<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1999
Commission File Number 0-26670
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NORTH AMERICAN SCIENTIFIC, INC.
(Exact name of registrant as specified in its charter)
Delaware 51-0366422
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20200 Sunburst Street, Chatsworth, CA 91311
(Address of principal executive offices)
(818) 734-8600
(Registrant's telephone number, including area code)
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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. [X] Yes [ ] No
The number of shares of Registrant's Common Stock, $.01 par value,
outstanding as of August 30, 1999 was 6,804,137 shares.
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NORTH AMERICAN SCIENTIFIC, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of July 31, 1999 and October 31, 1998................................. 3
Consolidated Statements of Income for the three months and nine months
ended July 31, 1999 and 1998 ..................................................................... 4
Consolidated Statements of Cash Flows for the nine months
ended July 31, 1999 and 1998 ..................................................................... 5
Condensed Notes to Consolidated Financial Statements ................................................ 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ...................................................................... 8
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCUSSIONS ABOUT MARKET RISK.................................. 11
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits ............................................................................................ 11
Reports on Form 8-K ................................................................................. 11
SIGNATURES ............................................................................................... 12
</TABLE>
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NORTH AMERICAN SCIENTIFIC, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
1999 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents ..................................................... $ 1,591,000 $ 2,119,000
Marketable securities ......................................................... 7,400,000 9,101,000
Accounts receivable, net ...................................................... 1,928,000 1,323,000
Inventories ................................................................... 642,000 731,000
Prepaid expenses and other current assets...................................... 337,000 196,000
------------ ------------
Total current assets ........................................................ 11,898,000 13,470,000
Notes receivable.................................................................. 3,298,000 1,163,000
Equipment and leasehold improvements, net ........................................ 3,785,000 1,587,000
Advances on construction of equipment ............................................ 2,754,000 2,289,000
Deposits and other assets ........................................................ 490,000 394,000
------------ ------------
Total assets .............................................................. $ 22,225,000 $ 18,903,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable .............................................................. $ 781,000 $ 338,000
Accrued expenses .............................................................. 316,000 202,000
Income taxes payable .......................................................... 918,000 376,000
------------ ------------
Total current liabilities ................................................... 2,015,000 916,000
------------ ------------
Stockholders' equity
Preferred stock, $.01 par value, 2,000,000 shares authorized;
no shares issued............................................................. - -
Common stock, $.01 par value, 40,000,000 shares authorized; 6,804,137
and 6,787,975 shares issued and outstanding as of July 31, 1999 and
October 31, 1998, respectively............................................... 68,000 68,000
Additional paid-in capital .................................................... 17,177,000 17,162,000
Retained earnings ............................................................. 2,965,000 757,000
------------ ------------
Total stockholders' equity .................................................. 20,210,000 17,987,000
------------ ------------
Total liabilities and stockholders' equity .................................. $ 22,225,000 $ 18,903,000
============ ============
</TABLE>
See notes to the consolidated financial statements.
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NORTH AMERICAN SCIENTIFIC, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31, JULY 31,
------------------------ ------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales................................................... $ 3,444,000 $ 1,809,000 $ 8,878,000 $ 3,981,000
Cost of goods sold.......................................... 1,257,000 776,000 3,261,000 1,879,000
----------- ----------- ----------- -----------
Gross profit .......................................... 2,187,000 1,033,000 5,617,000 2,102,000
----------- ----------- ----------- -----------
Selling, general and administrative expenses ............... 773,000 486,000 2,236,000 1,297,000
Research and development.................................... 36,000 56,000 240,000 122,000
----------- ----------- ----------- -----------
Income from operations ..................................... 1,378,000 491,000 3,141,000 683,000
Interest and other income................................... 178,000 175,000 429,000 483,000
----------- ----------- ----------- -----------
Income before provision for income taxes ................... 1,556,000 666,000 3,570,000 1,166,000
Provision for income taxes ................................. 575,000 246,000 1,362,000 425,000
----------- ----------- ----------- -----------
Net income ................................................. $ 981,000 $ 420,000 $ 2,208,000 $ 741,000
=========== =========== =========== ===========
Earnings per share
Basic ................................................... $ .14 $ .07 $ .32 $ .12
=========== =========== =========== ===========
Diluted.................................................. $ .14 $ .06 $ .31 $ .10
=========== =========== =========== ============
Weighted average number of common and
common equivalent shares outstanding
Basic .................................................. 6,804,137 6,464,572 6,795,660 6,349,713
=========== =========== =========== ===========
Diluted ................................................. 7,247,996 7,179,244 7,183,188 7,092,175
=========== =========== =========== ===========
</TABLE>
See notes to the consolidated financial statements.
