FY 1999 IMATRON INC. FORM 10-K
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
Commission file number 0-12405
[IMATRON INC. LOGO]
a New Jersey Corporation
I.D. No. 94-2880078
389 Oyster Point Blvd, South San Francisco, CA 94080
Telephone (650) 583-9964
Securities Registered Pursuant to Section 12 (6) of the Act: NONE
Securities Registered Pursuant to Section 12 (9) of the Act: COMMON STOCK,
WITHOUT PAR VALUE
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 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 [ ] No [ ]
================================================================================
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
The aggregate market value of the voting stock (which is the outstanding Common
Stock) of the Registrant held by non-affiliates thereof, based upon the closing
sale price of the Common Stock on March 8, 2000, on the Nasdaq National Market
System ($4.75 per share) was approximately $449,918,143. For the purpose of the
foregoing computation, only the directors and executive officers of the
Registrant were deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
As of March 8, 2000, Registrant had 100,759,119 outstanding shares of Common
Stock, no par value, which is the only class of shares publicly traded.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Proxy Statement for Registrant's 1999 Annual Meeting of
Shareholders, to be filed with the Commission on, or before 120 days after the
end of the 1998 fiscal year, are incorporated by reference into Part III hereof.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K (x).
THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM THOSE DESCRIBED IN ANY SUCH FORWARD LOOKING STATEMENTS.
RISKS INHERENT IN IMATRON'S BUSINESS AND FACTORS THAT COULD CAUSE OR CONTIBUTE
TO SUCH DIFFERENCES INCLUDE, WITHOUT LIMITATION, THE CONSIDERATIONS SET FORTH
UNDER "MANAGEMENT'S DISCUSSION AND ANYALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS." THE COMPANY EXPRESSLY DISCLAIMS ANY OBLIGATION TO UPDATE ANY
FORWARD LOOKING STATEMENTS.
================================================================================
2
<PAGE>
PART I
ITEM 1 - BUSINESS
GENERAL
Imatron Inc. was incorporated in New Jersey in 1983. References in this Form
10-K to "Imatron", "the Company", "we", "our", and "us" refer to Imatron Inc., a
New Jersey Corporation. The Company is a technology-based company principally
engaged in the business of designing, manufacturing and marketing a high
performance computed tomography ("CT") scanner. This scanner uses Electron Beam
Tomography ("EBT") technology based on a fixed scanning electron beam. The
scanner is used in large and midsize hospitals and free-standing imaging
clinics. In addition to providing service, parts and maintenance to hospitals
and clinics that operate its scanners, the Company also offers its service
capability to other manufacturers of high tech medical equipment.
HeartScan Imaging, Inc. ("HeartScan"), incorporated in Delaware in 1993, is a
diagnostic services subsidiary of the Company. HeartScan offers coronary artery
scanning ("CAS") and Coronary Artery Disease ("CAD") risk assessment services.
Its five centers in the United States were sold in 1999. It's last remaining
center is located in Cascais, Portugal. Plans are for this last site to be sold
in the fiscal year 2000.
PRODUCT AND SERVICES
EBT SCANNER
PRODUCT DESCRIPTION
A conventional CT scanner is a diagnostic imaging device in which a single or
multiple cross-sectional (tomographic) images of a patient's anatomy are/is
acquired from multiple intensity readings (samplings) taken as an x-ray source
mechanically rotates around the patient during a scanning cycle. The acquired
x-ray data are processed through a complex mathematical algorithm relating
variations in the intensity of x-rays passing through a patient's body to tissue
density differences. The acquired data are subsequently reconstructed and
displayed as images on a video monitor, typically with white corresponding to
high-density matter, such as bone or calcium, and with black corresponding to
low-density matter, such as air. In this manner, the patient's anatomy can be
displayed in a succession of cross-sectional, anatomical gray-scale
representations.
The Imatron EBT scanner design differs significantly from conventional CT
scanners in two important ways. First, the mechanically rotating x-ray tube
technology of conventional CT scanners is replaced by a high power electron gun
that generates a focused, high-intensity electron beam which is steered along
stationary x-ray target rings to produce a rotating fan-shaped x-ray beam. This
patented electron beam technology permits significantly faster scanning speeds.
The Company's scanner can acquire CT images at a scan speed of 50 to 100
milliseconds per slice in contrast to conventional CT scanners that require
between 0.5 and 3 seconds per slice to acquire an image. Second, the Imatron EBT
Scanner permits rapid scanning of multiple contiguous images without moving the
patient. With these features, the EBT scanner can perform stop-action or dynamic
studies of the heart and various other organs, contributing to the scanner's
usefulness for both diagnostic imaging and functional evaluation.
The EBT scanner can be operated in three scanning modes: Single Slice mode,
Multi-Slice mode and Continuous Volume Scanning mode. The Single Slice mode can
acquire up to 140 images per acquisition and can be timed to the heart cycle
with prospective ECG triggering. This mode employs scan times from 100
milliseconds to 2 seconds as compared to 0.5 to 3 second exposure times of
conventional CT scanners. The Multi-Slice mode incorporates scan times of 50
milliseconds and can acquire up to 180 images in 6 seconds. This mode can also
be timed over the cardiac cycle with prospective ECG triggering. The Continuous
Volume Scanning mode can acquire up to 140 images in 15 seconds, outperforming
spiral or helical scanning modes on conventional CT scanners. Advantages include
excellent slice registration for 3D reconstruction, respiratory motion-free
pulmonary imaging, pediatric scanning, trauma, IV contrast reduction, and
increased patient throughput.
PRODUCT DEVELOPMENT
In December 1998, the Company completed its version 12.4 software development.
Software version 12.4 brings the C-150XP and C-150LXP into full year 2000
compliance, using 4 digits for all dates. The new software version also has
algorithmic improvements which affect image quality, allowing improved images of
================================================================================
3
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
the head, chest, and abdomen, especially with the high resolution detector.
Software version 12.4 was thoroughly tested in late 1998, and was released for
general use in January 1999.
In March 1998, the Company developed and released for sale to its customers the
High Resolution Detector System (HRDS) for its EBT scanners. The new HRDS
increased the spatial resolution of the single slice mode from 7 to 9.5 line
pairs per centimeter and the multi-slice mode from 3 to 4.50 line pairs per
centimeter. The increased spatial resolution improved the scanner's performance,
especially in neurologic, pulmonary, and abdominal applications. It also
increased the total number of detector channels from 1,296 to 3,456, improved
image data correction during reconstruction, and enhanced overall image quality.
In October 1997, the Company received the 510(k) market clearance from the
Federal Food and Drug Administration ("FDA") for cardiac specific applications
included on the UltraAccess workstation. These applications include 3-D "Calcium
Scoring" and cardiac perfusion. In November 1997, the Company received 510(K)
market clearance from the FDA for its new 3456 Channel Dual Slice Detector Array
C-150 EBT scanner.
In November 1999, the Company received 510(k) market clearance from the FDA for
the Electron Beam Angiography (EBA) application of its scanner.
MARKETS
The Company sells its EBT scanner in the diagnostic medical imaging market. This
market includes several different modalities such as CT, ultrasound, nuclear
medicine, coronary angiography, and magnetic resonance imaging. These imaging
modalities are based upon the ability of x-rays, sound waves, gamma rays, or
magnetic fields to penetrate human tissue and be detected by electronic devices
for image presentation on a video monitor. In some cases, these imaging
modalities compete with one another for the same type of procedure.
These systems have been evaluated in the diagnosis of cardiac diseases, but the
extent of application of several is limited due to image degradation, artifacts,
and distortions arising from the heart's motion as it beats at a frequency
greater than the scanning speed of these systems. The fast scanning speed of the
EBT scanner allows it to "freeze" the motion of the beating heart in order to
image and quantify small calcium deposits in the coronary arteries. The images
that result are sharp and free of motion related artifacts. The procedure for
accurately measuring the volume and extent of coronary artery calcification is
known as the coronary artery scan ("CAS").
Cardiovascular disease is the number one cause of death in the United States,
accounting for more than 950,000 deaths annually. Of these deaths, coronary
heart disease accounts for approximately 500,000 deaths. Of particular
importance is the fact that in approximately 150,000 cases annually, the first,
last and only symptom of coronary heart disease is a fatal heart attack. The
Company believes that this widespread incidence of coronary heart disease in the
United States, indicates a clear need for a safe and effective test for the
earliest stages of coronary heart disease.
The correlation between calcium in the coronary arteries, atherosclerosis, and
myocardial infraction (heart attack) has been known since the 1950's. By the
mid-1960's, selective coronary angiography was introduced and soon became a
routine procedure. Since that time, coronary angiography, which demonstrates
narrowing, or occlusion, of the coronary arteries, has become the "gold
standard" for positive identification of coronary artery disease. Abnormal
results from screening tests, such as exercise electrocardiography ("ECG"),
thallium stress nuclear medicine and stress echocardiography are commonly used
as an indication for coronary angiography. These tests produce a significant
percentage of false abnormal results such that as many as 25% - 35% percent of
the coronary angiograms conducted are deemed to be normal. Since coronary
angiography is both expensive and invasive, the patient in these false abnormal
cases is unnecessarily exposed to some risk of morbidity, or even death, as well
as a significant radiation dose. In addition, statistics indicate that some
patients die suddenly after receiving a "normal" stress ECG study and are then
found, upon autopsy, to have had significant coronary artery disease. The
Company believes these statistics illustrate the inadequate predictive value of
the standard, noninvasive tests for diagnosing coronary artery disease.
The Company further believes that research demonstrates that CAS has the
potential to accurately identify those people who are developing early coronary
artery disease. CAS can then serve as a feedback mechanism to monitor the
treatment of those with early coronary artery disease, a disease which may slow,
stop, or regress in response to treatment. Until now, the only way to directly
determine the effect of life-style modification and lipid-lowering pharmacologic
================================================================================
4
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
treatment on coronary artery disease was to perform repeated invasive, costly
coronary angiography or invasive intravascular ultrasound.
For those patients in whom CAS detects advanced coronary artery disease,
intervention may help prevent a crippling heart attack or sudden death. The CAS
test also has great potential for reducing the costs associated with the
unnecessary treatment of those who have coronary risk factors, but show no sign
of coronary artery disease. It is estimated that 30% - 35% of people with
elevated cholesterol levels do not develop coronary artery disease. Since there
has not been, until the advent of the EBT scanner, a method to identify those
who are beginning to develop coronary disease, individuals with a high
cholesterol reading have been treated as if they will develop heart disease. The
Company believes that CAS is a powerful and cost-effective method for detecting,
or ruling out, coronary artery disease and represents a unique market.
Currently, only the EBT scanner can provide the necessary technological
capability to address these clinical application requirements. Notwithstanding
the foregoing, to date, CAS has not been broadly accepted as a method of
identifying coronary artery disease, and there is no assurance that a
significant market will develop for this procedure.
In addtion to the CAS test, the Company's EBT technology received market
clearance from the FDA in November, 1999 for a newly developed procedure known
as Electron Beam Angiography ("EBA"). This unique procedure utilizes a less
invasive intravenous injection of x-ray contrast agent as opposed to threading a
catheter into the femoral artery to the heart as required by conventional x-ray
coronary angiography. In the EBA procedure, a series of contiguous contrast
enhanced images is obtained and electronically transmitted to a powerful desktop
3-D workstation. The resulting three dimensional EB angiogram can be used to
determine the patency of coronary artery bypass grafts, stents and the
effectiveness of "balloon" angioplasty procedures. The combination of the
Company's EBT scanner's unparalleled image acquisition speed with new, powerful
PC microprocessor driven workstations provides unique 3-D imaging capability in
the heart, lungs, colon, and other organs. EBA offers the potential for
significant cost savings when evaluating patients with atypical chest pain by
detecting significant levels of coronary stenosis non-invasively.
Imatron believes that possible factors affecting the demand for its products
include, among others, potential customers' budgetary constraints including
those imposed by government regulation, changes in the reimbursement policies of
the government and third party insurers, replacement of older equipment,
advancements in technology, and the introduction of new medical procedures.
CUSTOMER SERVICE
The Company and its distributors provide installation, customer warranty, and
service to their respective customers. Imatron provides warranty on the EBT
scanner during the 12-month period following installation. In addition, the
Company provides other product support services, including a telephone hotline
for customer inquiries, product enhancements and maintenance releases. The
Company also offers training at customers' locations and the Company's
facilities to both end-users and distributors.
In 1997, Imatron expanded its service business to include installation,
warranty, repair, training and support services to other manufacturers of high
tech medical equipment. Imatron entered into a two-year service support
agreement in February 1998, with AccuImage Diagnostics, to provide worldwide
customer support service for its Three-Dimensional Volume Visualization
Workstation.
The Company maintains customer support centers in South San Francisco,
California and Munich, Germany and field service personnel in the United States,
Europe and Asia for its service business. Together with its distributors, the
Company services over 115 installed EBT systems worldwide including
approximately 20 systems manufactured by vendors other than Imatron. The Company
generates service revenues under service contracts with Imatron and non-Imatron
customers, providing service on a "contract" and "time and material" basis to
such customers after the warranty period.
RESEARCH AND DEVELOPMENT CONTRACTS
For the period from March 31, 1995 to March 31, 1998, the Company and Siemens
Corporation ("Siemens") operated under a 1995 Memorandum of Understanding
whereby Siemens provided $15,000,000 to the Company's C-150 Evolution EBT
scanner research and development program paid to the Company in quarterly
non-refundable payments. The results of the collaborative research were jointly
owned by the parties and cross licensed. For the period from March 31, 1995 to
================================================================================
3
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
March 31, 1998 Siemens retained exclusive distribution rights in certain
geographical regions for sales of the C-150/Evolution scanner. The Company
recognized revenue of $1,250,000, $5,000,000, and $5,000,000 under the
collaborative agreement in 1998, 1997, and 1996, respectively.
On April 1, 1998, Imatron's obligations and Siemens' funding under the
Memorandum of Understanding terminated. In addition, Siemens surrendered its
exclusive distribution rights and Imatron assumed worldwide distribution for its
C-150 scanners. Imatron continues to provide scanner service support to Siemens'
customers under the service support agreement signed with Siemens. For an agreed
upon amount, Imatron provides all pre-installation site planning, installation
and application support, as well as, warranty and maintenance services, as a
subcontractor to Siemens. Revenues for services are recognized ratably over the
life of the contracts while other service revenues are recognized upon
completion of work.
On July 22, 1997, the Company and TeraRecon, Inc., a privately-held company
engaged in the design of high-speed image processing devices for medical imaging
systems, entered into a development agreement. The agreement requires the
delivery by TeraRecon to Imatron of a real-time image reconstruction system for
use in conjunction with Imatron's EBT scanner. Upon completion of prototypes and
delivery, the TeraRecon RTR-2000 system will be exclusive to Imatron's EBT
scanner and will expand the EBT scanner's current applications to include CT
fluorography, real-time viewing of EBT images, EBT guidance of minimally
invasive surgical procedures and timings of contrast studies.
In consideration for the successful development and delivery of RTR-2000
systems, the Company has agreed to issue an aggregate of 6,000,000 warrants to
purchase the Company's Common Stock at $4.50 per share. The warrants will be
issued in installments based on TeraRecon achieving certain milestones in
connection with the development of the image reconstruction system. In addition,
TeraRecon has agreed to pay Imatron an aggregate of $2,000,000 for 4,000,000 of
the 6,000,000 warrants and to make royalty payments to Imatron equal to 3% of
net sales of certain RTR-2000 systems sold to third parties. As of December 31,
1998, the Company has issued to TeraRecon warrant to purchase 4,000,000 shares
of Imatron Common Stock.
In February 1999, the Company and TeraRecon agreed to modify the development
agreement releasing TeraRecon from its obligation to purchase the remaining
2,000,000 stock purchase warrants. TeraRecon has agreed to develop a more
stable, reliable, and easier-to-maintain image reconstruction system at no
additional cost to Imatron and upgrade five units of the current RTR-2000
systems for no more than $25,000 per unit. Imatron canceled the 3% royalty
payment pursuant to the original agreement.
MARKETING
The Company's EBT scanners are utilized by a variety of customers including
large teaching and research hospitals, medium-size hospitals, and imaging
clinics.
The Company sells its EBT scanner directly and through distributors. The Company
has, or had, the following distribution arrangements:
UNITED STATES, CANADA, AND EUROPE
In April 1995, pursuant to a Memorandum of Understanding, the Company entered
into an agreement with Siemens giving Siemens the exclusive right to distribute
the Company's EBT scanner in the United States, Canada, Europe and India (see
"Transactions With Siemens Corporation" below). On April 1, 1998, the exclusive
distribution rights reverted to Imatron and the Company assumed worldwide
distribution for its scanners. Siemens purchased two and seven EBT scanners in
1998 and 1997, respectively. In 1999, in response to the cancellation of this
distribution agreement, the Company expanded its direct sales force from 3 to 15
individuals who sold 15 EBT scanners in the United States.
