<PAGE>
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________________________________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission File Number 0-22229
___________________________________________________
VITAL IMAGES, INC.
(Exact name of registrant as specified in its charter)
Minnesota 42-1321776
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3100 West Lake Street, Suite 100 55416
Minneapolis, Minnesota (Zip Code)
(Address of principal
executive offices)
(612) 915-8000
(Registrant's telephone number, including area code)
___________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __X___ No _____
___________________________________________________
On August 5, 1999, there were 5,026,367 shares of the Registrant's common stock,
par value $.01 per share, outstanding.
1
<PAGE>
VITAL IMAGES, INC.
------------------
Form 10-Q
June 30, 1999
Table of Contents
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of June 30, 1999 and December 31, 1998 .................. 3
Statements of Operations for the Three and Six Months Ended
June 30, 1999 and 1998 .................................................. 4
Statements of Cash Flows for the Six Months Ended
June 30, 1999 and 1998................................................... 5
Notes to Financial Statements.............................................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................... 8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders........................ 14
Item 6. Exhibits and Reports on Form 8-K........................................... 15
SIGNATURES............................................................................... 16
INDEX TO EXHIBITS........................................................................ 17
</TABLE>
2
<PAGE>
________________________________________________________________________________
PART I. FINANCIAL INFORMATION
________________________________________________________________________________
ITEM 1. FINANCIAL STATEMENTS
VITAL IMAGES, INC.
BALANCE SHEETS
AS OF JUNE 30, 1999 AND DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------- --------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,215,462 $ 1,751,615
Marketable securities - 1,985,556
Accounts receivable, net of allowance for doubtful accounts of
$93,000 and $78,000 as of June 30, 1999 and December 31,
1998, respectively 1,062,406 1,149,109
Prepaid expenses and other current assets 253,616 135,117
------------ ------------
Total current assets 3,531,484 5,021,397
Property and equipment, net 841,637 916,238
------------ ------------
TOTAL ASSETS $ 4,373,121 $ 5,937,635
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 584,102 $ 505,260
Accrued payroll 488,702 587,261
Deferred revenue 458,094 380,851
Other current liabilities 293,475 188,381
------------ ------------
Total current liabilities 1,824,373 1,661,753
Deferred revenue 168,460 141,615
------------ ------------
Total liabilities 1,992,833 1,803,368
Shareholders' equity:
Preferred stock: $.01 par value; 5,000,000 shares authorized; none
issued or outstanding as of June 30, 1999 and December 31, 1998 - -
Common stock: $.01 par value; 20,000,000 shares authorized;
4,996,867 and 4,870,497 shares issued and outstanding as of
June 30, 1999 and December 31, 1998, respectively 49,969 48,705
Additional paid-in capital 18,414,515 18,096,707
Accumulated deficit (16,084,196) (14,011,145)
------------ ------------
Total shareholders' equity 2,380,288 4,134,267
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,373,121 $ 5,937,635
============ ============
</TABLE>
(The accompanying notes are an integral part of the interim financial
statements.)
3
<PAGE>
VITAL IMAGES, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
1999 1998 1999 1998
------------- ----------- ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue:
License fees $ 636,711 $ 583,622 $ 1,713,585 $ 1,056,475
Maintenance and services 213,660 110,216 418,293 203,897
Hardware 269,797 291,802 728,066 491,134
----------- ---------- ----------- -----------
Total revenue 1,120,168 985,640 2,859,944 1,751,506
Cost of revenue:
License fees 21,142 43,029 54,512 79,475
Maintenance and services 55,580 30,697 105,162 55,108
Hardware 193,478 212,425 557,822 370,445
----------- ---------- ----------- -----------
Total cost of revenue 270,200 286,151 717,496 505,028
Gross margin 849,968 699,489 2,142,448 1,246,478
Operating expenses:
Sales and marketing 992,570 700,026 1,862,310 1,339,741
Research and development 635,134 368,518 1,253,714 897,839
General and administrative 555,777 475,077 1,156,087 1,075,213
----------- ---------- ----------- -----------
Total operating expenses 2,183,481 1,543,621 4,272,111 3,312,793
Operating loss (1,333,513) (844,132) (2,129,663) (2,066,315)
Interest income 26,635 69,811 59,612 149,232
----------- ---------- ----------- -----------
Loss before income taxes (1,306,878) (774,321) (2,070,051) (1,917,083)
Income taxes 1,500 10,000 3,000 13,118
----------- ---------- ----------- -----------
Net loss $(1,308,378) $ (784,321) $(2,073,051) $(1,930,201)
=========== ========== =========== ===========
Net loss per share - basic and diluted $ (.27) $ (.16) $ (.42) $ (.40)
=========== ========== =========== ===========
Weighted average common shares outstanding -
basic and diluted 4,935,261 4,831,906 4,908,161 4,818,396
=========== ========== =========== ===========
</TABLE>
(The accompanying notes are an integral part of the interim financial
statements.)
