FORM 10-Q IMATRON INC. JUNE 30, 2000
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UNITED STATES
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 JUNE 30, 2000.
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 July 20, 2000, 104,369,237 shares of the Registrant's common stock (no par
value) were issued and outstanding.
Total Number of Pages: 16
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FORM 10-Q IMATRON INC. JUNE 30, 2000
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IMATRON INC.
Table of Contents
PART 1 FINANCIAL INFORMATION PAGE
Item 1. Condensed Consolidated Financial Statements (unaudited)
Condensed Consolidated Balance Sheets
June 30, 2000 and December 31, 1999. 3
Condensed Consolidated Statements of Operations
Three and Six-Month Periods Ended
June 30, 2000 and 1999. 4
Condensed Consolidated Statements of Cash Flows
Six-Month Periods Ended
June 30, 2000 and 1999. 5
Notes to Condensed Consolidated Financial Statements. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures about Market Risks. 14
PART II. OTHER INFORMATION 15
SIGNATURES 16
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2
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<TABLE>
FORM 10-Q IMATRON INC. JUNE 30, 2000
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IMATRON INC.
Condensed Consolidated Balance Sheets
(In thousands)
(unaudited)
<CAPTION>
June 30, December 31,
ASSETS 2000 1999
----------------- ---------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 8,081 $ 9,198
Short term investments 1,998 1,999
Accounts receivable (net of allowance for doubtful accounts of $2,468 and
Trade accounts receivable 10,340 8,570
Accounts receivable from joint venture 641 582
Inventories 18,701 12,965
Prepaid expenses 1,021 1,030
Net current assets of discontinued operations - 1,019
----------------- ---------------
Total current assets 40,782 35,363
Property and equipment, net 3,492 2,900
Goodwill, net 1,171 1,242
Other assets 476 669
Long-term net assets of discontinued operations 417 469
----------------- ---------------
Total assets $ 46,338 $ 40,643
================= ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 2,597 $ 2,998
Other accrued liabilities 11,429 10,118
Capital lease obligations - due within one year 33 30
Net current liabilities of discontinued operations 339 -
----------------- ---------------
Total current liabilities 14,398 13,146
Deferred income on sale leaseback transactions 321 367
Deferred income on service contract 120 180
Capital lease obligations 100 125
----------------- ---------------
Total liabilities 14,939 13,818
----------------- ---------------
Minority interest 75 93
----------------- ---------------
Shareholders' equity
Common stock, no par value; 150,000 shares authorized; 104,301 and 100,042 shares 127,594 121,566
Additional paid-in capital 9,674 9,399
Deferred compensation (40) -
Notes receivable from shareholders (3,113) (150)
Accumulated deficit (102,791) (104,083)
----------------- ---------------
Total shareholders' equity 31,324 26,732
----------------- ----------------
Total liabilities and shareholders' equity $ 46,338 $ 40,643
================= ================
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
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<TABLE>
FORM 10-Q IMATRON INC. JUNE 30, 2000
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IMATRON INC.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
<CAPTION>
Three Months ended Six Months ended
June 30, June 30,
------------------------------- -----------------------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Revenues (unaudited) (unaudited)
Product sales $ 13,554 $ 6,394 $ 23,162 $ 9,742
Service 1,703 1,763 3,318 3,380
Other product sales 260 123 385 388
-------------- -------------- --------------- ------------
Total revenue 15,517 8,280 26,865 13,510
-------------- -------------- --------------- ------------
Cost of revenues
Product sales 7,463 4,346 12,508 7,579
Service 1,513 1,293 2,560 2,763
Other product sales 238 147 370 406
-------------- -------------- --------------- ------------
Total cost of revenues 9,214 5,786 15,438 10,748
-------------- -------------- --------------- ------------
Gross profit 6,303 2,494 11,427 2,762
-------------- -------------- --------------- ------------
Operating expenses
Research and development 1,943 1,659 3,824 3,467
Marketing and sales 1,992 1,086 3,937 2,254
General and administrative 1,324 528 2,277 1,334
Goodwill amortization 36 49 71 69
Restructuring charges - - - 282
-------------- -------------- --------------- ------------
Total operating expenses 5,295 3,322 10,109 7,406
-------------- -------------- --------------- ------------
Operating income (loss) 1,008 (828) 1,318 (4,644)
Interest and other income 186 18 293 27
Interest expense (7) (46) (13) (87)
-------------- -------------- --------------- ------------
Income (loss) from continuing operations before provision for
Provision for income taxes - - - -
