United States
Securities and Exchange Commission
Washington, D.C. 20549
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 JUNE 30, 2002 | ||
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
Commission File Number: 000-49867
CTI MOLECULAR IMAGING, INC.
| Delaware | 62-1377363 | |
| (State of Incorporation) | (I.R.S. Employer Identification No.) |
| 810 Innovation Drive, Knoxville, Tennessee | 37932 | |
| (Address of Principal Executive Offices) | (Zip Code) |
(865) 218-2000
(Registrant’s Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
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 proceeding 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 o No x
As of August 1, 2002, the registrant had outstanding 42,570,799 shares of common stock, par value $0.01.
1
CTI, Molecular Imaging, Inc.
Quarterly Report on Form 10-Q
Table of Contents
| Page | |||||||||
| Part I. Financial Information | |||||||||
| Item 1. | Condensed Consolidated Financial Statements (unaudited): |
||||||||
Condensed Consolidated Balance Sheets at June 30, 2002 and September 30, 2001 |
3-4 | ||||||||
Condensed Consolidated Statements of Operations for the Three and Nine Months
Ended June 30, 2002 and 2001 |
5 | ||||||||
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
June 30, 2002 and 2001 |
6 | ||||||||
Notes to Condensed Consolidated Financial Statements |
7-19 | ||||||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
20-50 | |||||||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
51 | |||||||
| Part II. Other Information | |||||||||
| Item 1. | Legal Proceedings |
52 | |||||||
| Item 2. | Changes in Securities and Use of Proceeds |
52-53 | |||||||
| Item 3. | Defaults Upon Senior Securities |
53 | |||||||
| Item 4. | Submission of Matters to a Vote of Security Holders |
53 | |||||||
| Item 5. | Other Information |
53 | |||||||
| Item 6. | Exhibits and Reports on Form 8-K |
54 | |||||||
| Signature | 55 | ||||||||
| Exhibit index | 56 | ||||||||
2
Part I. Financial Information
CTI MOLECULAR IMAGING, INC. AND SUBSIDIARIES
| June 30, | September 30, | ||||||||||
| (In thousands, except share and per share data) | 2002 | 2001 | |||||||||
| (unaudited) | |||||||||||
ASSETS |
|||||||||||
Current assets: |
|||||||||||
Cash and cash equivalents |
$ | 142,799 | $ | 1,827 | |||||||
Accounts receivable – trade, less allowance for doubtful accounts of
$1,806 at June 30, 2002 and $596 at September 30, 2001, respectively |
29,827 | 35,543 | |||||||||
Accounts receivable – related parties, less allowance for doubtful accounts
of $528 at June 30, 2002 and $161 at September 30, 2001, respectively |
49,816 | 41,424 | |||||||||
Inventories |
69,703 | 47,080 | |||||||||
Deferred tax asset |
8,201 | 6,360 | |||||||||
Prepaid expenses and other current assets |
8,152 | 6,619 | |||||||||
Total current assets |
308,498 | 138,853 | |||||||||
Property and equipment, net |
69,688 | 47,319 | |||||||||
Deferred tax asset |
2,054 | 2,700 | |||||||||
Goodwill |
12,237 | 11,865 | |||||||||
Other assets |
9,472 | 7,044 | |||||||||
Total assets |
$ | 401,949 | $ | 207,781 | |||||||
LIABILITIES, REDEEMABLE PREFERRED STOCK AND SHAREHOLDERS’ EQUITY |
|||||||||||
Current liabilities: |
|||||||||||
Cash management clearing |
$ | 7,640 | $ | 3,893 | |||||||
Accounts payable |
19,182 | 15,039 | |||||||||
Current maturities of long-term debt and capital lease obligations |
5,579 | 4,914 | |||||||||
Accrued payroll and benefits |
8,963 | 8,797 | |||||||||
Customer advances – trade |
