SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
| For the quarter ended September 30, 2002 |
Commission File No. No. 1-9767 |
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
(Exact Name of Registrant as Specified in Its Charter)
| Delaware (State or Other Jurisdiction of Incorporation or Organization) 9172 Eton Avenue, Chatsworth, CA. (Address of principal executive offices) |
94-2579751 (I.R.S. Employer Identification No.) 91311 (Zip Code) |
Registrant’s Telephone Number: (818) 709-1244
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 [ ]
The registrant had 10,841,657 shares of common stock outstanding as of October 21, 2002.
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
INDEX TO FORM 10-Q
Three and Nine Months Ended September 30, 2002
| Page | |||||||
PART I — FINANCIAL INFORMATION |
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Item 1 — |
Consolidated Financial Statements | ||||||
Consolidated Balance Sheets |
2 | ||||||
Consolidated Statements of Income |
3 | ||||||
Consolidated Statements of Cash Flows |
5 | ||||||
Consolidated Statements of Comprehensive Income |
6 | ||||||
Notes to Consolidated Financial Statements |
7 | ||||||
Item 2 — Management’s Discussion and Analysis of
Financial Condition and Results of Operations |
13 | ||||||
Item 3 — Quantitative and Qualitative Disclosure
About Market Risk |
19 | ||||||
Item 4 — Disclosure Controls and Procedures |
19 | ||||||
PART II — OTHER INFORMATION |
|||||||
Item 1 — Legal Proceedings |
19 | ||||||
Item 6 — Exhibits and Reports on Form 8-K |
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(a) Exhibits |
20 | ||||||
(b) Reports on Form 8-K |
20 | ||||||
SIGNATURE |
20 | ||||||
1
PART I
FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
Assets
| At September 30, | At December 31, | |||||||||||
| 2002 | 2001 | |||||||||||
| (unaudited) | ||||||||||||
Current assets: |
||||||||||||
Cash and cash equivalents |
$ | 1,792,510 | $ | 2,312,451 | ||||||||
Accounts receivable, net of allowance for doubtful
accounts of $230,360 in 2002 and $286,127 in 2001 |
4,652,516 | 4,838,252 | ||||||||||
Inventories |
5,279,470 | 5,578,139 | ||||||||||
Prepaid expenses and other current assets |
351,754 | 268,348 | ||||||||||
Investments available for sale |
763,034 | 1,036,648 | ||||||||||
Deferred tax asset |
1,240,382 | 1,568,466 | ||||||||||
Total current assets |
14,079,666 | 15,602,304 | ||||||||||
Property and equipment, at cost, net of accumulated depreciation
of $5,073,814 in 2002 and $4,638,676 in 2001 |
2,557,611 | 1,666,226 | ||||||||||
Purchased intangibles, net of accumulated amortization
of $194,197 in 2002 and 2001 |
188,911 | 188,911 | ||||||||||
Software development costs, net of accumulated amortization of
$1,545,007 in 2002 and $1,532,011 in 2001 |
1,738,049 | 1,146,204 | ||||||||||
Deferred tax asset |
7,280,718 | 7,280,718 | ||||||||||
Loan to related party |
125,000 | — | ||||||||||
Other assets |
634,466 | 618,677 | ||||||||||
Total assets |
$ | 26,604,421 | $ | 26,503,040 | ||||||||
Liabilities And Shareholders’ Equity |
||||||||||||
Current
liabilities: |
||||||||||||
Short-term borrowings |
$ | 1,000,000 | $ | — | ||||||||
Current portion of long-term debt |
1,300,423 | 1,993,783 | ||||||||||
Accounts payable |
1,728,416 | 2,295,637 | ||||||||||
Accrued expenses |
1,977,937 | 1,792,829 | ||||||||||
Deferred income — service contracts and other |
999,742 | 883,819 | ||||||||||
Total current liabilities |
7,006,518 | 6,966,068 | ||||||||||
Long term debt |
2,226,341 | 3,254,801 | ||||||||||
Deferred income — service contracts and other |
201,620 | 317,416 | ||||||||||
Total liabilities |
9,434,479 | 10,538,285 | ||||||||||