-------------- -------------- --------------- ------------
Income (loss) from continuing operations 1,187 (856) 1,598 (4,704)
Loss from discontinued operations (143) (1,071) (306) (266)
-------------- -------------- --------------- ------------
Net income (loss) $ 1,044 $ (1,927) $ 1,292 $ (4,970)
============== ============== =============== ============
Net income (loss) per common share:
Income (loss) from continuing operations - basic and diluted
$ 0.01 $ (0.01) $ 0.01 $ (0.05)
============== ============== =============== ============
Loss from discontinued operations - basic and diluted $ 0.01 $ (0.01) $ 0.00 $ (0.00)
============== ============== =============== ============
Net income (loss) - basic and diluted $ 0.01 $ (0.02) $ 0.01 $ (0.05)
============== ============== =============== ============
Number of shares used in basic per share calculations 102,280 92,064 101,480 90,931
=============== ============== =============== ============
Number of shares used in diluted per share calculations 107,366 92,064 106,890 90,931
=============== ============== =============== ============
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
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<TABLE>
FORM 10-Q IMATRON INC. JUNE 30, 2000
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IMATRON INC.
Consolidated Statements of Cash Flows
(In thousands)
<CAPTION>
Six Months Ended June 30,
2000 1999
--------------------- --------------------
<S> <C> <C>
(Unaudited)
Cash flows from operating activities:
Net income (loss) $ 1,292 $ (4,970)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 366 505
Net loss from discontinued operations 306 266
Goodwill amortization 71 69
Common stock issued for services 292 486
Non-cash compensation expense 68 -
Loss on disposal of assets 237 22
Changes in operating assets and liabilities:
Accounts receivable (1,829) 432
Inventories (5,736) 2,516
Prepaid expenses 176 (4)
Other assets 193 255
Accounts payable (401) (1,673)
Other accrued liabilities 1,311 657
Deferred income (106) (372)
--------------------- --------------------
Net cash used in operating activities: (3,760) (1,811)
Net cash provided by discontinued operations 1,086 1,429
--------------------- --------------------
(2,674) (382)
--------------------- --------------------
Cash flows from investing activities:
Capital expenditures (1,195) (548)
Acquisition of subsidiary, net of cash acquired - (273)
Purchases of available-for-sale securities (2,062) -
Maturities of available-for-sale securities 2,063 -
--------------------- --------------------
Net cash used in investing activities (1,194) (821)
--------------------- --------------------
Cash flows from financing activities:
Payments of obligations under capital leases (22) (891)
Repayment of loans by shareholders 37 -
Proceeds from issuance of common stock 2,736 4,351
--------------------- --------------------
Net cash provided by financing activities 2,751 3,460
--------------------- --------------------
Net (decrease) increase in cash and cash equivalents (1,117) 2,257
Cash and cash equivalents, at beginning of the period 9,198 1,445
===================== ====================
Cash and cash equivalents, at end of the period $ 8,081 $ 3,702
===================== ====================
Supplemental Disclosure of Noncash Investing and Financing Activities:
Cash paid for interest on capital lease obligations:
Continuing operations $ 13 $ 87
=================== ====================
Discontinued operations $ 10 $ 160
=================== ====================
Notes receivable from shareholder $ 3,000 $ -
=================== ====================
Deferred compensation for warrants issued to non-employees $ 60 $ -
=================== ====================
Prepaid expense for stock options issued to non-employees $ 174 $ -
=================== ====================
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
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FORM 10-Q IMATRON INC. JUNE 30, 2000
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IMATRON INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
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 six month
periods ended June 30, 2000 are not necessarily indicative of the results that
may be expected for the year ended December 31, 2000. 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, 1999.
Certain reclassifications have been made to the 1999 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
subsidiary in order for the Company to focus more comprehensively on the
core business of manufacturing and servicing quality 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. Beginning January 6, 1999, the financial position and operating
results of Caral were consolidated with those of the Company.
Note 3 - NEW ACCOUNTING PRONOUNCEMENTS
NEW ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement of Financial Accounting Standard
(SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities.
