UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT
TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of October 2014
Commission File Number: 001-34975
IMRIS
INC.
(Translation of registrant's name into English)
100-1370 Sony Place, Winnipeg, Manitoba,
Canada R3T 1N5
(Address of principal executive offices)
Indicate by check mark whether the registrant
files or will file annual reports under cover Form 20-F or Form 40-F.
¨
Form 20-F x Form 40-F
Indicate by check mark if the registrant
is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ¨
Indicate by check mark if the registrant
is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ¨
INCORPORATION BY REFERENCE
Exhibits 99.2 and 99.3 to this Form 6-K shall be incorporated
by reference as an exhibit to the Registration Statement of IMRIS Inc. on Form F-10 (File No. 333-183820).
DOCUMENTS FILED AS PART OF THIS FORM
6-K
See the Exhibit Index hereto.
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.
|
IMRIS Inc. |
|
|
(Registrant) |
|
|
|
|
Date: October 28, 2014 |
By: |
/s/ Jay D. Miller |
|
|
|
|
|
|
Name: |
Jay D. Miller |
|
|
Title: |
President and Chief Executive Officer |
|
EXHIBIT INDEX
99.1 |
News release dated October 28, 2014 – IMRIS Reports Third Quarter 2014 Financial Results |
99.2 |
Q3 2014 Interim Unaudited Consolidated Financial Statements |
99.3 |
Q3 2014 Management Discussion and Analysis |
99.4 |
Form 52-109F2 Certification of Interim Filings – CEO |
99.5 |
Form 52-109F2 Certification of Interim Filings – Director of Finance |
Exhibit
99.1
IMRIS
Reports Third-Quarter 2014 Financial Results
| · | New
order bookings of $6.1 million in third quarter resulted in ending backlog of $127.2
million; |
| · | Order
bookings totaled $46.7 million year-to-date 2014 compared with $33 million for entire
2013 year; |
| · | Quarterly
revenues of $6.9 million were at high end of IMRIS’ expectations; |
| · | Company
maintains guidance for 2014 full year |
WINNIPEG, Manitoba & MINNEAPOLIS,
Minnesota, October 28, 2014 - IMRIS Inc. (NASDAQ: IMRS; TSX: IM) today reported financial results for the 2014 third quarter
ended September 30, 2014. All figures are reported in U.S. dollars. The Company’s net loss in the 2014 third quarter was
$8.4 million, or $0.16 per diluted share, on net revenues of $6.9 million. In the prior-year quarter, IMRIS reported a net loss
of $3.8 million, or $0.07 per diluted share, on net revenues of $17.8 million. New order bookings were $6.1 million in the third
quarter resulting in a backlog of $127.2 million.
Commented Jay D. Miller, President
and Chief Executive Officer of IMRIS: “During the third quarter, we continued to execute on our strategies to build a long-term,
sustainable business. Importantly, bookings are up sizably year-to-date over last year. Our operating expenses are down 24.5 percent
from 2013’s levels.”
Added Miller: “Revenue came
in at the upper end of our guidance range in the 2014 third quarter. We continued to see growth in service revenues and upgrades.
From a product standpoint, we are readying our SYMBIS 510(k) application, which we expect to submit to the FDA in the 2014 fourth
quarter.”
Third-Quarter
Operating Review
Revenue for the 2014 third quarter
was $6.9 million compared with $17.8 million in the same period last year, due to the timing of VISIUS Surgical Theatre systems
installation and delivery.
Gross profit in the 2014 third
quarter was $2.4 million compared with $6.8 million in the same period last year. Gross profit as a percentage of sales in the
2014 third quarter was 34.5 percent compared with 38.2 percent in the same period last year. The decline stems chiefly from a
lower margin iCT evaluation site installation in the 2014 third quarter.
Operating expenses for the 2014
third quarter declined to $8.1 million from $10.8 million for the prior-year period, primarily due to improved operating efficiencies
following completion of the Company’s relocation to Minnesota and related expenses.
Foreign exchange expense in the
2014 third quarter was $1.4 million compared with income of $0.4 million in 2013, due to a strengthening U.S. dollar against IMRIS’
foreign denominated monetary assets. Interest and other expense in the 2014 third quarter includes interest expense of $0.6 million,
debt discount amortization of $0.3 million and debt issuance cost amortization of $0.1 million, as well as other net interest
expense and banking fees.
IMRIS’ net loss in the 2014
third quarter was $8.4 million, or $0.16 per diluted share, versus a loss of $3.8 million, or $0.07 per diluted share, in the
same period last year. The change resulted from lower gross profit and other expense, partially offset by reduced operating expenses.
IMRIS Reports 2014 Third-Quarter
Results – Page 2
Adjusted
EBITDA1 for
the 2014 third quarter was negative $4.7 million compared with negative $2.5 million in the same period last year. Adjusted EBITDA
for the 2014 third quarter reflects lower gross profit and higher other expense, partially offset by reduced operating expenses.
On October 10, 2014 the Company
filed a $30 million shelf registration statement on Form F-3 with the SEC. The shelf registration statement cannot be used to
offer or sell securities until it is declared effective by the SEC. The specifics of any potential future offering, along with
the prices and terms of any such securities offered by the Company will be determined at the time of any such offering and will
be described in detail in a prospectus supplement filed in connection with such offering. The shelf registration statement replaces
a previously existing shelf registration statement filed on Form F-10, which expires in November 2014.
Backlog2
During the 2014 third quarter,
IMRIS received $6.1 million in new orders and converted $6.9 million of backlog into revenues. The change in the U.S. dollar versus
the orders denominated in foreign currencies in backlog resulted in a decrease of $0.5 million in the value of the backlog. Backlog
on September 30, 2014, totaled $127.2 million.
Liquidity
Cash at September 30, 2014, totaled
$3.8 million and accounts receivable were $4.1 million. These funds, together with ongoing operating cash flow, will be used to
fund the Company’s working capital and overall operations. At December 31, 2013, the Company had cash and restricted cash
of $13.9 million.
Business Outlook
Commented Miller: “We are
reiterating our revenue guidance for the 2014 full year of between $30 million and $34 million. We previously provided preliminary
guidance for 2015 revenues of $60 million to $65 million. We will update this guidance when we release our full year 2014 results.
Our surgical theatres are performing very well in hospitals around the world, helping physicians provide excellent care for patients
with brain cancer and other difficult-to-treat conditions. As our installed base grows, IMRIS’ service revenues will also
build. We look forward to beginning to add SYMBIS revenue to VISIUS revenues, once we achieve FDA approval for this innovative
treatment system.”
IMRIS’ 2014 strategic priorities
remain to:
| · | Increase
market penetration and order bookings, by making it easier for the Company’s hospital
customers to purchase IMRIS’ VISIUS iMR systems; |
| · | Strive
to deliver A+ customer support; |
| · | Sell
the Company’s expanded portfolio of product offerings for options, upgrades, disposables
and services into the installed base of satisfied customers; |
| · | Advance
the development and commercialization of the SYMBIS robotic system; |
| · | Enhance
the Company’s operating efficiency, with an emphasis on controlling costs and increasing
gross margins, thus moving IMRIS closer to profitability and positive cash flows; and |
| · | Build
momentum for the VISIUS iCT and service sales in North America and Europe. |
1
Adjusted EBITDA is defined as earnings before interest and other income (expense), stock
based compensation expense, gain on asset disposals, foreign exchange income (expense), income tax (benefit) provision and amortization
and depreciation.
2
See “Non-GAAP Financial Measures” in the Company’s 2014 Third Quarter MD&A for further information on backlog.
IMRIS Reports 2014 Third-Quarter
Results – Page 3
For the 2014 year, IMRIS anticipates
a gross profit margin of approximately 35 percent to 36 percent. Total capital expenditures are anticipated to be approximately
$2.5 million. IMRIS forecasts total cash and non-cash operating expenses in 2014 to be approximately $33 million, as summarized
below:
2014
Forecast |
$
Millions |
Cash
operating expenses |
$
27.0 |
Amortization
and depreciation (non-cash) |
4.0 |
Stock
based compensation (non-cash) |
2.0 |
Total
operating expenses |
$
33.0 |
|
|
The Company’s full financial
statements as well as management’s discussion and analysis will be available at www.sedar.com, www.sec.gov
and www.imris.com.
Conference Call
Management will host a conference
call to discuss the results at 9 a.m. ET, October 28, 2014. Following management’s presentation, there will be a
question-and-answer session for analysts and institutional investors. To participate in the teleconference, please call 1-866-530-1554
or 1-416-849-1847 and enter access code 9209929. To access the live audio webcast, please visit IMRIS’ website
at www.imris.com. A taped rebroadcast will be available to listeners following the call until 12 p.m. ET on November 5,
2014. To access the rebroadcast, please call 1-888-203-1112 and enter access code 9209929.
About IMRIS
IMRIS (NASDAQ: IMRS; TSX: IM)
is a global leader in providing image guided therapy solutions through its VISIUS Surgical Theatre – a revolutionary, multifunctional
surgical environment that provides unmatched intraoperative vision to clinicians to assist in decision making and enhance precision
in treatment. The multi-room suites incorporate diagnostic quality high-field MR, CT and angio modalities accessed effortlessly
in the operating room setting. VISIUS Surgical Theatres serve the neurosurgical, cardiovascular, spinal and cerebrovascular markets
and have been selected by 61 leading medical institutions around the world. For more information, visit www.imris.com.
Forward-Looking Statements
This press release may contain
or refer to forward-looking information based on current expectations. In some cases, forward-looking statements can be identified
by terminology such as “anticipate”, “may”, “expect”, “believe”, “prospective”,
“continue” or the negative of these terms or other similar expressions concerning matters that are not historical
facts. These statements should not be understood as guarantees of future performance or results. Such statements involve known
and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially
different from those implied by such statements. Although such statements are based on management's reasonable assumptions, there
can be no assurance that actual results will be consistent with such statements. Forward-looking statements are subject to significant
risks and uncertainties, and other factors that could cause actual results to differ materially from expected results. These forward-looking
statements are made as of the date hereof and we assume no responsibility to update or revise them to reflect new events or circumstances.
IMRIS Reports 2014 Third-Quarter
Results – Page 4
For
further information, please contact:
Jeffery Bartels |
Director – Finance |
IMRIS Inc. |
Tel: 763-203-6328 |
Email: jbartels@imris.com |
|
Selected
Financial Information
(Thousands of US dollars,
except per share amounts)
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
|
September 30 |
|
|
September 30 |
|
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
6,924 |
|
|
$ |
17,765 |
|
|
$ |
19,333 |
|
|
$ |
36,057 |
|
|
Gross profit |
|
$ |
2,387 |
|
|
$ |
6,781 |
|
|
$ |
6,228 |
|
|
$ |
12,910 |
|
|
Gross profit % |
|
|
34.5% |
|
|
|
38.2% |
|
|
|
32.2% |
|
|
|
35.8% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
$ |
8,135 |
|
|
$ |
10,771 |
|
|
$ |
24,877 |
|
|
$ |
32,381 |
|
|
Operating loss |
|
$ |
(5,748) |
|
|
$ |
(3,990) |
|
|
$ |
(18,649) |
|
|
$ |
(19,471) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(8,392) |
|
|
$ |
(3,804) |
|
|
$ |
(23,320) |
|
|
$ |
(20,385) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
(4,681) |
|
|
$ |
(2,535) |
|
|
$ |
(15,273) |
|
|
$ |
(15,167) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share |
|
$ |
(0.16) |
|
|
$ |
(0.07) |
|
|
$ |
(0.45) |
|
|
$ |
(0.41) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data |
|
|
|
|
|
|
|
|
|
As
of
September 30,
2014 |
|
|
As
of
December 31,
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and restricted cash |
|
|
|
|
|
|
|
|
|
$ |
3,842 |
|
|
$ |
13,882 |
|
|
Total assets |
|
|
|
|
|
|
|
|
|
|
59,532 |
|
|
|
85,561 |
|
|
Deferred revenue |
|
|
|
|
|
|
|
|
|
|
10,011 |
|
|
|
9,500 |
|
|
Long term debt, net of discount |
|
|
|
|
|
|
|
|
|
|
20,829 |
|
|
|
21,204 |
|
|
Total liabilities |
|
|
|
|
|
|
|
|
|
|
44,778 |
|
|
|
50,540 |
|
|
Shareholders' equity |
|
|
|
|
|
|
|
|
|
|
14,754 |
|
|
|
35,021 |
|
# # #
Exhibit 99.2
CONSOLIDATED
FINANCIAL STATEMENTS
September
30, 2014
IMRIS
Inc.
100-1370
Sony Place
Winnipeg,
Manitoba T. 763.203.6300
Canada
R3T 1N5 F. 204.480.7071 www.imris.com
IMRIS
INC.
