U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
------------------------
Commission File Number: 000-26555
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ACCUIMAGE DIAGNOSTICS CORP.
(Name of Small Business Issuer in its Charter)
<TABLE>
<CAPTION>
Nevada 33-0713615
- ------------------------------------- -------------------------------
<S> <C> <C>
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
400 Oyster Point Blvd., Suite 114, South San Francisco, California 94080-1917
- ----------------------------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
Issuer's telephone number: (650) 875-0192
Indicate by check mark whether the registrant has (1) filed all reports required
to be filed by Section 13 or 15(d) of the Securities 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 filing requirements within
the past 90 days.
Yes _X_ No ___
The number of shares outstanding of the issuer's common stock was 9,748,200
shares of common stock, par value $.001, as of March 17, 2000. No shares of
Preferred stock are outstanding.
Transitional Small Business Disclosure Format:
Yes___ No _X_
<PAGE>
ACCUIMAGE DIAGNOSTICS CORP.
---------------------------
Form 10-QSB
December 31, 1999
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 2
Balance Sheets as of December 31, 1999 (unaudited) and
September 30, 1999 3
Statements of Operations for the Three Months
Ended December 31, 1999 and 1998 (unaudited) 4
Statements of Cash Flow for the Three Months
Ended December 31, 1999 and 1998 (unaudited) 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition or Plan of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security-Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K 12
Signature......... 12
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ACCUIMAGE DIAGNOSTICS CORP.
BALANCE SHEETS
DECEMBER 31, 1999 (UNAUDITED) AND SEPTEMBER 30, 1999
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<CAPTION>
DECEMBER 31, 1999 SEPTEMBER 30, 1999
----------------- ------------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash $ 170,782 $ 34,201
Accounts Receivable 164,428 188,744
Less Allowance for Doubtful accounts (16,619) (16,619)
Other Receivables -- 31,274
Inventory 29,610 44,957
repaid Insurance
Prepaid Insurance -- 745
Prepaid Rent -- 3,744
Prepaid License Fees 16,370 16,370
--------------- --------------
Total Current Assets 364,572 303,416
Property and Equipment 56,426 61,351
Other Assets
Security Deposits 3,820 3,820
Deposits & License Fees 125,716 125,716
License TECH 5,200 5,200
License Fee NECTEC 10,000 10,000
Less Accumulated Amortization (84,619) (80,700)
Goodwill 618,140 618,140
Acc. Amort-Goodwill (139,087) (123,633)
--------------- --------------
Total Other Assets 539,171 558,543
TOTAL ASSETS $ 960,168 $ 923,310
================ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 132,029 $ 146,376
Product Warranty Reserve 125,147 84,270
Sales Tax Payable 920 4,191
Wages & Payroll taxes Payable 40,761 71,464
Other Accrued Expenses 5,332 5,332
Notes Payable-related party 56,500 56,500
--------------- --------------
Total Current Liabilities 360,690 368,132
Stockholders' Equity
Preferred Shares - $0.001 Par Value; 10,000,000
shares Authorized; None issued or outstanding -- --
Common Shares - $0.001 Par Value; 50,000,000
Authorized; 9,748,200 issued and outstanding
on December 31, 1999 and September 30, 1999 9,748 9,748
Paid-In-Capital 1,740,662 1,740,662
Accumulated Deficit (1,150,932) (1,195,232)
--------------- --------------
Total Stockholder's Equity 599,478 555,178
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 960,168 $ 923,310
================ ==============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
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ACCUIMAGE DIAGNOSTICS CORP
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE PERIOD OCTOBER 1, 1999 TO DECEMBER 31, 1999
and FOR THE PERIOD OCTOBER 1, 1998 TO DECEMBER 31, 1998
December December
31, 1999 31, 1998
--------------- ----------------
(unaudited) (unaudited)
Revenues $ 875,461 $ 205,847
Cost of Goods Sold 486,659 37,762
--------------- ----------------
Gross Profit 388,802 168,085
Selling, General and Administrative Expenses 345,656 228,691
--------------- ----------------
Operating Income (Loss) 43,146 (60,606)
--------------- ----------------
Other Income and Expenses
Interest Income 954 508
Other Income 200 --
--------------- ----------------
Total Other Income and Expenses 1,154 508
--------------- ----------------
Net Income ( Loss) $ 44,300 $ (60,098)
=============== ================
Income (Loss) per share - Basic $ 0.0045 $ (0.0067)
Income (Loss) per share - Diluted $ 0.0039 $ (0.0059)
Weighted Shares Outstanding
Basic 9,748,200 8,909,546
Diluted 11,271,366 10,205,572
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ACCUIMAGE DIAGNOSTICS CORP
CONDENSED STATEMENTS OF CASH FLOW (UNAUDITED)
FOR THE PERIOD OCTOBER 1, 1998 TO DECEMBER 31, 1998
and THE PERIOD FROM OCTOBER 1, 1999 TO DECEMBER 31, 1999
December December
31, 1999 31, 1998
------------- ------------
(unaudited) (unaudited)
Cash Flows from Operating Activities
Net Cash used by Operating Activities: $ 136,582 $(133,335)
Cash Flow from Investing Activities:
Investment in Property and Equipment -- 6,510
Cash from Subsidiary ------------ ------------
Net Cash Provided (Used) by Investing
Activities -- 6,510
------------ ------------
Cash Flow From Financing Activities:
Proceeds from Short-Term Debt -- --
Repayment of Short-Term Debt -- (30,000)
Proceeds from sales of Stock -- 233,500
Net Cash Provided (Used) by Financing
Activities -- 203,500
------------ ------------
Increase (Decrease) in Cash 136,582 76,675
Cash at Beginning of Year 34,201 2,117
------------ ----------
Cash at End of Year $ 170,783 $ 78,792
============ ===========
Supplemental Disclosure:
Interest Paid $ -- --
Income Taxes-Franchise tax $ -- --
Compensation paid in shares (Non-Cash) $ -- 10,770
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
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NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(1) Significant Risks
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplate continuation of
the Company as a going concern. However, the Company has experienced net losses
of $503,184 and $684,248 for the years ended December 31, 1999 and 1998,
respectively.