4
<PAGE>
VITAL IMAGES, INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six
Months Ended
June 30,
1999 1998
-------- -------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,073,051) $ (1,930,201)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 276,163 240,768
Stock-based compensation 10,781 -
Provision for uncollectible accounts receivable 15,000 27,313
Changes in operating assets and liabilities:
Accounts receivable 71,703 (28,382)
Prepaid expenses and other current assets (118,499) 52,899
Accounts payable 78,842 53,754
Deferred revenue 104,088 9,946
Accrued payroll and other liabilities 6,535 34,417
-------------- -------------
Net cash used in operating activities (1,628,438) (1,539,486)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (201,562) (199,523)
Increase in other assets - (5,777)
Investments in marketable securities (1,014,444) (4,757,408)
Maturities of marketable securities 3,000,000 7,000,000
-------------- -------------
Net cash provided by investing activities 1,783,994 2,037,292
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sales of common stock under stock option plans 308,291 75,834
-------------- -------------
Net cash provided by financing activities 308,291 75,834
NET INCREASE IN CASH AND CASH EQUIVALENTS 463,847 573,640
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,751,615 448,377
-------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,215,462 $ 1,022,017
============== =============
</TABLE>
(The accompanying notes are an integral part of the interim financial
statements.)
5
<PAGE>
VITAL IMAGES, INC.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
(1) BASIS OF PRESENTATION:
The accompanying unaudited financial statements of Vital Images, Inc. ("Vital
Images" or the "Company") 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 complete financial statements. In the opinion of
management, all adjustments considered necessary, including items of a normal
recurring nature, for a fair presentation have been included. Operating results
for the three and six months ended June 30, 1999 are not necessarily indicative
of the results that may be expected for the year ending December 31, 1999. These
financial statements should be read in conjunction with the financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1998.
(2) MAJOR CUSTOMERS AND GEOGRAPHIC DATA:
The following customers accounted for more than 10% of the Company's total
revenue for the periods indicated:
<TABLE>
<CAPTION>
Significant Percentage of
Customer Revenue Total Revenue
-------- ------- -------------
<S> <C> <C> <C>
Six months ended Toshiba America Medical $ 951,000 33%
June 30, 1999 Systems Inc.
Six months ended Toshiba America Medical $ 494,000 28%
June 30, 1998 Systems, Inc.
Paradigm Geophysical $ 403,000 23%
Corporation
</TABLE>
The Company's accounts receivable are generally concentrated with a small base
of customers. As of June 30, 1999, one customer accounted for 14% of accounts
receivable, while as of December 31, 1998, two customers, each accounting for
more than 10% of accounts receivable, accounted for 22% of accounts receivable.
Export revenue amounted to 9% and 2% of total revenue for the six months ended
June 30, 1999 and 1998, respectively. Substantially all of the Company's export
revenue is negotiated, invoiced and paid in U.S. dollars. Gross export revenue
by geographic area is summarized as follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------
1999 1998
----- -----
<S> <C> <C>
Europe........................................................................ $ 159,000 $ 25,000
Asia and Pacific Region....................................................... 70,000 9,000
Canada, Mexico and all others................................................. 23,000 2,000
</TABLE>
6
<PAGE>
(3) NET LOSS PER SHARE:
For the three and six months ended June 30, 1999 and 1998, net loss per share is
computed using the weighted average common shares outstanding during the period.