SFAS No. 133, as amended by SFAS No. 137, establishes accounting and reporting
standards for derivative financial instruments and hedging activities related
to those instruments, as well as other hedging activities. Because the Company
does not currently hold any derivative instruments and does not engage in
hedging activities, the Company expects that the adoption of SFAS No. 133, as
amended, will not have a material impact on its consolidated financial position,
results of operations, or cash flows. The Company will be required to adopt
SFAS No. 133 in fiscal 2001.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial
Statements, as amended by SAB 101A , which provides guidance on the recognition,
presentation, and disclosure of revenue in financial statements filed with the
SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue
and provides guidance for disclosures related to revenue recognition policies.
In June 2000, the SEC issued SAB 101B which deferred the effective date of SAB
101 until the last quarter of fiscal years beginning after December 15, 1999.
The Company is currently reviewing the impact of SAB 101 on its financial
position and results of operations.
In March 2000, the EITF published their consensus on EITF Issue No. 00-2,
Accounting for Web Site Development Costs, which outlines the accounting
criteria for costs related to the development of web sites. The Company will be
required to adopt EITF Issue No. 00-2 in fiscal quarters beginning after
June 30, 2000. The Company does not expect that the adoption of this
accounting pronouncement will have a material impact on its consolidated
financial position or results of operations.
In March 2000, the FASB issued Interpretation No. 44, Accounting for Certain
Transactions involving Stock Compensation, an interpretation of APB Opinion
No. 25. This Interpretation clarifies the application of Opinion 25 for
certain issues: (a) the definition of employee for purposes of applying
Opinion 25, (b) the criteria for determining whether a plan qualifies as a
noncompensatory plan, (c) the accounting consequence of various modifications
to the terms of a previously fixed stock option or award, and (d) the
accounting for an exchange of stock compensation awards in a business
combination. Generally, this Interpretation is effective July 1, 2000. The
Company does not expect the adoption of Interpretation No. 44 to have a material
effect on its consolidated financial position or results of operations.
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FORM 10-Q IMATRON INC. JUNE 30, 2000
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Note 4 - inventories
Inventories were as follows:
June 30, December 31,
2000 1999
----------------- ----------------
(In thousands)
Purchased parts and sub-assemblies $ 4,704 $ 4,272
Service parts 2,436 1,747
Work-in-progress 7,362 4,718
Finished products 4,199 2,228
----------------- ----------------
$ 18,701 $ 12,965
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Note 5 - NET INCOME (LOSS) PER SHARE
Basic earnings per share is computed based on the weighted average number of
common shares outstanding, and diluted earnings per share is computed based
on the weighted average number of common shares outstanding and, when dilutive,
potential common shares outstanding using the treasury stock method.
Stock options and warrants have not been included in the loss per share
computation in 1999 as their effect would have been antidilutive.The computation
of basic and diluted earnings per share for both continuing and discontinued
operations for the periods ended June 30, 2000 and 1999, are as follows:
<TABLE>
<CAPTION>
Three Months ended June 30, Six Months ended
June 30,
----------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
(In thousands, except per share amounts)
Income (loss) from continuing operations $ 1,187 $ (856) $ 1,598 $ (4,704)
============ ============ ============= ============
Loss from discontinued operations $ (143) $ (1,071) $ (306) $ (266)
============ ============ ============= ============
Net income (loss) $ 1,044 $ (1,927) $ 1,292 $ (4,970)
============ ============ ============= ============
Weighted average common shares - basic 102,280 92,064 101,480 90,931
============ ============ ============= ============
Options and warrants included in the diluted calculation 5,086 - 5,410 -
============ ============ ============= ============
Weighted average common shares - diluted 107,366 92,064 106,890 90,931
============ ============ ============= ============
Basic income (loss) per share:
Income (loss) from continuing operations $ 0.01 $ (0.01) $ 0.02 $ (0.05)
============ ============ ============= ============
Loss from discontinued operations $ 0.00 $ (0.01) $ 0.00 $ (0.00)
============ ============ ============= ============
Net income (loss) $ 0.01 $ (0.02) $ 0.02 $ (0.05)
============ ============ ============= ============
Diluted income (loss) per share:
Income (loss) from continuing operations $ 0.01 $ (0.01) $ 0.01 $ (0.05)
============ ============ ============= ============
Income (loss) from discontinued operations $ 0.00 $ (0.01) $ 0.00 $ (0.00)
============ ============ ============= ============
Net income (loss) $ 0.01 $ (0.02) $ 0.01 $ (0.05)
============ ============ ============= ============
Antidilutive options and warrants not included in calculation 8,569 13,530 8,522 13,518
============ ============ ============= ============
<FN>
</FN>
</TABLE>
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FORM 10-Q IMATRON INC. JUNE 30, 2000
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Note 6 - ENTERPRISE WIDE 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-7).
