UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
(Mark One)
| x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2003
OR
| o |
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 000-49755
QUINTON CARDIOLOGY SYSTEMS, INC.
| Delaware | 94-3300396 | |
| (State of Incorporation) | (IRS Employer Identification No.) |
3303 Monte Villa Parkway
Bothell, Washington 98021
(Address of principal executive offices)
(425) 402-2000
(Registrant’s telephone number)
Indicated by check x 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 o
Indicated by check x whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.)
Yes o No x
As of November 7, 2003, 12,187,873 shares of the issuer’s common stock were outstanding.
1
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION |
3 | ||||
Item 1. Unaudited Financial Statements |
3 | ||||
Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations |
13 | ||||
Item 3. Quantitative and Qualitative Disclosures About Market Risk |
27 | ||||
Item 4. Controls and Procedures |
27 | ||||
PART II - OTHER INFORMATION |
28 | ||||
Item 1. Legal Proceedings |
28 | ||||
Item 2. Changes in Securities and Use of Proceeds |
28 | ||||
Item 3. Defaults Upon Senior Securites |
28 | ||||
Item 4. Submission of Matters to a Vote of Security Holders |
28 | ||||
Item 5. Other Information |
28 | ||||
Item 6. Exhibits and Reports on Form 8-K |
28 | ||||
SIGNATURE |
29 | ||||
2
PART I - FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements
QUINTON CARDIOLOGY SYSTEMS, INC.
AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
| December 31, | September 30, | |||||||||||
| 2002 | 2003 | |||||||||||
ASSETS |
||||||||||||
Current Assets: |
||||||||||||
Cash and cash equivalents |
$ | 19,382 | $ | 451 | ||||||||
Accounts receivable, net of allowance for doubtful accounts |
7,384 | 11,101 | ||||||||||
Inventories |
7,462 | 11,918 | ||||||||||
Prepaid expenses and other current assets |
528 | 574 | ||||||||||
Income taxes receivable |
206 | — | ||||||||||
Total current assets |
34,962 | 24,044 | ||||||||||
Machinery and equipment, net of accumulated depreciation
and amortization |
3,510 | 5,410 | ||||||||||
Intangible assets, net of accumulated amortization |
393 | 5,751 | ||||||||||
Goodwill |
860 | 9,953 | ||||||||||
Investment in unconsolidated entity |
1,000 | 1,000 | ||||||||||
Restricted cash deposit |
1,325 | — | ||||||||||
Total assets |
$ | 42,050 | $ | 46,158 | ||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||||||
Current Liabilities: |
||||||||||||
Line of credit |
$ | — | $ | 883 | ||||||||
Current portion of long term debt |
363 | 363 | ||||||||||
Accounts payable |
4,776 | 5,184 | ||||||||||
Accrued liabilities |
3,415 | 5,617 | ||||||||||
Warranty liability |
1,089 | 2,101 | ||||||||||
Deferred revenue |
4,407 | 4,630 | ||||||||||
Putable warrants |
328 | — | ||||||||||
Total current liabilities |
14,378 | 18,778 | ||||||||||
Long term debt, net of current portion |
363 | 91 | ||||||||||
Deferred tax liability |
— | 1,156 | ||||||||||
Total liabilities |
14,741 | 20,025 | ||||||||||
Minority interest in consolidated entity |
— | 199 | ||||||||||
Shareholders’ Equity: |
||||||||||||
Preferred stock (10,000,000 shares authorized), $0.001 par
value, no shares outstanding in 2002 or 2003 |
— | — | ||||||||||
Common stock (65,000,000 shares authorized), $0.001 par
value, 12,049,136 and 12,187,207 shares issued and
outstanding at December 31, 2002 and September 30,
2003, respectively |
12 | 12 | ||||||||||
Additional paid-in capital |
45,073 | 45,477 | ||||||||||
Deferred stock-based compensation |
(180 | ) | (126 | ) | ||||||||
Accumulated deficit |
(17,596 | ) | (19,429 | ) | ||||||||
Total shareholders’ equity |
27,309 | 25,934 | ||||||||||
Total liabilities and shareholders’ equity |
$ | 42,050 | $ | 46,158 | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated balance sheets.
3
QUINTON CARDIOLOGY SYSTEMS, INC.
AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
| Three months Ended | Nine months ended | |||||||||||||||||
| September 30, | September 30, | |||||||||||||||||
| 2002 | 2003 | 2002 | 2003 | |||||||||||||||
Revenues: |
||||||||||||||||||
Systems |
$ | 9,380 | $ | 17,747 | $ | 26,609 | $ | 52,308 | ||||||||||
Service |
2,275 | 3,287 | 6,694 | 9,715 | ||||||||||||||
Total revenues |
11,655 | 21,034 | 33,303 | 62,023 | ||||||||||||||
Cost of Revenues: |
||||||||||||||||||
Systems |
5,959 | 10,669 | 16,701 | 31,793 | ||||||||||||||
Service |
1,109 | 1,777 | 3,485 | 5,356 | ||||||||||||||
Total cost of revenues |
7,068 | 12,446 | 20,186 | 37,149 | ||||||||||||||
Gross profit |
4,587 | 8,588 | 13,117 | 24,874 | ||||||||||||||
Operating Expenses: |
||||||||||||||||||
Research and development |
1,205 | 1,969 | 3,892 | 6,045 | ||||||||||||||
Write off of purchased in-process research
and development projects |
— | — | — | 1,290 | ||||||||||||||
Sales and marketing |
2,460 | 4,519 | 7,379 | 13,336 | ||||||||||||||
General and administrative, excluding
stock-based compensation expense |
1,434 | 1,838 | 4,023 | 5,807 | ||||||||||||||
Stock-based compensation |
23 | 18 | 93 | 54 | ||||||||||||||
Total operating expenses |
5,122 | 8,344 | 15,387 | 26,532 | ||||||||||||||
Operating income (loss) |
(535 | ) | 244 | (2,270 | ) | (1,658 | ) | |||||||||||
Other Income (Expense): |
||||||||||||||||||
Interest income |
97 | — | 143 | 10 | ||||||||||||||
Interest expense |
— | (63 | ) | (102 | ) | (221 | ) | |||||||||||
Interest income, putable warrants |
161 | — | 294 | 32 | ||||||||||||||
Other income (expense), net |
(2 | ) | 2 | 1 | (7 | ) | ||||||||||||
Total other income (expense) |
256 | (61 | ) | 336 | (186 | ) | ||||||||||||
Income (loss) before income taxes and minority interest
in consolidated entity |
(279 | ) | 183 | (1,934 | ) | (1,844 | ) | |||||||||||
Income tax provision |
(2 | ) | (4 | ) | (16 | ) | (13 | ) | ||||||||||
Income (loss) before minority interest in consolidated
entity |
(281 | ) | 179 | (1,950 | ) | (1,857 | ) | |||||||||||
Minority interest in loss of consolidated entity |
— | 4 | — | 24 | ||||||||||||||
Net income (loss) |
$ | (281 | ) | $ | 183 | $ | (1,950 | ) | $ | (1,833 | ) | |||||||
Net income (loss) per share – basic |
$ | (0.02 | ) | $ | 0.02 | $ | (0.30 | ) | $ | (0.15 | ) | |||||||
Net income (loss) per share – diluted |
$ | (0.02 | ) | $ | 0.01 | $ | (0.30 | ) | $ | (0.15 | ) | |||||||
Weighted average shares outstanding – basic |
11,951,569 | 12,168,390 | 6,512,247 | 12,131,066 | ||||||||||||||
Weighted average shares outstanding – diluted |
11,951,569 | 13,052,236 | 6,512,247 | 12,131,066 | ||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated statements.
4
QUINTON CARDIOLOGY SYSTEMS, INC.
AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)
| Three Months Ended | Nine Months Ended | |||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||
| 2002 | 2003 | 2002 | 2003 | |||||||||||||||||
Operating Activities: |
||||||||||||||||||||
Net income (loss) |
$ | (281 | ) | $ | 183 | $ | (1,950 | ) | $ | (1,833 | ) | |||||||||
Adjustments to reconcile net income (loss) to net cash from
operating activities – |
||||||||||||||||||||
Depreciation and amortization |
308 | 420 | 891 | 1,393 | ||||||||||||||||
Loss on disposal of equipment |
5 | — | 14 | 6 | ||||||||||||||||
Amortization of deferred stock-based compensation |
23 | 18 | 93 | 54 | ||||||||||||||||
Interest income, putable warrants |
(161 | ) | — | (294 | ) | (32 | ) | |||||||||||||
Write off of purchased in-process research and development |
— | — | — | 1,290 | ||||||||||||||||
Minority interest in loss of consolidated entity |
— | (4 | ) | — | (24 | ) | ||||||||||||||
Changes in operating assets and liabilities, net of
business acquired: |
||||||||||||||||||||
Accounts receivable |
608 | (783 | ) | 560 | 81 | |||||||||||||||
Inventories |
(752 | ) | 158 | 3 | 2,315 | |||||||||||||||
Prepaid expenses and other current assets |
82 | 239 | (7 | ) | 344 | |||||||||||||||
Accounts payable |
91 | 336 | 228 | (2,317 | ) | |||||||||||||||
Accrued liabilities |
65 | 627 | 225 | (508 | ) | |||||||||||||||
Warranty liability |
(57 | ) | 5 | (229 | ) | (4 | ) | |||||||||||||
Deferred revenue |
306 | 183 | 589 | (71 | ) | |||||||||||||||
Net cash flows from operating activities |
237 | 1,382 | 123 | 694 | ||||||||||||||||
Investing Activities: |
||||||||||||||||||||
Purchases of machinery and equipment |
(286 | ) | (275 | ) | (684 | ) | (1,067 | ) | ||||||||||||
Proceeds from sale of machinery and equipment |
— | — | — | 108 | ||||||||||||||||
Purchase of Burdick, Inc., net of cash acquired |
— | (13 | ) | — | (19,385 | ) | ||||||||||||||
Net cash flows from investing activities |
(286 | ) | (288 | ) | (684 | ) | (20,344 | ) | ||||||||||||
Financing Activities: |
||||||||||||||||||||
Borrowings (repayments) on bank line of credit, net |
— | (1,591 | ) | (4,471 | ) | 883 | ||||||||||||||
Payments of long term debt |
— | (90 | ) | — | (272 | ) | ||||||||||||||
Proceeds from exercise of stock options |
3 | 10 | 42 | 73 | ||||||||||||||||
Redemption of putable warrants |
(158 | ) | — | (158 | ) | (296 | ) | |||||||||||||
Proceeds from (costs of) issuance of stock, net of issuance costs |
(630 | ) | 125 | 28,361 | 331 | |||||||||||||||
Net cash flows from financing activities |
(785 | ) | (1,546 | ) | 23,774 | 719 | ||||||||||||||
Net change in cash and cash equivalents |
(834 | ) | (452 | ) | 23,213 | (18,931 | ) | |||||||||||||
Cash and cash equivalents, beginning of period |
24,265 | 903 | 218 | 19,382 | ||||||||||||||||