Common share equivalents are not included in the net loss per share
calculations, since they are anti-dilutive. Warrants and options to purchase
1,651,102 shares of the Company's common stock were outstanding as of June 30,
1999 and could potentially dilute basic earnings per share in future periods if
the Company generates net income.
(4) COMPREHENSIVE INCOME:
During the six months ended June 30, 1999 and 1998, total comprehensive loss was
$2,073,000 and $1,930,000, respectively. There was no accumulated other
comprehensive income or loss as of June 30, 1999 and December 31, 1998.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
Vital Images, Inc. (the "Company" or "Vital Images") develops and markets
visualization and analysis software for clinical diagnosis, surgical planning
and medical research. The Company's technology, which utilizes high-speed
visualization and analysis, as well as network communications based on DICOM and
Internet protocols, cost-effectively brings 3D visualization and analysis into
the routine, day-to-day practice of medicine. The Company, which operates in a
single business segment, markets its products to healthcare providers and to
manufacturers of diagnostic imaging systems through a direct sales force in the
United States and independent distributors in international markets.
Revenue
Revenue was $1,120,000 for the three months ended June 30, 1999 compared with
$986,000 for the three months ended June 30, 1998, a 14% increase. For the six
months ended June 30, 1999 revenue was $2,860,000 compared with $1,752,000 in
the comparable six month period of the prior year, a 63% increase. These
increases were primarily the result of volume increases in shipments of
Vitrea(R), the Company's flagship medical visualization and analysis product for
radiological and surgical applications in the clinical market. Software and
hardware revenue from the Vitrea platform totaled $765,000 and $2,118,000 for
the three and six months ended June 30, 1999, respectively, compared with
$604,000 and $1,092,000 for the three and six months ended June 30, 1998,
respectively. The Vitrea platform includes hardware and software revenue from
both Vitrea and Advanced 3DI(TM). Advanced 3DI is the Company's visualization
and analysis product for the ultrasound market. There was also an increase in
maintenance and services revenue related to Vitrea sales for the three and six
months ended June 30, 1999, as compared with the comparable periods last year.
The Company's largest customer, Toshiba of America Medical Systems ("Toshiba"),
recently began marketing and selling a new high-speed computed tomography
scanner, the Aquilion(TM). The Company anticipated Toshiba would be shipping the
Aquilion in greater quantities in the first quarter of 1999. However, Toshiba
has only recently begun delivering the Aquilion to its customers in quantities
and has many scanner purchases on backorder or near the end of the sales
process. This had the effect of delaying expected shipments of Vitrea software
and hardware to be purchased in conjunction with Toshiba scanners during the
second quarter of 1999 until future periods.
It is expected that, in general, total revenue will continue to increase in
future periods due to increased sales of Vitrea software and systems. However,
actual annual and quarterly results could vary materially from the foregoing
forward-looking statement as a result of increasing competition or the timing of
future releases of Vitrea software. In addition, there may be fluctuations from
quarter-to-quarter due to the introduction of new scanner technology, the timing
of purchases by the Company's major customers and other issues that impact the
purchasing patterns of the Company's customers.
8
<PAGE>
Gross Margin
The gross margin percentage increased from 71% for the three and six months
ended June 30, 1998, to 76% and 75% for the three and six months ended June 30,
1999, respectively, primarily as a result of economies of scale in the cost of
revenue structure related to license fees and maintenance and services revenue.
The Company anticipates that as software and hardware revenue from Vitrea
continues as a significant proportion of the Company's product mix, the overall
gross margin percentage will approximate the results of this quarter. This
forward-looking statement will be influenced primarily by vendor discounts on
the third party hardware and peripheral components of the Vitrea system and on
the Company's product mix.