On July 1, 1998, the Company entered into a non-exclusive sales agency agreement
with GE Medical Systems ("GEMS") to sell EBT scanners throughout the United
States and Canada. The agreement provides that all contracts resulting from the
================================================================================
6
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
joint marketing effort are written directly by the Company. Imatron assumes
installation and customer service responsibilities, while GEMS provides
financing options for customers purchasing the equipment. The Company believes
that the marketing alliance with GEMS will enhance its distribution capabilities
in Northern America and penetrate the EBT scanner market more effectively. The
contract has a term of 2 years with an option to extend for an additional year
at GEM's sole discretion. The Company has agreed to pay GEMS a commission on all
sales directly resulting from the Company's corporate alliance with GEMS. In
1999, the Company sold one EBT scanner under this agreement. There can be no
assurance that the GEMS sales agency agreement will result in significantly
increased sales by the Company.
JAPAN
On January 7, 1994, Imatron entered into a Joint Company Agreement with Tobu
Land System Company and Kino Corporation pursuant to which a joint venture
company was established to market, sell, install and service Imatron EBT
scanners in Japan. The joint venture was designated as Imatron Japan, Inc. and
is owned by Tobu Land System Company, Kino Corporation and Imatron in increments
of 51%, 25% and 24% respectively.
On February 3, 1994, Imatron and Imatron Japan, Inc. entered into a
Distributorship Agreement pursuant to which Imatron Japan, Inc. has been
appointed as Imatron's exclusive distributor in Japan. Imatron Japan, Inc. took
delivery of two, two, three, and five C-150 EBT scanner systems from Imatron in
1999, 1998, 1997, and 1996, respectively. Imatron Japan, Inc. also purchased two
refurbished EBT systems in 1995. These units, paid for by irrevocable letters of
credit, are without a right-of-return provision and have no special
arrangements. In connection with these sales, the Company paid $130,000 in
commissions for each new C-150 EBT scanner sold to Imatron Japan, Inc. through
1996. As of 1997, these commissions were reduced to $60,000 per each new machine
sold to Imatron Japan, Inc. Due to the economic uncertainties in Japan, Imatron
Japan, Inc. was able to accept only two scanners each in 1999 and 1998 out of
the five originally ordered for each of the fiscal years.
RELIANCE ON DISTRIBUTORS
Historically, a substantial portion of the Company's sales of its scanners was
done through distributors or sales agents. There is no assurance that the
Company's distributors or sales agents will meet their contractual minimum
obligations (if any) on a timely basis. Failure by distributors to meet their
obligations could adversely affect the Company's operations and financial
position. During 1999 the Company conducted extensive training of its
distributors and added distributors in Germany, Korea, Argentia, Greece, Egypt,
Saudi Arabia and Turkey. Additionally, during 1999, the Company expanded its
direct force from 3 to 15 individuals and no longer has any exclusive
distributors in the United States.
SALES INFORMATION
The scanner sales price varies depending on customer requirements. In
particular, sales to Siemens, Imatron Japan, Inc. and certain distributors/sales
agents have a lower gross margin than sales to other third parties. The sales
price (with the sole exception of Imatron Japan, Inc.) includes installation by
field service personnel, system check and certification, customer applications
training, and a 12-month warranty. In addition, local taxes and import duties
may be added. This price, which is higher than that of conventional CT scanners,
may serve to limit sales of the Company's scanner to larger hospitals and
medical imaging clinics that are able to generate a higher than average patient
volume to offset the higher cost.
Unit scanner export sales for fiscal years ended December 31 are as follows:
1999 1998 1997
---- ---- ----
Total export sales 4 6 15
TRANSACTIONS WITH SIEMENS CORPORATION
In March 1991, the Company entered into a Basic Agreement with Siemens
Corporation which consisted of four separate subagreements, each of which has
been subsequently modified in various respects by the parties. The four
================================================================================
7
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
subagreements included a $4 million term loan; a distribution agreement; a
development agreement; and a license agreement.
On March 31, 1995, the Company and Siemens entered into a three-year agreement
(the "Memorandum of Understanding" or "MOU") pursuant to which the relationship
of the parties as established by the Basic Agreement was substantially
restructured. Pursuant to the MOU, the sub-agreements of the Basic Agreement
were terminated and a number of new relationships were created. First, Siemens
agreed to exchange the Company's $4.0 million note for five patents, subsequent
to an arms-length negotiation between the two parties and to a royalty-bearing
license back to Imatron (see Patents and Licenses below). In addition, the
minimum purchase provision of the previous distribution agreement was canceled.
The sale of the patents has no material impact on the Company as Siemens granted
to Imatron a non-exclusive, irrevocable, perpetual royalty-bearing license on
the transferred patents. These patents were not part of the technology being
developed under the Collaborative Research Agreement between Siemens and
Imatron. The gain calculated as the difference between the patents' book value
of $0 and the net carrying amount of the extinguished debt of $4,000,000, was
recognized as income in 1995.
Pursuant to the fee arrangements with regard to the use of the technology under
the transferred patents, Imatron will pay to Siemens royalties of $20,000 for
each new C-150 unit (or other EBT unit produced by Imatron after April 1, 1995),
commencing with the 21st C-150 (or other Imatron EBT) unit produced in any year
and continuing thereafter for ten years after such first quarter in which such
21st unit is produced. To date, Imatron has not produced more than 20 scanners
in any year, and therefore, no royalties have been due under this agreement.
Second, the parties agreed to terminate, as of March 31, 1995, the existing
Development Agreement and substitute in its place a new collaborative research
agreement pursuant to which the parties would jointly conduct research and
development over a three year period directed toward the electron beam
technology used in the Company's C-150 product. Both Siemens and Imatron have
irrevocable, perpetual, royalty free, fully paid licenses covering the electron
beam technology developed under the collaborative research, subject to the
following terms and conditions:
(a) During the term of the MOU, a complete copy of which was filed as
Exhibit 10.80 to the Company's 1994 Report on the Form 10-K, either
Party may sublicense, transfer or assign its rights in the electron
beam technology or use the same, in whole or in part, to develop or
manufacture medical products for third parties with prior written
consent of the other Party.
(b) Imatron may not grant to any third party any license in the field of
medical imaging under any or all of the electron beam technology
during the term of the MOU and for three years thereafter.
(c) Either Party may sublicense the technology to its parent, subsidiaries
or 50% or more owned affiliates.
(d) Either Party may sublicense, assign or transfer the technology as part
of its sale of the assets or business relating to the C-150.
(e) With regard to manufacturing C-150 scanners, the C-150 system can only
be manufactured by Siemens after fifty scanners are manufactured,
sold, transferred and/or delivered to Siemens by Imatron in any fiscal
year; or upon default or refusal of Imatron at any time to perform its
obligations to Siemens with respect to the design, manufacture,
service, support, supply of products and parts in order for Siemens to
meet its obligations to third parties.
Pursuant to the collaborative research agreement, Siemens agreed to fund a
maximum aggregate of $15 million of Imatron-managed research and development
over the three years, subject to addressing certain mutually agreed upon goals
and objectives. No milestones or other performance related results were tied to
the payment of funds by Siemens. The Company recognized revenue ratably over the
three year period as its commitment to perform research and development under
the agreement was incurred ratably over the same period.
The Company was not obligated to return the amount funded by Siemens. However,
Siemens had the right to terminate the collaborative research upon three months
written notice in the event objectives agreed upon by both parties had not
achieved reasonable progress. The Company's obligations under this agreement
were as follows:
(a) Imatron was responsible for managing and performing all collaborative
research conducted under the MOU.
================================================================================
8
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
(b) The primary goals of Imatron include cost reductions, improved
quality, performance enhancement and upgradeability.
(c) Imatron funds an amount equal to 50% of Siemens' contribution for the
sole purpose of conducting the collaborative reasearch.
(d) Imatron provides Siemens detailed accounting on the use of monies
contributed pursuant to the agreement.
Third, Siemens was appointed Imatron's exclusive distributor for the Company's
C-150 EBT scanner in the United States, Canada, Europe, and India for a three
year period effective April 1, 1995, and ending March 31, 1998. Siemens agreed
to use its best efforts to distribute the Company's C-150 product in its
exclusive markets subject to no minimum purchase obligations.
In April 1997, Imatron and Siemens entered into a service support agreement,
whereby the Company will provide customer services for C-150 scanners sold by
Siemens. For an agreed-upon amount, Imatron will provide all pre-installation
site planning, installation and application support, as well as, warranty and
post-warranty services, as a subcontractor to Siemens. Revenues for warranty
services are recognized over the life of the contracts, while other service
revenues are recognized upon completion of work.
On April 1, 1998, Imatron's obligations and Siemens' contribution under the MOU
terminated and Imatron assumed worldwide distribution for its C-150 scanners.
COMPETITION
In the non-cardiac imaging applications market (comprised principally of
hospital radiology departments), the Company's principal competition is from
current manufacturers of conventional CT scanners, including General Electric
Company, Siemens Corporation, Marconi Medical Systems, Philips Medical Systems,
Toshiba Medical Corporation and others. Non-invasive diagnostic imaging
techniques such as ultrasound, radioisotope imaging, digital subtraction
angiography, and magnetic resonance imaging are also partially competitive with
the Company's scanners. Each of the companies named above, as well as ATL,
Acuson and ADAC Laboratories, markets equipment using one or more of these
technologies. All of these companies have greater financial resources and larger
staffs than those of the Company and their products are, in most cases,
substantially less expensive than Imatron's EBT scanner.
The Company believes that in order to compete successfully against these
competitors, it must continue to demonstrate that the EBT scanner is both an
acceptable substitute for conventional CT scanners in areas of the body where
motion is not a limitation, and that the EBT Scanner is a valuable
cardiopulmonary diagnostic tool capable of producing unique and useful images of
the heart and lung. Although the Company believes that the EBT Scanner can
produce general purpose images of a quality and resolution as good as, or
superior to, images produced by "state of the art" conventional CT scanners, it
lacks certain features that many competing premium scanners offer.
Also, the Company believes that customers and potential customers expect a
continuing development effort to improve the functionality and features of the
scanner. As a result, the Company continually seeks to develop product
enhancements and improve product reliability. Imatron's future success may
depend on its ability to complete certain product enhancement and reliability
projects currently in progress, as well as on its continued ability to develop
new products or product enhancements in response to new products that may be
introduced by other companies. There can be no assurance that Imatron will be
able to continue to improve product reliability or introduce new product models
and enhancements as required to remain competitive.
Other factors, in addition to those described above, that a potential purchaser
might consider in the decision to replace a conventional CT scanner with an EBT
scanner include purchase price, patient throughput capacity, anticipated
operating expenses, estimated useful life, and post-sale customer service and
support. The Company believes that its scanner is competitive with respect to
each of these factors.
================================================================================
9
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
MANUFACTURING
The Company manufactures its scanner at its South San Francisco, California,
headquarters facility. To date, the typical manufacturing cycle has required
approximately five months from the authorization of manufacturing to the
delivery of a scanner.
Many of the components and sub-assemblies used in the scanner have been
developed and designed by Imatron to its custom specifications, and are
obtainable from limited or single sources of supply. In view of the customized
nature of many of these components and sub-assemblies, there may be extended
delays between their order and delivery. Delays in such delivery could adversely
affect Imatron's present and future production schedules. The Company has made
and continues to make inventory investments to acquire long lead time components
and sub-assemblies to minimize the impact of such delays. January 6, 1999
Imatron purchased one of its suppliers Caral Manufacturing, Inc. (Caral) to
assure itself of a steady, low cost supply of certain stainless steel, critical
parts. In recent years, the Company has developed alternative sources for many
of its scanner subcomponents and continues its programs to qualify new vendors
for the remaining critical parts. There can be no assurance that such actions
will not adversely affect the Company's production schedule and its ability to
deliver products in a timely manner.
GOVERNMENT REGULATION
Amendments to the Federal Food, Drug, and Cosmetic Act ("Amendments") enacted in
1976, and regulations issued or authorized thereunder, provide for regulation by
the FDA of the marketing, manufacturing, labeling, packaging, sale and
distribution of medical devices, including the Company's scanner. Among these
regulations are requirements that medical device manufacturers register their
manufacturing facilities with the FDA, list devices manufactured by them, file
various reports and comply with specified Quality System Regulations. The FDA
enforces additional regulations regarding the safety of equipment utilizing
x-rays, which includes CT scanners. Various states also impose similar
regulations. The Amendments also impose certain requirements which must be met
prior to the initial marketing of medical devices introduced into commerce after
May 28, 1976. Other requirements imposed on medical device manufacturers include
a pre-market notification process commonly known as the 510(k) application to
market a new or modified medical device. Additionally, and specifically, if
required by the FDA, a pre-market approval ("PMA") may be required. This process
is potentially expensive and time consuming and must be completed prior to
marketing a new medical device. The Company has received appropriate clearances
from the FDA to market the C-150 EBT scanner. The Company believes that it is
presently in substantial compliance with the QSR requirements and other
regulatory issues promulgated by the FDA.
On May 4, 1999 the Food and Drug Administration's (FDA) Center for Devices and
Radiological Health, Promotion and Advertising Staff, issued a Warning Letter to
Imatron. The Warning Letter expressed FDA's objection with certain promotional
materials and press releases made by Imatron. It also indicated FDA's objection
to claims made on Imatron's web site. Upon receipt of this letter Imatron
responded to the FDA in writing. This response clearly enumerates Imatron's
position and details, where necessary, specific actions to alleviate FDA's
concern and began a good faith dialog between Imatron and the FDA to properly
resolve these issues. This dialog continues and Imatron believes such dialog
will resolve the matter fully and finally.
In November, 1999 the Company received its most current 510(k) market clearance
from the FDA. This clearance allows the Imatron device to be marketed and
promoted for Electron Beam Angiography. Such use is consistent with uses
classified by the FDA.
The FDA also regulates the safety and efficacy of radiological devices. Although
the Company believes it is in compliance with all applicable radiological health
regulations established by the FDA, there can be no assurance that the EBT
scanner will continue to comply with all such standards and regulations that may
be promulgated. In any event, compliance with all such requirements can be
costly and time consuming, and can have a material adverse effect on the
development of the Company's business and its future profitability.
The Federal government and certain states have enacted cost-containment measures
such as the establishment of maximum fee standards in an attempt to limit the
extent and cost of governmental reimbursement of allowable medical expenses
under Medicare, Medicaid and similar governmental programs. A number of states
================================================================================
10
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
have adopted, or are considering the adoption, of similar measures. Such
limitations have led to a reduction in, and may further limit funds available
for, the purchase of diagnostic equipment such as the Company's scanner and in
the number of diagnostic imaging procedures performed in hospitals and other
medical institutions.
The Company's primary customers operate in the highly regulated healthcare
industry. Existing and future governmental regulations could adversely impact
the market for the Company's EBT scanner and the Company's business. The
Company's operations are also subject to regulation by other federal, state, and
local governmental entities empowered to enforce pertinent statutes and
regulations, such as those enforced by the Occupational Safety and Health Agency
("OSHA") and the Environmental Protection Agency ("EPA"). In some cases, state
or local regulations may be more strict than regulations imposed by the Federal
government. The Company believes that it is in substantial compliance with
California regulations applicable to its business. In January 1997, the FDA
conducted routine inspections of Imatron's manufacturing operations. The
inspection concluded without Notices of Observations. Imatron frequently
provides field modifications or updates of components and software to
operational sites. Imatron voluntarily advised the FDA during these inspections
that certain field corrections were ongoing. The FDA concurred with Imatron's
decision to field upgrade certain sites and assigned recall numbers Z304/307-7
and Z-289/299-7. There has been no recalls or notices of observations by the FDA
in 1998 or 1999.
Sales of medical devices outside the United States are subject to foreign
regulatory requirements that vary widely from country to country. These laws and
regulations range from simple product registration requirements, in some
countries, to complex clearance and production controls in others. As a result,
the processes and time periods required to obtain foreign marketing approval may
be longer or shorter than those necessary to obtain FDA approval. These
differences may affect the efficiency and timeliness of international market
introduction of the Company's products, and there can be no assurance that the
Company will be able to obtain regulatory approvals or clearances for its
products in foreign countries.
In January 1995, CE mark certification procedures became available for medical
devices for countries in the European Union ("EU"). The successful completion of
the designated procedures would allow certified devices to be placed on the
market in all EU countries. In order to obtain the right to affix the CE mark to
its products, medical device companies must obtain certification that its
processes meet European quality standards, including certification that its
design and manufacturing facility complies with ISO 9001 standards. After June
1998, medical devices may not be sold in EU countries unless they display the CE
mark. In May 1998, Imatron received the CE Marking, which indicates that the EBT
scanner meets the safety requirements for marketing in all EU countries. In
addition, the Company successfully obtained registration under the ISO 9001
standards in December 1997. The inability or failure of the Company or its
international distributors to comply with varying foreign regulations or the
imposition of new regulations could restrict or, in certain countries, result in
the prohibition of the sale of the Company's business.
PATENTS AND LICENSES
Imatron relies heavily on proprietary technology and intellectual property which
it attempts to protect through patents and trade secrets.
