FORM 10-Q IMATRON INC. SEPTEMBER 30, 2000
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000.
Commission file number 0-12405
IMATRON INC.
New Jersey
I.D. No. 94-2880078
389 Oyster Point Blvd, South San Francisco, CA 94080
(650) 583-9964
Indicate by check mark whether the Registrant (1) had filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes____ X____ No_________
At October 25, 2000, 104,500,843 shares of the Registrant's common stock (no par
value) were issued and outstanding.
Total Number of Pages: 17
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FORM 10-Q IMATRON INC. SEPTEMBER 30, 2000
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IMATRON INC.
Table of Contents
PART 1. FINANCIAL INFORMATION PAGE
Item 1. Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets - September 30, 2000 and
December 31, 1999. 3
Condensed Consolidated Statements of Operations - Three and Nine-
Month Periods Ended September 30, 2000 and 1999. 4
Condensed Consolidated Statements of Cash Flows - Nine-Month
Periods Ended September 30, 2000 and 1999. 5
Notes to Condensed Consolidated Financial Statements. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 12
Item 3. Quantitative and Qualitative Disclosures about Market
Risks. 15
PART II. OTHER INFORMATION 16
SIGNATURES 17
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<TABLE>
FORM 10-Q IMATRON INC. SEPTEMBER 30, 2000
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IMATRON INC.
Condensed Consolidated Balance Sheets
(In thousands)
(unaudited)
<CAPTION>
September 30, December 31,
ASSETS 2000 1999
------ ------------- -------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 10,377 $ 9,198
Short term investments 461 1,999
Accounts receivable, net :
Trade accounts receivable 10,028 8,570
Accounts receivable from joint venture 874 582
Inventories 18,739 12,965
Prepaid expenses 1,756 1,030
Net current assets of discontinued operations -- 1,019
------------- -------------
Total current assets 42,235 35,363
Property and equipment, net 3,443 2,900
Goodwill, net 1,136 1,242
Other assets 470 669
Long-term net assets of discontinued operations 427 469
------------- -------------
Total assets $ 47,711 $ 40,643
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,898 $ 2,998
Other accrued liabilities 11,677 10,118
Capital lease obligations - due within one year 34 30
Net current liabilities of discontinued operations 353 --
------------- -------------
Total current liabilities 13,962 13,146
Deferred income on sale leaseback transactions 298 367
Deferred income on service contract 90 180
Capital lease obligations 91 125
------------- -------------
Total liabilities 14,441 13,818
------------- -------------
Minority interest 71 93
------------- -------------
Shareholders' equity
Common stock 127,872 121,566
Additional paid-in capital 9,694 9,399
Deferred compensation (40) --
Notes receivable from shareholders (3,113) (150)
Accumulated deficit (101,214) (104,083)
------------- -------------
Total shareholders' equity 33,199 26,732
------------- -------------
Total liabilities and shareholders' equity $ 47,711 $ 40,643
============= =============
</TABLE>
[FN]
The accompanying notes are an integral part of
these consolidated financial statements.