Sales and Marketing
Sales and marketing expenses increased to $993,000 for the three months ended
June 30, 1999 from $700,000 for the three months ended June 30, 1998, a 42%
increase. For the six months ended June 30, 1999, sales and marketing expenses
increased 39%, to $1,862,000 from $1,340,000 for the six months ended June 30,
1998. The increases were primarily due to increased compensation costs as a
result of increased sales commission and additional personnel, as well as
increases in travel expenses related to selling and promoting the Vitrea product
and increases in market research and depreciation expenses. The Company expects
sales and marketing costs to increase in future periods as a result of the cost
of additional sales personnel and increased marketing and promotional expenses
for Vitrea.
Research and Development
Research and development expenses increased 72% to $635,000 for the three months
ended June 30, 1999, compared with $369,000 for the same period last year. For
the six month period ended June 30, 1999, research and development expenses
increased 40% to $1,254,000 from $898,000 for the comparable period in the prior
year. The increases were primarily due to increased compensation costs
resulting from additional personnel and a decrease in the reimbursement of
engineering costs pursuant to a software development contract with ATL
Ultrasound, Inc. The Company anticipates that research and development costs
will increase in future periods as future releases of Vitrea software are
developed.
General and Administrative
General and administrative expenses increased to $556,000 for the three months
ended June 30, 1999, from $475,000 for the three months ended June 30, 1998, a
17% increase. For the six months ended June 30, 1999, general and
administrative expenses increased 8%, to $1,156,000 from $1,075,000 for the six
months ended June 30, 1998. For both the three and six months ended June 30,
1999, compensation costs increased primarily as a result of staffing additions.
There were also increases in recruiting costs, consulting fees and investor
relations expense for both the three and six months ended June 30, 1999 as
compared with the three and six months ended June 30, 1998. These increases
were offset by decreases in legal expenses, bad debt expense and, for the six
months ended June 30, 1999, costs associated with the resignation of the
Company's former Chief Executive Officer in the first quarter of 1998. The
Company also reduced the estimated accrued costs related to the closing of its
Iowa facility, resulting in lower expenses for the three and six months ended
June 30, 1999, primarily due to negotiating an early termination of the lease
for that facility. The Company believes that general and administrative costs
will increase in future periods primarily due to increased compensation expense
for employees hired in 1998 that will be present for all of 1999 and additional
new hires in 1999.
9
<PAGE>
Operating Losses
The increased expenses attributable to the development of the Company's
infrastructure and the continued development and promotion of the Vitrea
product, net of the increasing revenues from Vitrea shipments, resulted in
increased operating losses of $1,334,000 and $2,130,000 for the three and six
months ended June 30, 1999, respectively, compared with operating losses of
$844,000 and $2,066,000 for the three and six months ended June 30, 1998,
respectively.
Interest Income
Interest income was $27,000 and $60,000 for the three and six months ended June
30, 1999 compared with $70,000 and $149,000 for the comparable periods in 1998.
The decreases in interest income were due to a lower balance of cash, cash
equivalents and marketable securities as a result of the use of cash to fund the
Company's operations.
Income Taxes
The income tax provisions for the three and six months ended June 30, 1999 and
1998 consist solely of certain state minimum fees. The Company has deferred tax
assets resulting primarily from net operating loss carryforwards for federal
income tax reporting purposes and unused research and development credits. A
valuation allowance has been established to completely reserve for the deferred
tax assets of the Company.
Liquidity and Capital Resources
As of June 30, 1999, the Company had $2,215,000 in cash and cash equivalents.
The Company's working capital was $1,707,000 and the Company had no material
borrowings. In March 1999, the Company entered into a collateralized line of
credit agreement with a bank for $950,000. Borrowings under the agreement are
limited to the lower of $950,000 or the Company's borrowing base, which consists
of a specified percentage of certain accounts receivable. The Company is also
required to maintain a cash and cash equivalents balance of at least $1,000,000
at the lending bank. As of June 30, 1999, the Company's available borrowings
under the agreement were $543,000.