In February 1981, the Company was granted the exclusive use, for five years, and
non-exclusive use thereafter, of certain technology and a patent pending, owned
by the University of California ("UC") under the terms of a license agreement
between UC and Emersub, a wholly-owned subsidiary of a former principal
shareholder of the Company, and a sublicense agreement between Emersub and
Imatron Associates (the predecessor to the Company), respectively. Under the
continuing sublicense agreement, as amended, Imatron will make payments to
Emersub equal to 2.125% of net sales of new C-150 scanners sold by Imatron in
exchange for the Company's exclusive use of Patent #4,352,021, "X-ray
Transmission Scanning System and Method and Electron Beam X-ray Scan Tube for
Use Therewith", through the remaining life of such patent. The Company's
Chairman of the Board, Dr. Douglas P. Boyd, receives 6% of all of the royalties
paid by Emersub to UC. Loss by Imatron of its rights under the patent as a
result of termination of its sublicense from Emersub, or the underlying license,
could have a material adverse effect upon Imatron's business and future
prospects. UC cancelled the license to Emersub on October 8, 1997. UC has agreed
to grant the Company a license for the remaining life of the patent on
substantially the same terms as the Emersub license agreement. Imatron has
agreed to pay UC royalties in the amount of $9,185 for each new scanner sold
from January 1, 1997 through September 28, 1999, the patent expiration date.
================================================================================
11
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
Royalty expenses related to the sublicense agreement for 1999, 1998, and 1997
were $77,790, $137,775, and $165,330, respectively.
Development of portions of the technology covered by the UC patent and
sublicensed to Imatron has been funded in substantial part through research
financing made available to UC by the National Institutes of Health. As a result
of such financing, it is possible that the U.S. Government may assert certain
claims in such UC patents, including the right to a royalty-free license for
governmental use.
In addition, Imatron holds twenty-seven U.S. Patents of its own (each with a
remaining life in excess of one year) and has filed three U.S. patent
applications covering various integral components of the scanner including,
among others, its electron beam assembly and its x-ray detector, and has filed
applications corresponding to several of these patents and applications in
various European Patent Convention countries, Canada, and Japan. There can be no
assurance that any such applications will result in the issuance of a patent to
the Company. Imatron's patents and patent applications have not been tested in
litigation and no assurance can be given that patent protection will be upheld
or will be as extensive as claimed. Furthermore, no assurance can be given as to
the Company's ability to finance litigation against parties which may infringe
upon such patents or parties which may claim that the Company's scanner
infringes upon their patents. However, the agreement signed by the Company and
Siemens Corporation in March 1991 allows Siemens Corporation to enter litigation
in favor of Imatron. Pursuant to the Memorandum of Understanding with Siemens
(see "Transactions With Siemens Corporation"), the Company transferred five
patents to Siemens, two of which cover features of the Company's C-150 scanner,
in complete consideration of the cancellation by Siemens of the $4.0 million
notes payable to the Company. The transferred patents were as follows:
1. U.S. 4,521,901 - Scanning Electron Beam Computed Tomography Scanner
with Ion Aided Focusing.
2. U.S. 4,531,226 - Multiple Electron Beam Target for use in X-Ray
Scanner.
3. U.S. 4,535,243 - X-Ray Detector for High Speed X-Ray Scanning System.
4. U.S. 4,736,396 - Tomosynthesis using High Speed CT Scanning System.
5. U.S. 5,193,105 - Ion Controlling Electrode Assembly for a Scanning
Electron Beam Computed Tomography Scanner.
As part of the agreement, Siemens granted to the Company a non-exclusive,
irrevocable, perpetual license to the five patents. The license is subject to a
royalty of $20,000 for each new C-150 unit (or other EBT unit produced by
Imatron after April 1, 1995), commencing with the 21st C-150 (or other Imatron
EBT) unit produced in any year and continuing thereafter for ten years after
such first quarter in which such 21st unit is produced. To date, Imatron has not
produced more than 20 scanners in any year and, therefore, no royalties have
been due under this agreement.
In the event some or all of the Company's patent applications are denied and/or
some or all of its patents held invalid, the Company would be prevented from
precluding its competitors from using the protected technology set forth in such
patent applications or patents. Because the Company's products involve
confidential proprietary technology and know-how, the Company does not believe
such a loss of patent rights would have a materially adverse effect upon the
Company.
The Company also believes that many of its proprietary technologies are better
protected as trade secrets or copyrights than by patents. Moreover, although
protection of the Company's existing proprietary technologies is important,
other factors such as product development, customer support, and marketing
ability are also important to the development of the Company's business.
EMPLOYEES
As of December 31, 1999, the Company had 202 employees, including 49 employees
in service, 30 in sales/marketing, 51 scientists and engineers in research and
development, 52 employees in manufacturing, and 20 employees in finance and
administration. None of the employees are represented by a labor union and no
work stoppages or strikes have occurred. The Company believes that it has good
labor relations with its employees.
================================================================================
12
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
CERTAIN FACTORS
In evaluating the Company and its business, the following factors should be
given careful consideration, in addition to the information mentioned elsewhere
in this Form 10-K:
OPERATING HISTORY
Imatron was incorporated in February 1983, and incurred losses each quarter from
inception through December 31, 1990. Its first recorded profitable year was the
year ended December 31, 1991 during which a $4,000,000 payment for the licensing
of technology to Siemens Corporation was received. The Company incurred
additional net losses in both 1992 and 1993. In 1994, the Company incurred its
first year of net income from continuing operations amounting to $3,221,000
partially offset by $911,000 of net losses incurred by discontinued operations
of HeartScan. In 1999, 1998, and 1997, the Company incurred net losses of
$6,586,000, $14,781,000, and $11,422,000, respectively. The net losses were
partially a result of the operating losses incurred by discontinued operations
of HeartScan which amounted to $1,989,000, $4,507,000, and $6,428,000, in 1999,
1998, and 1997, respectively. In 1999, the operating losses from discontinued
operations were partially offset by a gain on sale of assets amounting to
$1,049,000. The net losses recorded reflect non-cash minority interest expense
of $874,000 and $1,744,000 recorded in 1998 and 1997, respectively, as a result
of the accounting treatment relative to its convertible Series A Preferred Stock
having "beneficial conversion features." There is no assurance that Imatron can
return to profitable operations in the future.
In the past, Imatron has funded its losses primarily though the sale of
securities in two public offerings and a number of private placements, through
the exercise of options and warrants, through the 1991 license for medical uses
of its electron-beam technology to Siemens Corporation, and through revolving
lines of credit. In 1995, the Company raised $9,882,000 (net of offering costs)
in two offerings of Common Stock to certain institutional investors. In 1996,
the Company received $16,672,000 through the sale of shares of common stock and
the exercise of warrants and stock options for shares of common stock. Also in
1996, HeartScan raised $14,798,000 (net of offering costs) for use exclusively
to develop its operations. In 1999, the Company raised $8,621,000 for the sale
of shares of common stock and common stock warrants to its President and other
institutional investors (see Note 11 to the Notes to the Consolidated Financial
Statement). As of December 31, 1999, the Company has a consolidated accumulated
deficit of $104,083,000.
The Company's liquidity is affected by many factors, including the normal
ongoing operations of the business and other factors 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 existing at December 31, 1999 together with the
estimated proceeds from ongoing sales of products and services and divestiture
of the HeartScan operations in 1999 will provide the Company with sufficient
cash for operating activities and capital requirements through December 31,
2000.
NEED FOR ADDITIONAL FINANCING
To satisfy the Company's capital and operating requirements beyond 1999,
profitable operations, additional public or private financing or the incurrence
of debt may be required. If future public or private financing is required by
the Company, holders of the Company's securities may experience dilution. There
can be no assurance that equity or debt sources, if required, will be available
or, if available, will be on terms favorable to the Company or its shareholders.
The Company does not believe that inflation has had a material effect on its
revenues or results of operations.
MATERIAL DEPENDENCE UPON KEY PERSONNEL
The Company has been, and will continue to be, materially dependent upon the
technical expertise of its engineering and management personnel. The loss of a
significant number of such personnel would have a materially adverse effect upon
the Company's business and future prospects. The Company does not maintain
key-man life insurance.
================================================================================
13
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
HIGH COST OF SCANNER
The distributor list price of Imatron's EBT scanner is significantly higher than
that of commercially available conventional CT scanners, and higher than the
price of "top-of-the-line" scanners. Such pricing may limit the market for
Imatron's product. Potential customers' budgetary limitations, including those
imposed by government regulation, may often compel the purchase of lower cost,
conventional CT scanners.
LIMITED CLINICAL DEMONSTRATION OF CERTAIN ADVANTAGES OF THE COMPANY'S SCANNER
The Company's scanner has been used in a clinical environment since April 1983.
Clinical use of the C-100 XL scanner model began in February 1989. The C-150 EBT
scanner was first used in 1992. 87 C-150, C-100 and C-150L scanners are
currently installed in a clinical setting. The Company believes that market
acceptance of the EBT scanner continues to depend in substantial part upon the
clinical demonstration of certain asserted technological advantages and
diagnostic capabilities. There is no assurance that these asserted technological
advantages and diagnostic capabilities will result in the development of a
significant market for the EBT that will allow the Company to operate
profitably.
THIRD-PARTY REIMBURSEMENT OF COST OF CT SCANS
FDA clearance to market does not guarantee or imply reimbursement by third-party
payers such as Medicare, Medicaid, Blue Cross/Blue Shield or other private
health insurers. Medicare and Medicaid reimburse for procedures that are
generally accepted or that have been proven safe and effective. The Health Care
Financing Administration ("HCFA"), which oversees Medicare and Medicaid payment
policies, will not authorize payment for procedures which are considered to be
experimental. HCFA has determined that diagnostic examinations of the head and
other parts of the body performed by CT scanners are covered if the contractor
who administers the local Medicare program finds that medical and scientific
literature and opinion support the effective use of a scan for the particular
condition.
PRODUCT LIABILITY RISKS
As a manufacturer and marketer of medical diagnostic equipment, the Company is
subject to potential product liability claims. As a supplier of radiological
diagnostic services, HeartScan is also subject to potential liability claims.
For example, the exposure of normal human tissue to x-rays, which is inherent in
the use of CT scanners for diagnostic imaging, may result in potential injury to
patients subjecting the Company to possible liability claims. The Company
presently maintains primary and excess product liability insurance with
aggregate limits of $5.0 million per occurrence. No assurance can be given that
the Company's product liability insurance coverage will continue to be available
or, if available, that it can be obtained in sufficient amounts or at reasonable
cost, or that it will prove sufficient to pay any claims that may arise.
VOLATILITY OF STOCK PRICE
The market prices for securities of advanced technology companies have
historically been highly volatile, including the market price of shares of the
Company's Common Stock. Future announcements by the Company or its competitors,
including announcements concerning technological innovations or new commercial
products, results of clinical testing, changes in government regulations,
regulatory actions, healthcare reform, proprietary rights, litigation, and
public concerns as to the safety of the Company's or its collaborators'
products, as well as period-to-period variances in financial results could cause
the market price of the Common Stock to fluctuate substantially. In addition,
the stock market has experienced extreme price and volume fluctuations that have
particularly affected the market price for many advanced technology companies,
often being unrelated to the operating performance of these companies. These
broad market fluctuations may adversely affect the market price of the Company's
Common Stock.
NO DIVIDENDS ON PREFERRED AND COMMON STOCK
The Company has not paid dividends on its Preferred or Common Stock since
inception. Even if its future operations result in profitability, as to which
there can be no assurance, there is no present anticipation that dividends will
================================================================================
14
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
be paid. Rather, the Company expects that any future earnings will be applied
toward the further development of the Company's business.
ITEM 2 - PROPERTIES
The Company's manufacturing, research and development, marketing and
administrative operations occupy approximately 86,909 square feet of leased
space in buildings located in South San Francisco, California, under leases
expiring in February 2004. In addition, the Company sub-leases approximately
18,677 square feet to certain tenants with leases expiring in February 2004.
The Company also leases business and residential properties in Germany under
operating leases expiring in March 2000 and July 2002. The business facility is
being used as a service center for its European customers while the residence is
for expatriates assigned in Germany.
The Company believes its facilities are adequate for its current needs and that
suitable additional or substitute space will be available as needed to
accommodate any future expansion of the Company's operations.
ITEM 3 - LEGAL PROCEEDINGS
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of Imatron's shareholders during the
quarter ended December 31, 1999.
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Since April 1985, the Company's Common Stock has traded on the Nasdaq National
Market System under the Nasdaq symbol "IMAT."
The following table sets forth, for the periods indicated, the range of high and
low sales prices, all as reported by Nasdaq. These prices reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
1999 1998
---------------- ----------------
Quarter High Low High Low
- ------- ---- --- ---- ---
First $2.28 $1.03 $3.03 $2.25
Second 1.44 0.84 4.00 2.25
Third 1.84 1.06 2.81 1.13
Fourth 3.81 1.03 2.59 .81
As of March 8, 2000, there were approximately 6,400 holders of record of the
Company's common stock. On March 8, 2000, the closing price of the Company's
common stock on Nasdaq was $4.75.
DIVIDEND INFORMATION
The Company has paid no cash dividends on its Common Stock since incorporation
and anticipates that, for the foreseeable future, it will retain any earnings
for use in its business.
================================================================================
15
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
ITEM 6 - SELECTED FINANCIAL DATA
IMATRON INC.
SELECTED FINANCIAL INFORMATION
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
OPERATING INFORMATION
Year Ended December 31 1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Total revenues from continuing
operations $ 37,549 $ 30,660 $ 37,317 $ 24,823 $ 26,374
Operating loss from continuing
operations $ (5,835) $ (9,535) $ (3,915) $ (8,065) $ (3,693)
Income (loss) from continuing operations $ (5,646) $ (9,400) $ (3,250) $ (5,892) $ 163
Loss from discontinued operations $ (940) $ (4,507) $ (6,428) $ (4,573) $ (2,612)
Net loss $ (6,586) $(14,781) $(11,422) $(13,737) $ (2,449)
Basic and diluted loss per share from
continuing operations $ (0.06) $ (0.11) $ (0.04) $ (0.08) --
Number of shares used
in per share calculations 94,680 83,941 78,461 74,406 57,598
BALANCE SHEET INFORMATION
At December 31 1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
Working capital $ 22,217 $ 12,813 $ 26,003 $ 33,042 $ 14,252
Total assets 40,643 31,982 43,165 47,488 27,459
Long term obligations
including capital lease
obligations 125 39 121 182 235
Total liabilities 13,818 12,991 11,840 9,962 11,234
Minority interest 93 331 14,255 12,323 --
Shareholders' equity 26,732 18,660 17,070 25,203 16,225
</TABLE>
The Company did not pay any cash dividends on its Common Stock during any of the
periods presented above.
================================================================================
16
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, working capital increased to $22,217,000 compared to
December 31, 1998 working capital of $12,813,000 primarily as a result of
increased revenues and cash realized from private placement offerings. The
current ratio increased to 2.7:1 at December 31, 1999 from 2.1:1 at December 31,
1998.
The Company's total assets increased to $40,643,000 compared to December 31,
1998 total assets of $31,982,000. Cash and cash equivalents increased to
$9,198,000 in 1999 from $1,445,000 in 1998. The increase in cash was due to
proceeds realized from private placements, exercises of warrants and stock
options, and increase in scanner sales. Cash used in continuing operations was
$1,267,000 for twelve months ended December 31, 1999 compared to $7,893,000
during the same period in 1998. Cash was used to fund the operating activties
resulting from net loss from operations, an increase in receivables and
reductions in accounts payable and deferred revenues. The use of cash from
operations was partially offset by a decrease in inventory and an increase in
other accrued liabilities. Other primary sources of non-cash items included loss
on discontinued operations and common stock issued for services in lieu of cash.
The increase in receivables and decrease in inventory were due to increased
scanner shipments to 19 in 1999 from 15 during the same period in 1998. The
decrease in inventory was also due to a decrease in the number of scanners in
finished goods to 2 in 1999 from 8 during the same period in 1998. In 1999, the
decrease in finished goods was partially offset by increases in purchased parts
and work-in-process to meet anticipated shipments in the first half of fiscal
year 2000. In 1998, scanner orders were either delayed or canceled due to the
financial instability in the Asia/Pacific market, resulting in an increase in
the number of scanners in finished goods. Growth in trade receivables was mainly
due to the record level of scanner shipments in the fourth quarter of 1999. The
decrease in accounts payable resulted from payments to vendors to maintain
balances to a more current basis.
Cash provided by discontinued operations was $770,000 for the twelve months
ended December 31, 1999 compared to $499,000 during the same period in 1998 due
to the proceeds from the sale of HeartScan centers partially offset by the
buy-out of HeartScan scanners on lease during 1999. Net losses from discontinued
operations for the twelve month period ended December 31, 1999 decreased to
$940,000 as compared to $4,507,000 (net of gain on sale of assets of
discontinued business) for the same period in 1998 . The decrease in losses was
primarily due to the sale of certain HeartScan business operations, which were
consistently operating at a loss since inception.
The Company's investing activities for the year ended December 31, 1999 included
acquisition of Caral amounting to $273,000 (net of cash acquired) and purchases
of marketable securities and equipment amounting to $4,062,000 and $1,148,000,
respectively, offset by maturities of marketable securities of $2,063,000.
Capital expenditures included approximately $437,000 for the purchase and
installation of the MK Enterprise Resource Planning System. The Company's
investing activities for 1998 included purchases of securities available for
sale and capital equipment. The Company purchased $642,000 of equipment during
1998, primarily consisting of computer and test equipment. In addition,
significant items affecting cash flows during fiscal 1998 included maturities of
marketable securities of $1,065,000.