Consolidated
Balance Sheets
Expressed
in U.S. $000’s except share and per share data
and except
as otherwise indicated
(Unaudited)
|
September
30, 2014 |
|
December
31, 2013 |
|
|
|
|
Assets |
|
|
|
Current assets |
|
|
|
Cash |
$ 3,842 |
|
$ 6,382 |
Restricted cash (note 4) |
- |
|
7,500 |
Accounts receivable (note
5) |
4,075 |
|
13,979 |
Unbilled receivables |
7,072 |
|
12,080 |
Inventory (note 6) |
9,495 |
|
10,005 |
Prepaid expenses and other |
3,578 |
|
3,067 |
|
28,062 |
|
53,013 |
|
|
|
|
Property, plant, and equipment, net |
14,621 |
|
14,038 |
Intangibles, net |
8,217 |
|
8,999 |
Other assets (note 7) |
2,134 |
|
3,013 |
Goodwill |
6,498 |
|
6,498 |
|
|
|
|
Total assets |
$ 59,532 |
|
$ 85,561 |
|
|
|
|
Liabilities and Shareholders' equity |
|
|
|
|
|
|
|
Current liabilities |
|
|
|
Accounts payable and accrued
liabilities (note 8) |
$ 10,320 |
|
$ 18,335 |
Deferred revenue |
10,011 |
|
9,500 |
Current portion of long
term debt |
2,456 |
|
- |
|
22,787 |
|
27,835 |
|
|
|
|
Long term debt, net of discount (note 16) |
20,829 |
|
21,204 |
Other liabilities |
1,162 |
|
1,501 |
|
21,991 |
|
22,705 |
|
|
|
|
Total liabilities |
44,778 |
|
50,540 |
|
|
|
|
Shareholders' equity |
|
|
|
Share capital |
|
|
|
Common
Shares, unlimited number of voting common shares authorized; 52,030,966 issued and outstanding as of September 30, 2014 and
December 31, 2013 |
166,959 |
|
166,959 |
Additional paid-in capital |
13,662 |
|
11,337 |
Deficit |
(167,060) |
|
(143,740) |
Accumulated other comprehensive
income |
1,193 |
|
465 |
|
14,754 |
|
35,021 |
|
|
|
|
Commitments and contingencies (note 14) |
|
|
|
|
|
|
|
Total liabilities and shareholders' equity |
$ 59,532 |
|
$ 85,561 |
The
accompanying notes are an integral part of these consolidated financial statements.
IMRIS
INC.
Consolidated
Statements of Comprehensive Loss
Expressed
in U.S. $000’s except share and per share data
and except
as otherwise indicated
(Unaudited)
| |
Three months ended | | |
Nine months ended | |
| |
September 30, 2014 | | |
September 30, 2013 | | |
September 30, 2014 | | |
September 30, 2013 | |
| |
| | |
| | |
| | |
| |
Sales | |
$ | 6,924 | | |
$ | 17,765 | | |
$ | 19,333 | | |
$ | 36,057 | |
Cost of sales | |
| 4,537 | | |
| 10,984 | | |
| 13,105 | | |
| 23,147 | |
Gross profit | |
| 2,387 | | |
| 6,781 | | |
| 6,228 | | |
| 12,910 | |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses | |
| | | |
| | | |
| | | |
| | |
Administrative | |
| 1,710 | | |
| 2,280 | | |
| 5,289 | | |
| 7,523 | |
Sales and marketing | |
| 1,791 | | |
| 2,300 | | |
| 5,506 | | |
| 7,081 | |
Customer support and operations | |
| 2,400 | | |
| 2,889 | | |
| 7,016 | | |
| 8,309 | |
Research and development | |
| 1,532 | | |
| 2,339 | | |
| 4,895 | | |
| 6,612 | |
Amortization and depreciation | |
| 702 | | |
| 963 | | |
| 2,171 | | |
| 2,856 | |
Total operating expenses | |
| 8,135 | | |
| 10,771 | | |
| 24,877 | | |
| 32,381 | |
| |
| | | |
| | | |
| | | |
| | |
Operating loss | |
| (5,748) | | |
| (3,990) | | |
| (18,649) | | |
| (19,471) | |
| |
| | | |
| | | |
| | | |
| | |
Other income (expense) | |
| | | |
| | | |
| | | |
| | |
Loss on asset disposals | |
| (206) | | |
| - | | |
| (194) | | |
| - | |
Foreign exchange | |
| (1,357) | | |
| 387 | | |
| (1,390) | | |
| (651) | |
Interest and other | |
| (1,092) | | |
| (195) | | |
| (3,219) | | |
| (231) | |
Total other income (expense) | |
| (2,655) | | |
| 192 | | |
| (4,803) | | |
| (882) | |
| |
| | | |
| | | |
| | | |
| | |
Net loss before taxes | |
| (8,403) | | |
| (3,798) | | |
| (23,452) | | |
| (20,353) | |
| |
| | | |
| | | |
| | | |
| | |
Income tax (benefit) provision (note 10) | |
| (11) | | |
| 6 | | |
| (132) | | |
| 32 | |
Net loss | |
$ | (8,392) | | |
$ | (3,804) | | |
$ | (23,320) | | |
$ | (20,385) | |
| |
| | | |
| | | |
| | | |
| | |
Other comprehensive income (loss) | |
| | | |
| | | |
| | | |
| | |
Foreign currency translation adjustment | |
| 688 | | |
| (298) | | |
| 728 | | |
| 393 | |
| |
| | | |
| | | |
| | | |
| | |
Other comprehensive income (loss) | |
$ | 688 | | |
$ | (298) | | |
$ | 728 | | |
$ | 393 | |
| |
| | | |
| | | |
| | | |
| | |
Comprehensive loss for the period | |
$ | (7,704) | | |
$ | (4,102) | | |
$ | (22,592) | | |
$ | (19,992) | |
| |
| | | |
| | | |
| | | |
| | |
Weighted average number of common shares outstanding | |
| 52,030,966 | | |
| 51,964,165 | | |
| 52,030,966 | | |
| 50,271,094 | |
| |
| | | |
| | | |
| | | |
| | |
Basic and diluted loss per share (note 11) | |
$ | (0.16) | | |
$ | (0.07) | | |
$ | (0.45) | | |
$ | (0.41) | |
The accompanying
notes are an integral part of these consolidated financial statements.
IMRIS
INC.
Consolidated
Statements of Shareholders' Equity
Expressed
in U.S. $000’s except share and per share data
and except
as otherwise indicated
(Unaudited)
|
|
Common
Shares |
|
Additional
Paid-in |
|
|
|
Accumulated
Other
Comprehensive |
|
|
|
|
|
Shares |
|
Amount |
|
Capital |
|
Deficit |
|
Income
(Loss) |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of January 1, 2013 |
|
46,061,211 |
|
$ 147,819 |
|
$ 4,861 |
|
$ (101,740) |
|
$ (353) |
|
$ 50,587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) for the period |
|
- |
|
- |
|
- |
|
(42,000) |
|
818 |
|
(41,182) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of stock on exercise of employee
stock options |
|
219,755 |
|
694 |
|
- |
|
- |
|
- |
|
694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation expense for the
period |
|
- |
|
- |
|
1,885 |
|
- |
|
- |
|
1,885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount credited to share capital related
to shares and options issued |
|
5,750,000 |
|
18,446 |
|
(209) |
|
- |
|
- |
|
18,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of warrants to purchase common stock |
|
- |
|
- |
|
4,800 |
|
- |
|
- |
|
4,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of January 1, 2014 |
|
52,030,966 |
|
$ 166,959 |
|
$ 11,337 |
|
$ (143,740) |
|
$ 465 |
|
$ 35,021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) for the period |
|
- |
|
- |
|
- |
|
(23,320) |
|
728 |
|
(22,592) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation expense for the
period |
|
- |
|
- |
|
1,205 |
|
- |
|
- |
|
1,205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant repricing fair value adjustment |
|
- |
|
- |
|
1,120 |
|
- |
|
- |
|
1,120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of September 30, 2014 |
|
52,030,966 |
|
$
166,959 |
|
$
13,662 |
|
$
(167,060) |
|
$ 1,193 |
|
$
14,754 |
|
The accompanying
notes are an integral part of these consolidated financial statements.
IMRIS
INC.
Consolidated
Statements of Cash Flows
Expressed
in U.S. $000’s except share and per share data
and except
as otherwise indicated
(Unaudited)
|
Nine
months ended |
|
September
30, 2014 |
|
September
30, 2013 |
|
|
|
|
OPERATING ACTIVITIES |
|
|
|
Net loss for the period |
$ (23,320) |
|
$ (20,385) |
Adjustments to reconcile net loss
to net cash used in operating activities: |
|
|
|
Amortization and
depreciation |
2,171 |
|
2,856 |
Stock based compensation |
1,205 |
|
1,448 |
Loss on asset disposals |
194 |
|
- |
Advance payment |
408 |
|
178 |
Amortization of
debt discount and debt issuance costs |
1,279 |
|
66 |
Other |
(343) |
|
425 |
Changes in operating assets and liabilities: |
|
|
|
Accounts receivable |
9,904 |
|
(3,653) |
Unbilled receivables |
5,008 |
|
(4,363) |
Inventory |
510 |
|
(665) |
Prepaid expenses
and other |
(409) |
|
(1,576) |
Accounts payable
and accrued liabilities |
(6,171) |
|
(1,604) |
Deferred revenue |
511 |
|
(8) |
Net cash used in operating activities |
(9,053) |
|
(27,281) |
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
Proceeds from issuance
of share capital |
- |
|
18,938 |
Proceeds from long-term
debt |
500 |
|
25,000 |
Payment of debt
issuance costs |
- |
|
(1,845) |
Net cash provided by financing activities |
500 |
|
42,093 |
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
Restricted cash |
7,500 |
|
(5,580) |
Proceeds from sale
of assets |
7 |
|
- |
Acquisition of property,
plant and equipment |
(2,297) |
|
(7,611) |
Acquisition of intangibles |
(140) |
|
(161) |
Net cash provided by (used in) investing
activities |
5,070 |
|
(13,352) |
|
|
|
|
Foreign exchange translation adjustment
on cash |
943 |
|
379 |
|
|
|
|
Increase (decrease) in cash |
(2,540) |
|
1,839 |
|
|
|
|
Cash, beginning of period |
6,382 |
|
19,060 |
|
|
|
|
Cash, end of period |
$
3,842 |
|
$ 20,899 |
|
|
|
|
Supplemental disclosure of cash
flow information |
|
|
|
Cash paid during the period for: |
|
|
|
Interest |
$ 108 |
|
$ 98 |
Income taxes |
4 |
|
304 |
|
|
|
|
Noncash items during the period: |
|
|
|
Payment-in-kind
("PIK") interest |
$ 1,791 |
|
$ 88 |
Acquisitions of
property, plant and equipment included in accounts payable
and accrued liabilities |
11 |
|
- |
Warrant repricing
fair value adjustment |
1,120 |
|
- |
The accompanying
notes are an integral part of these consolidated financial statements.
IMRIS
Inc.
Notes
to the Unaudited Interim Consolidated Financial Statements
Expressed
in U.S. $000’s except share and per share data and except as otherwise indicated
| 1. | DESCRIPTION
OF BUSINESS |
IMRIS
Inc. (“IMRIS”, “the Company”, “we”, “us” or “our”) designs, manufactures
and markets the VISIUS Surgical TheatreTM, a multifunctional surgical environment that provides intraoperative vision
to clinicians to assist in decision-making and enhance precision in treatment. Designed to meet each hospital’s specific
clinical application needs, the VISIUS Surgical Theatre can incorporate MR imaging, CT imaging and x-ray angiography in a number
of configurations to provide intraoperative images of diagnostic quality - without introducing additional patient transport risk
and delivering real-time information to clinicians while preserving optimal surgical access and techniques. IMRIS sells the VISIUS
Surgical Theatres globally to hospitals that deliver clinical services to patients in the neurosurgical, spinal, cerebrovascular
and cardiovascular markets. Management believes the primary market for the current product portfolio is comprised of those hospitals
having relatively large neurosurgical, cerebrovascular or cardiovascular practices. The Company was incorporated on May 18, 2005
under the Canada Business Corporations Act. The Company’s shares are traded on the Toronto Stock Exchange under the symbol
“IM” and on the NASDAQ Global Select Market (“NASDAQ”) under the symbol “IMRS”.
Liquidity
We
had cash of $3.8 million as of September 30, 2014. Cash as of September 30, 2014 decreased $2.5 million from December 31, 2013
due to cash used in operations of $9.1 million for the nine months ended September 30, 2014 primarily related to an overall
net loss for the period combined with increased payments to vendors slightly offset by accounts receivable collections.