Cash flows used in operations increased to $1,628,000 in the first six months of
1999 from $1,539,000 in the first six months of 1998. In both six-month periods
cash flows were used primarily to fund operating losses, which were partially
offset by non-cash expenses for depreciation and amortization. Increases in
prepaid expenses and other current assets decreased cash flow from operations,
while a decrease in accounts receivable increased cash flow from operations for
the six months ended June 30, 1999. Decreases in prepaid expenses and other
current assets increased cash flows from operations, while an increase in
accounts receivable decreased cash flows from operations for the six months
ended June 30, 1998. Increases in current liabilities, primarily due to
increases in accounts payable and deferred revenue, increased cash flows from
operations in the six months ended June 30, 1999. Increases in current
liabilities, primarily due to increases in accounts payable and accrued payroll
and other current liabilities, increased cash flows from operations in the six
months ended June 30, 1998.
The increase in deferred revenue for the six months ended June 30, 1999 was
primarily due to volume increases in Vitrea sales and the increase in accounts
payable was due primarily to costs related to these sales.
10
<PAGE>
Net investing activities provided $1,784,000 of cash in the six months ended
June 30, 1999 and $2,037,000 in the six months ended June 30, 1998, primarily
due to the conversion of marketable securities into cash. The Company added
property and equipment of $202,000 and $200,000 in the six months ended June 30,
1999 and 1998, respectively, primarily for computer equipment to accommodate the
increases in employee headcount.
Cash provided by financing activities totaled $308,000 and $76,000 for the six
months ended June 30, 1999 and 1998, respectively, as a result of proceeds from
the sales of common stock under stock option plans.
The Company has never paid or declared any cash dividend and does not intend to
pay dividends in the near future. The Company has no current commitments for
material capital expenditures. The Company expects to use cash in the near term
as it continues to develop the infrastructure to support its business and
develop the market for its products.
If the Company's operations progress as anticipated, of which there can be no
assurance, management believes that its cash and cash equivalents and borrowings
available under the credit agreement entered into in March 1999 should be
sufficient to satisfy its cash requirements for at least the next twelve months.
However, if the Company continues to experience operating losses at its current
rate, the Company will need to raise additional capital within the next six to
twelve months. If additional capital is required, there can be no assurance that
such additional capital will be available on acceptable terms or at all, and the
failure to obtain any such capital would have a material adverse effect on the
Company's business.
The Company has identified emerging market opportunities in radiological
screening and surgical planning applications and is exploring and evaluating
alternatives for raising additional capital to pursue these opportunities, as
well as to provide additional working capital.
Foreign Currency Transactions
Substantially all of the Company's foreign transactions are negotiated, invoiced
and paid in U.S. dollars.
Year 2000 Readiness
Many computer programs and embedded computer chips are unable to distinguish
between the year 1900 and the year 2000. Therefore, some computer hardware and
software will need to be modified prior to the year 2000 in order to remain
functional. This is commonly known as the Year 2000 ("Y2K") issue.
The Company has a formal program in place with an assigned Year 2000 project
team to ensure that its critical areas will operate normally at the turn of the
century. The goal of the Year 2000 team is to ensure that the Company's
equipment, systems and processes and those of its significant business partners
are sufficiently Year 2000 compliant such that no date/time issue will have any
material adverse impact on the products or services that the Company provides
its customers or the timely and accurate processing of transactions.
Throughout 1999, the Company will determine areas where contingency planning is
needed. The planning efforts include, but are not limited to, identification
and mitigation of potential serious business interruptions and establishing
crisis response processes to address unexpected problems.
11
<PAGE>
The project team has identified its Y2K risks in the following four categories:
Company products, financial software, embedded chip technology and non-financial
software, and noncompliance by suppliers and customers.
Company Products. The Company has assessed the Y2K readiness of its software
products and has made the commitment that any product releases in 1999 and later
will be Y2K compliant. The Company has posted a table detailing the Y2K
readiness status of its products on its website at www.vitalimages.com.
