is responding to these concerns by attempting
to increase the volume and adjust the product mix of its business.
Year 2000
The Company has reviewed its business systems, including its computer systems
and laboratory equipment, and has been sending written inquiries to its
customers and vendors as to their progress in identifying and addressing
problems that their systems may face in correctly interpreting and processing
date information as the year 2000 approaches. This review was completed in
April 1999. Based on this review, the Company has implemented a plan to achieve
year 2000 compliance. The Company recently finalized the installation of an
internally developed clinical and billing information system which addresses
year 2000 issues. The Company believes that it will achieve year 2000
compliance in a manner which will be non-disruptive to its operations. In
addition, the Company has commenced work on various types of contingency
planning to address potential problem areas with internal systems, suppliers and
other third parties. Year 2000 compliance should not have a material adverse
effect on the Company, including the Company's financial condition, results of
operations or cash flow. The Company has incurred $25,000 to date related to
year 2000. The Company estimates the cost of its year 2000 efforts to be
approximately $150,000. The total cost estimate is based on management's
current assessment and is subject to change.
However, the Company may encounter problems with supplier and or revenue sources
which could adversely affect the Company's financial condition, results of
operations or cash flow. The Company cannot accurately predict the occurrence
and or outcome of any such problems, nor can the dollar amount of such problems
be estimated. In addition, there can be no assurance that the failure to ensure
year 2000 compliance by a third party would not have a material adverse effect
on the Company.
14
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about our exposure to market risk of financial
instruments contains forward-looking statements. Actual results may differ
materially from those described.
The Company's holdings of financial instruments are comprised of U.S. corporate
debt, U.S. government debt and commercial paper. All such instruments are
classified as securities available for sale. The Company does not invest in
portfolio equity securities or commodities or use financial derivatives for
trading purposes. The Company's debt security portfolio represents funds held
temporarily pending use in our business and operations. The Company manages
these funds accordingly. The Company seeks reasonable assurance of the safety
of principal and market liquidity by investing in rated fixed income securities
while at the same time seeking to achieve a favorable rate of return. The
Company's market risk exposure consists principally of exposure to changes in
interest rates. The Company's holdings are also exposed to the risks of changes
in the credit quality of issuers. The Company typically invests in the shorter-
end of the maturity spectrum, and at December 31, 1998, more than 80% of the
Company's holdings were in instruments maturing in two years or less and more
than 65% of such holdings matured in one year or less.
15
<PAGE>
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.
Dated: August 13, 1999 IMPATH INC.
-----------
(Registrant)
Dated: August 13, 1999 By /s/ ANU D. SAAD
----------------------------
Anu D. Saad, Ph.D.
President and Chief
Executive Officer
Dated: August 13, 1999 By /s/ JOHN P. GANDOLFO
----------------------------
John P. Gandolfo
Executive Vice President,
Chief Financial Officer,
Chief Operating Officer,
and Principal Accounting Officer
16
<PAGE>
INDEX TO EXHIBITS
-----------------------------
Exhibit Page
Number Description Number
27 Financial Data Schedule 18
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> APR-01-1999 JAN-01-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
<CASH> 16,287,676 16,287,676
<SECURITIES> 34,094,386 34,094,386
<RECEIVABLES> 33,454,314 33,454,314
<ALLOWANCES> 4,806,120 4,806,120
<INVENTORY> 1,850,212 1,850,212
<CURRENT-ASSETS> 83,998,272 83,998,272
<PP&E> 33,652,190 33,652,190
<DEPRECIATION> 6,944,018 6,944,018
<TOTAL-ASSETS> 139,404,742 139,404,742
<CURRENT-LIABILITIES> 13,072,986 13,072,986
<BONDS> 0 0
0 0
0 0
<COMMON> 43,015 43,015
<OTHER-SE> 119,891,562 119,891,562
<TOTAL-LIABILITY-AND-EQUITY> 139,404,742 139,404,742
<SALES> 20,845,738 37,815,890
<TOTAL-REVENUES> 20,845,738 37,815,890
<CGS> 7,518,756 13,699,090
<TOTAL-COSTS> 17,565,992 32,012,824
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 242,858 414,012
<INCOME-PRETAX> 3,828,985 6,852,048
<INCOME-TAX> 1,531,594 2,764,594
<INCOME-CONTINUING> 2,297,391 4,087,454
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,297,391 4,087,454
<EPS-BASIC> 0.29 0.51
<EPS-DILUTED> 0.28 0.50
</TABLE>