On
September 23, 2014, we entered into a Waiver and Amendment Agreement with Deerfield Management Company, L.P. (“Deerfield”)
with respect to the Facility Agreement dated as of September 16, 2013, in order to waive the enforcement of the covenant under
the Facility Agreement that we have cash and cash equivalents greater than $7.5 million at calendar quarter ending September 30,
2014. In connection with the waiver, we have agreed to change the exercise price of the warrants to purchase 6.1 million shares
of IMRIS common stock from $1.94 to $0.70 per share, representing the closing trading price of the common shares on NASDAQ as
of September 23, 2014. The Company proactively sought the waiver so as to avoid a potential breach of the covenant due to uncertainty
in the timing of accounts receivable collected by September 30, 2014. The covenant restriction will be back in place for year
ended December 31, 2014.
Our
ability to fund our operations beyond the next 12 months is dependent on our ability to meet our planned business operations,
effectively manage our working capital needs and generate positive cash flows from deposits on new order bookings. Our cash
balances can fluctuate based on when we obtain cash deposits and payments from customers. This could have an impact on our ending
cash balance and our ability to meet our operating liquidity needs and our debt covenant related to cash balances, in which event
we would need to find other sources of cash. We believe that if our cash balances are not sufficient to meet our liquidity needs,
we will be able to raise additional capital While there is no guarantee that we can raise additional capital, we have a history
of being able to successfully fund the business through the capital markets in the form of equity or debt financing. If
we are not able to raise additional capital, we may need to eliminate or suspend research, development and corporate projects.
On
October 10, 2014 we filed a $30 million shelf registration statement on Form F-3 with the SEC. The shelf registration statement
cannot be used to offer or sell securities until it is declared effective by the SEC. The specifics of any potential future
offering, along with the prices and terms of any such securities offered by the Company will be determined at the time of any
such offering and will be described in detail in a prospectus supplement filed in connection with such offering. The shelf
registration statement replaces our previously existing shelf registration statement filed on Form F-10, which expires in November
2014.
IMRIS
Inc.
Notes
to the Unaudited Interim Consolidated Financial Statements
Expressed
in U.S. $000’s except share and per share data and except as otherwise indicated
| 1. | DESCRIPTION
OF BUSINESS (continued) |
Our
common stock has been and is likely to continue to be volatile, and an investment in our common stock could decline in value.
During the three months ended September 30, 2014 our common stock’s closing price on the NASDAQ was less than $1.00 per
share. On August 25, 2014, we received a letter from the NASDAQ Stock Market LLC ("Nasdaq") stating that for the previous
30 consecutive business days the bid price of the Company's common stock closed below the minimum $1.00 per share required for
continued listing under Nasdaq Listing Rule 5450(a)(1). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company
has a period of 180 calendar days, or until February 23, 2015, to regain compliance with the minimum bid requirement. If
at any time during the 180 calendar day grace period, the closing bid price per share of the Company's common stock is at or above
$1.00 for a minimum of ten consecutive business days, the Company will regain compliance and the matter will be closed.
In the event the Company does not regain compliance, the Company may be eligible for an additional period to regain compliance,
subject to satisfying certain Nasdaq requirements. If it appears to the Nasdaq staff that the Company will not be able to
cure the deficiency or if the Company is not otherwise eligible for the additional compliance period, the Company's common stock
will be subject to delisting by Nasdaq.
The
accompanying unaudited interim consolidated financial statements are prepared in accordance with United States generally accepted
accounting principles (“U.S. GAAP”). These unaudited interim consolidated financial statements do not include all
the information and note disclosures required for compliance with U.S. GAAP for annual financial statements. Accordingly, these
statements should be read in conjunction with the December 31, 2013 audited consolidated financial statements and notes thereto,
which have been prepared in accordance with U.S. GAAP.
In
the opinion of Management all normal recurring adjustments considered necessary for fair presentation have been included in these
financial statements. The preparation of these unaudited interim consolidated financial statements requires Management to make
estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results
could differ from these estimates and the results of operations for the three and nine months ended September 30, 2014 are not
necessarily indicative of the results that may be expected for the full year ending December 31, 2014.
Unless
otherwise indicated, all dollar amounts are expressed in United States dollars (U.S. dollars). The term dollars and the symbol
$ refer to the U.S. dollar.
| 3. | RECENTLY
ADOPTED OR ISSUED ACCOUNTING PRONOUNCEMENTS |
On
August 27, 2014, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance (ASU 2014-15), Presentation
of Financial Statements—Going Concern. The guidance requires Management to perform interim and annual assessments on whether
there are conditions or events that raise substantial doubt about the Company's ability to continue as a going concern within
one year of the date the financial statements are issued and to provide related disclosures, if required. The new standard is
effective for us for the year ended December 31, 2016 and for subsequent interim periods. The adoption of the standard is not
expected to have a material effect on our consolidated financial statements and related disclosures.
On
May 28, 2014, FASB issued authoritative guidance (ASU 2014-09), Revenue from Contracts with Customers, a standard convergence
project with the International Accounting Standards Board (“IASB”). The guidance will replace most existing revenue
recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for us on January 1, 2017. Early application
is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. We are evaluating
the effect the guidance will have on our consolidated financial statements and related disclosures. We have not yet selected a
transition method nor have we determined the effect of the standard on our ongoing financial reporting.
IMRIS
Inc.
Notes
to the Unaudited Interim Consolidated Financial Statements
Expressed
in U.S. $000’s except share and per share data and except as otherwise indicated
For
the period ended September 30, 2014, and for the year ended December 31, 2013, restricted cash consisted of cash and equivalents
of zero and $7,500 related to our long term debt covenant compliance requiring us to maintain a minimum cash balance of $7,500
at each quarter end (see note 16. Long Term Debt, net of discount). The covenant was waived for the period ended September 30,
2014 (see note 1. Description of Business).
|
September
30, 2014 |
|
December
31, 2013 |
|
|
|
|
Accounts receivable, trade |
$ 3,705
|
|
$ 13,373
|
Commodity taxes receivable |
57
|
|
246
|
Refundable investment tax credit receivable |
313
|
|
360
|
|
$ 4,075
|
|
$ 13,979
|
For
the period ended September 30, 2014, we acquired inventory at cost in exchange for an accounts receivable of $867. This inventory
was reallocated to a different customer. No gains or losses were recognized on the transfer.
|
September
30, 2014 |
|
December
31, 2013 |
|
|
|
|
Materials |
$ 7,730
|
|
$ 8,655
|
Customer support inventory |
576
|
|
742
|
Work in progress |
1,189
|
|
608
|
|
$ 9,495
|
|
$ 10,005
|
|
September
30, 2014 |
|
December
31, 2013 |
|
|
|
|
Collaborative arrangements |
$ 1,090
|
|
$ 1,497
|
Debt issuance costs |
913
|
|
1,253
|
Other |
131
|
|
263
|
|
$ 2,134
|
|
$ 3,013
|
| 8. | ACCOUNTS
PAYABLE AND ACCRUED LIABILITIES |
|
September
30, 2014 |
|
December
31, 2013 |
|
|
|
|
Trade accounts payable |
$ 4,732
|
|
$ 8,344
|
Accruals |
3,343
|
|
7,669
|
Payroll related accruals |
1,936
|
|
2,221
|
Commodity tax payable |
192
|
|
19
|
Warranty |
109
|
|
72
|
Income tax payable |
8
|
|
10
|
|
$ 10,320
|
|
$ 18,335
|
IMRIS
Inc.
Notes
to the Unaudited Interim Consolidated Financial Statements
Expressed
in U.S. $000’s except share and per share data and except as otherwise indicated
| 8. | ACCOUNTS
PAYABLE AND ACCRUED LIABILITIES (continued) |
We
record a liability for future warranty costs to repair or to replace our products. The warranty term is generally 12 months. The
amount of the liability is determined based on Management’s historical experience and the best estimate of probable claims
under Company warranties. We regularly evaluate the appropriateness of the remaining accrual.
The
following table details the changes in the warranty accrual for the period:
|
Three months ended |
|
Nine months ended |
|
September
30, 2014 |
|
September
30, 2014 |
|
|
|
|
Balance at beginning of the period |
$ 70
|
|
$ 72
|
Accruals |
122
|
|
205
|
Utilization |
(83) |
|
(168) |
Balance at end of the period |
$ 109
|
|
$ 109
|
| 9. | STOCK-BASED
COMPENSATION |
The
following table presents information on stock option activity for the period:
|
Number of
options |
Weighted
average
exercise price
(CDN$) |
Average
remaining
contractual life
in years |
Aggregate
intrinsic value
(CDN$) |
Balance as of January 1, 2014 |
4,856,982
|
$ 3.66
|
|
|
Granted |
269,515
|
1.86
|
|
|
Exercised |
-
|
- |
|
|
Forfeited |
(711,414) |
3.31
|
|
|
Expired |
(178,746) |
4.98
|
|
|
Balance as of September 30, 2014 |
4,236,337
|
$ 3.55
|
|
|
Exercisable
as of September 30, 2014 |
2,131,569
|
$ 4.30
|
3.1
|
$ - |
Vested and expected to vest
as of September 30, 2014 |
3,805,093
|
$ 3.65
|
3.8
|
$ - |
The
aggregate intrinsic value, in the table above, represents the total pre-tax intrinsic value (the aggregate difference between
the closing stock price of the Company’s common shares on September 30, 2014 and the exercise price for the in-the-money
options) that would have been received by the option holders if all in-the-money options had been exercised on September 30, 2014.
The total intrinsic value of the stock options exercised during the three months ended September 30, 2014 and 2013, calculated
using the average market price during the period, was zero and $40, respectively. The total intrinsic value of the stock options
exercised during the nine months ended September 30, 2014 and 2013, calculated using the average market price during the period,
was zero and $133, respectively.
The
following assumptions were used in the calculation of the fair value of options granted in the nine month period using the Black-Scholes
option-pricing model:
|
September
30, 2014 |
|
|
Number of options
granted during the period |
269,515 |
Weighted average
grant date fair value of stock options granted during the period (CDN$) |
$0.98 |
Risk-free interest
rate |
1.60% |
Dividend yield |
0% |
Expected life of
the options |
4.94 years |
Expected volatility
of the underlying stock |
62.03% |
Expected
volatilities are based on the historic volatility of the Company’s shares as this represents the most appropriate basis
to determine the expected volatility in future periods.
IMRIS
Inc.
Notes
to the Unaudited Interim Consolidated Financial Statements
Expressed
in U.S. $000’s except share and per share data and except as otherwise indicated
| 9. | STOCK-BASED
COMPENSATION (continued) |
The
following table presents information on unvested stock options for the period:
|
Number of options |
|
Weighted average
grant date fair value
(CDN$) |
Balance as of January 1, 2014 |
3,158,353
|
|
$ 1.53
|
Granted during the period |
269,515
|
|
0.98
|
Vested during the period |
(839,364) |
|
1.88
|
Forfeited during the period |
(483,736) |
|
1.20
|
Balance as of September 30, 2014 |
2,104,768
|
|
$ 1.40
|
As
of September 30, 2014, there was $1,943 of unrecognized stock-based compensation expense related to unvested stock options. This
will be expensed over the vesting period, which on a weighted-average basis, results in a period of approximately 2.3 years. The
total fair value of stock options vested during the nine months ended September 30, 2014 and 2013 was $1,434 and $1,483, respectively.
The weighted average grant date fair value (CDN$) of options granted during the nine months ended September 30, 2013 was $1.48.
| 10. | INCOME
TAX (BENEFIT) PROVISION |
For
the three months ended September 30, 2014 and 2013, our income tax (benefit) expense was ($11) and $6. For the nine months ended
September 30, 2014 and 2013, our income tax (benefit) expense was ($132) and $32. We have not recorded a deferred tax asset as
of September 30, 2014 or December 31, 2013 because a valuation allowance has been provided against the full amount of the deferred
tax assets for both periods.
As
of September 30, 2014 and December 31, 2013, we have no unrecognized income tax benefits and have not accrued any amounts for
interest or penalties related to unrecognized income tax benefits.
We
file tax returns in Australia, Belgium, Canada, Japan, Germany, Singapore and the United States. With limited exception, we are
no longer subject to income tax examinations by taxing authorities for taxable years before 2010 in Canada and the United States
and before 2008 for other jurisdictions.