-------------------
Management believes that a lack of Y2K readiness in any of its products, except
for Vitrea, would not have a material impact on the Company's results of
operations or financial condition. On March 31, 1999, the Company announced the
release of a Y2K compliant version of Vitrea.
Financial Software. During 1997, the Company purchased and installed a new
accounting software package. The Company has obtained a statement from the
vendor indicating that the software is Y2K compliant. The Company has also
tested the Y2K readiness of this software. This testing did not reveal any Y2K
compliance issues.
Embedded Chip Technology and Non-financial Software. The Company has assessed
its Y2K readiness with regard to critical and non-critical embedded chip
technology and non-financial software. The Company's assessment of its Y2K
readiness did not reveal any critical embedded chip technology or non-financial
software that was not Y2K compliant. The Company's assessment did reveal that
certain non-critical assets containing embedded chip technology and certain non-
financial software were not Y2K compliant. The Company has replaced or upgraded
these non-compliant assets and non-financial software products.
Noncompliance by Suppliers and Customers. The Company has identified and
contacted its critical suppliers and service providers to determine the state of
their Y2K readiness. The Company is currently evaluating the responses received
from its critical suppliers and service providers and expects this evaluation to
be completed by September 30, 1999. To the extent that responses to the Y2K
issue are unsatisfactory, the Company will consider changing suppliers or
service providers, but there can be no assurance that the Company will be
successful in finding such alternative suppliers or service providers. The
Company does not have any formal information concerning the Y2K compliance
status of its customers. If customers experience significant Y2K problems, they
may choose to delay or cancel orders for the Company's products. In the event
that any of the Company's significant suppliers or customers do not achieve Y2K
compliance in a timely manner, and the Company is unable to replace them with
alternate suppliers or customers, the Company's operations could be materially
adversely affected.
The costs incurred by the Company to date in addressing its Y2K readiness issues
are primarily non-incremental compensation costs and have not been material to
the Company's operating results. The Company currently estimates that the total
additional costs for addressing its internal Y2K readiness will not be material
to the Company's operating results. These costs are being expensed as they are
incurred. The Company plans to devote the necessary resources to resolve all
significant Y2K issues in a timely manner.
12
<PAGE>
The Company's statements regarding its Y2K readiness are forward-looking
statements and are, therefore, subject to change as a result of known and
unknown factors. Both the Company's cost estimates and completion time frames
could be influenced by the Company's ability to successfully identify all Y2K
issues, the nature and amount of remediation required, the availability and cost
of trained personnel in this area and the Y2K success that key third parties and
customers attain. While these and other unforeseen factors could have a material
adverse impact on the Company's financial position, results of operations or
liquidity in future periods due to possible business disruptions caused by a
lack of third party Y2K readiness, management believes that it has implemented
an effective Y2K compliance program that will minimize the possible negative
consequences to the Company.
The Y2K readiness disclosure statement set forth above is a "Year 2000 Readiness
Disclosure" under the federal Year 2000 Information and Readiness Disclosure
Act.
Certain Important Factors
This Form 10-Q contains certain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 and information that are
based on management's beliefs, as well as on assumptions made by, and upon
information currently available to, management. When used in this Form 10-Q,
the words "expect," "anticipate," "intend," "plan," "believe," "seek," and
"estimate" or similar expressions are intended to identify such forward-looking
statements. However, this Form 10-Q also contains other forward-looking
statements. Forward-looking statements are not guarantees of future performance
and are subject to certain risks, uncertainties and assumptions, including, but
not limited to, the following factors, which could cause the Company's future
results and shareholder values to differ materially from those expressed in any
forward-looking statements made by or on behalf of the Company: the dependence
on growth of the industry in which the Company operates, the extent to which the
Company's products gain market acceptance, the need for and availability of
additional capital, the potential for litigation regarding patent and other
intellectual property rights, the introduction of competitive products by
others, dependence on major customers, fluctuations in quarterly results, the
progress of product development, the availability of third-party reimbursement,
and the receipt and timing of regulatory approvals and other factors detailed
from time to time in the Company's filings with the Securities and Exchange
Commission, including those set forth under the heading "Important Factors" in
the Company's Annual Report on Form 10-K for the year ended December 31, 1998.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
13
<PAGE>
- --------------------------------------------------------------------------------
PART II. OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders held on May 12, 1999, the following
proposals were adopted by the margins indicated:
1. Elect a Board of Directors to hold office until the next Annual
Meeting of Shareholders and until their successors are elected and qualified.