22,655 | 16,868 | |||||||||
Customer advances – related party |
4,679 | 5,241 | |||||||||
Accrued warranty expense |
3,771 | 3,433 | |||||||||
Income taxes payable |
3,522 | 3,845 | |||||||||
Other accrued expenses |
1,627 | 2,161 | |||||||||
Total current liabilities |
77,618 | 64,191 | |||||||||
Deferred credits |
839 | 749 | |||||||||
Warrant liability |
— | 11,470 | |||||||||
Long-term debt and capital lease obligations, less current maturities |
83,047 | 73,122 | |||||||||
Total liabilities |
161,504 | 149,532 | |||||||||
(continued)
3
CTI MOLECULAR IMAGING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, | September 30, | |||||||||
| 2002 | 2001 | |||||||||
| (unaudited) | ||||||||||
Commitments and contingencies (Note 5) |
||||||||||
Minority interest |
28,975 | 21,312 | ||||||||
Redeemable preferred stock,
redeemed for $10,000 on June 26, 2002; no shares
issued or outstanding at June 30, 2002; 400,000 shares issued and outstanding
at September 30, 2001 |
— | 7,740 | ||||||||
Convertible redeemable preferred stock,
converted for $6,000 on June 26, 2002; no shares issued or
outstanding at June 30, 2002; 200,000 shares issued and outstanding
at September 30, 2001 |
— | 5,040 | ||||||||
Shareholders’ equity: |
||||||||||
Preferred Stock, Series C, $.01 par value, 50,000 shares authorized, no shares
issued or outstanding at June 30, 2002 and September 30, 2001 |
— | — | ||||||||
Common stock, $.01 par value; 500,000,000 shares authorized,
43,745,929
shares issued and 41,913,964 shares outstanding at June 30, 2002; 30,699,569 shares issued and 30,059,569 shares outstanding at September 30, 2001 |
437 | 307 | ||||||||
Additional paid-in capital |
223,180 | 20,462 | ||||||||
Retained earnings (accumulated deficit) |
(6,956 | ) | 4,063 | |||||||
Unearned compensation |
(4,321 | ) | — | |||||||
Other comprehensive income – currency translation adjustment |
93 | (54 | ) | |||||||
Treasury stock, at cost, 1,831,965 shares
at June 30, 2002; 640,000 shares at September 30, 2001 |
(963 | ) | (621 | ) | ||||||
Total shareholders’ equity |
211,470 | 24,157 | ||||||||
Total liabilities, redeemable preferred stock and shareholders’ equity |
$ | 401,949 | $ | 207,781 | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
CTI MOLECULAR IMAGING, INC. AND SUBSIDIARIES
| Three Months Ended, | Nine Months Ended, | ||||||||||||||||||
| June 30 | June 30 | ||||||||||||||||||
| (In thousands, except share and per share data) | 2002 | 2001 | 2002 | 2001 | |||||||||||||||
| (unaudited) |
(unaudited) |
||||||||||||||||||
Revenues(1) |
$ | 69,044 | $ | 38,114 | $ | 171,858 | $ | 113,428 | |||||||||||
Cost of revenues(2)(3) |
41,120 | 22,481 | 102,081 | 65,762 | |||||||||||||||
Gross margin |
27,924 | 15,633 | 69,777 | 47,666 | |||||||||||||||
Operating expenses: |
|||||||||||||||||||
Selling, general and administrative expenses(3) |
8,938 | 7,611 | 24,621 | 19,731 | |||||||||||||||
Research and development expenses(3) |
5,871 | 4,833 | 15,324 | 12,553 | |||||||||||||||
Stock-based compensation expense |
3,495 | — | 11,731 | 425 | |||||||||||||||
Total operating expenses |
18,304 | 12,444 | 51,676 | 32,709 | |||||||||||||||
Income from operations |
9,620 | 3,189 | 18,101 | 14,957 | |||||||||||||||
Warrant liability mark to market expense |
— | — | 8,902 | 3,921 | |||||||||||||||
Interest expense, net |
1,157 | 811 | 3,453 | 2,906 | |||||||||||||||
Other (income) expense |
(238 | ) | (137 | ) | (632 | ) | (427 | ) | |||||||||||