As
of January 1, 2014, as part of transitioning our operations from Winnipeg to Minnesota, IMRIS Inc., our parent company, sold to
IMRIS, Inc. (USA), our subsidiary in the United States, certain assets and assumed certain liabilities. The assets and liabilities
where exchanged at fair value. As a result of the transaction, IMRIS Inc. recognized a tax gain currently estimated at approximately
$21,400. However, due to available tax attributes the net tax impact was immaterial.
| 11. | BASIC
AND DILUTED LOSS PER SHARE |
When
we are in a loss position, there are no adjustments to the weighted number of shares outstanding for the purposes of calculating
diluted loss per share because to do so would be anti-dilutive. As of September 30, 2014 and 2013, 3,226,874 and 300,124 stock
options and warrants could potentially dilute basic earnings per share (EPS) in the future. These options and warrants were not
included in the computation of diluted EPS because to do so would have been anti-dilutive for the periods presented.
We
operate as one business segment. We develop, assemble and install VISIUS Surgical Theatres that are used for a variety of medical
applications, as well as providing ancillary products and services and extended maintenance services.
IMRIS
Inc.
Notes
to the Unaudited Interim Consolidated Financial Statements
Expressed
in U.S. $000’s except share and per share data and except as otherwise indicated
We
adhere to FASB Accounting Standards Codification 820 which defines fair value, establishes a framework, prescribes methods for
measuring fair value and outlines additional disclosure requirements on the use of fair value measurements. Fair value is defined
as the exchange price that would be recovered for an asset or paid to transfer a liability (an exit price in the principal or
most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date).
Fair value is determined based on the exchange price that would be received for an asset or paid to transfer a liability utilizing
a hierarchy of three different valuation techniques, based on the lowest level input that is significant to the fair value measurement
in its entirety.
Financial
instruments measured at fair value should be classified into one of three levels that distinguish fair value measurements by the
significance of the inputs used for valuation.
Level
1 - Unadjusted quoted prices in active markets for identical assets or liabilities;
Level
2 - Observable inputs other than Level 1 quoted prices for similar assets or liabilities in active markets; quoted prices for
identical or similar assets or liabilities in markets that are not active; or inputs other than quoted prices that are observable
or corroborated by observable market data; and
Level
3 - Unobservable inputs that are supported by little or no market activity. Valuation techniques are primarily model-based.
Our
financial assets and liabilities that are measured at fair value on a recurring basis have been segregated into the most appropriate
level within the fair value hierarchy based on the inputs used to determine the fair value measurement date in the table below.
For cash, fair value approximates cost.
Financial
assets and liabilities measured at fair value as of September 30, 2014 in the consolidated financial statements on a recurring
basis are summarized below:
|
Level
1 |
Level
2 |
Level
3 |
|
|
|
|
Cash |
$ 3,842 |
$ - |
$ - |
Restricted cash |
- |
- |
- |
|
$ 3,842 |
$ - |
$ - |
Financial
assets and liabilities measured at fair value as of December 31, 2013 in the consolidated financial statements on a recurring
basis are summarized below:
|
Level
1 |
Level
2 |
Level
3 |
|
|
|
|
Cash |
$ 6,382 |
$ - |
$ - |
Restricted cash |
7,500 |
- |
- |
|
$ 13,882 |
$ - |
$ - |
| 14. | COMMITMENTS
AND CONTINGENCIES |
We
periodically enter into agreements that include limited intellectual property indemnifications that are customary in the industry.
These guarantees generally require us to indemnify the other party for certain damages and costs incurred as a result of third
party intellectual property claims arising from these transactions. The nature of the intellectual property indemnification obligations
prevent us from making a reasonable estimate of the maximum potential amount it could be required to pay to its customers and
suppliers. We have not made any indemnification payments under such agreements and no amount has been accrued in the accompanying
consolidated financial statements with respect to these indemnification obligations.
IMRIS
Inc.
Notes
to the Unaudited Interim Consolidated Financial Statements
Expressed
in U.S. $000’s except share and per share data and except as otherwise indicated
In
2012, we announced our plan to move our operations to the U.S. in order to be closer to our customers and to have access to critical
suppliers and personnel. The following is a roll-forward of the accrued liability related to restructuring costs. Adjustments
are primarily the reversal of prior period accruals for employee severance, retention and relocation costs, as well as foreign
exchange rate fluctuations. The accruals were no longer necessary because the employees voluntarily terminated their employment
before the retention and severance date. The relocation is substantially complete.
|
One-time employee
termination benefits |
Contract termination
costs |
Other associated
costs |
|
|
|
|
Balance as of
December 31, 2011 |
$ - |
$ - |
$ - |
Incurred |
1,383 |
- |
72 |
Paid |
(42) |
- |
- |
Adjustments |
- |
- |
- |
Balance as of
December 31, 2012 |
$ 1,341 |
$ - |
$ 72 |
Incurred |
- |
2,125 |
3,619 |
Paid |
(879) |
- |
(2,800) |
Adjustments |
(305) |
- |
(261) |
Balance as of
December 31, 2013 |
$
157 |
$ 2,125 |
$ 630 |
Incurred |
- |
- |
123 |
Paid |
(157) |
(620) |
(525) |
Adjustments |
- |
69 |
(128) |
Currency effect |
- |
(49) |
- |
Balance as of
September 30, 2014 |
$ - |
$ 1,525 |
$ 100 |
The
following is a summary of costs by income statement classification for the three months ended September 30, 2014:
|
One-time employee
termination benefits |
Contract termination
costs |
Other associated
costs |
|
|
|
|
Administrative |
$ - |
$
- |
$
45 |
Sales
and marketing |
- |
- |
- |
Customer
support and operations |
- |
- |
1 |
Research
and development |
- |
- |
(127) |
Total |
$ - |
$ - |
$
(81) |
| | The
following is a summary of costs by income statement classification for the three months
ended September 30, 2013: |
|
One-time employee
termination benefits |
Contract termination
costs |
Other associated
costs |
|
|
|
|
Administrative |
$ - |
$ - |
$ 112 |
Sales
and marketing |
- |
- |
2 |
Customer
support and operations |
- |
- |
116 |
Research
and development |
- |
- |
381 |
Total |
$ - |
$ - |
$
611 |
IMRIS
Inc.
Notes
to the Unaudited Interim Consolidated Financial Statements
Expressed
in U.S. $000’s except share and per share data and except as otherwise indicated
| 15. | RESTRUCTURING
COSTS (continued) |
| | The
following is a summary of costs by income statement classification for the nine months
ended September 30, 2014: |
|
One-time employee
termination benefits |
Contract termination
costs |
Other associated
costs |
|
|
|
|
Administrative |
$ - |
$ 69 |
$
80 |
Sales
and marketing |
- |
- |
5 |
Customer
support and operations |
- |
- |
37 |
Research
and development |
- |
- |
(127) |
Total |
$ - |
$ 69 |
$
(5) |
| | The
following is a summary of costs by income statement classification for the nine months
ended September 30, 2013: |
|
One-time employee
termination benefits |
Contract termination
costs |
Other associated
costs |
|
|
|
|
Administrative |
$ (40) |
$ - |
$ 687 |
Sales
and marketing |
(1) |
- |
4 |
Customer
support and operations |
(69) |
- |
660 |
Research
and development |
(135) |
- |
829 |
Total |
$ (245) |
$ - |
$
2,180 |
| 16. | LONG
TERM DEBT, NET OF DISCOUNT |
On
September 16, 2013, we entered into several agreements pursuant to which Deerfield agreed to provide us $25.0 million in funding,
which occurred the same day. Pursuant to the terms of the Facility Agreement, we issued Deerfield promissory notes in the aggregate
principal amount of $25.0 million. The long-term debt is repayable over five years, with equal payments of the principal amount
due on the third, fourth and fifth anniversaries of the date of the disbursement, except if IMRIS achieves certain revenue targets
as measured at each anniversary date, upon which it can elect to defer each of the principal payments to subsequent anniversary
dates to maturity on its fifth anniversary date. Deerfield may also elect at its option to defer principal payments due on the
aforementioned anniversary periods.
The
debt agreement contains a covenant which requires us to maintain cash and cash equivalents, including restricted cash, of at least
$7.5 million measured at each quarter end. The covenant was waived for period ended September 30, 2014 (see note 1. Description
of Business).
The
long-term debt requires interest at 9.0% per annum, payable quarterly. Interest accrued on each of the first five quarters is
not paid but is added to the outstanding principal of the notes, resulting in PIK interest of $2,456 as of September 30, 2014
and $665 as of December 31, 2013. Payment of PIK interest is due February 2015.
The
Company paid Deerfield a facility fee of $0.5 million and $1.4 million to other professionals involved in the completion of the
Facility Agreement. These costs are capitalized and are being amortized over 5 years using the interest method.
In
connection with the Facility Agreement, we issued Deerfield seven-year warrants (the “Deerfield Warrants”) to purchase
6,100,000 shares of the Company’s common stock at an exercise price of $1.94 per share. The exercise of the Deerfield Warrants
can be satisfied through a reduction in the principal amount of our outstanding indebtedness to Deerfield, at our option.
We
recorded the promissory notes with an aggregate principal amount of $25.0 million at its face value less a note discount of $4.8
million representing the fair value of the notes and its associated warrants. The note discount is amortized using the interest
method.
IMRIS
Inc.
Notes
to the Unaudited Interim Consolidated Financial Statements
Expressed
in U.S. $000’s except share and per share data and except as otherwise indicated
| 16. | LONG
TERM DEBT, NET OF DISCOUNT (continued) |
On
September 23, 2014, the exercise price of the Deerfield Warrants was adjusted to $0.70 per share in connection with the covenant
waiver granted for the three month period ending September 30, 2014 (see note 1. Description of Business). The exercise price
adjustment was considered a debt agreement modification. Under modification accounting, the fair value of the debt immediately
preceding and subsequent to the modification was compared to determine the $1.1 million adjustment to decrease long-term debt
and to increase additional paid-in capital. The note discount will continue to be amortized using the interest method.
In
February 2014, we entered into a loan agreement with the City of Minnetonka, Minnesota (“the City”), where the Minnesota
Department of Employment and Economic Development has granted us $500 for the purchase and installation of furniture, machinery
and equipment and infrastructure improvements necessary for the installation of the aforementioned items. The term of the loan
is five years, and bears an interest rate of zero percent. In the event we can document that we have created 75 full-time equivalent
jobs at our Minnesota location by February 22, 2015, the City will forgive up to $350 of the loan, with equal monthly payments
of the remaining principal balance due beginning January 2016 through January 2019. The loan agreement contains covenants related
to financial reporting and notification and is secured by the assets purchased with the loan funds.
The
long-term debt, net of discount, including the current portion of long-term debt, is recorded at its carrying value as of September
30, 2014. The fair value of the debt was approximately $25.8 million as of September 30, 2014. Management estimated the fair value
of the debt using Level 2 and Level 3 inputs based on recent financing transactions and on the discounted estimated future cash
payments to be made on such debt. The discount rate estimated reflects Management’s judgment as to what the approximate
current lending rates for notes or group of notes with similar maturities and credit quality would be if credit markets were operating
efficiently and assigns a range of likelihoods to whether the notes will be outstanding through maturity or paid early. Present
value has been utilized to estimate the amounts required to be disclosed.
Interest
and other expense includes interest expense, debt discount amortization, debt issuance cost amortization and bank fees (net).
Interest and other expense for the three months ended September 30, 2014 and 2013 includes interest expense of $616 and $88, debt
discount amortization of $301 and $49 and debt issuance cost amortization of $125 and $17. Interest and other expense for the
nine months ended September 30, 2014 and 2013 includes interest expense of $1,791 and $88, debt discount amortization of $910
and $49 and debt issuance cost amortization of $367 and $17. The remainder is other net interest income/expense and banking fees.
Exhibit 99.3
MANAGEMENT’S DISCUSSION AND ANALYSIS
For the three and nine months ended September
30, 2014
Tables are expressed in USD $000’s
except share and per share amounts
The following provides management’s discussion and analysis
(‘‘MD&A’’) of IMRIS Inc.’s consolidated results of operations and financial condition for the
three and nine months ended September 30, 2014. In this MD&A, “IMRIS”, the “Company”, “we”,
“our” and “us” are used to refer to IMRIS Inc.
This MD&A is dated as of October 28, 2014 and should be
read in conjunction with the interim unaudited consolidated financial statements and the notes thereto for the three and nine months
ended September 30, 2014 and with the audited consolidated financial statements and notes thereto for the year ending December
31, 2013.
This MD&A contains forward-looking statements about future
events or future performance and reflects management’s expectations and assumptions regarding our growth, results of operations,
performance and business prospects and opportunities. Such forward-looking statements reflect management’s current beliefs
and are based on information currently available to us. In some cases, forward-looking statements can be identified by terminology
such as “may”, “would”, “could”, “will”, “should”, “expect”,
“plan”, “intend”, “anticipate”, “believe”, “estimate”, “predict”,
“potential”, “continue” or the negative of these terms or other similar expressions concerning matters
that are not historical facts. In particular, statements regarding our future operating results, economic performance and product
development efforts are or involve forward-looking statements.