</FN>
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<TABLE>
FORM 10-Q IMATRON INC. SEPTEMBER 30, 2000
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IMATRON INC.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(unaudited)
<CAPTION>
Three Months ended Nine Months ended
September 30, September 30,
----------------------------- -----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues
Product sales $ 15,549 $ 9,363 $ 8,711 $ 19,105
Service 2,012 1,590 5,330 4,970
Other product sales 244 147 629 535
------------ ------------ ------------ ------------
Total revenue 17,805 11,100 44,670 24,610
------------ ------------ ------------ ------------
Cost of revenues
Product sales 8,856 6,285 21,364 13,864
Service 1,538 1,589 4,098 4,352
Other product sales 216 144 586 550
------------ ------------ ------------ --------------
Total cost of revenues 10,610 8,018 26,048 18,766
------------ ------------ ------------ --------------
Gross profit 7,195 3,082 18,622 5,844
------------ ------------ ------------ --------------
Operating expenses
Research and development 2,455 1,713 6,279 5,180
Marketing and sales 1,865 1,664 5,802 3,918
General and administrative 1,281 561 3,558 1,895
Goodwill amortization 36 35 107 104
Restructuring charges -- -- -- 282
------------ ------------ ------------ --------------
Total operating expenses 5,637 3,973 15,746 11,379
------------ ------------ ------------ --------------
Operating income (loss) 1,558 (891) 2,876 ( 5,535)
Interest and other income 81 112 374 139
Interest expense (4) (14) (17) (101)
------------ ------------ ------------ --------------
Income (loss) from continuing operations before provision for
income taxes 1,635 (793) 3,233 (5,497)
Provision for income taxes -- -- -- --
------------ ------------ ------------ --------------
Income (loss) from continuing operations 1,635 (793) 3,233 (5,497)
Loss from discontinued operations (58) (868) (364) (1,134)
------------ ------------ ------------ ------------
Net income (loss) $ 1,577 $ (1,661) $ 2,869 $ (6,631)
============ ============ ============= ============
Net income (loss) per share:
Income (loss) from continuing operations - basic and
diluted $ 0.02 $ (0.01) $ 0.03 $ (0.06)
============ ============ ============ ============
Loss from discontinued operations - basic and diluted $ (0.00) $ (0.01) $ (0.00) $ (0.01)
============ ============ ============ ============
Net income (loss) - basic $ 0.02 $ (0.02) $ 0.03 $ (0.07)
============ ============ ============ ============
Net income (loss) - diluted $ 0.01 $ (0.02) $ 0.03 $ (0.07)
============ ============ ============ ============
Number of shares used in basic per share calculations 104,414 97,642 102,458 93,168
============ ============ ============ ============
Number of shares used in diluted per share calculations 107,178 97,642 107,183 93,168
============ ============ ============ ============
</TABLE>
[FN]
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
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<TABLE>
FORM 10-Q IMATRON INC. SEPTEMBER 30, 2000
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IMATRON INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(unaudited)
<CAPTION>
Nine Months Ended September 30,
----------------------------------------
2000 1999
------------------ --------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,869 $ (6,631)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 580 701
Net loss from discontinued operations 364 1,134
Goodwill amortization 107 104
Common stock issued for services 425 640
Options and warrants issued for services 110 10
Loss on disposal of assets 246 22
Changes in operating assets and liabilities:
Accounts receivable, net (1,750) 2,321
Inventories (5,774) 3,717
Prepaid expenses and other assets (383) 916
Accounts payable (1,100) (2,249)
Other accrued liabilities 1,559 1,337
Deferred income (159) (481)
------------------ --------------------
Net cash provided by (used in) operating activities: (2,906) 1,541
Net cash provided by discontinued operations 1,028 1,467
------------------ --------------------
(1,878) 3,008
------------------ --------------------
Cash flows from investing activities:
Capital expenditures (1,369) (893)
Acquisition of subsidiary, net of cash acquired -- (273)
Purchases of available-for-sale securities (2,523) (2,044)
Maturities of available-for-sale securities 4,061 --
------------------ --------------------
Net cash (used in) provided by investing activities: 169 (3,210)
------------------ --------------------
Cash flows from financing activities:
Payments of obligations under capital leases (30) (1,460)
Repayment of loans by stockholders 37 --
Proceeds from issuance of common stock 2,881 7,473
------------------ --------------------
Net cash provided by financing activities 2,888 6,013
------------------ --------------------
Net increase in cash and cash equivalents 1,179 5,811
Cash and cash equivalents, at beginning of the period 9,198 1,445
------------------ --------------------
Cash and cash equivalents, at end of the period $ 10,377 $ 7,256
================== ====================
</TABLE>
[FN]
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
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FORM 10-Q IMATRON INC. SEPTEMBER 30, 2000
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IMATRON INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(unaudited)
Note 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for annual
consolidated financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three and nine month
periods ended September 30, 2000 are not necessarily indicative of the results
that may be expected for the year ended December 31, 2000. These interim
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Annual Report
to Shareholders for the year ended December 31, 1999.
Certain reclassifications have been made to the 1999 amounts to conform to the
current period presentation.
Note 2 - BASIS OF CONSOLIDATION
The unaudited condensed consolidated financial statements include the accounts
of Imatron Inc. ("Imatron") and all its subsidiaries (collectively, the
"Company"), after elimination of all intercompany transactions and accounts.