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 31,1999. 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.
The following table summarizes the results of operations for the Company's two
major continuing business segments for six month periods ended June 30,
(in thousands):
<TABLE>
<CAPTION>
Imatron Caral Eliminations Consolidated
------------------ ----------------- ------------- -----------------
<S> <C> <C> <C> <C>
2000:
Revenues from external customers $ 26,480 $ 385 $ - $ 26,865
Intersegment revenues 1,052 (1,052)
Total revenue 26,480 1,437 (1,052) 26,865
Operating income 1,217 101 - 1,318
Total assets as of June 30, 2000 45,828 827 (734) 45,921
1999:
Revenues from external customers $ 13,122 $ 388 $ - $ 13,510
Intersegment revenues 274 (274)
Total revenue 13,122 662 (274) 13,510
Operating loss (4,503) (114) (27) (4,644)
Total assets as of June 30, 1999 30,875 465 (544) 30,796
</TABLE>
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FORM 10-Q IMATRON INC. JUNE 30, 2000
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Note 7 - 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 June 30, 2000 and
December 31, 1999 balance sheets.
HeartScan statements of operations data for the periods ended June 30, 1999 and
1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months ended Six Months ended
--------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ----------- -------------
<S> <C> <C> <C> <C>
Revenues $ - $ 540 $ - $ 1,250
Costs and expenses (143) (1,176) (306) (2,576)
------------ ------------ ----------- -------------
Loss before income taxes (143) (636) (306) (1,326)
Gain on sale of assets of discontinued operations - (435) - 1,060
Provision for income taxes - - - -
------------ ------------ ----------- -------------
Loss from discontinued operations $ (143) $ (1,071) $ (306) $ (266)
============ ============ =========== =============
</TABLE>
HeartScan statements of operations include costs of sales related to
transactions with Imatron in the amount of $90,000 and $200,000 for three and
six months ending June 30, 999, respectively. There were no such transactions
in 2000.
A summary of the net assets of discontinued operation is as follows:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------------------- ----------------------
(In thousands, except per share amounts)
<S> <C> <C>
Cash and cash equivalents $ - $ 1,245
Accounts receivable - net and other current assets 8 110
Other current liabilities (28) (21)
Lease obligations - current portion (319) (315)
---------------------- ----------------------
Net current assets (liabilities) of discontinued operation (339) 1,019
---------------------- ----------------------
Property, plant and equipment, net 1,253 1,360
Lease obligations - long-term portion (836) (891)
---------------------- ----------------------
Long-term net assets of discontinued operation $ 417 $ 469
====================== ======================
</TABLE>
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FORM 10-Q IMATRON INC. JUNE 30, 2000
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At the measurement date, the Company estimated that although a gain would be
realized upon the ultimate sale, HeartScan would continue to incur operating
losses through the disposal date. In the fourth quarter of 1998, the Company
changed its strategy from selling HeartScan to a single buyer to that of selling
the individual centers to buyers located in the cities where the centers were
located.
On February-10, 1999, the Company sold its HeartScan - San Francisco center
and related C-150 scanner and other equipment. Proceeds from sale were
$1,500,000 resulting in a net gain of approximately $1,396,000.
On June 17, 1999, the Company sold its HeartScan - Pittsburgh center and related
C-150 scanner and other equipment for $650,000 resulting in a net loss of
approximately $237,000.
On July 8, 1999, the Company sold the C-150 scanner formerly used by
HeartScan - Seattle for $625,000. The sale resulted in a net loss of
approximately $617,000.
On November 19, 1999, the Company sold its HeartScan - Houston and Washington DC
centers and the related C-150 scanners and other equipment for $2,200,000.
The sale resulted in a net gain of approximately $507,000.
The Company expects that the discontinued operations will continue to operate
at a loss through the disposal date of its final center in Cascais, Portugal.