================================================================================
17
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
Key financing activitites for the year ended 1999 included proceeds from a
private offering whereby the Company sold 7,672,313 shares of its common stock
for $8,621,000. Cash raised through employee participation in the Company's
stock option and purchase plans and excercise of warrants were $2,788,000 and
$1,446,000 in 1999 and 1998, respectively.
The Company's liquidity is affected by many factors, some based on the normal
ongoing operations of the business and others related to the uncertainties of
the industry and global economies. Although the cash requirements will fluctuate
based on timing and extent of these factors, management believes that cash, and
cash equivalents existing at December 31, 1999 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.
RESULTS OF CONTINUING OPERATIONS
1999 vs 1998
Overall revenues for the year ended December 31, 1999 of $37,549,000 increased
$6,889,000 or 22% compared to revenues of $30,660,000 for the same period in
1998. Net product revenues increased to $29,891,000 in 1999 from $22,547,000 in
1998 due to 19 scanners having been sold in 1999 compared to 15 in 1998. In
addition, upgrade revenues increased to $1,490,000 in 1999 from $272,000 in
1998. Service revenues slightly increased 1% to $6,938,000 in 1999 from
$6,863,000 in 1998 due to an increase in scanners under service contract offset
by a decrease in spare parts shippped. Development contract revenue of
$1,250,000 recorded in 1998 represented a non-refundable payment received from
Siemens to compensate the Company for its research and development efforts for
which Siemens received certain rights under the three year Memorandum of
Understanding. There were no payments received from Siemens for 1999 as the
Memorandum of Understanding expired on April 1, 1998.
Total cost of revenues as a percent of revenues for the year ended 1999 was
lower at 72% as compared with 76% in 1998. Product cost of revenues as a percent
of product revenues decreased to 68% in 1999 from 75% in 1998. The gross margins
in 1998 were adversely affected by a mix in the sales prices of scanners.
Although the cost of a scanner remains constant for all new scanner sales, the
price varied depending on the customer. In particular, sales to Siemens and
Imatron Japan, Inc. had a lower sales price and consequently lower gross
margins, than sales to other parties. The decrease in the cost of revenue as a
percentage of revenue for scanners was due to the decrease in scanner sales to
these distributors to two in fiscal year 1999 from four in fiscal year 1998 and
a sale of a refurbished scanner with higher gross margins in 1999. Service cost
of revenues as a percent of service revenue decreased to 89% in 1999 from 93% in
1998 due to improved scanner performance reducing the costs to maintain the
scanners and higher gross margins on spare parts shipped. In 1998, revenues on
spare parts shipped to Imatron Japan, a major customer, were deferred and
related costs were recognized due to the customer's difficulty in paying as a
result of the economic and currency uncertainties in Japan. As a major customer,
the Company extended credit beyond the normal terms to ensure the continued
service for its 29 installed scanners purchased from the Company.
================================================================================
18
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
Operating expenses for the year ended 1999 decreased to $16,332,000 or 43% of
revenues, compared to $16,901,000, or 55% of revenues in 1998. Research and
development expenses of $7,045,000 in 1999 decreased from $7,869,000 in 1998 due
to a reduction in headcount and completion of certain R&D projects. Marketing
and sales expenses increased to $6,244,000 in 1999 from $4,456,000 in 1998
primarily due to increases in promotional activities and headcount to establish
a larger sales and marketing organization to better serve the growing EBT
market. Administrative expenses decreased to $2,622,000 in 1999 from $4,576,000
in 1998 due primarily to a decrease in the bad debt provision relating to
certain distributors. Goodwill amortization amounting to $139,000 in 1999
represents the amortized portion of goodwill related to the acquisition of
Caral. Restructuring charges of $282,000 relates to severance and related
benefits paid by the Company during the first quarter of 1999 as part of it's
reorganization plan.
Other income increased to $257,000 for the year ended 1999 from $155,000 in the
comparable period of 1998. The increase was due to higher average cash and
investment balances during 1999 compared to 1998 resulting from cash generated
from scanner sales, private offering of the Company's common stock, and
exercises of warrants and stock options in 1999. Interest expense represents
interest incurred on capital lease obligations on certain office equipment.
The Company incurred a non-cash charge to income of $874,000 recorded as a
return to minority interest expense for the year ended 1998, in connection with
certain beneficial conversion features granted to the holders of the HeartScan
convertible Series A Preferred Stock.
1998 vs 1997
Overall revenues for the twelve months ended December 31, 1998 of $30,660,000
decreased $6,657,000 or 18% compared to revenues of $37,317,000 for the same
period in 1997. Net product revenues decreased to $22,547,000 in 1998 from
$27,368,000 in 1997 due to 15 scanners shipped in 1998 compared to 18 in 1997.
Certain Asian countries were experiencing banking and currency difficulties that
led to economic slowdowns or recessions in those countries. This, in turn, has
resulted in reduced demand for the Company's products. For instance, the
purchasing power of the Company's Asian customers declined as a result of, among
other things, difficulties in obtaining credit and the decline in value of their
currencies. These customers canceled or delayed orders for the Company's
products and may continue to cancel or delay additional orders. Scanner sales in
this region decreased to two shipments to Japan in 1998 from eight shipments to
Japan, China, Singapore and Malaysia in 1997. Weak sales in Asia were partially
offset by an increase in sales to United States customers as a result of the
termination of the exclusive distribution rights to Siemens in April 1, 1998.
The Company sold eight scanners for domestic sites while Siemens sold one in
1998. In 1997, Siemens sold two scanners in the United States. Service revenues
increased 39% to $6,863,000 in 1998 from $4,949,000 in 1997 due to an increase
in scanners under service contract. The increase resulted primarily from the
service support agreement entered into with Siemens. Development contract
revenue decreased to $1,250,000 in 1998 from $5,000,000 in 1997 due to the terms
of the three year Memorandum of Understanding entered into with Siemens expiring
as of April 1, 1998.
Total cost of revenues as a percent of revenues for the twelve months of 1998
was 76% as compared with 63% in 1997. Product cost of revenues as a percent of
product revenues increased to 75% in 1998 from 72% in 1997 due to shipment of 15
scanners compared to 18 shipments in 1997. Service cost of revenues as a percent
of service revenue increased to 93% in 1998 from 79% in 1997 due to an increase
in headcount to support the scanner service contracts under the Siemens service
agreement and other new scanner sites. In addition, revenues on spare parts
shipped to Imatron Japan Inc., a major customer, were deferred and related costs
were recognized due to the customer's difficulty in paying as a result of the
economic and currency uncertainties in Asia. As a major customer, the Company
has extended credit beyond the normal terms to Imatron Japan, Inc. to ensure the
continued service for its 27 scanners purchased from the Company.
Operating expenses for the twelve months of 1998 decreased 4% to $16,901,000, or
55% of revenues, compared to $17,583,000, or 47% of revenues in 1997. Research
and development expenses of $7,869,000 in 1998 decreased from $9,713,000 in 1997
due to a decrease in in-house research for new product development programs as a
result of the termination of the three year Memorandum of Understanding with
Siemens. Marketing and sales expenses increased to $4,456,000 in 1998 from
$3,749,000 in 1997 primarily due to increases in headcount and outside
commissions related to scanner sales, partially offset by a decrease in expenses
related to studies conducted on the C-150 scanners. Administrative expenses
increased to $4,576,000 in 1998 from $4,121,000 in 1997 due primarily to an
increase in investor relations expenses offset by a decrease in the bad debt
provision relating to certain distributors.
================================================================================
19
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
Other income decreased to $155,000 for the twelve months of 1998 from $692,000
in the comparable period of 1997. The decrease was attributable to lower cash
balances and investments in interest-bearing securities primarily due to the
operating loss incurred. Interest expense represents interest incurred on
capital lease obligations on certain office equipment.
The Company incurred a non-cash charge to income of $874,000 and $1,744,000
recorded as a return to minority interest expense for the twelve months ended
December 31, 1998 and 1997, respectively, in connection with certain beneficial
conversion features granted to the holders of the HeartScan convertible Series A
Preferred Stock.
Discontinued operation:
On July 13, 1998, the Company announced its intention to divest its HeartScan
subsidiary. Accordingly, the Company restated its financial statements to
reflect the classification of HeartScan as a discontinued operation for all
periods presented (See Note 17).
During the twelve months of 1998 and 1997, the Company reported losses from
discontinued operations of $4,507,000 and $6,428,000, respectively, which relate
to the discontinued operations of the HeartScan subsidiary. The decrease in
operating loss was primarily due to an increase in number of patient scans and
the closure of the Seattle center which had been consistently operating at a
loss. In addition, HeartScan ceased all radio and print advertising which
significantly reduced overhead costs.
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. At December 31, 1998, the Company reassessed its estimate of the gain
on disposal to reflect the Company's change in strategy. The Company adjusted
its accrued loss and expected gain to reflect 1999 losses to be incurred of
approximately $1,900,000 through the disposal date and a realized net gain on
disposal of approximately $1,900,000.
In 1999, the Company sold the San Francisco, Pittsburgh, Houston, and Washington
DC centers. While the $1,989,000 in losses incurred by these centers met the
Company's expectations, the net gain upon disposal was somewhat less than
expectations at $1,049,000. The 1999 $940,000 loss from discontinued operations
reflects our actual results as compared to our estimates at December 31, 1998.
The Company expects that the discontinued operations will continue to operate at
a loss through the disposal of its final center in Cascais, Portugal. However,
management's current best estimate indicates that the disposal of the disposal
of the Cascais center will result in a gain.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133), and in July 1999 issued Financial Accounting
Standard No. 137, "Accounting For Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133, an
Amendment of FASB Statement No. 133" (SFAS 137). SFAS 137 delayed the effective
date for SFAS 133 for fiscal years beginning after June 15, 2000. The Company
does not believe that the impact of this statement will have a material effect
on the financial position or results of operations upon the adoption of this
accounting standard.
YEAR 2000 COMPLIANCE
The Company successfully completed the final phase of its conversion to MK in
August 1999. The Company has not experienced any significant business
disruptions as a result of Year 2000 issues, nor has it incurred material
expenditures. The Company will continue to monitor its internal operating
systems as well as third parties with whom the Company does business, to
identify and address any potential risk situations related to Year 2000.
However, there can be no assurance that the Company will not be adversely
affected by these suppliers and service providers in the future, and that these
expenditures will not be material.
================================================================================
20
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 leasing arrangements. At December 31, 1999, the Company had
money market mutual funds, certificates of deposit and commercial paper which
mature in less than twelve months. Additionally, the Company maintained leases
for certain office equipment that have been accounted for as capital leases with
a total obligation of $155,000 as of December 31, 1999.
The Company does not believe that it is subject to any material exposure to
interest rate, foreign currency or other market risks.
ITEM 8 - CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Consolidated Financial Statements and Consolidated Financial Statement
Schedule listed in Item 14 (a) 1 and 2.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10 - EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company and their ages and positions are set forth
below. Unless otherwise indicated, officers are full-time employees and serve at
the discretion of the Board of Directors.
Name Age Position
---- --- --------
Dr. Douglas P. Boyd 58 Chairman of the Board,
Chief Technology Officer
S. Lewis Meyer 55 Chief Executive Officer
Terry Ross 52 President
Frank Cahill 53 Vice President, Finance and Administration,
Chief Financial Officer, Secretary
* Dr. Douglas Boyd is a founder of Imatron and has held several positions
with the Company since its inception in 1983 including Chief Executive
Officer, President, Chief Technical Officer, and Director. Dr. Boyd is
currently Chairman of the Board and Chief Technology Officer. He is also an
Adjunct Professor of Radiology (Physics) at the University of California,
San Francisco, where he spends approximately five percent of his time on
university duties. In addition, Dr. Boyd is a Director for InVision
Technologies, Inc., a publicly held company engaged in the design and
manufacture of explosives detection computed
================================================================================
21
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
tomography (CT) scanners for the baggage, parcel, and freight market.
InVision Technologies is a former Imatron joint venture company which
was established in 1990.
Recognized internationally for his pioneering work in the development
of fan-beam CT scanners, Xenon detector arrays, and EBT, Dr. Boyd has
been awarded ten U.S. patents. He has published more than 100
scientific papers and is a frequent speaker at university seminars and
other symposia. In 1993 he was awarded the prestigious Conway Safe
Sky's Award for contributions to airline travel safety related to the
development of a CT baggage explosives detection system.
Dr. Boyd received his B.S. in Physics from the University of Rochester
in 1963 and a Ph.D. in Physics from Rutgers University in 1968.
* S. Lewis Meyer was appointed President, Chief Executive Officer and
Director of Imatron in June 1993. From April 1991 until joining the
Company, he was Vice President, Operations of Otsuka Electronics
(U.S.A.) Inc., Fort Collins, Colorado, a manufacturer of clinical
magnetic resonance systems and analytical nuclear magnetic resonance
spectrometers. From August 1990 to April 1991, he was a founding
partner of Medical Capital Management, a company engaged in providing
consulting services to medical equipment manufacturers, imaging
service providers, and related medical professionals. Prior thereto,
he was President and Chief Executive Officer of American Health
Services Corp. (now Insight Health Services Corp.), a developer and
operator of diagnostic imaging and treatment centers. During his
tenure at American Health Services Corp., it was one of the fifty
fastest growing public companies in the United States.
In addition to his duties as President and Chief Executive Officer of
Imatron, Mr. Meyer serves as a Director for Finet Holdings Corp., a
publicly held company engaged in electronic real estate and mortgage
banking services.
Mr. Meyer received his B.S. degree in Physics from the University of
the Pacific, Stockton, California, in 1966, a M.S. degree in Physics
from Purdue University in 1968, and a Ph.D. in Physics from Purdue
University in 1971.
* Terry Ross was appointed President of Imatron in January 1999. From
1989 to 1998, Mr. Ross was President, Chief Executive Officer and
Director of Cemax-Icon, Inc., a medical imaging manufacturer. Prior
thereto, he was Vice President of Sales and Marketing of the Company.
Mr. Ross also held executive sales positions at Picker International,
Inc. and ADAC Laboratories, Inc., all of which are medical imaging
companies.
* Frank Cahill was appointed Vice President of Finance and
Administration, Chief Financial Officer, and Secretary of Imatron on
January 2, 2000. Prior to joining the Company, Mr. Cahill has held
management positions from "Fortune 500" companies in New York to
smaller start-up companies since relocating to California three years
ago. Most recently he was Vice President - Finance and Administration
at Berkeley Heart Lab, Inc., the developer of a unique test to measure
lipid particle density and Chief Financial Officer at MED-COR Health
Information Solutions, Inc. a healthcare consulting and service firm.
Mr. Cahill while at Ernst & Young in New York became a Certified
Public Accountant. He has received an M.B.A. from Rutgers University
and a B.S. in Physics from St. Peters College both in New Jersey.
ITEM 11 - EXECUTIVE COMPENSATION
The information required on items 11, 12 and 13 will be included in the
Company's definitive proxy statement or as an amendment to the Form 10-K, under
cover of Form 8. The information required in Part III will be filed with the
Securities Exchange Commission no later than 120 days after the end of the
fiscal year.
================================================================================
22
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
PART IV
ITEM 14 - EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Form:
1. Consolidated Financial Statements - See "Index to Consolidated
Financial Statements" attached hereto and made a part hereof.
2. Financial Statement Schedule - Schedule II - Valuation and
qualifying accounts. All other schedules are omitted as they are
not applicable, or the required information is shown in the
financial statements or the notes thereto.
3. Exhibits - The exhibits listed on the accompanying "Index to
Exhibits" are filed or are incorporated herein by reference as
part of this report.
(b) Form 8-K Reports: None
================================================================================
23
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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: March 24, 2000 IMATRON INC.
-----------------------------------
By: FRANK CAHILL
-----------------------------------
Chief Financial Officer, Vice President,
Finance and Administration, Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant in
the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
Director,
- ------------------- Chairman of the Board March 24, 2000
Douglas P. Boyd
Director March 24, 2000
- -------------------
William J. McDaniel
Director March 24, 2000
- -------------------
John L. Couch
Director March 24, 2000
- -------------------
Allen Chozen
Director March 24, 2000
- -------------------
Richard Myler
Director, March 24, 2000
- ------------------- Chief Executive Officer
S. Lewis Meyer (Principal Executive Officer)
Director March 24, 2000
- ------------------- President
Terry Ross
Director March 24, 2000
- -------------------
Aldo J. Test
Chief Financial Officer, Vice President, March 24, 2000
- ------------------- Finance and Administration, Secretary
Frank Cahill (Principal Financial Officer and
Principal Accounting Officer)
================================================================================
24
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
IMATRON INC.
Index to Consolidated Financial Statements
STATEMENT PAGE
- --------- ----
Report of KPMG LLP, Independent Auditors 26
Consolidated Balance Sheets as of December 31, 1999, and 1998 27
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998, and 1997 28
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1999, 1998, and 1997 29
Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998, and 1997 30
Notes to Consolidated Financial Statements 32
================================================================================
25
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
Report of KPMG LLP, Independent Auditors
The Board of Directors and Stockholders
Imatron Inc.:
We have audited the consolidated balance sheets of Imatron Inc. and subsidiaries
as of December 31, 1999 and 1998, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1999. In connection with our audits of the
consolidated financial statements, we have also audited the financial statement
schedule listed in the index at Item 14(a)2. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Imatron Inc. and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
/s/ KPMG LLP
San Francisco, California
February 14, 2000
================================================================================
26
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
IMATRON INC.