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NORTH AMERICAN SCIENTIFIC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JULY 31,
1999 1998
------------- ------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income .............................................................. $ 2,208,000 $ 741,000
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization .......................................... 262,000 160,000
Changes in assets and liabilities
Accounts receivable .................................................. (605,000) (488,000)
Inventories .......................................................... 89,000 (218,000)
Income taxes receivable............................................... - 106,000
Prepaid expenses and other assets .................................... (260,000) (448,000)
Accounts payable ..................................................... 443,000 51,000
Accrued expenses ..................................................... 114,000 5,000
Income taxes payable ................................................. 542,000 314,000
------------- ------------
Net cash provided by operating activities .................... 2,793,000 223,000
------------- ------------
Cash flows from investing activities:
Advances on construction of equipment....................................... (465,000) (1,861,000)
Net sales (purchases) of marketable securities ............................. 1,701,000 (10,078,000)
Notes receivable............................................................ (2,135,000) (200,000)
Capital expenditures ....................................................... (2,437,000) (1,171,000)
-------------- ------------
Net cash used in investing activities ........................ (3,336,000) (13,310,000)
------------- ------------
Cash flows from financing activities:
Net proceeds from issuance of common stock.................................. 15,000 13,441,000
------------- ------------
Net cash provided by financing activities .................... 15,000 13,441,000
------------- ------------
Net (decrease) increase in cash and cash equivalents ........................... (528,000) 354,000
Cash and cash equivalents at beginning of period ............................... 2,119,000 1,596,000
------------- ------------
Cash and cash equivalents at end of period ..................................... $ 1,591,000 $ 1,950,000
============= ============
Supplemental disclosure of cash flow information:
Income taxes paid........................................................... $ 821,000 $ 37,000
============= ============
See notes to the consolidated financial statements.
</TABLE>
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NORTH AMERICAN SCIENTIFIC, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial information as of July 31, 1999 and for the three
months and nine months then ended is unaudited. In the opinion of the Company,
the unaudited financial information is presented on a basis consistent with the
audited financial statements and contains all adjustments, consisting only of
normal recurring adjustments, necessary for a fair statement of the results for
such interim periods. The results of operations for interim periods are not
necessarily indicative of results of operations for the full year. The interim
financial statements should be read in conjunction with the audited financial
statements and notes thereto included in the Company's Annual Report on Form
10-KSB for the fiscal year ended October 31, 1998.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
effect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the reporting period. Actual
results could differ from those estimates.
NOTE 2 - MARKETABLE SECURITIES
The Company considers its marketable securities available-for-sale as defined in
Statement of Financial Accounting Standards ("SFAS") No. 115. There were no
material realized or unrealized gains or losses nor any material differences
between estimated fair values, based upon quoted market prices, and the costs of
securities as of July 31, 1999.
NOTE 3 - INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined in a
manner which approximates the first-in, first-out method. Inventories are shown
net of applicable reserves and allowances. Inventories consist of the following:
<TABLE>
<CAPTION>
July 31, October 31,
1999 1998
------------ ------------
<S> <C> <C>
Raw materials $ 522,000 $ 606,000
Work in process 44,000 16,000
Finished goods 76,000 109,000
------------ ------------
$ 642,000 $ 731,000
============ ============
</TABLE>
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NOTE 4 - NET INCOME PER SHARE
Basic earnings per share is computed by dividing the net income by the
weighted average number of shares outstanding for the period. Diluted
earnings per share is computed by dividing the net income by the sum of the
weighted average number of common shares outstanding for the period plus the
assumed exercise of all dilutive securities by applying the treasury stock
method. The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31, JULY 31,
------------------------ -----------------------
1999 1998 1999 1998
----------- ---------- ---------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net income $ 981,000 $ 420,000 $2,208,000 $ 741,000
=========== ========== ========== ==========
Weighted average shares outstanding (basic) 6,804,137 6,464,572 6,795,660 6,349,713
Dilutive effect of stock options and warrants 443,859 714,672 387,528 742,462
----------- ---------- ---------- ----------
Diluted shares outstanding 7,247,996 7,179,244 7,183,188 7,092,175
=========== ========== ========== ==========
Basic earnings per share $ .14 $ .07 $ .32 $ .12
=========== ========== ========== ==========
Diluted earnings per share $ .14 $ .06 $ .31 $ .10
=========== ========== ========== ==========
</TABLE>
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NORTH AMERICAN SCIENTIFIC, INC.