As of June 30, 2000, the Company adjusted its accrued loss and expected gain
to reflect 2000 losses to be incurred of approximately $400,000 through the
disposal date and a realized net gain on disposal of approximately $100,000.
The fiscal year 2000 losses represent scanner depreciation and interest expense
on the scanner lease obligation and do not represent other operating expenses.
Note 8 - EQUITY TRANSACTIONS
In 2000, the Company raised $2,736,000 from exercises of stock options,
warrants, and sale of its common stock, at an average price of $2.39 per share.
The Company issued a total of 1,146,114 shares of its common stock in relation
to these transactions. In addition, the Company issued warrants and options
to purchase shares of the Company's common stock to certain consultants at
$3.00 and $2.00 per share, respectively. The fair value of these securities
estimated on the date of grant using the Black Scholes option-pricing model
was approximately $1.19 for warrants and $1.74 for options, with the
following assumptions: expected stock price volatility of 80.20%; risk-free
interest rate of 6.25%; and an expected 10 year life. The valuation was
recorded as an increase in additional paid in capital amounting to $234,000.
The warrants were recorded as a debit to deferred compensation and amortized
quarterly as vested, over one year period. The options were recorded as prepaid
expense and amortized over two years, the term of the agreement.
During the second quarter of 2000, the President of the Company exercised his
warrants to purchase 2,991,027 shares of the Company's common stock
(see Note 9). These warrants were issued under the 1999 private placement
offering of the Company's common stock.
Note 9 - NOTES RECEIVABLE FROM OFFICERS
At June 30, 2000, the Company held 2 notes receivable amounting to $3,000,000
and $113,000 (remaining balance to original loan of $336,000) from the Company's
President and the Chief Executive Officer, respectively. These notes arose
from transactions in 2000 and 1998, whereby the Company provided loans to
purchase an aggregate of 3,591,027 shares of common stock. These shares were
issued upon the exercise of warrants and stock options to purchase 2,991,027 and
600,000 shares of common stock, respectively. The loans have stated market
interest rates and are full recourse. The receivables are shown on the balance
sheet as a reduction in equity.
Note 10 - BONUS INCENTIVE PLAN
On June 12, 2000, the Company's shareholders approved the increase in the
number of shares to be issued in any single year pursuant to the Stock Bonus
Incentive Plan, from 400,000 common shares to 650,000 common shares.
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FORM 10-Q IMATRON INC. JUNE 30, 2000
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's Condensed Consolidated Financial Statements and related Notes
thereto contained elsewhere with this document. Operating results for the
three and six month periods ended June 30, 2000 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, 1999.
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, 1999. The Company expressly disclaims any
obligation to update any forward-looking statements.
Results of Continuing Operations:
Three months ended June 30, 2000 versus 1999
Total revenues for the three months ended June 30, 2000 of $15,517,000 increased
$7,237,000 or 87% compared to revenues of $8,280,000 for the same period in
1999. Net product revenues increased to $13,554,000 in 2000 from
$6,394,000 in 1999 due to shipment of 8 scanners in 2000 compared to 4 in 1999.
Service revenues decreased to $1,703,000 in 2000 from $1,763,000 in 1999
due to a decrease in the number of service contracts maintained offset by an
increase in spare parts shipped. Other product sales represent revenues from
Caral's machining and fabrication services. Other product sales increased to
$260,000 in 2000 from $123,000 in 1999 due to an increase in sales to external
customers.
Total cost of revenues as a percent of revenues for the three months of
2000 was 59% as compared with 70% in 1999. Product cost of revenues as a
percent of product revenues decreased to 55% in 2000 from 68% in 1999 due to
higher margins on scanners shipped in 2000. The high cost of product sales in
1999 was due to lower production of new scanners, resulting in a higher
portion of the fixed overhead of manufacturing facility being expensed to
each scanner manufactured. Service cost of revenues as a percent of service
increased to 89% in 2000 as compared to 73% in 1999 due to an increase in
headcount to support applications training for scanners sold. Other product
cost of revenues as a percent of other product revenues decreased to 92% in 2000
from 120% in 1999 due to increased sales to external customers.
Operating expenses for the three months of 2000 increased 59% to $5,295,000,
or 34% of revenues, compared to $3,322,000, or 29% of revenues in 1999.