Consolidated Balance Sheets
(In thousands)
December 31,
-----------------------
ASSETS 1999 1998
--------- ---------
Current assets
Cash and cash equivalents $ 9,198 $ 1,445
Short-term investments 1,999 --
Accounts receivable (net of allowance for
doubtful accounts of $2,876 and
$3,272 at December 31, 1999 and 1998):
Trade accounts receivable 8,570 7,228
Accounts receivable from joint venture 582 659
Inventories 12,965 14,433
Prepaid expenses 1,030 825
Net current assets of discontinued operations 1,019 --
--------- ---------
Total current assets 35,363 24,590
Property and equipment, net 2,900 2,275
Other assets 1,911 1,631
Long-term net assets of discontinued operations 469 3,486
--------- ---------
Total assets $ 40,643 $ 31,982
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 2,998 $ 3,515
Other accrued liabilities 10,118 7,978
Capital lease obligations - due within one year 30 64
Net current liabilities of discontinued operations -- 220
--------- ---------
Total current liabilities 13,146 11,777
Deferred income on sale leaseback transactions 367 875
Deferred income on service contract 180 300
Capital lease obligations 125 39
--------- ---------
Total liabilities 13,818 12,991
--------- ---------
Minority interest 93 331
--------- ---------
Shareholders' equity
Common stock, no par value; 150,000 shares authorized;
100,042 and 88,295 shares issued and outstanding
in 1999 and 1998, respectively 121,566 107,475
Additional paid-in capital 9,399 9,340
Deferred compensation -- (170)
Notes receivable from shareholders (150) (488)
Accumulated deficit (104,083) (97,497)
--------- ---------
Total shareholders' equity 26,732 18,660
--------- ---------
Total liabilities and shareholders' equity $ 40,643 $ 31,982
========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
================================================================================
27
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
IMATRON INC.
Consolidated Statements of Operations
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues
Product sales $ 29,891 $ 22,547 $ 27,368
Service 6,938 6,863 4,949
Other products sales 720 -- --
Development contracts -- 1,250 5,000
-------- -------- --------
Total revenue 37,549 30,660 37,317
-------- -------- --------
Cost of revenues
Product sales 20,188 16,931 19,747
Service 6,162 6,363 3,902
Other products sales 702 -- --
-------- -------- --------
Total cost of revenues 27,052 23,294 23,649
-------- -------- --------
Gross profit 10,497 7,366 13,668
-------- -------- --------
Operating expenses
Research and development 7,045 7,869 9,713
Marketing and sales 6,244 4,456 3,749
General and administrative 2,622 4,576 4,121
Goodwill amortization 139 -- --
Restructuring charges 282 -- --
-------- -------- --------
Total operating expenses 16,332 16,901 17,583
-------- -------- --------
Operating loss (5,835) (9,535) (3,915)
Interest and other income 257 155 692
Interest expense (68) (20) (27)
-------- -------- --------
Loss from continuing operations before provision
for income taxes (5,646) (9,400) (3,250)
Provision for income taxes -- -- --
-------- -------- --------
Loss from continuing operations (5,646) (9,400) (3,250)
Loss from discontinued operations (940) (4,507) (6,428)
Non cash return to minority interest -- (874) (1,744)
-------- -------- --------
Net loss $ (6,586) $(14,781) $(11,422)
======== ======== ========
Net loss per common share:
Loss from continuing operations - basic and diluted $ (0.06) $ (0.11) $ (0.04)
======== ======== ========
Loss from discontinued operations - basic and diluted $ (0.01) $ (0.05) (0.08)
======== ======== ========
Net loss - basic and diluted $ (0.07) $ (0.18) (0.15)
======== ======== ========
Number of shares used in basic and diluted per share
calculations 94,680 83,941 78,461
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
================================================================================
28
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
IMATRON INC.
Consolidated Statements of Shareholders' Equity
(In thousands)
<TABLE>
<CAPTION>
Common Stock Additional Deferred Accum-
------------------ Paid-in Compen- Notes ulated
Shares Amount Capital Sation Receivable Deficit Total
------ ------ ------- ------ ---------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996
(Restated) 77,919 $ 89,223 7,390 $ (116) $ -- $ (71,294) $ 25,203
Common stock issued for employee stock
purchase plans, stock bonus and the
exercise of warrants and employee
stock options 896 1,505 -- -- -- -- 1,505
Deferred compensation from
issuance of stock options by
consolidated subsidiary -- -- -- (186) -- -- (186)
Amortization of deferred
compensation -- -- -- 70 -- -- 70
Warrants issued for services -- -- 1,750 1,750
Compensation expense related to
the extension of the stock
option exercise period -- -- 150 -- -- -- 150
Net loss -- -- -- -- (11,422) (11,422)
------- -------- ------ ------- -------- --------- --------
Balances at December 31, 1997 78,815 $ 90,728 $9,290 $ (232) $ -- $ (82,716) $ 17,070
Common stock issued for employee stock
purchase plans, stock bonus and the
exercise of warrants and employee
stock options 1,984 1,949 -- -- -- -- 1,949
Conversion of subsidiary's
convertible series A preferred
stock to company's common stock 7,496 14,798 -- -- -- -- 14,798
Amortization of deferred
compensation -- -- -- 62 -- -- 62
Warrants issued for services -- -- 50 -- -- -- 50
Notes receivable from officers
for exercise of stock options -- -- -- -- (488) -- (488)
Net loss -- -- -- -- -- (14,781) (14,781)
------- -------- ------ ------- -------- --------- --------
Balances at December 31, 1998 88,295 $107,475 $9,340 $ (170) $ (488) $ (97,497) $ 18,660
Common stock issued for employee stock
purchase plans, stock bonus and the
exercise of warrants and employee
stock options 3,118 4,016 -- -- -- -- 4,016
Common stock and warrants sold in
a private placement, net of
offering costs 7,673 8,621 -- -- -- -- 8,621
Common stock issued for
acquisition of subsidiary 956 1,454 -- -- -- -- 1,454
Reversal of deferred
compensation due to
cancellation of stock options
of discontinued operations -- -- -- 170 -- -- 170
Warrants issued per employment
contract -- -- 10 -- -- -- 10
Non-cash expense related to
options issued to
non-employee directors -- -- 49 -- -- -- 49
Repayments of notes receivable -- -- -- -- 338 -- 338
Net loss -- -- -- -- -- (6,586) (6,586)
------- -------- ------ ------- -------- --------- --------
Balances at December 31, 1999 100,042 $121,566 $9,399 $ -- $ (150) $(104,083) $ 26,732
======= ======== ====== ======= ======== ========= ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
================================================================================
29
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
IMATRON INC.
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Years Ended December 31
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (6,586) $(14,781) $(11,422)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 757 780 665
Net loss from discontinued operations 940 4,507 6,428
Goodwill amortization 139 -- --
Amortization of deferred compensation -- 62 70
Non-cash return to minority interest -- 874 1,744
Non-cash compensation expense for extension
of stock option exercise period -- -- 150
Options and warrants issued for services 49 50 750
Common stock issued for good and services 1,228 503 270
Loss on disposal of assets 22 20 2
Changes in operating assets and liabilities:
Accounts receivable (969) 1,495 (4,016)
Inventories 1,730 (1,507) (2,533)
Prepaid expenses (202) (428) 1,198
Other assets 950 (417) (814)
Accounts payable (671) 553 501
Other accrued liabilities 1,974 1,017 1,062
Deferred income (628) (621) 377
-------- -------- --------
Net cash used in operating activities: (1,267) (7,893) (5,568)
Net cash provided by (used in) discontinued operations 770 499 (2,426)
-------- -------- --------
(497) (7,394) (7,994)
-------- -------- --------
Cash flows from investing activities:
Capital expenditures (1,148) (642) (1,018)
Purchases of short-term investments (4,062) (885) (8,982)
Maturities of short-term investments 2,063 1,065 14,880
Acquisition of subsidiary, net of cash acquired (273) -- --
-------- -------- --------
Net cash (used in) provided by investing activities: (3,420) (462) 4,880
-------- -------- --------
Cash flows from financing activities:
Payments of obligations under capital leases (87) (57) (61)
Proceeds from issuance of warrant 10 -- 1,000
Proceeds from issuance of common stock 11,409 1,446 1,235
Loans to stockholders -- (488) --
Repayment of loans to stockholders 338 -- --
Proceeds from issuance of stock of discontinued operations -- -- 2
-------- -------- --------
Net cash provided by financing activities 11,670 901 2,176
Net (decrease) increase in cash and cash equivalents 7,753 (6,955) (938)
Cash and cash equivalents, at beginning of year 1,445 8,400 9,338
-------- -------- --------
Cash and cash equivalents, at end of year $ 9,198 $ 1,445 $ 8,400
======== ======== ========
</TABLE>
Continued
================================================================================
30
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
IMATRON INC.
Consolidated Statements of Cash Flows, continued
(In thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Supplemental Disclosure of Noncash Investing and
Financing Activities:
Deferred compensation from common stock option
grant of discontinued operations $ -- $ -- $ 186
======== ======== ========
HeartScan's conversion of preferred stock to
Imatron common stock $ -- $ 14,798 $ --
======== ======== ========
Equipment acquired under capital leases:
Continuing operations $ 139 $ 39 $ --
======== ======== ========
Discontinued operations $ -- $ -- $ 1,500
======== ======== ========
Cash paid for interest on capital lease obligations:
Continuing operations $ 70 $ 20 $ 27
======== ======== ========
Discontinued operations $ 247 $ 390 $ 494
======== ======== ========
Cash paid for income taxes $ -- $ -- $ --
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
================================================================================
31
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
IMATRON INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF COMPANY
Imatron Inc., a New Jersey corporation incorporated in 1983, is a
technology-based company principally engaged in the business of designing,
manufacturing, and marketing a high performance Electron Beam Tomography
scanner. The scanner is used in large and mid-sized hospitals and free standing
imaging clinics. Imatron Inc. provides service, parts, and maintenance to
hospitals and clinics that operate its scanners, as well as medical equipment
manufactured by other companies.
BASIS OF CONSOLIDATION
The 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 (see Note 6). Beginning January 6, 1999, the financial position and
operating results of Caral were consolidated with those of the Company.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133), and in July 1999 issued Financial Accounting
Standard No. 137, "Accounting For Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133, an
Amendment of FASB Statement No. 133" (SFAS 137). SFAS 137 delayed the effective
date for SFAS 133 for fiscal years beginning after June 15, 2000. The Company
does not believe that the impact of this statement will have a material effect
on the financial position or results of operations upon the adoption of this
accounting standard.
CONCENTRATIONS OF RISK
The Company's primary customers operate in the healthcare industry. The
healthcare industry is highly regulated. Both existing and future governmental
regulations could adversely impact the market for the Company's EBT scanner and
the Company's business. The Company's operations are also subject to regulation
by other federal, state, and local governmental entities empowered to enforce
pertinent statutes and regulations, such as those enforced by the Occupational
Safety and Health Agency and the Environmental Protection Agency.
The Company sells its products in the United States, Europe, Canada, and India;
and through Imatron Japan, Inc. in Japan, as well as through other distributors
in the Pacific Rim. The Company generally requires cash deposits or irrevocable
letters of credit for scanners ordered and maintains allowances for potential
credit losses. There have been no losses arising from the sale of scanners.
Spare parts are sold on terms to distributors and end-users.
================================================================================
32
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
The Company's revenues are principally derived from the sales of the EBT
scanner. Many of the components and sub-assemblies used in the scanner have been
developed and designed by Imatron to its custom specifications and are
obtainable from limited or single sources of supply. In view of the customized
nature of many of these components and sub-assemblies, there may be extended
delays between their order and delivery. Delays in such delivery could adversely
affect Imatron's present and future production schedules. The Company has made
and continues to make inventory investments to acquire long lead time components
and sub-assemblies to minimize the impact of such delays. In recent years, the
Company has developed alternative sources for many of its scanner subcomponents
and continues its programs to qualify vendors for the other critical parts.
CASH EQUIVALENTS
Cash equivalents consist of money market funds and highly liquid investments
with maturities of three months or less from the date of purchase to be cash
equivalents.
FINANCIAL INSTRUMENTS
In accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," the Company
has classified all investments as available-for-sale. Available-for-sale
securities are carried at fair value, with unrealized gains and losses reported
as a separate component of other comprehensive income (loss), if material. Fair
values of investments are based on quoted market prices. Short-term investments
at December 31, 1999 consist of government securities classified as available
for sale. There were no short-term investments at December 31, 1998.
Realized gains and losses, and declines in value judged to be
other-than-temporary are included in other income. The cost of securities sold
is based on the specific identification method.
The carrying amounts reported in the balance sheet for receivables, accounts
payable, accrued liabilities and capital lease obligations approximate fair
value due to their short-term maturities.
INVENTORIES
Inventories are stated at the lower of standard cost (which approximates cost on
a first-in, first-out basis) or market. Provisions are made in each period for
the estimated effects of excess and obsolete inventories.
The company policy is to reserve 100% on obsolete inventories, defined as parts
that are no longer used in production, upgrades and repairs. Parts that are not
defined as obsolete are classified into different subsections. The reserve
percentages for each subsection represent the total value of parts in each
subsection that have the potential to be obsolete in the next 12 months.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated on a straight-line
method over their estimated useful lives. Equipment under capital leases, except
for scanner equipment and leasehold improvements, are amortized on a
straight-line method over the lesser of their estimated useful lives or the
remaining term of the related leases.
Estimated useful lives are as follows:
Machinery and equipment 3 - 5 years
Furniture and fixtures 3 - 5 years
Leasehold improvements 5 years
================================================================================
33
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
Scanner equipment under a capital lease is amortized over the term of the lease
(five years), using the units-of-production method (number of scans) based on
the estimated usage of the equipment. Upon purchase of the scanner, the Company
produces a projection of its anticipated scans for a particular scanner at a
particular location. The average projected scans for all centers by year is as
follows:
Year Budgeted Scans
---- --------------
1 2,530
2 6,160
3 7,216
4 7,920
5 7,920
------
31,746
======
Consistent with the schedule above, depreciation is recorded at the higher of
actual or budgeted scans so that the scanner is fully depreciated at the end of
five years.
GOODWILL AND LONG-LIVED ASSETS
Goodwill represents the excess of cost over net assets of Caral, and is
amortized on a straight line method over 10 years. The Company accounts for
goodwill and other long-lived assets under, SFAS No. 121, "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
SFAS No. 121 requires that goodwill and long-lived assets be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of assets may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the asset exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. Based on these evaluations, there were
no adjustments to the carrying value of goodwill and other long lived assets in
the fiscal periods reported.
REVENUE RECOGNITION
Revenues related to product sales are recognized upon shipment to the customer
or to a customer designated location, at which time title and risk of ownership
passes. The Company accrues for estimated installation and warranty costs at the
time of sale. Revenues related to service are recognized ratably over the
relevant contractual period or as the service is performed. Service revenue
billed but unearned is included on the consolidated balance sheets as other
accrued liabilities. Revenues related to development contracts are recognized
ratably over the contract (see note 9). Revenues from clinics are recognized
when services are performed for the clinic customer and reported as discontinued
operations for all periods presented.
SALE LEASEBACK ARRANGEMENT
The Company sold a scanner in 1998 and 1997 to third-party leasing companies.
HeartScan, in turn, entered into leasing arrangements with these third-party
leasing companies to obtain use of these scanners in its clinics. The provisions
of these leasing arrangements include monthly rental payments over a 5-year term
with a guarantee of the payments by Imatron. HeartScan accounted for these
leases as capital leases. Imatron recognized revenue equal to its scanner cost
and has deferred the profit on its sales to the leasing companies. The Company
is amortizing its deferred profit to product sales over the five-year term of
the HeartScan leases. Imatron recognized $356,000, $501,000, and $501,000 of
deferred profit for these leases for the years ended December 31, 1999, 1998,
and 1997, respectively.
RESEARCH AND DEVELOPMENT
Research and development expenditures are charged to operations as incurred.
================================================================================
34
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
ADVERTISING COSTS
Advertising and promotion costs are expensed as incurred.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under SFAS No. 109, deferred income taxes are
recognized for tax consequences in future years of differences between the tax
bases of assets and liabilities and their financial reporting amounts at each
balance sheet date based on enacted tax laws and statutory tax rates expected to
apply in the periods in which the differences are expected to affect taxable
income.
NET LOSS PER SHARE
The Company computes and discloses its net loss per share in accordance with
SFAS No. 128, "Earnings per Share." SFAS No. 128 establishes standards for
computing and presenting earnings per share. Basic loss per share is computed
based on the weighted average number of common shares outstanding, and diluted
loss per share is computed based on the weighted average number of common shares
and dilutive potential common shares outstanding during the period. Stock
options and warrants have not been included in the computation as their effect
would have been antidilutive.