A number of factors could cause actual events, performance
or results, including those in respect of the foregoing items, to differ materially from the events, performance and results discussed
in the forward-looking statements. Factors which could cause future outcomes to differ materially from those set forth in the
forward-looking statements include, but are not limited to: [i] timing and amount of revenue recognition of order backlog and
our expectation of sales and margin growth [ii] maintaining sufficient and suitable financing to support operations and commercialization
of products, [iii] adequately protecting proprietary information and technology from competitors, [iv] obtaining regulatory approvals
and successfully completing new product launches, [v] successfully competing in the targeted markets, and [vi] maintaining third
party relationships, including key personnel, and key suppliers, as well as various factors set forth from time to time in Item
3.2, Risks Related to Our Business, of our Annual Information Form (AIF) available at www.sedar.com and on the United States Securities
and Exchange Commission (SEC) website at www.sec.gov. The AIF is located in the Company’s Annual Report on Form 40-F.
In evaluating these forward-looking statements, readers should specifically consider various factors, including the risks outlined
under “Risks and Uncertainties”, which may cause actual events, performance or results to differ materially from any
forward-looking statement.
Readers are cautioned that our expectation, beliefs, projections
and assumptions used in preparation of such information, although considered reasonable at the time of preparation, may prove to
be wrong, and as such, undue reliance should not be placed on forward-looking statements. By their nature, forward-looking statements
are subject to numerous known and unknown risks and uncertainties so as a result, we can give no assurance that any of the actual
events, performance, results, or expectations will occur or be realized. These forward-looking statements are expressly qualified
by this cautionary statement as of the date of this MD&A and we do not intend, and do not assume any obligation, to update
or revise them to reflect new or future events or circumstances.
IMRIS Inc.
Management’s Discussion and Analysis
– October 28, 2014
Page 1 of 22
OVERVIEW
IMRIS designs, manufactures and markets Image Guided Therapy
Systems that enhance the effectiveness of therapy delivery. Our image guided therapy systems are a combination of real
time visualization products and therapy delivery products that are designed to improve patient outcomes and reduce the cost of
patient care. We accomplish this by combining our visualization technology products with therapy delivery products in a single
integrated system that has the ability to provide timely information to clinicians to properly assess the treatment plan at the
point of therapy delivery. We believe this approach to patient care not only improves patient outcomes, but also contributes to
reduced cost of care for those patients. Our goal is to continuously deliver products that improve therapy delivery for an increasing
number of medical procedures while at the same time are supported by peer reviewed published measurement of improved outcomes and
reduced cost of care.
Visualization and Therapy Delivery
In 2005 at the founding of the Company, we created a visualization
platform based on a single Magnetic Resonance (MR) Imaging product. Since then we have introduced a variety of next generation
imaging capabilities into our visualization products. These include multiple field strength MR systems, X-Ray Fluoroscopy (AX)
systems, and Computed Tomography (CT) systems, all designed to provide imaging capabilities for different therapy delivery products.
All of these imaging capabilities are marketed as the VISIUS Surgical Theatre.
Our goal is to design visualization products that have the ability
to be used in a large number of surgical and interventional procedures and to become a foundational investment in every hospital.
To do this the system must be flexible enough to meet current and evolving procedural requirements while at the same time improving
patient care and reducing costs to the hospital. The VISIUS Surgical Theatre can incorporate multiple configurations and imaging
modalities while reducing patient risk and delivering real-time information to clinicians while preserving optimal surgical access
and techniques.
Our visualization product, the VISIUS Surgical Theatre, is used
in combination with multiple therapy delivery systems including traditional surgery, surgeon directed robotic surgery and radiosurgery.
It is our goal to provide a means for clinicians to improve therapy delivery by moving toward a minimally invasive surgical (MIS)
procedure whenever possible. The transition to an MIS procedure is expected to contribute to improved outcomes and reduced costs
of care versus traditional surgical methods.
We sell our VISIUS Surgical Theatre globally to hospitals that
deliver clinical services to patients in the neurosurgical, spinal, cerebrovascular and cardiovascular markets. Historically our
products have enabled therapy delivery through traditional surgical techniques, primarily for neurosurgical applications. We believe
that the VISIUS Surgical Theatre, in combination with therapy delivery, has the ability to continue to expand across a large number
of clinical procedures. As we continue to work with clinicians to promote and identify potential new areas of clinical application,
new high value procedures are expected, resulting in increased utilization and further adoption of the products.
Value Proposition
We believe that the combination of the VISIUS Surgical Theatre
with therapy delivery benefits patients, clinicians and hospitals:
Patients
| · | Improved Outcomes: Peer reviewed published research has shown significant improvements in patient outcomes when the
intraoperative imaging available in the VISIUS Surgical Theatre is used in a procedure. |
| · | Risk Reduction: The risk of requiring a repeat operation because of incomplete procedures is significantly reduced due
to improved levels of complete resection in the case of brain tumors as a result of the intraoperative visualization. |
IMRIS Inc.
Management’s Discussion and Analysis
– October 28, 2014
Page 2 of 22
Clinicians
| · | Enhanced Efficiency and Effectiveness: High resolution imaging information is captured rapidly and presented in a manner
designed to enhance clinician efficiency and effectiveness. |
| · | Enhanced Workflow: The patient can be maintained in the optimal surgical position throughout the procedure and the MRI
or CT imaging system is removed from the surgical or interventional theatre when not required resulting in unrestricted access
to the patient by the surgical team. |
Hospitals
| · | Greater Utilization of the VISIUS Surgical Theatre: The VISIUS Surgical Theatre permits greater utilization of the imaging
equipment as the MR or CT scanner can be shared by multiple operating rooms and a diagnostic imaging suite allowing for a single
asset to be used by numerous clinicians. |
| · | Increased Patient Volumes: Improved patient outcomes may result in higher patient volumes and revenue for hospitals. |
| · | Technology Attracts Clinicians: Access to technologies such as the VISIUS Surgical Theatre can assist in both the recruitment
and retention of clinicians. |
PRODUCT PORTFOLIO
The VISIUS Surgical Theatre is the foundational technology of
our Company and continues to evolve in its utilization across numerous surgical and interventional applications. We have invested
in research and development to further broaden our product portfolio by introducing new procedures into the VISIUS Surgical Theatre
as well as combining it with new therapy products.
Our product portfolio consists of three therapy delivery systems
made up of the VISIUS Surgical Theatre in combination with:
1: Traditional surgical techniques,
2: The SYMBIS Surgical System, a surgeon controlled
surgical robot, and
3: The TrueBeamTM radiation therapy product from Varian Medical Systems, Inc. (Varian).
(The SYMBIS surgical system and the Radiosurgery
product with the TrueBeamTM system are both works in progress and not available for commercial sale)
All of these Image Guided Therapy systems include our proprietary
VISIUS Surgical Theatre in combination with therapy delivery systems that are integrated with multiple proprietary supporting products
and technologies. These include patient handling systems, data management and information presentation systems, surgical devices,
imaging and system control software platforms and safety and remote management products. These are proprietary products that underlay
the VISIUS Surgical Theatre’s ability to be integrated with each therapy delivery product.
IMRIS Inc.
Management’s Discussion and Analysis
– October 28, 2014
Page 3 of 22
| I. | VISIUS Surgical Theatre and Traditional Surgical Procedures |
The VISIUS Surgical Theatre can be configured to support
the delivery of a wide range of neurosurgical, cardiovascular, cerebrovascular and spinal procedures using traditional surgical
techniques. The VISIUS Surgical Theatre can be equipped with intraoperative imaging utilizing magnetic resonance (MR) imaging,
computed tomography (CT), and x-ray angiography, alone or in multimodality combinations.
The VISIUS Surgical Theatre provides a fully integrated surgical
environment with the availability of high-resolution images for use in a number of surgical procedures. These procedures include
neurological tumor resection, epilepsy foci resection, arteriovenous malformation, aneurysm, upper C-spine and frame-based stereotaxy.
Due to the invasive nature of brain surgery and the importance of minimizing disturbance to healthy brain tissue, neurosurgical
procedures may particularly benefit from an MRI's unique ability to distinguish between diseased and healthy brain tissue. The
VISIUS Surgical Theatre provides visualization information to allow clinicians to make adjustments to the procedure while the procedure
is in progress, which may lead to improved patient outcomes and reduce the likelihood that repeat surgeries will be needed.
When equipped with an MR scanner and integrated x-ray angiography
system, the VISIUS Surgical Theatre provides clinicians with timely and accurate images for visualizing the patient anatomy before,
during and after interventions for the treatment of a wide variety of cardiovascular and cerebrovascular conditions, such as atrial
fibrillation, certain structural heart disorders and stroke. With seamless transitions between MR and x-ray angiography systems,
the VISIUS Surgical Theatre enables surgical and catheter-based treatments and real-time assessment of therapy in a single integrated
suite. The single integrated system in a VISIUS Surgical Theatre eliminates patient transport between imaging modalities and streamlines
workflow. After MR scanning, the patient can be transitioned to image-guided intervention on the angiography system without moving
the patient from the table. During and immediately after the procedure, new MR images can be taken to assess treatment and to
determine if further intervention is required.
Our introduction of a ceiling mounted CT based version of the
VISIUS Surgical Theatre in July 2013 leverages our know-how from our existing VISIUS Surgical Theatre offering in MR systems for
use in certain cranial and spine procedures. This system has the ability to move over the top of a stationary patient, and to provide
intraoperative images of diagnostic quality at low dose, without the additional risk of moving the patient, while still preserving
optimal surgical access and techniques. This system has the ability to move between multiple operating rooms, using a 64-slice
scanner that features advanced software applications that minimize radiation exposure in real time and industry leading post-processing
software to enhance surgical diagnosis and intervention. This product received regulatory clearance by the FDA in July 2013 and
got its CE Mark for the European Union in August 2013.
| II. | VISIUS Surgical Theatre and the SYMBIS Surgical System |
In February 2010, we acquired NeuroArm Surgical Ltd and all of
its intellectual property. Since then we have been developing the SYMBIS Surgical System, a surgeon controlled surgical robot designed
to enable minimally invasive procedures that are currently performed in a more invasive manner. This system consists of an MR compatible
robot and surgical control console integrated together with the VISIUS Surgical Theatre. We believe that the combination of optical
and MR or CT imaging integrated with a surgical robot may have the ability to transform a number of surgical procedures to minimally
invasive procedures. The robot has been designed to operate in the bore of a high field MR system and a CT gantry that can provide
unprecedented visualization of the surgical site by providing both optical and MR views of the surgical target. The SYMBIS Surgical
System is a micro-surgical system that has all of the traditional attributes of a robotic system such as accuracy, repeatability
and control, but also has integrated MR, CT and optical imaging, along with haptic feedback to the clinician. The haptic feedback
or “sense of touch” may enable surgeons to complete procedures in a way never before possible. The SYMBIS Surgical
System is designed to be installed in both existing VISIUS Surgical Theatre systems, and in new installations.
We are developing surgical instruments for the SYMBIS Surgical
System that are procedure specific and are designed to enable greater precision and flexibility for the surgeon. We believe that
the SYMBIS Surgical System will be applicable for a large number of high volume surgical procedures with the potential to be clinically
meaningful and thereby further adoption of the system.
As part of our clinical strategy, we have engaged a Medical Advisory
Board consisting of key clinical thought leaders in the field of robotics. The advisory board helps to define clinical strategy
and future products as we develop surgical applications for the SYMBIS Surgical System.
| III. | VISIUS Surgical Theatre and the TrueBeamTM System for Radiosurgery |
On October 5, 2010 we announced our agreement with Varian to integrate
the capabilities of the VISIUS Surgical Theatre together with the therapy capability of Varian’s TrueBeamTM radiotherapy
system. This product has the potential to provide a number of high value capabilities to radiation oncology centers that are hospital
based or standalone clinics. This system is designed to provide a radiation oncology center with the ability to deliver MR guided
radiation therapy, MR simulation and MR guided brachytherapy from a single integrated system. The system consists of three connected
rooms that provide radiosurgery, simulation and brachytherapy all with a common MR imaging platform.
IMRIS Inc.
Management’s Discussion and Analysis
– October 28, 2014
Page 4 of 22
MR simulation is a planning and imaging procedure that is done
in conjunction with a patient’s preparation for radiation therapy delivery. Our system allows for a high field MR to be used
in a diagnostic simulation suite and then, on demand, be available for use in MR guided radiosurgery, or MR guided brachy therapy.
This may provide a significant economic advantage over other means of completing the same procedure.