Shareholders’ equity: |
||||||||||||
Preferred stock, $.01 par value; Authorized: 3,000,000 shares; |
||||||||||||
Callable Series B shares issued and outstanding: |
||||||||||||
2001 - 205,000 |
||||||||||||
2002 - none |
— | 2,050 | ||||||||||
Common stock, $.01 par value; Authorized: 50,000,000 shares |
||||||||||||
Shares
issued and outstanding: 2002 — 10,836,394 and 2001 — 10,264,926 |
108,362 | 102,648 | ||||||||||
Additional paid-in capital |
41,874,975 | 41,311,847 | ||||||||||
Unearned compensation |
(16,718 | ) | (54,343 | ) | ||||||||
Accumulated other comprehensive income |
(91,333 | ) | 72,835 | |||||||||
Accumulated deficit |
(24,705,344 | ) | (25,470,282 | ) | ||||||||
Total shareholders’ equity |
17,169,942 | 15,964,755 | ||||||||||
Total liabilities and shareholders’ equity |
$ | 26,604,421 | $ | 26,503,040 | ||||||||
| The accompanying notes are an integral part of these consolidated financial statements. |
2
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
| For the three months ended September 30, | ||||||||||
| 2002 | 2001 | |||||||||
Sales of IVD systems |
$ | 1,522,700 | $ | 1,313,877 | ||||||
Sales of IVD supplies and services |
3,945,963 | 3,722,723 | ||||||||
Sales of small instruments and supplies |
1,455,107 | 1,747,799 | ||||||||
Royalties and licensing revenues |
148,372 | 127,336 | ||||||||
Net revenues |
7,072,142 | 6,911,735 | ||||||||
Cost of goods – IVD systems |
1,015,922 | 788,520 | ||||||||
Cost of goods – IVD supplies and services |
1,592,736 | 1,445,552 | ||||||||
Cost of goods – small instruments and supplies |
715,198 | 807,044 | ||||||||
Cost of goods sold |
3,323,856 | 3,041,116 | ||||||||
Gross margin |
3,748,286 | 3,870,619 | ||||||||
Marketing and selling |
1,063,659 | 874,211 | ||||||||
General and administrative |
1,263,434 | 1,102,538 | ||||||||
Research and development, net |
1,150,280 | 1,192,902 | ||||||||
Amortization of intangibles |
26,914 | 36,480 | ||||||||
Total operating expenses |
3,504,287 | 3,206,131 | ||||||||
Operating income |
243,999 | 664,488 | ||||||||
Other income (expense): |
||||||||||
Interest income |
13,578 | 21,013 | ||||||||
Interest expense |
(120,881 | ) | (218,113 | ) | ||||||
Other income (expense) |
36,294 | (1,447 | ) | |||||||
Income before income taxes |
172,990 | 465,941 | ||||||||
Income taxes |
69,196 | 186,377 | ||||||||
Net income |
$ | 103,794 | $ | 279,564 | ||||||
Net income per common share |
||||||||||
— basic |
$ | 0.01 | $ | 0.03 | ||||||
— diluted |
$ | 0.01 | $ | 0.02 | ||||||
Weighted average number of common shares outstanding |
||||||||||
— basic |
10,688,591 | 9,989,751 | ||||||||
— diluted |
11,501,501 | 11,220,087 | ||||||||
| The accompanying notes are an integral part of these consolidated financial statements. |
3
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
| For the nine months ended September 30, | ||||||||||
| 2002 | 2001 | |||||||||
Sales of IVD systems |
$ | 3,957,620 | $ | 4,238,022 | ||||||
Sales of IVD supplies and services |
12,169,609 | 11,637,947 | ||||||||
Sales of small instruments and supplies |
4,274,014 | 5,070,372 | ||||||||
Royalties and licensing revenues |
404,291 | 249,302 | ||||||||
Net revenues |
20,805,534 | 21,195,643 | ||||||||
Cost of goods – IVD systems |
2,383,442 | 2,501,758 | ||||||||
Cost of goods – IVD supplies and services |
4,697,793 | 4,519,974 | ||||||||
Cost of goods – small instruments and supplies |
2,088,103 | 2,410,126 | ||||||||
Cost of goods sold |
9,169,338 | 9,431,858 | ||||||||
Gross margin |
11,636,196 | 11,763,785 | ||||||||
Marketing and selling |
3,084,335 | 2,725,737 | ||||||||
General and administrative |
3.595,200 | 3,221,938 | ||||||||