On July 13, 1998, the Company adopted a formal plan to sell its HeartScan
subsidiary in order for the Company to focus more comprehensively on the core
business of manufacturing and servicing quality EBT scanners. For all periods
presented, the financial statements reflect the Company's HeartScan segment as a
discontinued operation.
On January 6, 1999, Imatron acquired a 100% interest in Caral Manufacturing
("Caral") in an acquisition accounted for under the purchase method of
accounting. Beginning January 6, 1999, the financial position and operating
results of Caral were consolidated with those of the Company.
Note 3 - NEW ACCOUNTING PRONOUNCEMENTS
NEW ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement of Financial Accounting Standard (SFAS)
No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No.
133, as amended by SFAS Nos. 137 and 138, establishes accounting and reporting
standards for derivative financial instruments and hedging activities related to
those instruments, as well as other hedging activities. Because the Company does
not currently hold any derivative instruments and does not engage in hedging
activities, the Company expects that the adoption of SFAS No. 133, as amended,
will not have a material impact on its consolidated financial position, results
of operations, or cash flows. The Company will be required to adopt SFAS No. 133
in fiscal 2001.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial
Statements, as amended by SAB 101A , which provides guidance on the recognition,
presentation, and disclosure of revenue in financial statements filed with the
SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue
and provides guidance for disclosures related to revenue recognition policies.
In June 2000, the SEC issued SAB 101B which deferred the effective date of SAB
101 until the last quarter of fiscal years beginning after December 15, 1999.
The Company is currently reviewing the impact of SAB 101 on its financial
position and results of operations.
In March 2000, the FASB issued Interpretation No. 44, Accounting for Certain
Transactions involving Stock Compensation, an interpretation of APB Opinion No.
25. This Interpretation clarifies the application of Opinion 25 for certain
issues: (a) the definition of employee for purposes of applying Opinion 25, (b)
the criteria for determining whether a plan qualifies as a noncompensatory plan,
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FORM 10-Q IMATRON INC. SEPTEMBER 30, 2000
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(c) the accounting consequence of various modifications to the terms of a
previously fixed stock option or award, and (d) the accounting for an exchange
of stock compensation awards in a business combination. Effective July 1, 2000,
the Company adopted Interpretation No. 44. The adoption of this interpretation
did not have any material effect on the Company's consolidated financial
position or results of operations.
Note 4 - inventories
Inventories were as follows (in thousands):
September 30, December 31,
2000 1999
---------------- ----------------
Purchased parts and sub-assemblies $6,460 $ 4,272
Service parts 2,562 1,747
Work-in-progress 6,955 4,718
Finished products 2,762 2,228
---------------- ----------------
$ 18,739 $ 12,965
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Note 5 - NET INCOME (LOSS) PER SHARE
Basic earnings per share is computed based on the weighted average number of
common shares outstanding, and diluted earnings per share is computed based on
the weighted average number of common shares outstanding and, when dilutive,
potential common shares from exercises of options and warrants to purchase
common stock, using the treasury stock method.
Stock options and warrants have not been included in the loss per share
computations in 1999 as their effect would have been antidilutive. Options and
warrants with the exercise price lower than the average market price of the
common stock during the period have been included in the calculation of the
diluted earnings per share for the three and nine months ended September 30,
2000. The computation of basic and diluted earnings per share for both
continuing and discontinued operations for the periods ended September 30, 2000
and 1999, are as follows:
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<TABLE>
FORM 10-Q IMATRON INC. SEPTEMBER 30, 2000
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<CAPTION>
Three Months ended Nine Months ended
September 30, September 30,
-------------------------- ------------------------
2000 1999 2000 1999
---------- --------- ---------- ----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Income (loss) from continuing operations $ 1,635 $ (793) $ 3,233 $ (5,497)
========== ========= ========== ==========
Loss from discontinued operations $ (58) $ (868) $ (364) $ (1,134)