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
Consolidated Financial Statements contained herein and the notes thereto.
Certain matters discussed in this quarterly report on Form 10-Q are forward
looking as that term is defined by: (i) the Private Securities Litigation
Reform Act of 1995 (the "1995 Act") and (ii) releases issued by the SEC.
These statements are being made pursuant to the provisions of the 1995 Act
and with the intention of obtaining the benefits of the "Safe Harbor"
provisions of the 1995 Act. The Company cautions investors that any forward
looking statements made by the Company are not guarantees of future
performance and that actual results may differ materially from those in such
forward looking statements as a result of various factors, including, but not
limited to any risks detailed herein or detailed from time to time in the
Company's filings with the SEC, including those factors identified under
"Business-Risk Factors" in the Company's Annual Report on Form 10-KSB for the
fiscal year ended October 31, 1998. The Company undertakes no obligation to
revise or update any forward looking statements, whether as a result of new
information, future results or otherwise.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JULY 31, 1999 COMPARED TO THREE MONTHS ENDED JULY 31, 1998
NET SALES. Net sales increased $1,635,000, or 90%, to $3,444,000 for the
three months ended July 31, 1999 from $1,809,000 for the three months ended
July 31, 1998. The increase in net sales was due primarily to the increase in
revenues generated from the I-125 brachytherapy product line and sales of the
Pd-103 brachytherapy product line which was introduced in April 1999. Sales
of the non-therapeutic lines decreased approximately $122,000 due to
increased competition.
GROSS PROFIT. Gross profit increased $1,154,000 or 112% to $2,187,000 for the
three months ended July 31, 1999 from $1,033,000 for the three months ended
July 31, 1998. Gross profit as a percent of sales increased from 57% to 64%
during this period. The increase in gross profit as a percentage of sales was
primarily attributable to the significant proportionate increase in revenues
from the I-125 brachytherapy product line in the third quarter of fiscal 1999
which yield greater gross margins than the Company's non-therapeutic product
lines.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses increased $287,000, or 59%, to $773,000 for
the three months ended July 31, 1999 from $486,000 for the three months ended
July 31, 1998. SG&A as a percent of net sales decreased to 22% for the three
months ended July 31, 1999 from 27% for the same period in 1998. SG&A
expenses increased primarily due to the following: (i) the Company added a
significant number of administrative personnel in fiscal 1999 to support the
growth of the Company, (ii) the Company leased a new facility in September
1998 that houses new product development and corporate offices and (iii)
other general and administrative expenses were increased to give effect to
management's plans for the expansion of the Company.
RESEARCH AND DEVELOPMENT. Research and development efforts continued into the
third quarter of 1999 with such expenditures totaling $36,000 during this
period compared to $56,000 in the corresponding 1998 period. The decrease was
due primarily to reduced development expenses associated with the
brachytherapy product lines in the third quarter of fiscal 1999. However,
such expenditures may increase in future periods.
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INTEREST AND OTHER INCOME. Interest and other income remained consistent
between periods.
NET INCOME. Net income increased $561,000 to $981,000 for the three months
ended July 31, 1999 from $420,000 for the three months ended July 31, 1998.
The increase is a result of the factors described above.
NINE MONTHS ENDED JULY 31, 1999 COMPARED TO NINE MONTHS ENDED JULY 31, 1998
NET SALES. Net sales increased $4,897,000, or 123%, to $8,878,000 for the
nine months ended July 31, 1999 from $3,981,000 for the nine months ended
July 31, 1998. The increase in net sales was due primarily to the increase in
revenues generated from the I-125 brachytherapy product line and sales of the
Pd-103 brachytherapy product line which was introduced in April 1999. Sales
of the non-therapeutic lines decreased approximately $255,000 due to
increased competition.
