<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 2000
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
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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)
3300 Fernbrook Lane N., Suite 200 55447
Plymouth, 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 7, 2000, there were 6,759,426 shares of the Registrant's common stock,
par value $.01 per share, outstanding.
<PAGE>
VITAL IMAGES, INC.
------------------
Form 10-Q
June 30, 2000
Table of Contents
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of June 30, 2000 and December 31, 1999.........3
Statements of Operations for the Three and Six Months Ended
June 30, 2000 and 1999.........................................4
Statements of Cash Flows for the Six Months Ended
June 30, 2000 and 1999.........................................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.............13
Item 6. Exhibits and Reports on Form 8-K................................14
SIGNATURES....................................................................15
INDEX TO EXHIBITS.............................................................16
2
<PAGE>
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PART I. FINANCIAL INFORMATION
--------------------------------------------------------------------------------
ITEM 1. FINANCIAL STATEMENTS
VITAL IMAGES, INC.
BALANCE SHEETS
AS OF JUNE 30, 2000 AND DECEMBER 31, 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,199,482 $ 5,332,885
Accounts receivable, net of allowance for doubtful accounts of
$113,000 and $93,000 as of June 30, 2000 and December 31,
1999, respectively 2,446,348 2,005,114
Prepaid expenses and other current assets 603,772 463,309
------------ ------------
Total current assets 6,249,602 7,801,308
Property and equipment, net 1,508,969 864,479
------------ ------------
TOTAL ASSETS $ 7,758,571 $ 8,665,787
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 880,786 $ 831,741
Accrued payroll 707,183 539,977
Deferred revenue 905,300 758,110
Other current liabilities 345,400 262,183
------------ ------------
Total current liabilities 2,838,669 2,392,011
Deferred revenue 142,873 175,360
------------ ------------
Total liabilities 2,981,542 2,567,371
Shareholders' equity:
Preferred stock: $.01 par value; 5,000,000 shares authorized; none
issued or outstanding as of June 30, 2000 and December 31, 1999 -- --
Common stock: $.01 par value; 20,000,000 shares authorized;
6,754,426 and 6,695,867 shares issued and outstanding as of
June 30, 2000 and December 31, 1999, respectively 67,545 66,959
Additional paid-in capital 23,405,653 23,260,227
Accumulated deficit (18,696,169) (17,228,770)
------------ ------------
Total shareholders' equity 4,777,029 6,098,416
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 7,758,571 $ 8,665,787
============ ============
</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, 2000 AND 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue:
License fees $ 1,746,086 $ 636,711 $ 3,252,691 $ 1,713,585
Maintenance and services 343,582 213,869 647,661 418,501
Hardware 423,699 269,588 883,214 727,858
----------- ----------- ----------- -----------
Total revenue 2,513,367 1,120,168 4,783,566 2,859,944
Cost of revenue:
License fees 53,256 21,142 105,230 54,512
Maintenance and services 106,273 55,580 175,539 105,162
Hardware 369,547 193,478 774,094 557,822
----------- ----------- ----------- -----------
Total cost of revenue 529,076 270,200 1,054,863 717,496
Gross margin 1,984,291 849,968 3,728,703 2,142,448
Operating expenses:
Sales and marketing 1,420,965 992,570 2,508,612 1,862,310
Research and development 777,842 635,134 1,496,660 1,253,714
General and administrative 635,379 555,777 1,283,290 1,156,087
----------- ----------- ----------- -----------
Total operating expenses 2,834,186 2,183,481 5,288,562 4,272,111
Operating loss (849,895) (1,333,513) (1,559,859) (2,129,663)
Other income, net 52,534 26,635 98,460 59,612
----------- ----------- ----------- -----------
Loss before income taxes (797,361) (1,306,878) (1,461,399) (2,070,051)
Income taxes 4,500 1,500 6,000 3,000
----------- ----------- ----------- -----------
Net loss $ (801,861) $(1,308,378) $(1,467,399) $(2,073,051)
=========== =========== =========== ===========
Net loss per share - basic and diluted $ (0.12) $ (0.27) $ (0.22) $ (0.42)
=========== =========== =========== ===========
Weighted average common shares outstanding -
basic and diluted 6,748,592 4,935,261 6,730,566 4,908,161
=========== =========== =========== ===========
</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, 2000 AND 1999
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six
Months Ended
June 30,
2000 1999
----------- -----------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,467,399) $(2,073,051)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 344,250 276,163
Stock-based compensation -- 10,781
Provision for uncollectible accounts receivable 20,000 15,000
Changes in operating assets and liabilities:
Accounts receivable (461,234) 71,703
Prepaid expenses and other current assets (140,463) (118,499)
Accounts payable 49,045 78,842
Deferred revenue 114,703 104,088
Accrued payroll and other liabilities 250,423 6,535
----------- -----------
Net cash used in operating activities (1,290,675) (1,628,438)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (988,740) (201,562)
Investments in marketable securities -- (1,014,444)
Maturities of marketable securities -- 3,000,000
----------- -----------
Net cash (used in) provided by investing activities (988,740) 1,783,994
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sales of common stock under stock option plans 146,012 308,291
----------- -----------
Net cash provided by financing activities 146,012 308,291
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (2,133,403) 463,847
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,332,885 1,751,615
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,199,482 $ 2,215,462
=========== ===========
</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, 2000 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2000. 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, 1999.