========== ========= ========== ==========
Net income (loss) $ 1,577 $ (1,661) $ 2,869 $ (6,631)
========== ========= ========== ==========
Weighted average common shares - basic 104,414 97,642 102,458 93,168
========== ========= ========== ==========
Options and warrants included in the diluted calculation 2,764 -- 4,725 --
========== ========= ========== ==========
Weighted average common shares - diluted 107,178 97,642 107,183 93,168
========== ========= ========== ==========
Basic income (loss) per share:
Income (loss) from continuing operations $ 0.02 $ (0.01) $ 0.03 $ (0.06)
========== ========= ========== ==========
Loss from discontinued operations $ 0.00 $ (0.01) $ 0.00 $ (0.01)
========== ========= ========== ==========
Net income (loss) $ 0.02 $ (0.02) $ 0.03 $ (0.07)
========== ========= ========== ==========
Diluted income (loss) per share:
Income (loss) from continuing operations $ 0.02 $ (0.01) $ 0.03 $ (0.06)
========== ========= ========== ==========
Loss from discontinued operations $ (0.00) $ (0.01) $ (0.00) $ (0.01)
========== ========= ========== ==========
Net income (loss) $ 0.01 $ (0.02) $ 0.03 $ (0.07)
========= ========= ========= ==========
Antidilutive options and warrants not included in calculation 11,184 15,892 10,155 14,908
========== ========= ========== ==========
Average exercise price of excluded options and warrant $ 4.50 $ 3.32 $ 4.21 $ 3.00
========== ========= ========== ==========
<FN>
</FN>
</TABLE>
Note 6 -SEGMENT DISCLOSURES
The Company operates in three industry segments. Imatron operates in one
industry segment in which it designs, manufactures, services and markets a
computed tomography scanner; HeartScan operates centers that perform the
coronary artery scan procedures; and Caral engages in the business of machining
and fabrication of metal and plastic components. The Company is currently
selling its interests in HeartScan (see Note 7).
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies included in the Company's
consolidated financial statements and notes thereto for the year ended December
31, 1999. The Company evaluates performance based on profit or loss from
operations before income taxes not including non-recurring gains and losses.
The Company accounts for intersegment sales and transfers as if the sales or
transfers were to third parties, that is, at current market price.
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<TABLE>
FORM 10-Q IMATRON INC. SEPTEMBER 30, 2000
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<CAPTION>
The following table summarizes the results of operations for the Company's two
major continuing business segments for the nine-month periods ended September
30, (in thousands):
Imatron Caral Eliminations Consolidated
------------ ----------- ------------- -------------
<S> <C> <C> <C> <C>
2000:
Revenues from external customers $ 44,041 $ 629 $ -- $ 44,670
Intersegment revenues -- 1,526 (1,526) --
Total revenue 44,041 2,155 (1,526) 44,670
Operating income 2,728 148 -- 2,876
Total assets as of September 30, 2000 46,661 859 (236) 47,284
1999:
Revenues from external customers $ 24,075 $ 535 $ -- $ 24,610
Intersegment revenues -- 471 (471) --
Total revenue 24,075 1,006 (471) 24,610
Operating loss (5,366) (142) (27) (5,535)
Total assets as of September 30, 1999 31,254 596 (191) 31,659
</TABLE>
Note 7 - DISCONTINUED OPERATION -- SALE OF HEARTSCAN SUBSIDIARY
On July 13, 1998 (the measurement date), the Company adopted a formal plan to
sell its HeartScan subsidiary in order for the Company to focus on its core
business of manufacturing, marketing/selling, and servicing the Company's
proprietary EBT scanners. Accordingly, the operating results of the HeartScan
operations are reflected as discontinued operations for all periods presented in
the Company's statements of operations and as net assets (liabilities) of
discontinued operations in the September 30, 2000 and December 31, 1999 balance
sheets.
HeartScan's statements of operations data for the periods ended September 30,
2000 and 1999 are as follows (in thousands):
Three Months ended Nine Months ended
--------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ----------- -------------
Revenues $ -- $ 434 $ -- $ 1,684
Costs and expenses (58) (784) (364) (3,360)
------------ ------------ ----------- -------------
Loss before
income taxes (58) (350) (364) (1,676)
Gain (loss)
on sale of assets -- (518) -- 542
Provision for
income taxes -- -- -- --
------------ ------------ ----------- ------------
Loss from
discontinued
operations $ (58) $ (868) $ (364) $ (1,134)
============ ============ =========== =============
HeartScan's statements of operations include costs of sales related to
transactions with Imatron in the amount of $60,000 and $260,000 for three and
nine months ended September 30, 1999, respectively. There were no such
transactions in 2000.