These factors raise substantial doubt about the Company's ability to
continue as a going concern if it is unable to raise sufficient capital to fund
its on-going operations. In view of the matters described above, recoverability
of a major portion of the recorded asset amounts shown in the accompanying
balance sheet is dependent upon the Company's ability to raise sufficient
capital to fund its working capital requirements until the Company can generate
sufficient sales volume to cover its operating expenses. The financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts, or amounts and classification of
liabilities that might be necessary should the Company be unable to continue in
existence.
Management's agreement with Imatron (a related party) has greatly
increased the sales of the Company's software products and as a result the
Company had a profitable quarter for the three months ended December 31, 1999.
Imatron is a public company that produces a tomographic scanner and has agreed
to sell the Company's software along with its products. During the last fiscal
year, the Company received FDA approval of its software.
Additionally, the Company has commitments from a group of investors to
obtain enough additional capital to insure that it will have sufficient
resources to achieve its strategic objectives for the fiscal year ended
September 30, 2000.
(2) Basis of Presentation
The accompanying condensed consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. Certain
matters raise substantial doubt about the Company's ability to continue as a
going concern. As discussed in Note 1, the Company operates under extreme
liquidity constraints and, because of recurring losses must continue to raise
additional capital. Management's plan in regard to these matters is described
above. The financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.
In the opinion of the management the accompanying consolidated
financial statements contain all adjustments necessary (consisting of only
normal recurring accruals) to present fairly the financial position at December
31, 1999, the results of its operations for the three months ended December 31,
1999 and the cash flow for three months ended December 31,1999. Certain
information and footnote disclosures normally included in financial statements
that would have been prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission, although management of the Company
believes that the disclosures in these financial statements are adequate to make
the information presented therein not misleading. It is suggested that these
condensed financial statements and notes thereto be read in conjunction with the
financial statements and the notes thereto included in the Company's September
30, 1999 Form 10-KSB. The results of operations for the three months ended
December 31, 1999 are not
6
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necessarily indicative of the results of operations to be expected for the full
fiscal year ending September 30, 2000.
(3) Interim Period Cost of Goods Sold
Interim period cost of goods sold is calculated using the perpetual
inventory record. The Company reports any significant adjustments that result
from reconciliations of the perpetual inventory record to periodic and annual
physical inventory observations.
(4) Income Taxes
Significant components of the provision for taxes based on income for
the three months ended December 31, 1999 and 1998 are as follows:
1999 1998
------- --------
Current tax expense
Federal $ 0 $ 0
State 200 200
-------- ---------
200 200
Deferred tax expense
Federal 0 0
State 0 0
-------- ---------
Provision for income taxes $ 200 $ 200
====== ======
At September 30, 1999, the Company has approximately $1,532,737 net
operating loss carryforwards available to offset future federal and state income
taxes, which expire through 2010 and 2019.
The Company has elected to fully reserve all tax benefits until such
time as it is able to reasonably expect to realize those benefits.
7
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Item 2. Management's Discussion And Analysis Of Financial Condition And Results
Of Operation.
The following discussion and analysis should be read in conjunction
with the Company's Consolidated Financial Statements and related Notes thereto
contained elsewhere with this document. Operating results for the three-month
period ended December 31, 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 Financial Statements, Notes thereto,
and Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in the Company's Form 10-KSB, filed on March 20, 2000.
AccuImage is engaged in the development, marketing and support of
software for the visualization, analysis and management of medical imaging data.