Income before income taxes and minority interest |
8,701 | 2,515 | 6,378 | 8,557 | |||||||||||||||
Provision (benefit) for income taxes: |
|||||||||||||||||||
Current |
4,877 | 762 | 10,035 | 3,858 | |||||||||||||||
Deferred |
(639 | ) | 132 | (1,196 | ) | 1,228 | |||||||||||||
| 4,238 | 894 | 8,839 | 5,086 | ||||||||||||||||
Income (loss) before minority interest |
4,463 | 1,621 | (2,461 | ) | 3,471 | ||||||||||||||
Amount applicable to minority interest, net of taxes |
3,657 | 435 | 8,572 | 2,805 | |||||||||||||||
Net income (loss) |
806 | 1,186 | (11,033 | ) | 666 | ||||||||||||||
Accretion of preferred stocks |
2,840 | 186 | 3,544 | 468 | |||||||||||||||
Dividends on preferred stocks |
272 | 347 | 1,120 | 1,047 | |||||||||||||||
Net income (loss) attributable to common shareholders |
$ | (2,306 | ) | $ | 653 | $ | (15,697 | ) | $ | (849 | ) | ||||||||
Earnings (loss) per share: |
|||||||||||||||||||
Basic |
$ | (0.07 | ) | $ | 0.02 | $ | (0.54 | ) | $ | (0.03 | ) | ||||||||
Diluted |
$ | (0.07 | ) | $ | 0.02 | $ | (0.54 | ) | $ | (0.03 | ) | ||||||||
Weighted average shares: |
|||||||||||||||||||
Basic |
31,663,993 | 28,122,306 | 29,311,000 | 27,769,844 | |||||||||||||||
Diluted |
31,663,993 | 31,848,130 | 29,311,000 | 27,769,844 | |||||||||||||||
(1)Includes revenues through related parties |
$ | 32,617 | $ | 25,755 | $ | 87,154 | $ | 72,577 | |||||||||||
(2)Includes cost of revenues through related parties |
$ | 18,184 | $ | 13,517 | $ | 49,235 | $ | 38,525 | |||||||||||
(3)Excludes stock-based compensation expense as follows: |
|||||||||||||||||||
Cost of revenues |
$ | 955 | $ | — | $ | 957 | $ | — | |||||||||||
Selling, general and administrative expenses |
1,080 | — | 9,229 | 420 | |||||||||||||||
Research and development expenses |
1,460 | — | 1,545 | 5 | |||||||||||||||
| $ | 3,495 | $ | — | $ | 11,731 | $ | 425 | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
CTI MOLECULAR IMAGING, INC. AND SUBSIDIARIES
| Nine Months Ended | ||||||||||||
| June 30 | ||||||||||||
| (In thousands, except share and per share data) | 2002 | 2001 | ||||||||||
| (unaudited) | ||||||||||||
Cash flows provided by (used in) operating activities: |
||||||||||||
Net income (loss) |
$ | (11,033 | ) | $ | 666 | |||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
||||||||||||
Minority interest in income of subsidiaries |
7,675 | 2,805 | ||||||||||
Depreciation and amortization |
4,853 | 3,145 | ||||||||||
Deferred tax provision (benefit) |
(1,196 | ) | 1,228 | |||||||||
Provision for bad debts |
1,574 | 52 | ||||||||||
Equity in (income) losses of equity investees |
(162 | ) | (543 | ) | ||||||||
Stock-based compensation expense |
11,731 | 425 | ||||||||||
Provision to mark to market warrant liability |
8,902 | 3,921 | ||||||||||
Tax benefit realized from exercises of employee stock options |
325 | — | ||||||||||
Loss on disposal of machinery and equipment |
198 | 25 | ||||||||||
Changes in operating assets and liabilities: |
||||||||||||
Accounts receivable |
(4,249 | ) | 6,881 | |||||||||
Inventories |
(22,623 | ) | (14,427 | ) | ||||||||
Other receivables |
330 | 72 | ||||||||||
Prepaid expenses and other current assets |
(1,534 | ) | (2,502 | ) | ||||||||
Accounts payable |
7,378 | (1,053 | ) | |||||||||
Accrued payroll and benefits |
167 | (346 | ) | |||||||||
Customer advances |
5,226 | 1,799 | ||||||||||
Accrued warranty expense |
338 | 1,273 | ||||||||||
Income taxes payable |
(327 | ) | (4,602 | ) | ||||||||
Other accrued expenses |
||||||||||||