STOCK-BASED COMPENSATION
The Company follows the provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," and has elected to continue to account for stock-based
compensation using methods prescribed in Accounting Principles Board Opinion
("APB") No. 25, "Accounting for Stock Issued to Employees," and related
interpretations.
Note 2 - FINANCIAL INSTRUMENTS
Investments were as follows:
December 31,
----------------------
1999 1998
-------- -------
(In thousands)
Money market mutual funds $ 4,600 $ 1,113
Certificate of deposit -- 189
Commercial paper 6,597 143
-------- -------
Total investments 11,197 1,445
Less amounts classified as cash and cash equivalents (9,198) (1,445)
-------- -------
Short-term investments $ 1,999 $ --
======== =======
Cost approximated fair value of all investments at December 31, 1999 and 1998.
================================================================================
35
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
Note 3 - INVENTORIES
Inventories were as follows:
December 31,
----------------------
1999 1998
-------- -------
(In thousands)
Purchased parts and sub-assemblies $ 4,272 $ 2,863
Service parts 1,747 1,883
Work-in-progress 4,718 3,177
Finished products 2,228 6,510
------- -------
$12,965 $14,433
======= =======
Note 4 - PROPERTY AND EQUIPMENT, Net
Property and equipment, at cost, were as follows:
December 31,
----------------------
1999 1998
-------- -------
(In thousands)
Machinery and equipment $ 6,644 $ 5,697
Furniture and fixtures 1,527 1,234
Leasehold improvements 2,386 2,153
-------- -------
10,557 9,084
Less accumulated depreciation and amortization (7,657) (6,809)
-------- -------
$ 2,900 $ 2,275
======== =======
================================================================================
36
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
Note 5 - OTHER ACCRUED LIABILITIES
Other accrued liabilities were as follows:
December 31,
--------------------
1999 1998
------- ------
(In thousands)
Warranty and product upgrades $ 3,436 $2,175
Deferred income on sale leaseback transactions 114 616
Customer deposits 1,362 225
Employee compensation 1,372 1,090
Deferred service revenues 2,017 1,619
Other 1,817 2,253
------- ------
$10,118 $7,978
======= ======
Note 6 - ACQUISITIONS
CARAL MANUFACTURING
On January 6, 1999 (closing date) Imatron acquired a 100% interest in Caral
Manufacturing ("Caral"). Caral was a major vendor of Imatron and manufactures
custom-made parts for scanners.
The purchase price of the acquisition was comprised of $275,000 in cash, 624,113
shares of common stock issued at closing plus an issuance of shares of common
stock based on the market price of the Company's common stock as of July 6,
1999. The shares issued at closing were valued at $825,000 or $1.3219 per share,
which is the average stock price for the period from December 7, 1998 to
December 18, 1998, the period surrounding the date the terms of the acquisition
were agreed. The security price of the Company's common stock as of July 6, 1999
was below $2.90 per share, and as part of the agreement, the Company issued
332,279 additional shares. In accordance with EITF 97-15, the contingency was
valued at $629,000.
The acquisition was accounted for using the purchase method of accounting, and
accordingly, the operating results of Caral have been included in the Company's
consolidated financial statements from January 6, 1999 forward. The purchase
price was allocated to the underlying assets and liabilities based on their
respective estimated fair values at the date of acquisition. The fair value of
assets acquired was $660,461 and liabilities assumed was $320,000. The excess of
the aggregate purchase price over the fair market value of net assets acquired
amounting to $1,389,000 is classified as goodwill, and amortized on a straight
line method over 10 years. For the year ended December 31, 1999, amortization
expense on goodwill was $139,000.
The following unaudited pro forma financial information presents the combined
results of operations for the period ended December 31, 1998 of Imatron and
Caral as if the acquisition had occurred as of the beginning of 1998, after
giving effect to certain adjustments, including amortization of goodwill. The
pro forma financial information does not necessarily reflect the results of
operations that would have occurred had Imatron and Caral constituted a single
entity during the period ended December 31,1998 (in thousands, except per share
amounts):
Twelve months ended
December 31, 1998
-----------------
(Unaudited)
Net sales $ 31,770
========
Net loss $(15,171)
========
Loss per share - basic and diluted $ (0.18)
========
Number of shares used in basic and diluted per
share calculations 85,395
========
================================================================================
37
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
POSITRON CORPORATION
On January 25, 1999, the Company acquired 9,000,000 shares of common stock of
Positron Corporation ("Positron") representing a 55% interest for $100. On
August 18, 1999, the ownership interest of the Company in Positron was diluted
to 16% as a result of the completion of a private equity financing of Positron's
common stock. As such, Imatron's control in Positron was temporary and
accordingly, the Company accounted for its investment in Positron at cost for
the year ended December 31, 1999.
In conjunction with the execution of a letter of intent and the consummation of
the purchase business combination with Positron, the Company made working
capital advances to Positron under a $600,000 credit facility at an interest
rate 1/2% over the prime. As of December 31, 1999, Positron has paid up its
obligation of $600,000 including $59,000 of interest to the Company.
Note 7 -RESTRUCTURING AND REORGANIZATION CHARGES
On February 8, 1999, the Company implemented a restructuring plan to reduce
costs and improve operating efficiencies. The plan included elimination of
approximately 20% of the Company's workforce in various departments and its
HeartScan subsidiary including disposal of its HeartScan operations (see Note
17). In addition, the Company put a moratorium on salary increases for its
executive management team effective until the Company meets its financial goals
and objectives. The cost associated with this reduction in staff, consisting
primarily of severance and related benefits, was $282,000 and was accrued in the
first quarter of 1999.
Note 8 - RELATED PARTY TRANSACTIONS
JOINT VENTURE COMPANY
In 1994, the Company formed a joint venture, Imatron Japan, Inc. ("Joint
Venture") with two unrelated parties. Imatron holds a 24% interest in the Joint
Venture, which is carried at no value in the accompanying consolidated balance
sheets. The Company expensed the $20,000 investment upon payment. The Joint
Venture agreement between Imatron and Imatron Japan, Inc. does not require
additional funding by Imatron. Imatron is prepared to abandon its interest in
the Joint Venture, which is being funded by the other Joint Venture partners.
The Company recognized revenues of $2,800,000, $2,800,000, and $4,648,000 in
1999, 1998, and 1997, respectively, from sales to the Joint Venture and has
$2,052,000 and $1,982,000 in accounts receivable from the Joint Venture at
December 31, 1999 and 1998, respectively. All scanner sales to Imatron Japan,
Inc. are either fully paid in advance or sold under irrevocable letters of
credit without a right of return.
NOTES RECEIVABLE FROM OFFICERS
At December 31, 1998, the Company held three notes receivable amounting to
$336,000, $115,000 and $37,000 from the Company's Chief Executive Officer, the
Chairman of the Board, and the former Chief Financial Officer, respectively.
These notes arose from transactions in 1998, whereby the Company provided loans
for the purchase of 925,000 shares of common stock under the Company's stock
option plan. At December 31, 1999, the remaining balance on notes receivable
amounted to $149,500. The loans are full recourse and collateralized by the
shares of common stock and the personal property of the executives. The
receivable is shown on the balance sheet as a reduction in equity.
================================================================================
38
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
Note 9 - COLLABORATION AGREEMENTS
SIEMENS CORPORATION
For the period from March 31, 1995 to March 31, 1998, the Company and Siemens
Corporation ("Siemens") operated under a 1995 Memorandum of Understanding
whereby Siemens provided $15,000,000 to the Company's C-150 Evolution scanner
research and development program paid to the Company in quarterly non-refundable
payments. The results of the collaborative research were jointly owned by the
parties and cross licensed. For the period from March 31, 1995 to March 31, 1998
Siemens retained exclusive distribution rights in certain geographical regions
for sales of the C-150 Evolution scanner.
On April 1, 1998, Imatron's obligations and Siemens' funding under the
Memorandum of Understanding terminated. In addition, Siemens surrendered its
exclusive distribution rights and Imatron assumed worldwide distribution for its
C-150 scanners. Imatron continues to provide scanner service support to Seimens'
customers under an April 1997 service support agreement signed with Siemens. For
an agreed upon amount, Imatron provides all pre-installation site planning,
installation and application support, as well as, warranty and maintenance
services, as a subcontractor to Siemens. Revenues for services are recognized
ratably over the life of the contracts while other service revenues are
recognized upon completion of work.
TERARECON INC.
On July 22, 1997, the Company and TeraRecon Inc., a technology company that
produces high speed image processing devices for medical imaging systems,
entered into a development agreement whereby TeraRecon provided Imatron with a
real-time image reconstruction system for use in conjunction with Imatron's EBT
scanner. The RTR-2000 system is exclusive to Imatron's EBT scanner and is used
to expand its current applications to include new three-dimensional, CT
flurography or real-time viewing of computerized tomography (CT) images. It is
an accessory to the base scanner which certain customers may find useful. It
will not render any existing equipment obsolete.
In consideration for the successful development and delivery of RTR-2000
systems, the Company agreed to issue an aggregate of 6,000,000 warrants to
purchase the Company's common stock at $4.50 per share. In addition, TeraRecon
agreed to pay the Company an aggregate of $2,000,000 for 4,000,000 of the
6,000,000 warrants and make royalty payments to Imatron .
Pursuant to the development agreement, the Company issued a total of 4,000,000
warrants to TeraRecon and received $1,000,000 for the 2,000,000 warrants issued.
In February 1999, the Company and TeraRecon agreed to modify the development
agreement by releasing TeraRecon from its obligation to purchase the remaining
2,000,000 warrants. In addition, TeraRecon agreed to develop a more stable,
reliable, and easier-to-maintain image reconstruction system at no additional
cost to Imatron and upgrade five units of the current RTR-2000 systems for no
more than $25,000 per unit. Imatron agreed to cancel the 3% royalty payment per
unit under the original agreement.
As Imatron did not receive a license in the TeraRecon technology nor is there
any future alternative uses to the prototypes purchased by Imatron, in
accordance with SFAS No. 2, "Accounting for Research and Development Costs," a
$50,000 and $750,000 charge to research and development expense was recognized
in 1998 and 1997, respectively, upon TeraRecon meeting the agreed-upon
milestones. In accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company's recorded research and development expense was based
on the fair market value of the warrants at the time of issuance using an option
pricing model less any cash received.
GENERAL ELECTRIC MEDICAL SYSTEMS
On July 1, 1998, the Company entered into a non-exclusive distributor agreement
with GE Medical Systems (GEMS) to sell EBT scanners throughout the United States
and Canada. The agreement provides that all contracts resulting from the joint
marketing effort are written directly by the Company. Imatron assumes
installation and customer service activities, while GEMS provides financing
options for customers purchasing the equipment. The contract has a term of two
================================================================================
39
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
years with an option to extend for an additional year at GEMS's sole discretion.
This agreement does not constitute a licensing or transfer of any of Imatron's
intellectual property to GEMS. The Company has agreed to pay GEMS a commission
on all sales directly resulting from the Company's corporate alliance with GEMS.
In 1999, the Company sold one EBT scanner under this agreement and has accrued
$250,000 on sales commissions.
Note 10 - COMMITMENTS and CONTINGENCIES
OPERATING LEASES
The Company leases its present facilities under various operating leases
expiring between July 1998 and December 2005. Future minimum rental payments
under the leases as of December 31, 1999, are as follows (in thousands):
2000 $ 1,017
2001 1,023
2002 1,065
2003 1,134
2004 and thereafter 190
-------
Total $ 4,429
=======
Rent expense for operating leases totaled $1,022,000, $972,000, and $914,000 in
1999, 1998, and 1997, respectively.
CAPITAL LEASE OBLIGATIONS
The Company leases certain equipment under non-cancelable lease agreements. In
addition, HeartScan leased scanners for its clinics, payments of which were
guaranteed by Imatron. As of December 31, 1999, equipment under the capital
lease arrangements and included in property and equipment aggregated $165,000.
Accumulated amortization related to this equipment totaled $21,000 as of
December 31, 1999.
Future minimum lease payments under capital lease obligations at December 31,
1999, are as follows (in thousands):
2000 $ 50
2001 50
2002 50
2003 50
2004 6
----
Total minimum payments 206
Less amounts representing interest (51)
----
Total principal 155
Less portion due within one year (30)
----
Long-term portion $125
====
Deferred income on sale-leaseback transactions amounted to $481,000 and
$1,491,000 at December 31, 1999 and 1998, respectively.
Interest paid on long-term obligations including capital lease obligations was
$70,000, $20,000, and $27,000 in 1999, 1998, and 1997, respectively.
================================================================================
40
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
LICENSE AGREEMENTS
In February 1981, the Company was granted the exclusive use for five years and
nonexclusive use thereafter of certain technology and a patent pending owned by
the University of California ("UC") under the terms of license and sublicense
agreements between UC and Emersub Incorporated ("Emersub"), a wholly owned
subsidiary of Emerson Radio Corp. and Imatron Associates (the predecessor to the
Company). In June 1986, the license and sublicense agreements were amended to
extend the Company's exclusive use of the technology through the remaining life
of the patent #4,352,021, "X-ray Transmission Scanning System and Method and
Electron Beam X-ray Scan Tube for Use Therewith" in exchange for modified annual
royalty payments to Emersub equal to 2.125% of net sales of certain components
of the C-150 EBT scanner. On October 8, 1997, UC canceled the license to Emersub
and granted the Company a license for the remaining life of the patent on
substantially the same terms as the Emersub license agreement. Imatron agreed to
pay UC royalties in the amount of $9,185 for each scanner sold from January 1,
1997 through September 28, 1999, the patent expiry date. Royalties for 1999,
1998, and 1997 were $77,790, $137,775 and $156,145, respectively.
Pursuant to the 1995 Memorandum of Understanding with Siemens, the Company
transferred five patents to Siemens, two of which cover features of the
Company's C-150 scanner. Siemens has granted to the Company a non-exclusive,
irrevocable, perpetual license to the five patents. The license is subject to a
royalty of $20,000 for each new C-150 unit (or other EBT unit produced by
Imatron after April 1, 1995), commencing with the 21st C-150 (or other Imatron
EBT) unit produced in any year and continuing thereafter for ten years after
such first quarter in which such 21st unit is produced. To date, Imatron has not
produced more than 20 scanners in any year and, therefore, no royalties have
been due under this agreement.
Note 11- CAPITAL STOCK
COMMON STOCK
On July 7, 1997, the Company filed an amendment to its Certificate of
Incorporation. The amendment, which was approved by the Board of Directors on
April 30, 1997, and by the shareholders at the annual meeting on June 30, 1997,
increases the number of authorized shares of the Company's Common Stock from 100
million shares to 150 million.
During 1999, the Company sold a total of 904,600 shares of Imatron common stock
to an investor, netting proceeds of $2,596,000. These shares were sold at the
prevailing market price at the time of sale, ranging from $1.66 to $3.99 per
share, or an average price of $2.87 per share. During the first quarter of 1999,
the Company also issued 314,659 shares of Imatron common stock to certain
vendors as payment for accounts payable invoices amounting to $413,000, or $1.31
per share. There were no other securities issued in relation to these
transactions. These shares were registered with the Securities and Exchange
Commission in 1996.
On June 15, 1999, the Company closed a private placement offering of the
Company's common stock with the Company's President whereby the Company sold for
$3,025,000:
- 3,767,713 shares of common stock;
- An option to purchase up to an additional $3 million of common stock in
increments of $500,000 at a price equal to 125% of the closing price (or $1.003
per share); and
- A warrant to purchase 360,000 shares of common stock with an exercise price
of 130% of the closing price (or $1.044 per share) with a one year vesting
period and an expiration date of June 15, 2004. On July 23, 1999, the Company
closed a private placement offering of the Company's common stock whereby
3,000,000 shares of common stock and a warrant to purchase 1,000,000 shares of
common stock at $1.25 per share were sold for $3,000,000.
Proceeds from the private placements will be used for general corporate
purposes.
================================================================================
41
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
HEARTSCAN PREFERRED STOCK
HeartScan has authorized 1,000,000 shares of .001 par value preferred stock.
There are 200,000 issued and outstanding shares at December 31, 1999 and 1998,
of which, 100,000 shares have been designated "Series A Preferred Stock" and
100,000 have been designated "Series B Preferred Stock."
The holders of outstanding shares of Series A and B Preferred Stock are entitled
to receive dividends in preference to the payment of any dividends on HeartScan
common stock. Before any dividend may be paid on the common stock, a dividend in
an amount equal to or greater than the dividend proposed to be paid on the
common shares must be paid to the Series A and B Preferred Stock holders. To
date, no dividend has been distributed to the holders of preferred stock.
Each share of Series A and B Preferred Stock is entitled to ten votes.
Each share of Series A and B Preferred Stock is convertible into ten shares of
HeartScan common stock at any time but conversion is mandatory upon the
successful completion of a HeartScan initial public offering. Additionally, the
Series A Preferred Stock is convertible at the sole option of the holder into
Imatron common stock at an exchange price of $5.00 per share until the earlier
of a) a two-year period following closing of the Preferred Stock offering (June
26, 1998); or b) a HeartScan initial public offering. If there is no HeartScan
initial public offering by June 26, 1998, Series A Preferred Stock holders may
convert the HeartScan Series A Preferred Stock into Imatron common stock at a
conversion price equal to the greater of $1.50 per share or a 27% discount from
the weighted average closing price of Imatron common stock for the 90-day period
immediately preceding the conversion. Conversion may occur beginning June 26,
1998 and for each date that is three months thereafter to and including June 26,
2000.