(2) MAJOR CUSTOMERS AND GEOGRAPHIC DATA:
The following customer accounted for more than 10% of the Company's total
revenue for the periods indicated:
Significant Percentage of
Customer Revenue Total Revenue
-------- ------- -------------
Six months ended Toshiba America Medical $1,457,000 30%
June 30, 2000 Systems, Inc.
Six months ended Toshiba America Medical $ 951,000 33%
June 30, 1999 Systems, Inc.
The Company's accounts receivable are generally concentrated with a small base
of customers. As of June 30, 2000, one customer accounted for 22% of accounts
receivable, while as of December 31, 1999, two customers, each accounting for
more than 10% of accounts receivable, accounted for 28% of accounts receivable.
Export revenue amounted to 6% and 9% of total revenue for the six months ended
June 30, 2000 and 1999, 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:
Six Months Ended
June 30,
----------------
2000 1999
--------- ---------
Europe...................................... $ 131,000 $ 159,000
Asia and Pacific Region..................... 28,000 70,000
Canada, Mexico and others................... 105,000 23,000
--------- ---------
Totals $ 264,000 $ 252,000
========= =========
6
<PAGE>
(3) NET LOSS PER SHARE:
For the three and six months ended June 30, 2000 and 1999, 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
3,894,990 and 1,651,102 shares of the Company's common stock were outstanding as
of June 30, 2000 and 1999, respectively, and could potentially dilute basic
earnings per share in future periods if the Company generates net income.
(4) COMPREHENSIVE INCOME:
There was no accumulated other comprehensive income or loss for the three and
six months ended June 30, 2000 and 1999, respectively.
(5) NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. In June 1999, the FASB issued SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133," which postponed the adoption of
SFAS No. 133 until fiscal years beginning after June 15, 2000. SFAS No. 133, as
amended by SFAS No. 137, is effective for the Company beginning January 1, 2001.
In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities - an Amendment of FASB No. 133,"
which amends certain aspects of SFAS No. 133. The Company does not expect SFAS
No. 133, as amended, to materially affect its financial position or results of
operations.
The Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB")
No. 101, "Revenue Recognition in Financial Statements," in December 1999. SAB
101, as amended, provides further interpretive guidance for publicly traded
companies in applying generally accepted accounting principles to revenue
recognition in financial statements and will be effective for the Company's
fourth fiscal quarter of 2000. Although it is still evaluating the new
pronouncement, the Company does not expect the adoption of SAB No. 101 to
materially affect its financial position or results of operations.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
Vital Images develops, markets and supports medical visualization and analysis
software for use primarily in clinical diagnosis, surgical planning and medical
screening. The Company's software applies proprietary computer graphics and
image processing technologies to a wide variety of data supplied by computed
tomography ("CT") scanners, magnetic resonance ("MR") imaging devices and
ultrasound scanning equipment. Vital Images' products allow clinicians to create
both two- and three-dimensional views of human anatomy and to non-invasively
navigate within these images to better visualize and understand internal
structures and pathologies. The Company believes that its high-speed
visualization technology and customized protocols cost-effectively bring 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 $2,513,000 for the three months ended June 30, 2000, compared with
$1,120,000 for the three months ended June 30, 1999, a 124% increase. For the
six months ended June 30, 2000 revenue was $4,784,000 compared with $2,860,000
in the comparable six month period of the prior year, a 67% increase. These
increases were primarily the result of volume and pricing increases in sales of
Vitrea(R), the Company's flagship medical visualization and analysis software.
Software and hardware revenue from the Vitrea platform totaled $2,122,000, or
84% of total revenue, and $3,986,000, or 83% of total revenue, for the three and
six months ended June 30, 2000, respectively, compared with $765,000, or 68% of
total revenue, and $2,118,000, or 74% of total revenue, for the three and six
months ended June 30, 1999. There were also increases in maintenance and service
revenue related to Vitrea sales for both the three and six months ended June 30,
2000 compared with the same periods in the prior year.