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A summary of the net assets of discontinued operation is as follows (in
thousands):
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---------------------- ----------------------
<S> <C> <C>
Cash and cash equivalents $ -- $ 1,245
Accounts receivable - net and other current assets -- 110
Other current liabilities (30) (21)
Lease obligations - current (323) (315)
---------------------- ----------------------
Net current assets (liabilities) of discontinued operation (353) 1,019
---------------------- ----------------------
Property, plant and equipment, net 1,170 1,360
Lease obligations - long-term portion (743) (891)
---------------------- ----------------------
Long-term net assets of discontinued operation $ 427 $ 469
====================== ======================
</TABLE>
At the measurement date, the Company estimated that although a gain would be
realized upon the ultimate sale, HeartScan would continue to incur operating
losses through the disposal date. In the fourth quarter of 1998, the Company
changed its strategy from selling HeartScan to a single buyer to that of selling
the individual centers to buyers located in the cities where the centers were
located.
On February 10, 1999, the Company sold its HeartScan - San Francisco center and
related C-150 scanner and other equipment. Proceeds from sale were $1,500,000
resulting in a net gain of approximately $1,396,000.
On June 17, 1999, the Company sold its HeartScan - Pittsburgh center and related
C-150 scanner and other equipment for $650,000 resulting in a net loss of
approximately $237,000.
On July 8, 1999, the Company sold the C-150 scanner formerly used by HeartScan -
Seattle for $625,000. The sale resulted in a net loss of approximately $617,000.
On November 19, 1999, the Company sold its HeartScan - Houston and Washington DC
centers and the related C-150 scanners and other equipment for $2,200,000. The
sale resulted in a net gain of approximately $507,000.
The Company expects that the discontinued operations will continue to operate at
a loss through the disposal date of its final center in Cascais, Portugal. As of
September 30, 2000, the Company accrued its estimate of the additional losses
expected for the period from September 30, 2000 through the expected disposal
date. Upon final disposal, the Company anticipates selling the center for a
price greater than its net book value. The fiscal year 2000 losses represent
scanner depreciation and interest expense on the scanner lease obligation and do
not represent other operating expenses.
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Note 8 - EQUITY TRANSACTIONS
In 2000, the Company raised $2,881,000 from exercises of stock options,
warrants, and sale of its common stock, at an average price of $2.32 per share.
The Company issued a total of 1,242,350 shares of its common stock in relation
to these transactions.
In addition, the Company issued warrants and options to purchase shares of the
Company's common stock to certain consultants at $3.00 and $2.00 per share,
respectively. The fair value of these securities estimated on the date of grant
using the Black Scholes option-pricing model was approximately $1.19 for
warrants and $1.74 for options, with the following assumptions: expected stock
price volatility of 80%; risk-free interest rate of 6.25%; and an contractual 10
year life. The fair value of these instruments was recorded as an increase in
additional paid in capital amounting to $234,000. The warrants were charged to
deferred compensation and are being amortized quarterly as they vest, over a
one-year period. The fully vested options were recorded as prepaid expense and
are being amortized over two years, the term of the agreement.
During the second quarter of 2000, the President of the Company exercised his
warrants to purchase 2,991,027 shares of the Company's common stock (see Note
9). These warrants were issued under the 1999 private placement offering of the
Company's common stock.
Note 9 - NOTES RECEIVABLE FROM OFFICERS
At September 30, 2000, the Company held 2 notes receivable amounting to
$3,000,000 and $113,000 (remaining balance to original loan of $336,000) from
the Company's President and the Chief Executive Officer, respectively. These
notes arose from transactions in 2000 and 1998, whereby the Company provided
loans to purchase an aggregate of 3,591,027 shares of common stock. These shares
were issued upon the exercise of warrants and stock options to purchase
2,991,027 and 600,000 shares of common stock, respectively. The loans have
stated market interest rates and are full recourse. The receivables are shown on
the balance sheet as a reduction in equity.
Note 10 - BONUS INCENTIVE PLAN
On June 12, 2000, the Company's shareholders approved the increase in the number
of shares to be issued in any single year pursuant to the Stock Bonus Incentive
Plan, from 400,000 common shares to 650,000 common shares.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's Condensed Consolidated Financial Statements and related Notes thereto
contained elsewhere with this document. Operating results for the three and nine
month periods ended September 30, 2000 are not necessarily indicative of the
results that may be expected for any future periods, including the full fiscal
year. Reference should also be made to the Annual Consolidated Financial
Statements, Notes thereto, and Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1999.