<TABLE>
<CAPTION>
Number of Shares
----------------
For Withheld
--- --------
<S> <C> <C>
Douglas M. Pihl 3,903,950 28,336
Vincent J. Argiro, Ph.D. 3,903,950 28,336
James B. Hickey, Jr. 3,903,093 29,193
Richard W. Perkins 3,904,093 28,193
Michael W. Vannier, M.D. 3,903,008 29,278
Sven A. Wehrwein 3,904,093 28,193
</TABLE>
2. Amend the 1997 Stock Option and Incentive Plan to increase the number
of shares reserved for issuance thereunder.
<TABLE>
<CAPTION>
Broker
Number of Shares Voted Non-votes
----------------------------------------------- -----------
Voted For Voted Against Abstain
--------- ------------- -------
<S> <C> <C> <C>
1,535,060 342,879 72,188 2,342,667
</TABLE>
14
<PAGE>
3. Amend the 1997 Director Stock Option Plan to increase the number of
shares reserved for issuance thereunder.
<TABLE>
<CAPTION>
Broker
Number of Shares Voted Non-votes
----------------------------------------------- -----------
Voted For Voted Against Abstain
--------- ------------- -------
<S> <C> <C> <C>
1,588,035 290,277 71,815 2,342,667
</TABLE>
4. Appoint PricewaterhouseCoopers LLP as independent accountants for the
year ending December 31, 1999.
<TABLE>
<CAPTION>
Broker
Number of Shares Voted Non-votes
----------------------------------------------- -----------
Voted For Voted Against Abstain
--------- ------------- -------
<S> <C> <C> <C>
3,894,385 18,850 20,451 -
</TABLE>
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The exhibits to this quarterly report on Form 10-Q are listed in
--------
the exhibit index beginning on page 17.
(b) Form 8-K. The Company filed no reports on Form 8-K during the three months
--------
ended June 30, 1999.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VITAL IMAGES, INC.
August 13, 1999 /s/ Gregory S. Furness
------------------------------
Gregory S. Furness
Chief Financial Officer and
Senior Vice President-Finance
(Chief Accounting Officer)
16
<PAGE>
VITAL IMAGES, INC.
INDEX TO EXHIBITS
- --------------------------------------------------------------------------------
27.1 Financial Data Schedule for the Six Months Ended June 30, 1999 (filed
herewith electronically).
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS AND RELATED NOTES FOR THE SIX MONTHS ENDED JUNE 30, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,215,462
<SECURITIES> 0
<RECEIVABLES> 1,155,406
<ALLOWANCES> 93,000
<INVENTORY> 81,246
<CURRENT-ASSETS> 3,531,484
<PP&E> 2,323,710
<DEPRECIATION> 1,482,073
<TOTAL-ASSETS> 4,373,121
<CURRENT-LIABILITIES> 1,824,373
<BONDS> 0
0
0
<COMMON> 49,969
<OTHER-SE> 2,330,319
<TOTAL-LIABILITY-AND-EQUITY> 4,323,121
<SALES> 2,441,651
<TOTAL-REVENUES> 2,859,944
<CGS> 612,334
<TOTAL-COSTS> 717,496
<OTHER-EXPENSES> 4,272,111
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,070,051)
<INCOME-TAX> 3,000
<INCOME-CONTINUING> (2,073,051)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,073,051)
<EPS-BASIC> (0.42)
<EPS-DILUTED> (0.42)
</TABLE>