For MR guided radiation therapy (MRgRT), the patient is located
in the radiation therapy bunker and a high field MR moves into the bunker over top of a stationary patient. The MR image is acquired,
the MR moves out of the room, and the therapy treatment plan is developed and delivered to the TrueBeamTM radiosurgery
system which executes the treatment. The ability to image soft tissue lesions with MR, immediately before the application of radiation
therapy may allow for more accurate targeting of the lesion, resulting in a reduction in the radiation delivered to adjacent healthy
tissue. This improved targeting may also result in the ability to increase the energy delivered at a treatment session, which may
result in fewer treatment sessions for the patient. This new approach to treatment delivery is expected to provide improved patient
outcomes versus existing radiosurgery technology systems and have the opportunity to reduce the cost of care.
We believe that the ability to deliver MR guided brachytherapy
in a single suite may have compelling advantages over other means of delivering brachytherapy to patients. Brachytherapy is the
deposition of high dose radiation seeds into target tissue for the delivery of radiation. It requires the ability to image, target,
and deliver the seeds with precision and confidence. Our system is designed to enhance the workflow and provide improved procedural
outcomes. This product is currently under development with Varian with an application for regulatory submission anticipated in
2015 or 2016.
Technology and Product Development
Underlying all of our image guided therapy solutions is advanced
proprietary technology and intellectual property that we have developed as part of our unique solutions. The protection of these
products, our processes and know-how is integral to our business. We currently have 52 patents either issued or pending. As we
develop our technologies, we will continue to seek patent protection to contribute to our competitive advantage. We have patents
in place in the United States, Canada and other countries, where available, to protect our core patent family and we have filed
a number of additional patent applications that are directed to specific aspects of our technology.
Innovation and the creation of high value novel products is a
cornerstone of IMRIS’ development activities. To grow the Company and to remain competitive, we are continuously engaged
in new product development and enhancement and each year we invest significantly in research and development to drive continuing
innovations that support our competitive position.
As we move forward our product development efforts will be focused
on enhancing the capabilities of the VISIUS Surgical Theatre so that we are increasing the number and quantity of traditional procedures
that can be completed in our theatres. Following commercialization of our products that combine robotics and radiosurgery with
the VISIUS Surgical Theatre, we expect to continue to expand the capabilities of these systems to continue to grow their value
proposition.
Regulatory
IMRIS is a global company serving global markets. We have registered
our core MR VISIUS Surgical Theatre in the United States, Canada, European Union, Australia, Japan, China, Singapore and South
Korea. We continue to maintain our facility and product registrations to serve these global markets. We successfully completed
certification to ISO-13485 of our Minnetonka, Minnesota facility in August 2013, which is a requirement for many of our global
markets. During this period, IMRIS cleared the industry’s first MRI wireless coil and ceiling-mounted iCT system.
IMRIS maintains a proven network of global regulatory partners
and will seek product registrations based on market demand and product launch strategy as the new products and technologies are
developed.
Market and Sales Cycle
We sell our VISIUS Surgical Theatres globally to hospitals that
deliver clinical services to patients in the neurosurgical, spinal, cerebrovascular and cardiovascular markets. We believe
that the primary market for our iMR product portfolio is comprised of those hospitals having relatively large neurosurgical, cerebrovascular
or cardiovascular practices. The VISIUS iCT serves this group as well, but extends into orthopedic and neurosurgical spine
practices in hospitals and surgery centers alike. Clinical appreciation for the benefits of VISIUS Surgical Theatres for
neurosurgical and orthopedic applications is growing supported by repeat purchases from hospitals and market penetration within
regions in which our product is being sold.
We have a direct sales force in the United States, Canada, China,
Singapore, Japan and Europe, excluding Italy and Eastern European countries. Our investment in sales management in Singapore during
2013 is the result of the market opportunities we foresee in the Asia Pacific region. In all other markets where we do not have
a direct sales force, we utilize distributors.
Our sales force is focusing its efforts on hospitals with the
greatest ability to benefit from neurosurgical and spinal applications. They are aggressively working our sales pipeline and we
are increasing our marketing efforts. As a result, we expect that market interest will develop for new applications of the product
and the new products being developed, which can be utilized within our Theatres.
IMRIS Inc.
Management’s Discussion and Analysis
– October 28, 2014
Page 5 of 22
The purchase and installation of a VISIUS Surgical Theatre for
traditional surgical procedures represents a significant capital project for our customers that can range in price from approximately
$1.5 million to $3.5 million for CT based systems and $4 million to $12 million for MR systems, each depending on the
product solution, the configuration of the VISIUS Surgical Theatre layout and system options selected. In addition to the capital
equipment sale, most of our customers enter into equipment service contracts that are generally 4-5 years in duration. These
contracts begin after the typical one-year warranty period and are on average equal to approximately 5 to 10 percent of the original
equipment purchase price per year in revenues. In addition to our equipment and services, customers may require further capital
expenditures for construction and ancillary equipment. The sales cycle for our VISIUS Surgical Theatres is both complex and lengthy
and can be more than 12 months from initial customer engagement to receipt of a purchase order, though the iCT system
has a significantly shorter sales cycle of three to nine months.
Following the receipt of a customer purchase order, the delivery
and installation cycle for one of our VISIUS Surgical Theatres typically ranges from 8 months to 18 months or more for the
larger scale iMR products depending on the configuration of our system and the amount of additional construction work that may
be required to be completed by the customer. The VISIUS Surgical Theatre using CT installation cycles are significantly shorter
ranging from as little as 3 months to 9 months depending on the availability of the customer site. We invoice customers for a VISIUS
Surgical Theatre in installments spread over a number of milestones, which typically include a deposit at the time of order and
a percentage of the remaining total price upon delivery of the equipment, completion of installation and final acceptance. Due
to the project nature of our VISIUS Surgical Theatre sales, we recognize revenues and related cost of sales on a percentage-of-completion
basis as the VISIUS Surgical Theatre is installed.
As our newer products are commercialized, we believe we can leverage
our significant customer relationships to accelerate new product introductions. Moreover, our VISIUS Surgical Theatres equipped
with the SYMBIS Surgical System are being designed to have shorter installation timeframes. These factors together are expected
to result in significantly shorter sales and installation cycles for our Company.
IMRIS Inc.
Management’s Discussion and Analysis
– October 28, 2014
Page 6 of 22
Overall Performance
Highlights from the third quarter of 2014 include:
Ø New
order bookings of $6.1 million in third quarter resulted in ending backlog of $127.2 million;
Ø Order
bookings totaled $46.7 million year-to-date 2014 compared with $33 million for entire 2013 year;
Ø Quarterly
revenues of $6.9 million;
Ø Gross
margin of 34.5 percent versus 38.2 percent in prior-year quarter;
SUMMARY OF SELECTED FINANCIAL INFORMATION
Quarterly Results
The following table sets forth selected financial information
for the dates and periods indicated:
|
Selected Financial Information | |
| | |
| | |
| | |
| |
|
(Thousands of US dollars, except per share amounts) | |
| | |
| | |
| | |
| |
|
(Unaudited) | |
| | |
| | |
| | |
| |
|
| |
| | |
| | |
| | |
| |
|
| |
Three months ended | |
| | |
Nine months ended | |
| |
|
| |
September 30 | |
% | | |
September 30 | |
% | |
|
| |
2014 | | |
2013 | | |
Change | | |
2014 | | |
2013 | | |
Change | |
|
| |
| | |
| | |
| | |
| | |
| | |
| |
|
Sales | |
$ | 6,924 | | |
$ | 17,765 | | |
| -61.0 | % | |
$ | 19,333 | | |
$ | 36,057 | | |
| -46.4 | % |
|
Gross profit | |
$ | 2,387 | | |
$ | 6,781 | | |
| -64.8 | % | |
$ | 6,228 | | |
$ | 12,910 | | |
| -51.8 | % |
|
Gross profit % | |
| 34.5% | | |
| 38.2% | | |
| | | |
| 32.2% | | |
| 35.8% | | |
| | |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
|
Operating expenses | |
$ | 8,135 | | |
$ | 10,771 | | |
| -24.5 | % | |
$ | 24,877 | | |
$ | 32,381 | | |
| -23.2 | % |
|
Operating loss | |
$ | (5,748) | | |
$ | (3,990) | | |
| 44.1 | % | |
$ | (18,649) | | |
$ | (19,471) | | |
| -4.2 | % |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
|
Income taxes (benefit) | |
$ | (11) | | |
$ | 6 | | |
| -283.3 | % | |
$ | (132) | | |
$ | 32 | | |
| -512.5 | % |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
|
Net loss | |
$ | (8,392) | | |
$ | (3,804) | | |
| 120.6 | % | |
$ | (23,320) | | |
$ | (20,385) | | |
| 14.4 | % |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
|
Basic and diluted loss per share | |
$ | (0.16) | | |
$ | (0.07) | | |
| 128.6 | % | |
$ | (0.45) | | |
$ | (0.41) | | |
| 9.8 | % |
|
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
|
Balance Sheet Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
As of September 30, 2014 | | |
As of December 31, 2013 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| | |
| |
|
Cash and restricted cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
$ | 3,842 | | |
$ | 13,882 | |
|
Total assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| 59,532 | | |
| 85,561 | |
|
Deferred revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| 10,011 | | |
| 9,500 | |
|
Long term debt, net of discount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| 20,829 | | |
| 21,204 | |
|
Total liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| 44,778 | | |
| 50,540 | |
|
Shareholders' equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| 14,754 | | |
| 35,021 | |
IMRIS Inc.
Management’s Discussion and Analysis
– October 28, 2014
Page 7 of 22
Revenues
Revenues by sales classification
(Thousands of US dollars) | |
Three months ended | | |
| | |
Nine months ended | | |
| |
| |
September 30 | | |
% | | |
September 30 | | |
% | |
| |
2014 | | |
2013 | | |
Change | | |
2014 | | |
2013 | | |
Change | |
| |
| | |
| | |
| | |
| | |
| | |
| |
VISIUS Surgical Theatres | |
$ | 3,974 | | |
$ | 15,017 | | |
| -73.5 | % | |
$ | 11,024 | | |
$ | 29,327 | | |
| -62.4 | % |
Extended maintenance contracts | |
| 2,950 | | |
| 2,748 | | |
| 7.4 | % | |
| 8,309 | | |
| 6,730 | | |
| 23.5 | % |
Total revenues | |
$ | 6,924 | | |
$ | 17,765 | | |
| -61.0 | % | |
$ | 19,333 | | |
$ | 36,057 | | |
| -46.4 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
VISIUS Surgical Theatres as a percentage of total revenues | |
| 57.4% | | |
| 84.5% | | |
| | | |
| 57.0% | | |
| 81.3% | | |
| | |
Extended maintenance contracts as a percentage of total revenues | |
| 42.6% | | |
| 15.5% | | |
| | | |
| 43.0% | | |
| 18.7% | | |
| | |
Revenues by region
(Thousands of US dollars) | |
Three months ended | | |
| | |
Nine months ended | | |
| |
| |
September 30 | | |
% | | |
September 30 | | |
% | |
| |
2014 | | |
2013 | | |
Change | | |
2014 | | |
2013 | | |
Change | |
| |
| | |
| | |
| | |
| | |
| | |
| |
North America | |
$ | 6,055 | | |
$ | 10,386 | | |
| -41.7 | % | |
$ | 17,307 | | |
$ | 19,621 | | |
| -11.8 | % |
Europe and Middle East | |
| 296 | | |
| 6,681 | | |
| -95.6 | % | |
| 535 | | |
| 10,308 | | |
| -94.8 | % |
Asia Pacfic | |
| 573 | | |
| 698 | | |
| -17.9 | % | |
| 1,491 | | |
| 6,128 | | |
| -75.7 | % |
| |
$ | 6,924 | | |
$ | 17,765 | | |
| -61.0 | % | |
$ | 19,333 | | |
$ | 36,057 | | |
| -46.4 | % |
Revenue for the three months ended September 30, 2014 decreased
$10.8 million compared with the same period last year. Revenue from VISIUS Surgical Theaters was $11.0 million lower due to fewer
system deliveries and less installation activities for projects which were at varying stages of installation. Lower bookings in
early 2013, resulted in lower backlog during 2013, particularly in new systems orders, which in turn resulted in lower revenues
in 2014 due to the long delivery and installation cycles for our VISIUS Surgical Theatres. Revenue from VISIUS Surgical Theatres
includes revenue from disposables and upgrades which was flat compared with the same period last year. Extended maintenance contract
revenue was $0.2 million higher reflecting additional extended maintenance contracts as a result of a higher installation base
of VISIUS Surgical Theatres which have transitioned off warranty to chargeable service programs.