Research and development, net |
3,250,425 | 3,462,362 | ||||||||
Amortization of intangibles |
82,460 | 108,504 | ||||||||
Total operating expenses |
10,012,420 | 9,518,541 | ||||||||
Operating income |
1,623,776 | 2,245,244 | ||||||||
Other income (expense): |
||||||||||
Interest income |
42,563 | 102,837 | ||||||||
Interest expense |
(429,012 | ) | (654,942 | ) | ||||||
Other income (expense) |
37,570 | (462 | ) | |||||||
Income before income taxes |
1,274,897 | 1,692,677 | ||||||||
Income taxes |
509,959 | 677,071 | ||||||||
Net income |
$ | 764,938 | $ | 1,015,606 | ||||||
Net income per common share |
||||||||||
— basic |
$ | 0.07 | $ | 0.10 | ||||||
— diluted |
$ | 0.07 | $ | 0.09 | ||||||
Weighted average number of common
shares outstanding |
||||||||||
— basic |
10,472,553 | 9,957,016 | ||||||||
— diluted |
11,552,302 | 10,883,833 | ||||||||
| The accompanying notes are an integral part of these consolidated financial statements. |
4
INTERNATIONAL REMOTE IMAGING SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| For the nine months ended September 30, | ||||||||||
| 2002 | 2001 | |||||||||
Operating activities: |
||||||||||
Net income |
$ | 764,938 | $ | 1,015,606 | ||||||
Adjustments to reconcile net income to net cash provided by
operations: |
||||||||||
Deferred tax benefit |
437,531 | 652,141 | ||||||||
Depreciation and amortization |
751,826 | 767,002 | ||||||||
Common stock and stock option compensation amortization |
47,625 | 161,007 | ||||||||
Changes in assets and liabilities: |
||||||||||
Accounts receivable — trade and other |
300,918 | 221,977 | ||||||||
Service contracts, net |
(115,055 | ) | (210,882 | ) | ||||||
Inventories |
298,669 | (765,503 | ) | |||||||
Prepaid expenses and other current assets |
(83,406 | ) | (60,818 | ) | ||||||
Loan to related party |
(125,000 | ) | — | |||||||
Other assets |
(147,832 | ) | (20,763 | ) | ||||||
Accounts payable |
(567,221 | ) | (571,627 | ) | ||||||
Accrued expenses |
210,884 | (777,604 | ) | |||||||
Net cash provided by operating activities |
1,773,877 | 410,536 | ||||||||
Investing activities: |
||||||||||
Acquisition of property and equipment |
(1,361,410 | ) | (534,630 | ) | ||||||
Software development costs |
(604,841 | ) | (465,360 | ) | ||||||
Net cash used by investing activities |
(1,966,251 | ) | (999,990 | ) | ||||||
Financing activities: |
||||||||||
Borrowings under line of credit |
3,500,000 | 12,969,118 | ||||||||
Repayments of line of credit |
(2,500,000 | ) | (13,256,183 | ) | ||||||
Borrowings under term loan |
1,500,000 | 3,000,000 | ||||||||
Repayments of term loan |
(2,483,332 | ) | (833,332 | ) | ||||||
Repayment of notes payable |
(875,250 | ) | (3,597,250 | ) | ||||||
Payments of capital lease obligations |
(25,776 | ) | (24,037 | ) | ||||||
Issuance of common stock and warrants for cash |
556,791 | 166,050 | ||||||||
Net cash used in financing activities |
(327,567 | ) | (1,575,634 | ) | ||||||
Net decrease in cash and cash equivalents |
(519,941 | ) | (2,165,088 | ) | ||||||
Cash and cash equivalents at beginning of period |
2,312,451 | 3,661,310 | ||||||||
Cash and cash equivalents at end of period |
$ | 1,792,510 | $ | 1,496,222 | ||||||
Supplemental schedule of non-cash investing and financing activities: |
||||||||||
Issuance of warrants in connection with debt financing |
— | 374,768 | ||||||||
Issuance of common stock in exchange for services |
10,000 | 10,000 | ||||||||
Supplemental disclosure of cash flow information: |
||||||||||
Cash paid for interest |
$ | 224,741 | $ | 638,551 | ||||||
Cash paid for income taxes |
64,680 | 39,602 | ||||||||
| The accompanying notes are an integral part of these consoli |