This Form 10-Q contains forward-looking statements which are subject to risks
and uncertainties. The Company's actual results may differ significantly from
the results projected in the forward-looking statements as a result of certain
risk factors set forth in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999. The Company expressly disclaims any
obligation to update any forward-looking statements.
Results of Continuing Operations:
Three months ended September 30, 2000 versus 1999
Overall revenues for the three months ended September 30, 2000 of $17,805,000
increased $6,705,000 or 60% compared to revenues of $11,100,000 for the same
period in 1999. Net product revenues increased to $15,549,000 in 2000 from
$9,363,000 in 1999 due to shipment of 9 scanners in 2000 compared to 6 in 1999.
Service revenues increased in 2000 to $2,012,000 from $1,590,000 in 1999 due to
an increase in service contracts slightly offset by a decrease in spares parts
shipment. Other product sales increased to $244,000 in 2000 from $147,000 in
1999 due to an increase in sales to customers of our machining and fabrication
business.
Total cost of revenues as a percent of revenues for the three months of 2000 was
59% as compared with 72% in 1999. Product cost of revenues as a percent of
product revenues decreased to 57% in 2000 from 67% in 1999. The high cost of
product sales in 1999 was due to lower production of new scanners, resulting in
a higher portion of the fixed overhead of manufacturing facility being expensed
to each scanner manufactured. Service cost of revenues as a percent of service
decreased to 76% in 2000 as compared to 100% in 1999 due to increased service
contract revenues and decreased warranty costs.
Operating expenses for the three months of 2000 increased 42% to $5,637,000, or
32% of revenues, compared to $3,973,000, or 36% of revenues in 1999. Research
and development expenses of $2,455,000 in 2000 increased from $1,713,000 in 1999
due to large purchase of materials for new product development programs and
increased compensation paid to employees to remain competetive with the local
economy. Marketing and sales expenses increased to $1,865,000 in 2000 from
$1,664,000 in 1999 primarily due to increases in headcount and sales commissions
resulting from increased scanner sales. Administrative expenses increased to
$1,281,000 in 2000 from $561,000 in 1999 due primarily to increases in the bad
debt provision relating to certain distributors and investor relations expenses.
Goodwill amortization amounting to $36,000 and $35,000 in 2000 and 1999,
respectively, represent the amortized portion of goodwill related to the
acquisition of Caral.
Other income decreased to $81,000 for the three months ended September 30, 2000
from $112,000 in the comparable period of 1999. In 1999, other income was higher
due to $59,000 interest income earned from cash advances to Positron. Interest
expense represents interest incurred on capital lease obligations on certain
office equipment.
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<PAGE>
Nine months ended September 30, 2000 versus 1999
Overall revenues for the nine months ended September 30, 2000 of $44,670,000
increased $20,060,000 or 82% compared to revenues of $24,610,000 for the same
period in 1999. Net product revenues increased to $38,711,000 in 2000 from
$19,105,000 in 1999 due to 24 scanners shipped in 2000 compared to 12 in 1999.
Service revenues increased 7% to $5,330,000 in 2000 from $4,970,000 in 1999 due
to an increase in scanners under service contract offset by a decrease in spare
parts shipped. Other product sales represent revenues from Caral's machining
and fabrication services. Other product sales increased to $629,000 in 2000 from
$535,000 in 1999 due to an increase in sales to a greater number of customers.
Total cost of revenues as a percent of revenues for the first nine months of
2000 was lower at 58% as compared with 76% in 1999. Product cost of revenues as
a percent of product revenues decreased to 56% in 2000 from 73% in 1999 due to
shipment of 24 scanners with higher gross margins compared to 12 shipments in
1999. The high cost of product sales in 1999 was due to the decrease in
production of new scanners, resulting in a significant portion of the fixed
overhead of the manufacturing facility being expensed to cost of revenue.
Service cost of revenues as a percent of service revenue decreased to 77% in
2000 from 88% in 1999 due to decreased warranty costs. Other product cost of
revenues as a percent of other product revenues decreased to 93% in 2000 from
103% in 1999 due to increased sales to external customers.