Revenue for the nine months ended September 30, 2014 decreased
$16.7 million compared with the same period last year. Revenue from VISIUS Surgical Theaters was $18.3 million lower due to fewer
system deliveries for active projects during the period. . Fewer system deliveries and less installation activities during the
period is the result of a reduction in order backlog for new systems in 2013. Revenue from VISIUS Surgical Theatres includes revenue
from disposables and upgrades which was $0.3 million higher compared with the same period last year due to an increased focus on
selling into the existing install base. Extended maintenance contract revenue was $1.6 million higher reflecting additional extended
maintenance contracts as a result of a higher installation base of VISIUS Surgical Theatres which have transitioned off warranty
to chargeable service programs.
Revenue for the three months ended September 30, 2014 was lower
in North America compared with the same period last year due to fewer VISIUS Surgical Theatre system deliveries in 2014 partially
offset by increased service revenue. Revenue was lower in Europe and the Middle East due to less installation activities in 2014
for a project in Qatar. Revenue was slightly lower in Asia Pacific due to lower installation activities, partially offset by higher
service revenue.
Revenue for the nine months ended September 30, 2014 was lower
in North America compared with the same period last year due to fewer installation activities, partially offset by increased service
revenue as a result of additional extended maintenance contracts. Revenue was lower in Europe and the Middle East due to a system
delivery in 2013 and limited activity in 2014 as well as cost overruns resulting in revenue adjustments in 2014. Revenue was lower
in Asia Pacific due to a system delivery in 2013 compared with none in 2014, partially offset by higher service revenue.
IMRIS Inc.
Management’s Discussion and Analysis
– October 28, 2014
Page 8 of 22
Gross Profit
(Thousands of US dollars) | |
Three months ended | | |
| | |
Nine months ended | | |
| |
| |
September 30 | | |
% | | |
September 30 | | |
% | |
| |
2014 | | |
2013 | | |
Change | | |
2014 | | |
2013 | | |
Change | |
| |
| | |
| | |
| | |
| | |
| | |
| |
Gross profit | |
$ | 2,387 | | |
$ | 6,781 | | |
| -64.8 | % | |
$ | 6,228 | | |
$ | 12,910 | | |
| -51.8 | % |
As a percentage of sales | |
| 34.5% | | |
| 38.2% | | |
| | | |
| 32.2% | | |
| 35.8% | | |
| | |
Gross profit for the three months ended September 30, 2014 decreased
$4.4 million compared with the same period last year due to lower revenue on fewer scheduled equipment deliveries, as discussed
above, partially offset by increased gross profit earned from additional service contracts.
Gross profit as a percentage of sales for the three months ended
September 30, 2014 was 34.5 percent, down from 38.2 percent during the same period last year. Gross profit as a percentage of sales
from VISIUS Theatres was lower compared with the same period last year primarily due to a lower margin iCT reference site installation
in the 2014 third quarter. Gross profit as a percentage of sales from extended maintenance contracts was higher as a result of
improved service experience on the customer base in the period.
Gross profit for the nine months ended September 30, 2014 decreased
$6.7 million compared with the same period last year due to lower revenue as a result of fewer scheduled equipment deliveries and
installation activities, as discussed above, and higher installation costs as a result of additional cost overruns on certain installations,
as well as higher service costs at a customer site and not yet achieving anticipated cost synergies through operations. This impact
was partially offset by increased gross profit earned from additional service contracts.
Gross profit as a percentage of sales for the nine months ended
September 30, 2013 was 32.2 percent, down from 35.8 percent during the same period last year. Gross profit as a percentage of sales
from VISIUS Theatres was lower primarily due to higher installation costs which had a more significant impact on a low revenue
base in the first nine months of the year, as well as cost reductions and recoveries on a number of projects in the prior year
period, along with a lower margin iCT reference site installation in the 2014 third quarter. Gross profit as a percentage of sales
from extended maintenance contracts was higher as a result of improved service experience on the customer base in the period.
Operating Expenses
(Thousands of US dollars) | |
Three months ended | | |
| | |
Nine months ended | | |
| |
| |
September 30 | | |
% | | |
September 30 | | |
% | |
| |
2014 | | |
2013 | | |
Change | | |
2014 | | |
2013 | | |
Change | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Operating expenses | |
$ | 8,135 | | |
$ | 10,771 | | |
| -24.5% | | |
$ | 24,877 | | |
$ | 32,381 | | |
| -23.2 | % |
Operating expenses for the three
months ended September 30, 2014 decreased $2.6 million compared with the same period last year. The decrease is primarily due to
higher relocation costs of $0.8 million incurred during the same period last year, lower staff related and other expense in the
current period of $0.6 million, and higher transition expenses incurred in the prior year of approximately $0.4 million related
to staffing redundancies which arose from the timing of adding new employees while retaining existing employees to allow for a
smoother transition of certain functions as we relocated our operations to Minnesota. The decrease is also due to cost control
efforts of approximately $0.4 million, lower facilities expense of $0.2 million primarily due to redundant facilities in 2013,
as well as lower depreciation expense of $0.2 million due to certain assets which were in service becoming fully depreciated. The
relocation was substantially complete as of December 31, 2013 and we incurred substantially no relocation costs during the three
months ended September 30, 2014. The relocation costs during the three months ended September 30, 2013 consisted of recruiting
and staff related expenses of $0.4 million, and travel, professional fees and other expenses of $0.4 million.
Operating expenses for the nine
months ended September 30, 2014 decreased $7.5 million compared with the same period last year. The decrease is primarily due
to higher relocation costs of $2.2 million incurred during the same period last year and higher expenses incurred in 2013 of $1.8
million related to staffing redundancies which arose from the timing of adding new employees while retaining existing employees
as we relocated our operations to Minnesota. The decrease is also due to lower staff related and other expense of $1.3 million,
lower business travel, professional fees and other expenses of $1.1 million due to our cost reduction efforts, lower depreciation
expense of $0.6 million due to certain assets which were in service becoming fully depreciated in 2014, and lower facilities expense
of $0.5 million primarily due to redundant facilities in 2013. The relocation was substantially complete as of December 31, 2013
and we incurred substantially no relocation costs during the nine months ended September 30, 2014. The relocation costs during
the nine months ended September 30, 2013 consisted primarily of recruiting of $0.9 million, travel, professional services fees
and other expenses of $0.6 million, retention and severance costs of $0.4 million, and office and general expenses of $0.2 million.
IMRIS Inc.
Management’s Discussion and Analysis
– October 28, 2014
Page 9 of 22
Administrative
(Thousands of US dollars) | |
Three months ended | | |
| | |
Nine months ended | | |
| |
| |
September 30 | | |
% | | |
September 30 | | |
% | |
| |
2014 | | |
2013 | | |
Change | | |
2014 | | |
2013 | | |
Change | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Administrative | |
$ | 1,710 | | |
$ | 2,280 | | |
| -25.0 | % | |
$ | 5,289 | | |
$ | 7,523 | | |
| -29.7 | % |
Administrative expense for the three
months ended September 30, 2014 decreased $0.6 million compared with the same period last year. The decrease is primarily due to
higher expenses incurred in 2013 of $0.2 million related to staffing redundancies which arose from the timing of adding new employees
while retaining existing employees as we relocated our operations to Minnesota. The decrease is also due to higher relocation costs
of $0.1 million incurred during the same period last year, lower facilities expense of $0.2 million primarily due to the redundant
operations facility in Canada in 2013, and lower business travel and professional fees of $0.1 million due to our cost reduction
efforts. The relocation costs during the three months ended September 30, 2013 consisted of staff related expenses.
Administrative expense for the nine months ended September 30,
2014 decreased $2.2 million compared with the same period last year. The decrease is primarily due to higher expenses incurred
in 2013 of $0.8 million related to staffing redundancies which arose from the timing of adding new employees while retaining existing
employees as we relocated our operations to Minnesota. The decrease is also due to higher relocation costs of $0.7 million incurred
during the prior year, lower staffing and other expense of $0.4 million, lower facilities expense of $0.2 million primarily due
to the redundant Canadian facility in 2013, and lower business travel and professional fees of $0.1 million due to our cost reduction
efforts. The relocation costs during the nine months ended September 30, 2013 consisted of professional services fees and other
expenses of $0.3 million, recruiting expenses of $0.3 million and staff retention and severance costs of $0.1 million.
Sales and marketing
(Thousands of US dollars) | |
Three months ended | | |
| | |
Nine months ended | | |
| |
| |
September 30 | | |
% | | |
September 30 | | |
% | |
| |
2014 | | |
2013 | | |
Change | | |
2014 | | |
2013 | | |
Change | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Sales and marketing | |
$ | 1,791 | | |
$ | 2,300 | | |
| -22.1 | % | |
$ | 5,506 | | |
$ | 7,081 | | |
| -22.2 | % |
Sales and marketing expense
for the three months ended September 30, 2014 decreased $0.5 million compared with the same period last year. The decrease is primarily
related to lower staff related expense as a result of lower headcount within the sales team.
Sales and marketing expense
for the nine months ended September 30, 2014 decreased $1.6 million compared with the same period last year. The decrease is primarily
related to lower staff related expense of $1.4 million as a result of lower headcount within the sales team, as well as lower travel
and other general expenses of $0.2 million primarily related to customer activities as part of our expense management efforts.
Customer support and operations
(Thousands of US dollars) | |
Three months ended | | |
| | |
Nine months ended | | |
| |
| |
September 30 | | |
% | | |
September 30 | | |
% | |
| |
2014 | | |
2013 | | |
Change | | |
2014 | | |
2013 | | |
Change | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Customer support and operations | |
$ | 2,400 | | |
$ | 2,889 | | |
| -16.9 | % | |
$ | 7,016 | | |
$ | 8,309 | | |
| -15.6 | % |
Customer support and operations
expense for the three months ended September 30, 2014 decreased $0.5 million compared with the same period last year. The
decrease is primarily due to lower staffing related and other costs of $0.2 million, professional fees of $0.1 million, and office
and general expenses of $0.1 million. The decrease is also due to higher relocation costs of $0.1 million incurred during the same
period last year. The relocation costs during the three months ended September 30, 2013 consisted of recruiting and other staff
related expenses.
Customer support and operations
expense for the nine months ended September 30, 2014 decreased $1.3 million compared with the same period last year. The
decrease is primarily due to higher relocation costs of $0.7 million incurred during the same period last year. The decrease is
also due to lower staffing related costs of $0.5 million and office and general expenses of $0.1 million. The relocation costs
during the nine months ended September 30, 2013 consisted of recruiting expenses of $0.3 million, staff retention and severance
expenses of $0.2 million and other expenses of $0.2 million.
IMRIS Inc.
Management’s Discussion and Analysis
– October 28, 2014
Page 10 of 22
Research and development
(Thousands of US dollars) | |
Three months ended | | |
| | |
Nine months ended | | |
| |
| |
September 30 | | |
% | | |
September 30 | | |
% | |
| |
2014 | | |
2013 | | |
Change | | |
2014 | | |
2013 | | |
Change | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Research and development | |
$ | 1,532 | | |
$ | 2,339 | | |
| -34.5 | % | |
$ | 4,895 | | |
$ | 6,612 | | |
| -26.0 | % |
Research and development expense for the three months ended September
30, 2014 decreased $0.8 million compared with the same period last year. The decrease is primarily due to higher relocation costs
of $0.6 million incurred during the same period last year. The decrease is also due to the favorable impact of $0.2 million in
technical expenses for additional research tax benefits recorded in the prior year. The relocation costs during the three months
ended September 30, 2013 consisted of recruiting expense of $0.3 million and business travel expenses of $0.2 million, and other
expenses of $0.1 million.
Research and development expense for the nine months ended September
30, 2014 decreased $1.7 million compared with the same period last year. The decrease is primarily due to higher relocation costs
of $0.9 million incurred during the prior year, lower technical spending of $0.5 million, and lower business, travel and other
expenses of $0.3 million as a result of cost management. The relocation costs during the nine months ended September 30, 2013 consisted
of recruiting and other fees of $0.5 million, business travel expenses of $0.2 million and professional fees and other expense
of $0.2 million.
As we move forward, our product development efforts will be focused
on developing and testing our image-guided surgical robotics platform and also enhancing the capabilities of the VISIUS Surgical
Theatre aimed at increasing the number of traditional procedures that can be completed in our theatres. Following commercialization
of our products that combine robotics and radiosurgery with the VISIUS Surgical Theatre, we expect to continue to expand the capabilities
of these systems to continue to grow their value proposition.
Amortization and depreciation
(Thousands of US dollars) | |
Three months ended | | |
| | |
Nine months ended | | |
| |
| |
September 30 | | |
% | | |
September 30 | | |
% | |
| |
2014 | | |
2013 | | |
Change | | |
2014 | | |
2013 | | |
Change | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Amortization and depreciation | |
$ | 702 | | |
$ | 963 | | |
| -27.1 | % | |
$ | 2,171 | | |
$ | 2,856 | | |
| -24.0 | % |
Amortization and depreciation expense for the three and nine
months ended September 30, 2014 decreased compared with the same period last year due to certain assets that were in service becoming
fully depreciated in 2014.