GROSS PROFIT. Gross profit increased $3,515,000 or 167% to $5,617,000 for the
nine months ended July 31, 1999 from $2,102,000 for the nine months ended
July 31, 1998. Gross profit as a percent of sales increased from 53% to 63%
during this period. The increase in gross profit as a percentage of sales was
primarily attributable to the significant proportionate increase in revenues
from the I-125 brachytherapy product line in the first nine months of fiscal
1999 which yield greater gross margins than the Company's non-therapeutic
product lines.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses increased $939,000, or 72%, to $2,236,000
for the nine months ended July 31, 1999 from $1,297,000 for the nine months
ended July 31, 1998. SG&A as a percent of net sales decreased to 25% for the
nine months ended July 31, 1999 from 33% for the same period in 1998. SG&A
expenses increased primarily due to the following: (i) the Company added a
significant number of administrative personnel throughout fiscal 1998 and
continuing into fiscal 1999 to support the growth of the Company, (ii) the
Company leased a new facility in September 1998 that houses new product
development and corporate offices and (iii) other general and administrative
expenses were increased to give effect to management's plans for the
expansion of the Company.
RESEARCH AND DEVELOPMENT. Research and development expenditures totaled
$240,000 during the nine months ended July 31, 1999 compared to $122,000 in
the corresponding 1998 period. The increase was due primarily to development
efforts associated with new product lines. Such expenditures may increase in
future periods.
INTEREST AND OTHER INCOME. Interest and other income decreased $54,000 to
$429,000 for the nine months ended July 31, 1999 from $483,000 for the nine
months ended July 31, 1998. The Company maintained a lower average cash and
investments balance for the nine months ended July 31, 1999 compared to July
31, 1998 as a result of the investment of funds during the period December
1997 to July 1999 to expand the brachytherapy product lines.
NET INCOME. Net income increased $1,467,000 to $2,208,000 for the nine months
ended July 31, 1999 from $741,000 for the nine months ended July 31, 1998.
The increase is a result of the factors described above.
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LIQUIDITY AND CAPITAL RESOURCES
At July 31, 1999, the Company had cash and investments in marketable
securities aggregating approximately $9.0 million and working capital of $9.9
million. For the nine months ended July 31, 1999, net cash provided by
operating activities was approximately $2.8 million. Cash used in investing
activities for capital expenditures, convertible notes receivable and
advances on construction of equipment totaled approximately $5.0 million
during the nine months ended July 31, 1999. The increase in notes receivable
resulted from the Company's secured loans to Theseus Imaging Corp. The
advances on the construction of equipment represent payment in full to
PracSys Corp. of approximately $2.7 million for two linear accelerators
purchased pursuant to a purchase agreement dated February 6, 1998. The
manufacture of the accelerators has not been completed and disputes currently
exist between the parties with respect thereto. These disputes have been
submitted to mediation and if not resolved thereby, they will be submitted to
arbitration or other applicable means of resolution.
The Company is authorized to purchase up to $1.5 million of the Company's
common stock on the open market. No such shares have been repurchased as of
July 31, 1999.
The Company receives cash from the exercise of stock options. Proceeds from
the exercise of stock options and their related tax benefits will vary from
period to period based upon, among other factors, fluctuations in the market
value of the Company's stock relative to the exercise price of such options.
The primary objectives for the Company's investment portfolio are liquidity
and safety of principal. Investments are made to achieve the highest rate of
return to the Company, consistent with these two objectives. The Company
invests its excess cash in securities with varying maturities to meet
projected cash needs.
To date, the Company's short term liquidity needs have generally consisted of
operating capital to finance growth in inventories, trade accounts receivable
and new product development as well as to take advantage of strategic
investments in related businesses. The Company has satisfied these needs
primarily through a combination of private equity financings and from cash
generated by operations. The Company has no long-term debt or a current need
for a line of credit or similar arrangement with a bank. Management
anticipates that its existing cash resources will be sufficient to fund its
planned expansion over the next twelve months, although additional funding
may be required to fund the acquisition of complementary businesses,
technologies or products.