Operating expenses for the nine months of 2000 increased 38% to $15,746,000, or
35% of revenues, compared to $11,379,000, or 46% of revenues in 1999. Research
and development expenses of $6,279,000 in 2000 increased from $5,180,000 in 1999
due to an increase in materials for new product development programs and
increased compensation expenses. Marketing and sales expenses increased to
$5,802,000 in 2000 from $3,918,000 in 1999 primarily due to increases in
headcount and sales commissions resulting from increased scanner sales.
Administrative expenses increased to $3,558,000 in 2000 from $1,895,000 in 1999
due primarily to increases in headcount, bad debt provision relating to certain
distributors, and investor relation expenses. Goodwill amortization amounting to
$107,000 and $104,000 in 2000 and 1999, respectively, represent the amortized
portion of goodwill related to the acquisition of Caral. Restructuring charges
of $282,000 relates to severance and other benefits paid by the Company during
the first quarter of 1999 as part of its reorganization plan.
Other income increased to $374,000 for the first nine months of 2000 from
$139,000 in the comparable period of 1999. The increase was attributable to
higher cash balances and investments in interest-bearing securities. Interest
expense represents interest incurred on capital lease obligations on certain
office equipment.
Discontinued operation:
On July 13, 1998, the Company announced its intention to divest its HeartScan
subsidiary. Accordingly, the Company restated its financial statements to
reflect the classification of HeartScan as a discontinued operation for all
periods presented.
At the measurement date, the Company estimated that although a gain would be
realized upon the ultimate sale, HeartScan would continue to incur operating
losses through the disposal date. In the fourth quarter of 1998, the Company
changed its strategy from selling HeartScan to a single buyer to that of selling
the individual centers to buyers located in the cities where the centers were
located. As such, the Company reassessed its estimate of the gain on disposal to
reflect the Company's change in strategy.
In 1999, the Company sold all its domestic centers for a net gain of $1,049,000.
At December 31, 1999, the Company had one remaining center in Cascais, Portugal.
The Company expects that the discontinued operations will continue to operate at
a loss through the disposal of its final center. However, management's current
best estimate indicates that the disposal of the Cascais center will result in a
gain. As of September 30, 2000, the Company accrued its estimate of the
additional losses expected for the period from September 30, 2000 through the
expected disposal date. Upon final disposal, the Company anticipates selling the
center for a price greater than its net book value. The additional losses are
primarily from scanner depreciation and interest expense on the scanner lease
obligation and do not represent other operating expenses.
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Liquidity and Capital Resources:
At September 30, 2000, working capital increased to $28,273,000 compared to
December 31, 1999 working capital of $22,217,000. The current ratio increased to
3.0:1 at September 30, 2000 from 2.7:1 December 31, 1999.
The Company's total assets increased to $47,711,000 at September 30, 2000
compared to December 31, 1999 total assets of $40,643,000. Cash, cash
equivalents, and short-term investments decreased to $10,838,000 in 2000 from
$11,197,000 in 1999 due primarily to increased inventory purchases, partially
offset by proceeds realized from issuance of securities. Cash used by continuing
operations increased to $2,906,000 for nine months ended September 30, 2000
compared to cash provided by continuing operations of $1,541,000 for the same
period in 1999 was mainly due to increases in receivables and inventory
purchases, reduction in accounts payable, partially offset by increase in
accrued liabilities. The increase in inventory was due to increased production
levels to meet anticipated shipments in the current fiscal year. The increase in
accounts receivable was primarily due to an increase in revenues resulting from
shipment of 24 scanners in 2000 compared to 12 scanners during the same period
in 1999. The decrease in accounts payable resulted from accelerated payments to
vendors to maintain balances on a more current basis. In 1999, cash generated
from receivables and decreased inventory purchases were offset by a reduction in
accounts payable. The decrease in accounts receivables was primarily due to
payment of outstanding invoices. Accounts payable decreased as a result of a
decrease in inventory purchases.
Cash provided by discontinued operations decreased to $1,028,000 for the nine
months ended September 30, 2000 compared to $1,467,000 during the same period in
1999 due to the net proceeds realized from the sale of the HeartScan centers in
1999. Net loss from discontinued operations for the nine month period ended
September 30, 2000 decreased to $364,000 as compared to $1,134,000 for the same
period in 1999. The decrease in net loss was due to the decrease in operating
losses in 2000 offset by net gain realized on the sale of the assets in 1999.