Research and development expenses of $1,943,000 in 2000 increased from
$1,659,000 in 1999 due primarily to increased compensation paid to employees
to remain competetive with the local economy. Marketing and sales expenses
increased to $1,992,000 in 2000 from $1,086,000 in 1999 primarily due to
increases in headcount and sales commissions resulting from increased
scanner sales. Administrative expenses increased to $1,324000 in 2000 from
$528,000 in 1999 due primarily to increases in headcount, bad debt provision
relating to certain distributors and investor relation expenses. Goodwill
amortization amounting to $36,000 and $49,000 in 2000 and 1999, respectively,
represent the amortized portion of goodwill related to the acquisition of Caral.
Other income increased to $186,000 for the three months ending June 30, 2000
from $18,000 in the comparable period of 1999. The increase was attributable
to higher cash balances and investments in interest-bearing securities.
Interest expense represents interest incurred on capital lease obligations on
certain office equipment.
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FORM 10-Q IMATRON INC. JUNE 30, 2000
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Six months ended June 30, 2000 versus 1999
Overall revenues for the six months ended June 30, 2000 of $26,865,000 increased
$13,355,000 or 99% compared to revenues of $13,510,000 for the same period in
1999. Net product revenues increased to $23,162,000 in 2000 from $9,742,000
in 1999 due to shipment of 15 scanners in 2000 compared with 6 in 1999. Service
revenues slightly decreased to $3,318,000 in 2000 from $3,380,000 in 1999 due
to a decrease in the number of service contracts maintained offset by an
increase in spare parts shipped. Other product sales represent revenues from
Caral's machining and fabrication services. Other product sales decreased to
$385,000 in 2000 from $388,000 in 1999 due to a slight decrease in sales to
external customers.
Total cost of revenues as a percent of revenues for the first six months of
2000 was lower at 57% as compared with 80% in 1999. Product cost of revenues
as a percent of product revenues decreased to 54% in 2000 from 78% in 1999 due
to a combination of higher selling prices and lower unit cost due to increased
production in 2000. Additionally, gross margins were adversely affected by a
smaller build plan for the second quarter 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 77% in 2000 from 82% in 1999 due to higher margins on
spare parts shipped. Other product cost of revenues as a percent of other
product revenues decreased to 96% in 2000 from 105% in 1999 due to manufacturing
efficiencies of Caral's machining and fabrication segment.
Operating expenses for the six months of 2000 increased 36% to $10,109,000,
or 38% of revenues, compared to $7,406,000, or 55% of revenues in 1999.
Research and development expenses of $3,824,000 in 2000 increased from
$3,467,000 in 1999 due to an increase in R&D projects being undertaken.
Marketing and sales expenses increased to $3,937,000 in 2000 from
$2,254,000 in 1999 due primarily due to increases in headcount and sales
commissions resulting from increased scanner sales. Administrative expenses
increased to $2,277,000 in 2000 from $1,334,000 in 1999 due primarily to
increases in headcount, bad debt provision relating to certain distributors,
and investor relation expenses. Goodwill amortization amounting to $71,000 an
$69,000 in 2000 and 1999, respectively, represent the amortized portion of
goodwill related to the acquisition of Caral. Restructuring charges of
$282,000 relates to severance and other benefits paid by the Company during the
first quarter of 1999 as part of its reorganization plan.
Other income increased to $293,000 for the first six months of 2000 from
$27,000 in the comparable period of 1999. The increase was attributable to a
higher cash balances and investments in interest-bearing securities. Interest
expense represents interest incurred on capital lease obligations on certain
office equipment.
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.
At the measurement date, the Company estimated that although a gain would be
realized upon the ultimate sale, HeartScan would continue to incur operating
losses through the disposal date. In the fourth quarter of 1998, the Company
changed its strategy from selling HeartScan to a single buyer to that of selling
the individual centers to buyers located in the cities where the centers were
located. As such, the Company reassessed its estimate of the gain on disposal
to reflect the Company's change in strategy.