Imatron was the holder of the Series B Preferred Stock at December 31, 1999 and
1998.
The Series A Preferred Stock was sold on June 26, 1996 in a private placement
offering at $160 per share which realized net proceeds to the Company of
$14,798,000. The investment by the Series A Preferred Stock holders has been
accounted for as a minority interest holding in HeartScan with $5,890,000 of the
proceeds being allocated to paid-in capital for the intrinsic value of the
Imatron beneficial conversion feature. Minority interest expense of $874,000,
and $1,744,000 was recognized for the amortization of the beneficial conversion
feature for 1998 and 1997, respectively. The beneficial conversion feature was
fully amortized in 1998, as such, no minority interest expense was recognized in
1999.
On June 26, 1998 and October 1, 1998, shareholders holding 94,331 and 5,669
shares, respectively, converted their Series A Preferred shares into 7,496,000
shares of Imatron common stock.
On December 31, 1996, 30,002 warrants to purchase one share each of HeartScan
Common Stock were issued in connection with the above-mentioned private
placement. These warrants are exercisable at $16.00 per share and expire in June
2001.
================================================================================
42
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
WARRANTS
A summary of the Company's outstanding warrants as of December 31, 1999, 1998,
and 1997 and changes during the years then ended is presented below (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Warrants to Purchase Weighted Average Range of
Common Shares Exercise Price Expiration Dates
-------------------- ---------------- ----------------
<S> <C> <C> <C>
Outstanding at December 31, 1996 3,171 $ 3.17 1998 - 2000
Issued 3,277 4.34 2001
Exercised (284) 1.98 1998 - 2000
Canceled -- --
------ ------ -----------
Outstanding at December 31, 1997 6,164 3.85 2000 - 2001
====== ====== ===========
Issued 1,130 4.22 2002
Exercised (213) 1.82 2000 - 2002
Canceled -- --
------ ------ -----------
Outstanding at December 31, 1998 7,081 3.97 2000 - 2002
====== --==== ===========
Issued 4,567 1.08 2000 - 2004
Exercised (1,150) 1.28 2000 - 2002
Canceled -- --
------ ------ -----------
Outstanding at December 31, 1999 10,498 $ 3.00 2000 - 2004
====== ====== ===========
</TABLE>
Charges to operations relating to the issuance of these warrants totaled
$10,000, $50,000, and $750,000 in 1999, 1998, and 1997, respectively, using an
option pricing model.
COMMON STOCK RESERVED
At December 31, 1999, the Company has reserved shares of common stock for future
issuances as follows (in thousands):
Stock option plans 9,700
Stock options outside the plans 281
Stock purchase plan 296
Stock warrants 10,498
Stock bonus plans 744
------
Total 21,519
======
Note 12 - STOCK-BASED COMPENSATION
PROFORMA STOCK COMPENSATION
At December 31, 1997, Imatron has two and HeartScan has one stock option plan,
which are described below. The Company applies APB No. 25 and related
interpretations in accounting for its plans.
Proforma information regarding net loss and loss per share is required by SFAS
123, and has been determined as if the Company has accounted for its employee
stock options and employee stock purchase plan under the fair value method of
that Statement. The fair value of awards was estimated at the date of grant
using an option pricing model with the following weighted-average assumptions.
================================================================================
43
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
1999 1998 1997
------ ------ ------
Expected stock price volatility 80.00% 80.20% 80.20%
Risk-free interest rate 6.91% 5.50% 6.27%
Expected life - years 8.00 7.53 3.54
Expected dividend yield 0.00% 0.00% 0.00%
For purposes of pro forma disclosures, the estimated fair value of the awards is
amortized to expense over the awards vesting period. Had the Company elected to
recognize compensation expense based on the fair value of the awards granted at
grant dates as prescribed by SFAS 123, net loss and basic and diluted loss per
share would have been increased to the pro forma amounts indicated in the table
below (in thousands except per share amounts):
<TABLE>
<CAPTION>
1999 1998 1997
-------- --------- ---------
<S> <C> <C> <C>
Net loss - as reported $(6,586) $(14,781) $(11,422)
Net loss - pro forma $(8,579) $(15,763) $(12,516)
Basic and diluted - net loss per share - as reported $ (0.07) $ (0.18) $ (0.15)
Basic and diluted - net loss per share - pro forma $ (0.09) $ (0.19) $ (0.16)
</TABLE>
The weighted average fair value of options granted in 1999, 1998, and 1997 were
$1.21, $1.92, and $2.57 per share, respectively. The weighted average remaining
contractual life of all options at December 31, 1999, is 8.08 years.
The pro forma effect on net loss is not representative of the pro forma effect
on net income in future years because it does not take into consideration pro
forma compensation expense related to grants prior to 1995, and the compensation
expense that will be recognized in future years as the vesting options become
exercisable.
DIRECTOR STOCK OPTION PLAN
In June 1991, the Company adopted a non-employee Directors' Stock Option Plan
for the directors of Imatron. The Directors Plan provides for the automatic
grant of non-statutory options to non-employee directors. The Directors Plan
initially covered 250,000 shares of the Company's common stock. In June 1993 an
amendment to the non-employee Directors Plan was approved increasing the number
of shares to 550,000.
On July 13, 1998 at the annual meeting, the shareholders approved the Company's
Amended and Restated Directors' Stock Option Plan, and an increase in the number
of authorized shares of common stock thereunder, from 550,000 to 1,000,000
shares.
On June 18, 1999, at the annual meeting, the shareholders approved an amendment
to the plan to increase the following:
a) The shares authorized thereunder from 1,000,000 common shares to
1,500,000 common shares;
b) The number of shares granted in the Initial Option to each newly
elected eligible director from 25,000 common shares to 40,000 common
shares; and
c) The number of shares granted in the Annual Option to each eligible
director from 25,000 common shares to 40,000 common shares.
All stock options under the Directors Plan are granted at 85% of the common
stock's fair market value at the grant date. Options granted under the plan
generally vest immediately with an option for the Company to repurchase the
shares and expire ten years from the grant date.
EMPLOYEE STOCK OPTION PLAN
In March 1983, the Company adopted a stock option plan which provides for the
granting of incentive stock options to employees and non-statutory stock options
to non-employees, and certain consultants. The shareholders approved the plan,
as amended, in March 1984. In 1993 the original plan ("1983 Plan") terminated
and a new plan ("1993 Plan") was approved. The terms of the 1993 Plan are
================================================================================
44
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
consistent with the terms of the 1983 Plan. During 1995, the shareholders
approved an increase in the number of shares reserved for the 1993 Plan from
3,000,000 to 5,500,000.
On February 24, 1998, the Company offered employees holding options under the
1993 Stock Option Plan, the opportunity to exchange such options for options
with an exercise price equal to $2.56 per share, the fair market value of the
Company's stock on that date. Outstanding options to purchase 760,597 shares
were repriced.
On October 23, 1998, the Company made an offer to its employees to cancel and
re-grant at October 23, 1998, all outstanding options with exercise prices
greater than $1.50. Outstanding options to purchase 1,158,992 shares at exercise
prices ranging from $1.78 to $2.56 were re-granted and repriced at $1.50, the
closing price at October 23, 1998.
With respect to the October 23, 1998 option repricing, employees were given 4
weeks to execute an agreement to obtain the lower priced options. The Company
considered this offering period and concluded that it had an immaterial effect
on compensation expense required to be recorded. There was no such repricing
"window" for the February 24, 1998 option exchange.
On June 18, 1999, at the annual meeting, the shareholders approved an amendment
to the 1993 Plan to increase the shares authorized thereunder from 5,500,000
common shares to 11,500,000 common shares.
All incentive stock options are granted at the common stock's fair market value
at the grant date and non-statutory stock options are granted at not less than
85% of the common stock's fair market value at the grant date. Options granted
prior to 1998 under the plan generally vest evenly over four years following the
grant date and expire five years from the grant date. Options granted in 1998
and thereafter generally vest evenly over four years and expire 10 years
subsequent to the date of grant.
================================================================================
45
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
A summary of the activity under the Imatron stock option plans is as follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Outstanding Options
---------------------------------------
Shares Exercise Aggregate
Available Number of price per exercise
for Grant shares share price
--------- --------- ------------- ---------
<S> <C> <C> <C> <C>
Balances at December 31, 1996 2,254 2,857 $0.43 - $5.00 $2,908
Options expired (14) -- $0.56 (8)
Options granted (1,219) 1,219 $1.78 - $3.31 3,129
Options exercised - (305) $0.48 - $2.63 (274)
Options canceled 83 (83) $0.56 - $2.63 (171)
------ ------- ------------- ------
Balances at December 31, 1997 1,104 3,688 $0.43 - $5.00 5,584
Shares reserved for issuance 450 -- -- --
Options granted (1,254) 1,254 $1.28 - $2.56 2,774
Options exercised -- (1,280) $0.37 - $2.63 (724)
Options canceled 178 (178) $0.61 - $3.31 (411)
Options repricing:
Options canceled -- (1,920) $1.78 - $2.56 (4,988)
Options re-granted -- 1,920 $1.50 - $2.56 3,685
------ ------- ------------- ------
Balances at December 31, 1998 478 3,484 $0.61 - $5.00 5,920
Shares reserved for issuance 6,500 -- -- --
Options granted (3,367) 3,367 $1.00 - $2.19 4,998
Options exercised -- (762) $0.37 - $2.56 (1,019)
Options canceled 891 (891) $1.00- $3.99 (1,479)
------ ------- ------------- ------
Balances at December 31, 1999 4,502 5,198 $0.71 - $5.00 8,420
====== ======= ============= ======
</TABLE>
The following table summarizes information concerning Imatron's outstanding and
exercisable options as of December 31, 1999 (in thousands, except per share
amounts):
Options Outstanding Options Exercisable
---------------------- --------------------
Weighted Weighted
Average Weighted Average
Remaining Average Number
Range of Number of Contractual Exercise of Exercise
Exercise Prices Shares Life Price Shares Price
- --------------- --------- ----------- -------- -------- --------
$0.71 - $2.00 3,298 8.93 $1.25 855 $1.23
$2.01 - $3.00 1,850 7.82 $2.20 382 $2.20
$3.01 - $5.00 50 1.50 $4.99 50 $4.99
-----
----- ---- ----- -----
5,198 8.47 $1.62 1,287 $1.66
===== ==== ===== ===== =====
Options for 1,287,311, 1,448,685, and 2,185,394 shares of the Company's common
stock were exercisable under the plans at December 31, 1999, 1998, and 1997 at
an aggregate exercise price of $2,139,608, $2,435,529, and $2,527,620,
respectively.
================================================================================
46
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
In October 1995, HeartScan approved the adoption of the HeartScan Imaging, Inc.
1995 Stock Option Plan ("HSI Stock Option Plan") which provides for the granting
of incentive stock options to employees and nonstatutory stock options to
employees, nonemployee directors, and certain consultants. All incentive stock
options are granted at the common stock's fair market value at the grant date,
and nonstatutory stock options are granted at not less than 85% of the common
stock's fair market value at the grant date. Options granted under the plan
generally vest annually over four years following the grant date and have a
maximum term of ten years.
A summary of the activity under the HSI Stock Option Plan is as follows (in
thousands, except per share amounts):
Shares Number of Aggregate Aggregate
available shares Price per exercise
for grant Outstanding share price
--------- ----------- --------- ---------
Balances at December 31, 1996 63 115 $0.07 $ 8
Shares reserved 250 -- -- --
Options granted (154) 154 $0.25 $ 38
Options exercised -- (39) $0.04 $ (2)
---- ---- ----- ----
Balances at December 31, 1997 159 230 $0.19 $ 44
Options exercised -- (9) $0.05 --
Options canceled 221 (221) $0.19 $(44)
Options terminated (380) -- -- --
---- ---- ----- ----
Balances at December 31, 1998 -- -- -- --
==== ==== ===== ====
On July 13, 1998, all outstanding options to purchase HeartScan common stock
were canceled as a result of the Company's decision to sell the HeartScan
subsidiary.
STOCK BONUS PLAN
In February 1987, the Company adopted the 1987 Stock Bonus Plan which was
approved by the shareholders. The stock bonus plan was adopted to reward and to
provide incentive to participants for services. The total number of common
shares that may be granted is 1,200,000, with no more than 400,000 shares
awarded in any fiscal year.
On June 18, 1999, at the annual meeting, the shareholders approved an amendment
to the plan to increase the authorized shares from 1,200,000 common shares to
2,200,000 common shares. In addition, the Company's Board of Directors approved
the increase in the number of shares awarded in 1999 fiscal period from 400,000
shares to 650,000 shares.
The Company granted 644,173, 285,250, and 97,655 shares under the plan in 1999,
1998, and 1997, respectively. Accordingly, the Company recorded compensation
expense equal to the fair value of the stock issued amounting to $810,000,
$460,000, and $261,000 in 1999, 1998, and 1997, respectively.
EMPLOYEE STOCK PURCHASE PLAN
In March 1994, the Company adopted an employee stock purchase plan covering most
employees. Under the plan, employees may contribute up to 10% of their
compensation to purchase shares of the Company's common stock at the lesser of
85% of the stock's fair market value at the beginning of the initial offering
period or end of each three-month interim offering period. The maximum number of
shares offered under the Plan is 1,800,000 shares of common stock.
================================================================================
47
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
On June 18, 1999, at the annual meeting, the shareholders approved an amendment
to the plan to increase the number of shares authorized from 1,800,000 common
shares to 2,300,000 common shares.
A total of 244,902, 188,863, and 193,208 shares were issued at weighted average
purchase price of $1.05, $1.76, and $2.00 per share in 1999, 1998, and 1997,
respectively.
Note 13 - RETIREMENT SAVINGS PLAN
RETIREMENT SAVINGS PLAN
In 1987, the Company established a qualified retirement plan under the
provisions of section 401(K) of the Internal Revenue Code, in which eligible
employees may participate. Substantially all participants in this plan are able
to defer compensation up to the annual maximum amount allowable under the
Internal Revenue Service regulations. The Plan was amended in 1994 to provide
for employer contributions equal to 50% of every dollar of employee
contribution, with a maximum of 6% of employee wages. The Company contributed
approximately $247,000, $281,000, and $259,000 in 1999, 1998, and 1997,
respectively.
Note 14- INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities as
of December 31, are as follows (in thousands):
1999 1998
-------- --------
Deferred tax assets:
Net operating loss carryforwards $ 30,829 $ 31,315
Federal credit carryforwards 2,134 1,767
Expenses not currently deductible for tax purposes 5,448 7,041
Deferred revenue previously taxed 233 376
Other 1,103 264
-------- --------
Deferred tax assets 39,747 40,763
Valuation allowance (37,890) (37,353)
-------- --------
Net deferred tax assets 1,857 3,410
-------- --------
Deferred tax liabilities:
State income taxes 1,149 1,066
Other 708 2,344
-------- --------
Deferred tax liabilities 1,857 3,410
-------- --------
Net deferred taxes $ -- $ --
======== ========
The net change in the valuation allowance was $537,000, $5,272,000, and
$3,243,000 for 1999, 1998, and 1997, respectively, principally resulting from
net operating loss carryforwards.
The reconciliation of income tax attributable to continuing operations
calculated at the U.S. federal statutory rate to the effective tax rate is as
follows:
1999 1998 1997
---- ---- ----
Federal statutory rate (34%) (34%) (34%)
Effective state rate (6%) (6%) (6%)
Goodwill amortization (1%) -- --
Valuation allowance 41% 40% 40%
--- --- ---
Effective tax rate 0% 0% 0%
=== === ===
Due to the issuance of preferred stock which occurred June 26, 1996, utilization
of the net operating loss and tax credit carryforwards for the Company and its
subsidiary, HeartScan, will be subject to separate return limitations.
================================================================================
48
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
At December 31, 1999, the Company has net operating loss carryforwards for
federal and state income tax purposes of approximately $70,006,000 and
$11,395,000, respectively. Additionally, the Company has research and
development and alternative minimum tax credit carryforwards of approximately
$2,134,000 at December 31, 1999. The net operating loss and the research and
development tax credit carryforwards expire in various years from 2000 through
2019. In addition, HeartScan has net operating loss carryforwards for federal
and state income purposes of approximately $17,032,000 and $2,346,000
respectively. The net operating loss carryforwards expire in various years from
2000 through 2019.
Pursuant to the Tax Reform Act of 1986, annual utilization of the Company's net
operating loss and tax credit carry forwards may be limited if a cumulative
change in ownership of more than 50% is deemed to occur within any three-year
period.
Note 15 - NET LOSS PER SHARE
The computation of basic and diluted loss per share for both continuing and
discontinued operations for the years ended December 31, 1999, 1998 and 1997 are
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- -------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Loss from continuing operations $(5,646) $ (9,400) $ (3,250)
======= ======== ========
Loss from discontinued operations $ (940) $ (4,507) $ (6,428)
======= ======== ========
Net loss $(6,586) $(14,781) $(11,422)
======= ======== ========
Weighted average common shares - basic and diluted 94,680 83,941 78,461
Basic and diluted loss per share:
Loss from continuing operations $ (0.06) $ (0.11) $ (0.04)
======= ======== ========
Loss from discontinued operations $ (0.01) $ (0.05) $ (0.08)
======= ======== ========
Net loss $ (0.07) $ (0.18) $ (0.15)
======= ======== ========
Antidilutive options and warrants not included
in calculation 418 986 3,114
======= ======== ========
</TABLE>
Note 16 - 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 17).