Gross Margin
The gross margin percentage increased from 76% and 75% for the three and six
months ended June 30, 1999, respectively, to 79% and 78% for the three and six
months ended June 30, 2000, respectively, primarily as a result of increasing
the price of the Company's Vitrea system. The Vitrea system, consisting of
Vitrea software and third-party hardware and peripherals, is designed to offer
end users an integrated visualization and analysis system. The Company receives
only a nominal discount in purchasing the third-party hardware and peripheral
components of the Vitrea system, and the Company's gross margin on the resale of
these system components approximates its discount. The Company anticipates that
as hardware revenue related to the sale of Vitrea software continues to account
for a significant proportion of the Company's total revenue, the overall gross
margin percentage in future periods will approximate the results of this
quarter.
8
<PAGE>
Sales and Marketing
Sales and marketing expenses increased to $1,421,000, or 57% of total revenue,
for the three months ended June 30, 2000, from $993,000, or 89% of total
revenue, for the three months ended June 30, 1999, a 43% increase. For the six
months ended June 30, 2000, sales and marketing expenses increased 35%, to
$2,509,000, or 52% of total revenue, from $1,862,000, or 65% of total revenue,
for the six months ended June 30, 1999. The increases were primarily due to
increased compensation costs as a result of additional personnel and increased
sales commissions as a result of increased revenue. There were also increases in
expenses related to selling and promoting the Vitrea product. The Company
expects sales and marketing costs to increase in future periods as a result of
the cost of additional sales and customer support personnel.
Research and Development
Research and development expenses increased 22% to $778,000, or 31% of total
revenue, for the three months ended June 30, 2000, compared with $635,000, or
57% of total revenue, for the same period last year. For the six month period
ended June 30, 2000, research and development expenses increased 19% to
$1,497,000, or 31% of total revenue, from $1,254,000, or 44% of total revenue,
for the comparable period in the prior year. The increases were primarily due to
increased compensation costs resulting from additional personnel for both the
three and six months ended June 30, 2000, compared with the three and six months
ended June 30, 1999. 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 $635,000, or 25% of total
revenue, for the three months ended June 30, 2000, from $556,000, or 50% of
total revenue, for the three months ended June 30, 1999, a 14% increase. For the
six months ended June 30, 2000, general and administrative expenses increased
11%, to $1,283,000, or 27% of total revenue, from $1,156,000, or 40% of total
revenue, for the six months ended June 30, 1999. General and administrative
expenses increased primarily due to compensation costs increasing, primarily as
a result of staffing additions. There was also an increase in shareholder
communications expense for both the three and six month periods. These increases
were partially offset by a decrease in recruiting costs. The Company believes
that over the next few quarters, general and administrative costs will
approximate the results of this quarter in dollars and will continue to decrease
as a percentage of revenue.
Results of Operations
The increasing revenues from Vitrea shipments, net of the increased expenses
attributable to the development of the Company's infrastructure and the
development and promotion of the Vitrea product, resulted in operating losses of
$850,000 and $1,560,000 for the three and six months ended June 30, 2000,
respectively, compared with operating losses of $1,334,000 and $2,130,000 for
the three and six months ended June 30, 1999, respectively.
9
<PAGE>
Other Income
Interest income was $54,000 and $117,000 for the three and six months ended June
30, 2000 compared with $27,000 and $60,000 for the comparable periods in 1999.
The increase in interest income was due to a higher balance of cash and cash
equivalents as a result of the private placement of the Company's common stock
completed in December 1999. There were $1,000 and $19,000 of losses on
disposition of assets, primarily related to the Company's move to its new
facility, netted against interest income for the three and six months ended June
30, 2000, respectively.
Income Taxes
The income tax provisions for the three and six months ended June 30, 2000 and
1999 consist solely of certain state minimum fees. A valuation allowance has
been established to completely reserve for the deferred tax assets of the
Company due to the Company's history of generating net operating losses.
Liquidity and Capital Resources
As of June 30, 2000, the Company had $3,199,000 in cash and cash equivalents.
The Company's working capital was $3,411,000 and the Company had no material
borrowings. The Company has entered into a collateralized line of credit
agreement with a bank for $1,000,000. Borrowings under the agreement are limited
to the lower of $1,000,000 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, 2000, the Company's available borrowings
under the agreement were $1,000,000.
Cash flows used in operations decreased to $1,291,000 in the first six months of
2000 from $1,628,000 in the first six months of 1999. 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. An increase in
accounts receivable decreased operating cash flows for the six months ended June
30, 2000, while a decrease in accounts receivable increased operating cash flows
for the six months ended June 30, 1999. Increases in prepaid expenses and other
current assets decreased operating cash flows for the six months ended June 30,
2000 and 1999. Increases in current liabilities, primarily due to increases in
accounts payable, deferred revenue and accrued payroll and other liabilities,
increased operating cash flows in the six months ended June 30, 2000 and
increases in current liabilities, primarily due to increases in accounts payable
and deferred revenue, increased operating cash flows from operations in the six
months ended June 30, 1999.