In 1999, the Company sold all its domestic centers for a net gain of
$1,049,000. At December 31, 1999, the Company had one remaining center in
Cascais, Portugal. The Company expects that the discontinued operations will
continue to operate at a loss through the disposal of its final center. However,
management's current best estimate indicates that the disposal of the Cascais
center will result in a gain. As of June 30, 2000, the Company adjusted its
accrued loss and expected gain to reflect 2000 losses to be incurred of
approximately $400,000 through the disposal date and a realized net gain on
disposal of approximately $100,000. The additional losses are primarily from
scanner depreciation and interest expense on the scanner lease obligation and do
not represent other operating expenses.
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FORM 10-Q IMATRON INC. JUNE 30, 2000
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Liquidity and Capital Resources:
At June 30, 2000, working capital increased to $26,384,000 compared to
December 31, 1999 working capital of $22,217,000. The current ratio increased to
2.8:1 at June 30, 2000 compared to 2.7:1 at December 31, 1999.
The Company's total assets increased to $46,338,000 for the six month
period ending June 30, 2000 compared to December 31, 1999 total assets of
$40,643,000. Cash and cash equivalents and short-term investments decreased
to $10,079,000 in 2000 from $11,197,000 in 1999 due primarily to the purchase of
scanner materials, partially offset by increased proceeds realized from
issuance of securities. Cash used in continuing operations increased to
$3,760,000 for the six months ended June 30, 2000 compared to $1,811,000 during
the same period in 1999 due to increases in receivables and inventory purchases
offset by a reduction in accounts payable. The increase in accounts receivable
was primarily due to an increase in revenues resulting from shipment of 15
scanners in 2000 compared to 6 scanners during the same period in 1999. The
increase in inventory was due to increases in work-in-process and finished
goods to meet anticipated scanner shipments. Accounts payable decreased as a
result of accelerated payments to vendors to maintain balances on a more current
basis.
Cash provided by discontinued operations decreased to $1,086,000 for the six
months ended June 30, 2000 compared to $1,429,000 during the same period in 1999
due to the net proceeds realized from the sale of the HeartScan centers in 1999.
Net loss from discontinued operations for the six month period ended
June 30, 2000 increased to $306,000 as compared to $266,000 for the same period
in 1999. The increase in net loss was due to the $1,060,000 net gain realized
on the sale of the assets in 1999 and the decrease in operating losses in 2000.
The gain on sale of assets in 1999 relates to the net gain recognized from the
sale of HeartScan-San Francisco center to International Technology Group
offset by loss from sale of HeartScan-Pittsburgh to University of Pittsburgh
Medical Center. The decrease in operating losses was due to the closure of all
HeartScan domestic centers which were consistently operating at a loss.
The Company's investing activities for the six months ended June 30, 2000
included purchases of capital equipment and marketable securities amounting to
$1,195,000 and $2,062,000, respectively, offset by maturities of marketable
securities in the amount of $2,063,000. The Company's investing activities in
1999 included acquisition of Caral amounting to $273,000 (net of cash acquired)
and purchase of equipment totaling $548,000.
Cash provided by financing activities was $2,751,000 for the six month period
ended June 30, 2000 as compared with $3,460,000 for the same period in 1999.
Significant sources of cash in financing activities were proceeds of
$2,736,000 and $4,351,000 from sale of common stock and exercise of stock
options and warrants during the six month period ended June 30, 2000 and 1999,
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 June 30, 2000 and the estimated
proceeds from ongoing sales of products and services in 2000 will provide the
Company with sufficient cash for operating activities and capital
requirements through December 31, 2000.
The Company expects to devote substantial capital resources to research and
development, to support a direct sales force and marketing operations and to
continue to support its manufacturing capacity and facilities. To satisfy
the Company's capital and operating requirements beyond 2000, 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.
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FORM 10-Q IMATRON INC. JUNE 30, 2000
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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 June 30, 2000, the Company had money market mutual funds,
certificates of deposit and commercial paper which mature in less than six
months. Additionally, the Company maintained leases for a scanner and other
equipment that have been accounted for as capital leases with a total
obligation of $133,000 as of June 30, 2000.
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.
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FORM 10-Q IMATRON INC. JUNE 30, 2000
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
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 Exhibits:
No. 27 - Financial Data Schedule as of June 30, 2000.
Form 8-K Reports: None.
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FORM 10-Q IMATRON INC. JUNE 30, 2000
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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: August 8, 2000
IMATRON INC.
(Registrant)
Frank Cahill
Vice President, Finance/Administration,
Chief Financial Officer and Secretary
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