The software's primary function is to enhance physicians' interpretation of data
from medical imaging modalities such as computed tomography, magnetic resonance,
and ultrasound through the application of three-dimensional computer graphics
and image processing technologies. This enhanced analysis can support physicians
in clinical diagnosis, surgical planning and medical research. Three-dimensional
visualization allows communication of findings in a form readily understood by
physicians and others without the specialized training otherwise required to
interpret the native images generated by the medical imaging modalities.
Efficiency gains and cost savings may be realized through automated reporting
tools and provision for electronic distribution of the medical imaging data and
post-processed results via internal networks and the Internet.
REVENUE
- -------
For the three months ended December 31, 1999, revenue increased
425% to $875,461 compared with $205,847 in 1998. This increase was almost
entirely the result of increased sales of the Company's medical visualization
and analysis software. During 1999, the Company successfully transitioned from
distributing software developed by a third party and licensed to the Company, to
distributing its own software that was developed in-house. This transition was
completed prior to the first quarter of fiscal year 2000, and the first quarter
results reported here are entirely related to sales of the Company's own
software.
GROSS MARGIN
- ------------
The gross margin percentage for the quarter was 44% compared to 81% for
the same period in fiscal year 1999. This decrease in gross margin is a
transitional effect due to two major factors. Firstly, under its agreement with
Imatron Inc.,
the Company was obliged to provide up to 15 software-plus-hardware
systems to Imatron at a transfer price equal to the hardware cost plus 10%,
provided these systems were used by Imatron to replace certain existing
workstations previously supplied by Imatron to its customers during a specified
time period. Imatron exercised its option to all 15 systems during the quarter,
and no profit was realized on these systems. Secondly, during Q1 the Company
enjoyed a significant increase in the number of orders received, and as a
result, goods for resale were purchased during the quarter which were intended
to be used to fulfill orders due to be shipped during the next quarter. No such
increase in stock was required nor took place during earlier quarters, and hence
the gross margin was temporarily affected while the Company adjusted to the new
level of activity being experienced.
8
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SALES AND MARKETING
- -------------------
The Company's sales and marketing expenses for the first quarter of
fiscal year 2000 were $83,998 compared to approximately $110,000 for the entire
prior fiscal year 1999. The increase reflects the cost of increased sales and
marketing activity. The Company expects sales and marketing costs to continue to
increase as additional sales personnel are recruited and sales commissions
increase, although this forward looking statement will be influenced by the
actual sales levels attained by the Company's sales force.
RESEARCH AND DEVELOPMENT
- ------------------------
The Company spent $58,836 on research and development activities during
the quarter, compared with approximately $75,000 for the same quarter in the
prior fiscal year. The reduction in research and development outlay is largely
related to the transition of one member of the research and development team
into a management role, although the Company anticipates that software
development costs will increase as the Company recruits personnel with software
development expertise. The Company does not perceive any reduced need for
research and development effort since maintenance of a competitive position in
the marketplace in which the Company operates requires constant improvement and
high-level development of the Company's software products.
OPERATIONAL AND ADMINISTRATIVE
- ------------------------------
Operational and administrative expenses were $202,818 for the first
quarter compared to an estimated $181,250 for the same quarter in the previous
year. The increase reflects the Company's additional support requirements, which
developed over the interim period due to the increased sales activity. The
Company believes that operational and administrative costs will increase in the
future if the Company continues to be successful in its efforts to recruit
qualified new staff. As a result of becoming a reporting company pursuant to the
Securities Exchange Act of 1934, the Company will likely increase its
expenditures on investor relations and legal and financial expertise.
RESULTS OF OPERATIONS
- ---------------------
Despite the increased expenses for sales, marketing, operations and
administration, the Company's increased revenues resulted in an operating profit
of $44,300 in the first quarter of fiscal year 2000. This is the first quarter
in which the Company has reported an operational profit. In 1999 and 1998, the
Company experienced operating losses of $460,938 and $626,778, respectively.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The operating profit was funded entirely by sales revenue and in no
part by equity financing. The Company has held $56,500 in notes payable since
September 1998. On December 31, 1999, the Company had $170,782 in cash and
$164,428 of accounts receivable. Accounts payable totaled $132,029.
The Company anticipates that cash requirements for the remainder of the
year will be met by a combination of sales income and additional equity
financing. However there can be no guarantee that such income and financing will
be forthcoming and the inability of the Company to secure such capital could
have a material adverse effect on the Company's business.
FOREIGN CURRENCY TRANSACTIONS
- -----------------------------
All of the Company's transactions are negotiated, invoiced and paid in
U.S. dollars.
9
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INFLATION
- ---------
Management believes the Company's operations and financial condition
have suffered no adverse material effect due to inflation.