The increases in accounts receivable and deferred revenue for the six months
ended June 30, 2000 were primarily due to volume increases in Vitrea sales. The
increase in accrued payroll and other liabilities for the same period was
primarily due to an increase in the number of employees for the Company, which
resulted in increased accruals for both bonuses and vacations.
Net investing activities used $989,000 of cash in the six months ended June 30,
2000 for property and equipment additions, primarily furniture for the Company's
new facility, and provided $1,784,000 in the six months ended June 30, 1999,
primarily due to the conversion of marketable securities into cash. The Company
added property and equipment of $202,000 in the six months ended June 30, 1999,
primarily for computer equipment to accommodate an increase in the number of
employees.
10
<PAGE>
Cash provided by financing activities totaled $146,000 and $308,000 for the six
months ended June 30, 2000 and 1999, respectively, resulting from the sale 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 should be sufficient to satisfy its cash
requirements for at least the next twelve months. The timing of the Company's
future capital requirements, however, will depend on a number of factors,
including the ability and willingness of physicians to use three-dimensional
visualization and analysis software in clinical diagnosis, surgical planning,
patient screening and other diagnosis and treatment protocols; the ability of
the Company to successfully market its products; the ability of the Company to
differentiate its volume rendering software from competing products employing
surface rendering or other technologies; the ability of the Company to build an
effective sales and distribution channel; the impact of competition in the
medical visualization business; the ability of the Company to receive any
necessary regulatory approvals and the ability of the Company to enhance
existing products and develop new products on a timely basis. To the extent that
the Company's operations do not progress as anticipated, additional capital may
be required sooner. There can be no assurance that any required 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.
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 were unable to distinguish
between the year 1900 and the year 2000. Therefore, some computer hardware and
software needed 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 Y2K project team to
ensure that its critical areas will operate normally at the turn of the century
and beyond. Throughout 1999, the Y2K project team determined areas where
contingency planning was needed. The planning efforts included, but were not
limited to, identification and mitigation of potential serious business
interruptions and establishing crisis response processes to address unexpected
problems.
Through the date of this filing, the Company has not experienced any significant
Y2K issues. The Company will continue to monitor its Y2K status during the
coming year and will devote the necessary resources to resolve all significant
Y2K issues in a timely manner.
11
<PAGE>
The costs incurred by the Company in addressing its Y2K readiness issues were
primarily non-incremental compensation costs and were not material to the
Company's operating results. The Company currently estimates that the total
additional costs for addressing any Y2K readiness will not be material to the
Company's operating results. These costs are being expensed as they are
incurred.
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. The Company's cost estimates 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 Year 2000 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, regulatory approvals, 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, 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
12
<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 11, 2000, 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.
Number of Shares
----------------
For Withheld
--- --------
Douglas M. Pihl 5,347,082 29,633
Albert Emola 5,347,082 29,633
Vincent J. Argiro, Ph.D. 5,347,082 29,633
James B. Hickey, Jr. 5,347,082 29,633
Richard W. Perkins 5,345,520 31,195
Michael W. Vannier, M.D. 5,347,082 29,633
Sven A. Wehrwein 5,347,082 29,633
13
<PAGE>
2. Amend the 1997 Stock Option and Incentive Plan to increase the number
of shares reserved for issuance thereunder.
Broker
Number of Shares Voted Non-votes
------------------------------------------------------ -------------
Voted For Voted Against Abstain
--------- ------------- -------
2,235,005 129,243 21,762 2,990,705
3. Amend the 1997 Director Stock Option Plan to increase the number of
shares subject to automatic option grants to non-employee directors.
Broker
Number of Shares Voted Non-votes
------------------------------------------------------ -------------
Voted For Voted Against Abstain
--------- ------------- -------
2,181,225 172,487 32,298 2,990,705
4. Appoint PricewaterhouseCoopers LLP as independent accountants for the
year ending December 31, 2000.
Broker
Number of Shares Voted Non-votes
------------------------------------------------------ -------------
Voted For Voted Against Abstain
--------- ------------- -------
5,207,210 10,342 159,163 -
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 16.
(b) Form 8-K. The Company filed no reports on Form 8-K during the three
months ended June 30, 2000.
14
<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 14, 2000 /s/ Gregory S. Furness
------------------------------------
Gregory S. Furness
Chief Financial Officer and
Senior Vice President-Finance
(Chief Accounting Officer)
15
<PAGE>
VITAL IMAGES, INC.
INDEX TO EXHIBITS
--------------------------------------------------------------------------------
27.1 Financial Data Schedule for the Six Months Ended June 30, 2000 (filed
herewith electronically).
16