YEAR 2000 COMPLIANCE
The information provided below is a Year 2000 readiness disclosure entitled
to protection pursuant to the Year 2000 Information and Readiness Disclosure
Act (Pub. L. 105-271).
The Year 2000 issue arises from the fact that most computer software programs
have been written using two digits rather than four to represent a specific
year. Any computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculation causing disruption of operations,
including among other things, a temporary inability to process transactions,
send invoices or engage in similar normal business activities.
In an effort to evaluate and address our Year 2000 exposure the Company
assembled a team of senior managers to create a program that focused on both
IT and non-IT components (business machines, manufacturing equipment,
products, computers, and systems). For each component area, the team created
projects to identify risks and remedy problems associated with the new
millennium and leap year. The projects included the following in the list
below.
- - Strategic Customer and Supplier Evaluation
- - Component Assessment
- - Non-compliance Resolution
- - Testing
- - Documentation
We concluded our assessment for each of the IT and non-IT components in late
March 1999 (business machines, manufacturing equipment, products, computers, and
systems). We then targeted certain at-risk components for further review. Those
IT and non-IT components identified have since been
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<PAGE>
evaluated and remedied as appropriate. In addition, the Company has discussed
a "most reasonably likely worst case scenario" for the Year 2000. This
includes the identification of principal risks and action items. This
contingency plan will continue to evolve.
In an effort to assess new IT and non-IT components, the Company added a Year
2000 assessment and disclosure requirement to the purchasing process. A Year
2000 product assessment must accompany each IT and non-IT component acquired
in calendar 1999.
In addition to risks associated with internal components, the Company has
relationships with, and is to varying degrees dependent upon, third parties
that provide us with information, goods and services. These include financial
institutions, suppliers, vendors, research partners and governmental
entities, as well as customers and distributors. External agent risks by
definition reside outside of the companies span of control. However the
Company has instituted programs to identify and assess our external agents'
Year 2000 compliance. To date, the Company has received no indication from
any material third party that they anticipate any Year 2000 compliance
problems. Further, each customer and vendor identified as critical to our
supply chain has provided statements that support their Year 2000 compliance.
As a result, we have completed all aspects of the Company's Year 2000 program
and total costs to assess and resolve the Year 2000 issue have not been
material to the Company's financial position, results of operations, or cash
flows.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCUSSIONS ABOUT MARKET RISK
Not applicable
PART II - OTHER INFORMATION
The Company was not required to report the information pursuant to Items 1
through 6 of Part II of Form 10-Q except as follows:
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<S> <C>
a. Exhibits - The following Exhibits are filed herewith:
Exhibit 27 - Financial Data Schedule (EDGAR only)
b. Reports on Form 8-K - No reports on Form 8-K have been filed during
the quarter for which this report is filed.
</TABLE>
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<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.
NORTH AMERICAN SCIENTIFIC, INC.
August 31, 1999 By: /s/ L. Michael Cutrer
----------------------------------------
Name: L. Michael Cutrer
Title: President and
Chief Executive Officer
(Principal Executive Officer)
August 31, 1999 By: /s/ Alan I. Edrick
----------------------------------------
Name: Alan I. Edrick
Title: Chief Financial Officer
(Principal Financial and
Accounting Officer)
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> JUL-31-1999
<CASH> 1,591,000
<SECURITIES> 7,400,000
<RECEIVABLES> 1,964,000
<ALLOWANCES> (36,000)
<INVENTORY> 642,000
<CURRENT-ASSETS> 11,898,000
<PP&E> 4,477,000
<DEPRECIATION> (692,000)
<TOTAL-ASSETS> 22,225,000
<CURRENT-LIABILITIES> 2,015,000
<BONDS> 0
0
0
<COMMON> 68,000
<OTHER-SE> 20,142,000
<TOTAL-LIABILITY-AND-EQUITY> 22,225,000
<SALES> 3,444,000
<TOTAL-REVENUES> 3,444,000
<CGS> 1,257,000
<TOTAL-COSTS> 773,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,556,000
<INCOME-TAX> 575,000
<INCOME-CONTINUING> 981,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 981,000
<EPS-BASIC> 0.14
<EPS-DILUTED> 0.14
</TABLE>