SHARE PRICE VOLATILITY
- ----------------------
During the quarter, the Company's share price experienced a period of
volatility followed by a period of relative stability during the second half of
the quarter. The trading price of the Company's Common Stock could be subject to
wide fluctuations in response to quarter-to-quarter variations in operating
results, changes in earnings estimates by analysts, announcements of
technological innovations or new products by the Company or its competitors,
general conditions in the software and computer industries and other events or
factors. In addition, in recent years the stock market in general, and the
shares of technology companies in particular, have experienced extreme price
fluctuations. This volatility has had a substantial effect on the market price
of securities issued by many companies for reasons unrelated to the operating
performance of the specific companies. These broad market fluctuations may
adversely affect the market price of the Common Stock.
YEAR 2000 IMPACT.
- -----------------
The year 2000 computer problem refers to the potential for system and
processing failures of date-related data as a result of computer-controlled
systems using two digits rather than four to define the applicable year. For
example, computer programs that have time-sensitive software may recognize a
date represented as "00" as the year 1900 rather than the year 2000. This could
result in a system failure or miscalculations causing disruptions with internal
administrative and operational software, software developed by the Company,
software integrated in the Company's products, and third-party systems to which
the Company's products interface.
With regard to internal use of software products, the Company inspected
financial and accounting software vendors whose products are in use by the
Company and reached a level of reasonable assurance that the software packages
used by the Company would behave correctly after the onset of year 2000.
With regard to software developed by the Company, the software
development team adopted procedures to avoid potential issues and conducted
"roll-forward" testing of the Company's products. Minor issues that arose during
this testing were corrected far in advance of year 2000.
With regard to software integrated into the Company's products, the
Company took steps to determine what measures in terms of software upgrades and
fixes needed to be taken in order to render all integrated software products
year 2000 compliant and adopted the appropriate versions as part of its
integration procedure. The Company's installed base was similarly updated.
With regard to third-party systems to which the Company's products
interface, the Company conducted a survey of the information transferred to its
products from such third-party systems in collaboration with the manufacturers
of these systems and modified its software in order to render them year 2000
compliant.
To date, the Company has not experienced any year 2000 issues with any
of its internal systems or products, and it does not expect to experience any in
the future. Additionally, it has not experienced any year 2000 issues related to
any of its key third party suppliers, distributors and customers nor does it
expect to experience any in the future. Costs associated with remediating the
Company's internal systems and software were not material.
10
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FORWARD-LOOKING STATEMENTS
- --------------------------
The discussion contained in this Management Discussion & Analysis is
"forward looking" as that term is contemplated by Section 27A of the Securities
Act of 1933 and Section 12E of the Securities exchange Act of 1934, including,
without limitation, statements regarding the Company's expectations, beliefs,
intentions or strategies regarding future business operations and projected
earnings from its products and services, which are subject to many risks.
All forward-looking statements included in this document are based on
information available to the Company on the date hereof, and the Company assumes
no obligation to update any such forward-looking statements. The Company's
actual results may differ materially as a result of certain factors, including
those set forth hereafter and elsewhere in this Form 10-QSB. Potential investors
should consider carefully the previously stated factors, as well as the more
detailed information contained elsewhere in this Form 10-QSB, before making a
decision to invest in the common stock of the Company.
11
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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
Not applicable.
Item 5 Other Information
None.
Item 6 Exhibits And Reports On Form 8-K
(a) Exhibits:
No. 23 - Consent of Certified Independent Accountant
No. 27 - Financial Data Schedule as of December 31, 1999.
(b) Form 8-K Reports: On December 29, 1999, the Company filed a
report on Form 8-K announcing a change of the Company's
independent accountants.
SIGNATURES
In accordance with the requirements of the Securities and Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ACCUIMAGE DIAGNOSTICS CORP.
March 22, 2000
/S/ ROBERT TAYLOR
-----------------------------
Robert Taylor, Ph.D.
Chief Executive Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
AccuImage Diagnostic Corp. condensed financial statements for the interim period
ended December 31, 1999 included in Form 10-QSB and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<CIK> 0001089799
<NAME> Accu-Image
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 170,782
<SECURITIES> 0
<RECEIVABLES> 147,809
<ALLOWANCES> 0
<INVENTORY> 29,610
<CURRENT-ASSETS> 364,572
<PP&E> 56,426
<DEPRECIATION> 0
<TOTAL-ASSETS> 960,168
<CURRENT-LIABILITIES> 360,690
<BONDS> 0
0
0
<COMMON> 559,478
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 960,168
<SALES> 875,461
<TOTAL-REVENUES> 875,461
<CGS> 486,659
<TOTAL-COSTS> 486,659
<OTHER-EXPENSES> 345,656
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 44,300
<INCOME-TAX> 0
<INCOME-CONTINUING> 44,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,300
<EPS-BASIC> .45
<EPS-DILUTED> .39
</TABLE>