The scanner sales price varies depending on the customer requirements. In
particular, sales to Siemens, Imatron Japan, Inc. and third-party leasing
companies have a lower gross margin than sales to third parties. The following
table represents the scanner sales by significant geographic areas (in
thousands):
1999 1998 1997
------- ------- -------
United States (a) $22,374 $12,931 $ 2,803
Europe (b) 2,871 2,326 5,064
Japan (c) 2,800 2,800 4,200
Asia Pacific (d) -- -- 10,896
South Africa -- -- 2,130
Dubai -- 1,837 --
Brazil -- 1,880 --
------- ------- -------
Total scanner sales (e) 28,045 21,774 25,093
================================================================================
49
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
Sale leaseback profit recognized 356 501 501
Upgrade sales 1,490 272 1,774
------- ------- -------
Total product sales $29,891 $22,547 $27,368
======= ======= =======
(a) Sales to Siemens amounted to $800,000 and $1,603,000 in 1998 and 1997,
respectively.
(b) Sales to Turkey and Germany amounted to $2,871,000 in 1999. Sales to
Siemens amounted to $926,000 and $4,137,000 in 1998 and 1997, respectively.
Sales to third-party leasing companies under the sale-leaseback
transactions amounted to $927,000 in 1997.
(c) Sales to an affiliated customer, Imatron Japan, Inc.
(d) Sales to customers in China, Malaysia, Singapore and Korea.
(e) All sales are denominated in US currency, therefore, there is no foreign
currency risk.
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 the twelve month periods ended December
31, (in thousands):
<TABLE>
<CAPTION>
Imatron Caral Eliminations Consolidated
------- ----- ------------ ------------
<S> <C> <C> <C> <C>
1999:
Revenues from external customers $ 36,829 $ 720 $ -- $ 37,549
Intersegment revenues -- 805 (805) --
Total revenue 36,829 1,525 (805) 37,549
Operating loss (5,681) (127) (27) (5,835)
Total assets as of December 31, 1999 39,041 415 (301) 39,155
1998:
Revenues from external customers $ 30,660 $ -- $ -- $ 30,660
Intersegment revenues -- -- -- --
Total revenue 30,660 $ -- $ -- $ 30,660
Operating loss (9,535) -- -- (9,535)
Total assets as of December 31, 1998 28,496 -- -- 28,496
</TABLE>
Note 17 - 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 more
comprehensively on the core business of manufacturing and serving quality 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 December 31, 1999 and 1998 balance sheets.
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
================================================================================
50
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
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. At December 31, 1998, the Company reassessed its estimate of the gain
on disposal to reflect the Company's change in strategy. The Company adjusted
its accrued loss and expected gain to reflect 1999 losses to be incurred of
approximately $1,900,000 through the disposal date and a realized net gain on
disposal of approximately $1,900,000.
Actual HeartScan results of operations are as follows (in thousands):
1999 1998 1997
------- ------- -------
Revenues $ 1,920 $ 3,996 $ 2,542
Costs and expenses (3,909) (8,503) (8,970)
------- ------- -------
Loss before income taxes (1,989) (4,507) (6,428)
Gain on sale of assets of discontinued
operations 1,049 -- --
Provision for income taxes -- -- --
------- ------- -------
Loss from discontinued operations $ (940) $(4,507) $(6,428)
======= ======= =======
HeartScan statements of operations include costs of sales of $300,000, $602,000,
and $436,000 in 1999, 1998, and 1997, respectively, related to transactions with
Imatron.
A summary of the net assets of discontinued operation is as follows:
December 31,
-------------------
1999 1998
------- -------
(In thousands)
Cash and cash equivalents $ 1,245 $ 1,273
Accounts receivable - net and other current assets 110 327
Other current liabilities (21) (92)
Lease obligations - current (315) (1,728)
------- -------
Net current assets (liabilities) of discontinued
operation $ 1,019 $ (220)
------- -------
Property, plant and equipment, net 1,360 6,381
Other assets -- 5
Lease obligations - long-term portion (891) (2,900)
------- -------
Long-term net assets of discontinued operation $ 469 $ 3,486
======= =======
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 is selling the remaining center located in Cascais, Portugal.
================================================================================
51
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
SCHEDULE II
IMATRON INC.
Valuation and Qualifying Accounts and Reserves
(In thousands)
<TABLE>
<CAPTION>
Balance at
the Charged to Balance at
beginning of costs and end of the
Description the period expenses Deductions period
----------- ---------- -------- ---------- ------
<S> <C> <C> <C> <C>
Balances for the year ended December 31, 1997:
Allowance for doubtful accounts receivable $1,110 $1,380 $ -- $2,490
Inventory reserves 2,985 475 (101) 3,359
Reserve for warranty 1,351 1,714 (1,275) 1,790
Balances for the year ended December 31, 1998:
Allowance for doubtful accounts receivable 2,490 1,155 (373) 3,272
Inventory reserves 3,359 520 (175) 3,704
Reserve for warranty 1,790 1,575 (1,373) 1,992
Balances for the year ended December 31, 1999:
Allowance for doubtful accounts receivable 3,272 240 (636) 2,876
Inventory reserves 3,704 550 (1,582) 2,672
Reserve for warranty 1,992 2,448 (1,210) 3,230
</TABLE>
================================================================================
52
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
IMATRON INC. INDEX TO EXHIBITS FOR 10-K, FILED MARCH 2000
3.1 (1) Certificate of Incorporation of the Company, as amended, as of
March 31, 1983.
3.2 (2) Certificate of Amendment of Certificate of Incorporation filed with
the New Jersey Secretary of State on June 17, 1988.
3.3 (2) Certificate of Amendment of Certificate of Incorporation filed with
the New Jersey Secretary of State on July 26, 1988.
3.4 (3) Certificate of Correction of Certificate of Amendment of
Certificate of Incorporation filed with the New Jersey Secretary of
State on February 7, 1989.
3.5 (4) Certificate of Amendment of Certificate of Incorporation filed with
the New Jersey Secretary of State on March 29, 1990.
3.6 (5) Certificate of Amendment of Certificate of Incorporation filed with
the New Jersey Secretary of State on December 7, 1990.
3.7 (6) Certificate of Amendment of Certificate of Incorporation filed with
the New Jersey Secretary of State on July 7, 1997.
3.8 (7) Bylaws, as amended April 30, 1992.
4.1 (8) Form of Warrant issued to investors in Private Offering concluded
October 19, 1995.
4.2 (9) Form of Warrant issued to investors in Private Offering concluded
May 24, 1996.
4.3 (10) Form of Warrant issued to Gary Post on March 8, 1996.
4.4 (10) Form of Warrant issued to investors in Private Offering concluded
June 24, 1996.
4.5 (21) Form of Warrant issued to TeraRecon Inc. on October 15, 1997.
4.6 (21) Form of Warrant issued to TeraRecon Inc. on October 21, 1997.
4.7 (21) Form of Warrant issued to investors in connection with a Private
Offering which concluded January 28, 1997.
4.8 (22) Form of Warrant issued to TeraRecon Inc. on April 24, 1998.
4.9 (25) Form of Warrant issued to Terry Ross on June 15, 1999.
4.10 (25) Form of Warrant issued to Terry Ross on June 15, 1999.
4.11 (25) Form of Warrant issued to Jose Maria Salema Garcao on July 30,
1999.
10.1 (18) 1997 Stock Bonus Incentive Plan, as amended through June 19, 1999.
================================================================================
53
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
10.2 (15) 1998 Amended and Restated Non-Employee Director's Stock Option
Plan, as amended through June 19, 1999.
10.3 (12) Lease Agreement between the Company and J. Grant Monahon, James S.
Keagy and Jeffrey H. Stevenson, as Trustees of AEW #79 Trust for
the premises located at 389 Oyster Point Boulevard, South San
Francisco, California, dated November 1, 1991.
10.4 (12) Amendment No. 1 to Lease Agreement between the Company and J. Grant
Monahon, James S. Keagy and Jeffrey H. Stevenson, as Trustees of
AEW #79 Trust for the premises located at 389 Oyster Point
Boulevard, California, dated June 15, 1992.
10.5 (13)* Patent License Agreement dated as of March 12, 1993 between Imatron
Inc. and Severson & Werson, A Professional Corporation.
10.6 (13) Escrow Holder Agreement dated as of March 12, 1993 by and among
Imatron Inc., Siemens Corporation and Severson & Werson, A
Professional Corporation.
10.7 (13) Amendment No. 2 to Lease Agreement between the Company and J. Grant
Monahon, James S. Keagy and Jeffrey H. Stevenson, as Trustees of
AEW #79 Trust for the premises located at 389 Oyster Point
Boulevard, California dated December 31, 1992.
10.8 (14) 1993 Stock Option Plan, as amended through June 19, 1999.
10.9 (11) 1994 Employee Stock Purchase Plan, as amended through June 19,
1999.
10.10 (16) Executive Employment Agreement dated as of June 11, 1993 between
the Company and S. Lewis Meyer.
10.11 (16) Agreement and Joint Company Agreement between the Company, Tobu
Land System Company and Kino Corporation dated January 7, 1994.
10.12 (16) Distributorship Agreement between the Company and Imatron Japan K.
K. dated February 3, 1994.
10.13 (16) First Amendment to Distributorship Agreement between the Company
and Imatron Japan K. K. dated February 8, 1994.
10.14 (16) Memorandum of Understanding dated February 2, 1994 between the
Company and Siemens AG, Medical Engineering Group.
10.15 (16) Memorandum of Understanding dated February 2, 1994 between Company
and Siemens AG, Medical Engineering Group (Evolution Upgrade
project and distribution agreement).
10.16 (17)* Memorandum of Understanding dated March 31, 1995 between the
Company and Siemens Corporation.
10.17 (19) Development Agreement dated July 22, 1997 between the Company and
TeraRecon Inc.
10.18 (20) Stock Purchase Agreement between the Company, HeartScan Imaging,
Inc., and investors in a Private Offering which concluded June 24,
1996.
10.19 (10) Form of Warrant Purchase Agreement between the Company and
investors in the Private Offering which concluded June 24, 1996.
10.20 (10) Stock Purchase Agreement between the Company and Gary Post, dated
March 8, 1996.
10.21 (21) Agreement for Service Support dated February, 1997 between the
Company and Siemens Medical Systems, Inc.
================================================================================
54
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
10.22 (21) Warrant Purchase Agreement between the Company and TeraRecon Inc.
dated October 15, 1997.
10.23 (21) Warrant Purchase Agreement between the Company and TeraRecon Inc.
dated October 21, 1997.
10.24 (22) Warrant Purchase Agreement between the Company and TeraRecon Inc.
dated April 24, 1998.
10.25 (23) Loan Agreement between the Company and Positron Corporation dated
May 1, 1998, with schedules and exhibits.
10.26 (23) Stock Purchase Agreement, dated May 1, 1998 between the Company and
Positron Corporation.
10.27 (24) Sales Representative Agreement dated July 1, 1998.
10.28 ( ) Employment Agreement dated January 4, 1999 between the Company and
Terry Ross.
10.29 (26) Stock Purchase Agreement, dated June 16, 1999, between Imatron Inc.
and Terry Ross.
10.30 (26) Lock-Up Agreement, dated September 14, 1999, between Imatron Inc.
and Terry Ross.
11.0 Computation of Per Share Earnings.
23.1 Consent of KPMG LLP
* Confidential Treatment Request granted by the Securities and Exchange
Commission.
Footnotes
(1) Filed as an Exhibit to the Company's Registration Statement on Form S-1
filed with the Commission on June 1, 1983 (File No. 2-84146) and
incorporated herein by reference.
(2) Filed as an Exhibit to the Company's Registration Statement on Form S-8
filed with the Commission on February 3, 1989 (File No. 33-26833) and
incorporated herein by reference.
(3) Filed as an Exhibit to the Form 8 Amendment Number 1 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1988
filed with the Commission on May 2, 1989 and incorporated herein by
reference.
(4) Filed as an Exhibit to the Company's Annual Report Form 10-K for the Fiscal
year ended December 31, 1989 and incorporated herein by reference.
(5) Filed as an Exhibit to the Company's Registration Statement Form S-3 filed
on January 24, 1991 (File No. 33-38676) and incorporated herein by
reference.
(6) Filed as an Exhibit to the Company's Registration Statement on Form 8-K
filed with the Commission on July 17, 1997 and incorporated herein by
reference.
(7) Filed as an Exhibit to Post-Effective Amendment Number 1 to the Company's
Registration Statement Form S-3 filed with the Commission on May 5, 1992
(File No. 33-32218) and incorporated herein by reference.
(8) Filed as an Exhibit to the Company's Registration Statement on Form S-3,
filed on May 10, 1996 (Registration No. 333-3529) and incorporated herein
by reference.
(9) Filed as an Exhibit to the Company's Registration Statement on Form S-3
filed on June 25, 1996 (Registration No. 333-6749) and incorporated herein
by reference.
================================================================================
55
<PAGE>
FY 1999 IMATRON INC. FORM 10-K
================================================================================
(10) Filed as an Exhibit to the Company's Registration Statement on Form S-3
filed on September 6, 1996 (Registration No. 333-11515) and incorporated
herein by reference.
(11) Filed as an Exhibit to the Company's Registration Statement on Form S-8
filed on January 7, 2000 (Registration No. 333-94239) and incorporated
herein by reference.
(12) Filed as an Exhibit to the Company's Amendment No.1 to Post-Effective
Amendment No.1 to Form S-3 (file No. 33-32218) filed with the Commission on
August 7, 1992 and incorporated herein by reference.
(13) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December, 1992 and incorporated herein by reference.
(14) Filed as an Exhibit to the Company's Registration Statement on Form S-8
filed on January 7, 2000 (Registration No. 333-94245).
(15) Filed as an Exhibit to the Company's Registration Statement on Form S-8
filed on January 7, 2000 (Registration No. 333-94237).
(16) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31 1993, and incorporated herein by reference.
(17) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31,1994 and incorporated herein by reference.
(18) Filed as an Exhibit to the Company's Registration Statement on Form S-8 POS
filed on August 18, 1999 (Registration No. 333-15081) and incorporated
herein by reference.
(19) Filed as an Exhibit to the Company's Current Report on Form 8-K filed on
August 5, 1997 and incorporated herein by reference.
(20) Filed as an Exhibit to the Company's Current Report on Form 8-K filed on
July 1, 1996 and incorporated herein by reference.
(21) Filed on an Exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 and incorporated herein by reference.
(22) Filed as an Exhibit to the Company's Registration Statement on Form S-3
(Reg. No. 333-51963) filed on May 6, 1998 and incorporated herein by
reference.
(23) Filed as an Exhibit to the Company's Current Report on Form 8-K filed on
June 16, 1998 and incorporated herein by reference.
(24) Filed as an Exhibit to the Company's Current Report on Form 8-K filed July
20, 1998 and incorporated herein by reference.
(25) Filed as an Exhibit to the Company's Current Report on Form 8-K filed
August 10, 1999, and incorporated herein by reference.
(26) Filed as an Exhibit to the Company's Registration Statement on Form S-3
(Reg. No. 333-87195) filed on September 16, 1999, and incorporated herein
by reference.
================================================================================
56
EXHIBIT 23.1
Consent of Independent Auditors
The Board of Directors
Imatron Inc.:
We consent to incorporation by reference in the registration statements (File
Nos. 333-11515, 333-6749, 333-3529, 333-647, 33-63123, 333-51963 and 333-87195
on Form S-3 and File Nos. 333-15081, 333-9989, 222-61179, 33-71786, 33-66992,
33-66952, 33-40391, 33-28662 and 33-26833, 333-94237, 333-94239 and 333-94245 on
Form S-8) of Imatron Inc. of our report dated February 14, 2000, relating to the
consolidated balance sheets of Imatron Inc. and subsidiary as of December 31,
1999 and 1998, and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1999, and the related schedule, which report appears
in the December 31, 1999, annual report on Form 10-K of Imatron Inc.
KPMG LLP
San Francisco, California
March 27, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM IMATRON
INC.'S CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND CONSOLIDATED CONDENSED
BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000720477
<NAME> IMATRON INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 9,198
<SECURITIES> 1,999
<RECEIVABLES> 12,028
<ALLOWANCES> (2,876)
<INVENTORY> 12,965
<CURRENT-ASSETS> 35,363
<PP&E> 10,557
<DEPRECIATION> (7,657)
<TOTAL-ASSETS> 40,643
<CURRENT-LIABILITIES> 13,146
<BONDS> 0
0
0
<COMMON> 121,566
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 40,643
<SALES> 29,891
<TOTAL-REVENUES> 37,549
<CGS> 27,052
<TOTAL-COSTS> 43,384
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68
<INCOME-PRETAX> (5,646)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,646)
<DISCONTINUED> (940)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,586)
<EPS-BASIC> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