The gain on sale of assets in 1999 relates to the net gain recognized from the
sale of HeartScan-San Francisco offset by loss from sale of HeartScan-Pittsburgh
and HeartScan-Seattle. The decrease in operating losses was due to the closure
of all HeartScan domestic centers which were consistently operating at a loss.
The Company's investing activities for the nine months ended September 30, 2000
included purchases of capital equipment and marketable securities amounting to
$1,369,000 and $2,523,000, respectively, offset by maturities of marketable
securities in the amount of $4,061,000. Capital expenditures included
approximately $836,000 of test scanner for use in research and development. In
1999, the primary uses of cash from investing activities were the acquisition of
Caral amounting to $273,000 (net of cash acquired) and purchases of equipment
and marketable securities amounting to $893,000 and 2,044,000, respectively.
Cash provided by financing activities was $2,888,000 for the nine month period
ended September 30, 2000 as compared with $6,013,000 for the same period in
1999. Significant sources of cash in financing activities were proceeds of
$2,881,000 and $7,473,000 from sale of common stock and exercise of stock
options and warrants during the nine month period ended September 30, 2000 and
1999, respectively. In 1999, cash used in financing activities included payments
of scanner lease obligations relating to the discontinued operations.
The Company's liquidity is affected by many factors, some based on the normal
ongoing operations of the business and others related to the uncertainties of
the industry and global economies. Although the cash requirements will fluctuate
based on timing and extent of these factors, management believes that cash, and
cash equivalents existing at September 30, 2000 and the estimated proceeds from
ongoing sales of products and services in 2000 will provide the Company with
sufficient cash for operating activities and capital requirements through
December 31, 2000.
The Company expects to devote substantial capital resources to research and
development, to support a direct sales force and marketing operations and to
continue to support its manufacturing capacity and facilities. To satisfy the
Company's capital and operating requirements beyond 2000, profitable operations,
additional public or private financing or the incurrence of debt may be
required. If future public or private financing is required by the Company,
holders of the Company's securities may experience dilution. There can be no
assurance that equity or debt sources, if required, will be available or, if
available, will be on terms favorable to the Company or its shareholders. The
Company does not believe that inflation has had a material effect on its
revenues or results of operations.
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ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
In the past the Company has held investments consisting of interest bearing
investment grade instruments consistent with the Company's investment portfolio.
The Company has also entered into credit facilities and leasing arrangements. At
September 30, 2000, the Company had money market mutual funds, certificates of
deposit and commercial paper which mature in less than six months. Additionally,
the Company maintained leases for a scanner and other equipment that have been
accounted for as capital leases with a total obligation of $125,000 as of
September 30, 2000.
The Company's foreign sales are denominated in U.S. Dollars.
The Company does not believe that it is subject to any material exposure to
interest rate, foreign currency or other market risks.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a vote of Security Holders
The Company's Annual Meeting of Shareholders was held on May
12, 2000. At the meeting, the following proposals were
submitted to the shareholders for approval:
a)To amend the Bonus Incentive Plan increasing the number
of shares which may be issued annually from 400,000 common
shares to 650,000 common shares. For: 82,795,789; Against
: 4,976,934; and Abstain: 503,179
b)To elect the following as the Company's board of directors for the
ensuing year:
Douglas P. Boyd 87,408,058 867,844
Allen Chozen 87,528,748 747,154
John Couch 87,514,509 761,393
William J.McDaniel 87,537,819 739,083
S. Lewis Meyer 87,449,351 826,551
Richard Myler 87,462,658 804,244
Terry Ross 87,495,456 780,446
Also Test 87,448,898 827,004
c)To ratify the appointment of KPMG LLP as the Company's independent
auditors for the fiscal year ending December 31, 2000.
For: 87,607,158; Against: 387,157; and Abstain: 281,587.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K Exhibits:
No. 27 - Financial Data Schedule as of September 30, 2000.
Form 8-K Reports: None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 13, 2000
IMATRON INC.
(Registrant)
Frank Cahill
Vice President, Finance/Administration,
Chief Financial Officer and Secretary
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