Other income (expense)
(Thousands of US dollars) | |
Three months ended | | |
| | |
Nine months ended | | |
| |
| |
September 30 | | |
% | | |
September 30 | | |
% | |
| |
2014 | | |
2013 | | |
Change | | |
2014 | | |
2013 | | |
Change | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Loss on asset disposals | |
$ | (206 | ) | |
$ | - | | |
N/M | | |
$ | (194 | ) | |
$ | - | | |
N/M | |
Foreign exchange income (expense) | |
| (1,357 | ) | |
| 387 | | |
| -450.6 | % | |
| (1,390 | ) | |
| (651) | | |
| 113.5 | % |
Interest and other expense | |
| (1,092 | ) | |
| (195) | | |
N/M | | |
| (3,219 | ) | |
| (231) | | |
N/M | |
N/M - Not Meaningful | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Foreign exchange expense for the three and nine months ended September
30, 2014 increased compared with the same period last year due to a strengthening of the U.S. dollar against our higher net foreign
denominated monetary assets, which resulted in foreign exchange expense on revaluation during the three and nine months ended September
30, 2014.
Interest and other expense for the three and nine months ended
September 30, 2014 is primarily a result of our secured loan facility which we entered into in September 2013, resulting in interest
expense, amortization of the related deferred debt acquisition costs, and warrant discount amortization. Interest and other expense
for the three months ended September 30, 2014 includes interest expense of $0.6 million, debt discount amortization of $0.3 million,
debt issuance cost amortization of $0.1 million and other net interest expense and banking fees of $0.1 million. Interest and other
expense for the nine months ended September 30, 2014 includes interest expense of $1.8 million, debt discount amortization of $0.9
million, debt issuance cost amortization of $0.4 million and other net interest expense and banking fees of $0.1 million.
IMRIS Inc.
Management’s Discussion and Analysis
– October 28, 2014
Page 11 of 22
Income tax (benefit) provision
(Thousands of US dollars) | |
Three months ended | | |
| | |
Nine months ended | | |
| |
| |
September 30 | | |
% | | |
September 30 | | |
% | |
| |
2014 | | |
2013 | | |
Change | | |
2014 | | |
2013 | | |
Change | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Income tax (benefit) provision | |
$ | (11 | ) | |
$ | 6 | | |
N/M | | |
$ | (132 | ) | |
$ | 32 | | |
N/M | |
N/M - Not Meaningful | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Income tax benefit increased for the three and nine months ended
September 30, 2014 compared with the same period last year. We generate taxable income in several of our foreign subsidiaries
due to transfer pricing policies used in those foreign jurisdictions. As a result of activities in these foreign subsidiaries,
we recognize tax expense (benefit). During the three and nine months ended September 30, 2014, the change in income tax (benefit)
expense compared with the same period last year is primarily due to adjustments of the related tax accruals partially offset by
slightly higher taxable income in those foreign jurisdictions.
Operating Loss and Net Loss
(Thousands of US dollars) | |
Three months ended | | |
| | |
Nine months ended | | |
| |
| |
September 30 | | |
% | | |
September 30 | | |
% | |
| |
2014 | | |
2013 | | |
Change | | |
2014 | | |
2013 | | |
Change | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Operating loss | |
$ | (5,748 | ) | |
$ | (3,990 | ) | |
| 44.1 | % | |
$ | (18,649 | ) | |
$ | (19,471 | ) | |
| -4.2 | % |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
$ | (8,392 | ) | |
$ | (3,804 | ) | |
| 120.6 | % | |
$ | (23,320 | ) | |
$ | (20,385 | ) | |
| 14.4 | % |
Operating loss for the three months ended September 30, 2014 increased
$1.8 million compared with the same period last year primarily due to lower gross profit of $4.4 million, partially offset by lower
operating expenses of $2.6 million primarily tied to transition related activities in 2013, each as described above. Operating
expenses for the three months ended September 30, 2013 included $0.8 million of relocation costs which were recorded within the
affected functional area, primarily including administrative expense of $0.1 million, customer support and operations expense of
$0.2 million and research and development expense of $0.5 million.
Net loss for the three months ended September 30, 2014 increased
$4.6 million compared with the same period last year. The increase in net loss is due to the operating loss increase of $1.8 million,
foreign exchange expense increase of $1.7 million, higher interest expense of $0.9 million, and loss on asset disposals of $0.2
million, each as described above.
Operating loss for the nine months ended September 30, 2014 decreased
$0.8 million compared with the same period last year due to lower operating expenses of $7.5 million, partially offset by lower
gross profit of $6.7 million, each as described above. Operating expenses for the nine months ended September 30, 2013 included
$2.3 million of relocation costs which were recorded within the affected functional area, including administrative expense of $0.7
million, customer support and operations expense of $0.8 million and research and development expense of $0.8 million.
Net loss for the nine months ended September 30, 2014 increased
$2.9 million compared with the same period last year. The increase in net loss was primarily due to higher interest expense of
$3.0 million, foreign exchange expense increase of $0.7 million, and loss on asset disposals of $0.2 million. This was partially
offset by the operating loss decrease of $0.8 million, and tax benefit of $0.2 million, each as described above.
IMRIS Inc.
Management’s Discussion and Analysis
– October 28, 2014
Page 12 of 22
Adjusted EBITDA
(Thousands of US dollars) | |
Three months ended | | |
| | |
Nine months ended | | |
| |
| |
September 30 | | |
% | | |
September 30 | | |
% | |
| |
2014 | | |
2013 | | |
Change | | |
2014 | | |
2013 | | |
Change | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Adjusted EBITDA | |
$ | (4,681 | ) | |
$ | (2,535 | ) | |
| 84.7 | % | |
$ | (15,273 | ) | |
$ | (15,167 | ) | |
| 0.7 | % |
We use the non-GAAP measure Adjusted EBITDA to measure aspects
of our financial performance (see “Non-GAAP Financial Measures” for a reconciliation of adjusted EBITDA to GAAP measures).
The Company defines Adjusted EBITDA as earnings (loss) before stock based compensation, gain (loss) on asset disposals, interest
income (expense), foreign exchange gain (loss), income taxes and amortization and depreciation.
Adjusted EBITDA for the three months ended September 30, 2014
was negative $4.7 million, compared with negative $2.5 million for the same period last year. The decrease in Adjusted EBITDA was
primarily due to lower gross profit, partially offset by lower operating expenses.
Adjusted EBITDA for the nine months ended September 30, 2014
was negative $15.3 million, compared with negative $15.2 million for the same period last year. The decrease in Adjusted EBITDA
was primarily due to lower gross profit, partially offset by lower operating expenses.
IMRIS Inc.
Management’s Discussion and Analysis
– October 28, 2014
Page 13 of 22
SUMMARY OF QUARTERLY RESULTS
The following table is a summary of our financial results for
the past eight quarters:
(Thousands of US dollars) | |
Q3 | | |
Q2 | | |
Q1 | | |
Q4 | | |
Q3 | | |
Q2 | | |
Q1 | | |
Q4 | |
| |
2014 | | |
2014 | | |
2014 | | |
2013 | | |
2013 | | |
2013 | | |
2013 | | |
2012 | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Sales | |
$ | 6,924 | | |
$ | 4,258 | | |
$ | 8,151 | | |
$ | 9,985 | | |
$ | 17,765 | | |
$ | 10,226 | | |
$ | 8,066 | | |
$ | 20,095 | |
Cost of sales | |
| 4,537 | | |
| 2,342 | | |
| 6,226 | | |
| 7,222 | | |
| 10,984 | | |
| 7,117 | | |
| 5,046 | | |
| 13,100 | |
Gross profit | |
| 2,387 | | |
| 1,916 | | |
| 1,925 | | |
| 2,763 | | |
| 6,781 | | |
| 3,109 | | |
| 3,020 | | |
| 6,995 | |
As a percentage of sales | |
| 34.5% | | |
| 45.0% | | |
| 23.6% | | |
| 27.7% | | |
| 38.2% | | |
| 30.4% | | |
| 37.4% | | |
| 34.8% | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Operating expenses | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Administration | |
| 1,710 | | |
| 1,839 | | |
| 1,740 | | |
| 4,803 | | |
| 2,280 | | |
| 2,833 | | |
| 2,410 | | |
| 2,664 | |
Sales and marketing | |
| 1,791 | | |
| 2,008 | | |
| 1,707 | | |
| 2,905 | | |
| 2,300 | | |
| 2,522 | | |
| 2,259 | | |
| 2,785 | |
Customer support and operations | |
| 2,400 | | |
| 2,388 | | |
| 2,228 | | |
| 3,048 | | |
| 2,889 | | |
| 2,984 | | |
| 2,436 | | |
| 3,062 | |
Research and development | |
| 1,532 | | |
| 1,761 | | |
| 1,602 | | |
| 11,211 | | |
| 2,339 | | |
| 1,534 | | |
| 2,739 | | |
| 3,729 | |
Amortization and Depreciation | |
| 702 | | |
| 702 | | |
| 767 | | |
| 630 | | |
| 963 | | |
| 943 | | |
| 950 | | |
| 1,071 | |
| |
| 8,135 | | |
| 8,698 | | |
| 8,044 | | |
| 22,597 | | |
| 10,771 | | |
| 10,816 | | |
| 10,794 | | |
| 13,311 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Operating loss before the following: | |
| (5,748) | | |
| (6,782) | | |
| (6,119) | | |
| (19,834) | | |
| (3,990) | | |
| (7,707) | | |
| (7,774) | | |
| (6,316) | |
Foreign exchange | |
| (1,357) | | |
| 677 | | |
| (710) | | |
| (557) | | |
| 387 | | |
| (483) | | |
| (555) | | |
| (232) | |
Interest | |
| (1,092) | | |
| (1,072) | | |
| (1,055) | | |
| (992) | | |
| (195) | | |
| (3) | | |
| (33) | | |
| (55) | |
(Loss) gain on sale of asset disposal | |
| (206) | | |
| 12 | | |
| - | | |
| (120) | | |
| - | | |
| - | | |
| - | | |
| 19 | |
Loss before taxes | |
$ | (8,403) | | |
$ | (7,165) | | |
$ | (7,884) | | |
$ | (21,503) | | |
$ | (3,798) | | |
$ | (8,193) | | |
$ | (8,362) | | |
$ | (6,584) | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Income tax (benefit) provision | |
| (11) | | |
| (138) | | |
| 17 | | |
| 112 | | |
| 6 | | |
| 10 | | |
| 16 | | |
| 20 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss for the quarter | |
$ | (8,392) | | |
$ | (7,027) | | |
$ | (7,901) | | |
$ | (21,615) | | |
$ | (3,804) | | |
$ | (8,203) | | |
$ | (8,378) | | |
$ | (6,604) | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Loss per share | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Basic | |
$ | (0.16) | | |
$ | (0.14) | | |
$ | (0.15) | | |
$ | (0.42) | | |
$ | (0.07) | | |
$ | (0.16) | | |
$ | (0.18) | | |
$ | (0.14) | |
Diluted | |
$ | (0.16) | | |
$ | (0.14) | | |
$ | (0.15) | | |
$ | (0.42) | | |
$ | (0.07) | | |
$ | (0.16) | | |
$ | (0.18) | | |
$ | (0.14) | |
The financial results for the eight most recent quarters reflect
the progression of an early stage company with a limited operating history. Factors that have caused our results to vary are described
below.
| Ø | As a result of the limited number of VISIUS Surgical Theatres sold and installed to date and the high dollar value associated
with each sale, our revenues recorded from quarter to quarter have varied depending on the number and stage of active projects
in any given quarter. |
| Ø | Gross profit and gross profit as a percentage of sales for the VISIUS Surgical Theatre are largely dependent on whether a particular
product application has achieved acceptance amongst clinical thought leaders. In quarters when revenue is low, installation costs
can have more significant impact on a low revenue base, resulting in changes to the gross margin percentages. The past few years
have included a number of research related projects which are focused on new product applications. Due to the nature of these programs,
gross profit as a percentage of sales have been negatively impacted in certain quarters as installation activities take place.
The more mature applications which have clinical data such as the neurosurgical application of the VISIUS Surgical Theatre, have
generally carried stronger gross profit margins compared with newer clinical applications and recently released imaging modalities. |
| Ø | The decrease in margins in the third quarter of 2014 reflects a lower margin iCT evaluation site installation. The increase
in margins in the second quarter of 2014 reflects improving margin profiles on programs and service performance in the period.
The decrease in margins in the first quarter of 2014 and fourth quarter of 2013 is primarily tied to the delivery of certain research
systems to customers as well as additional costs related to the delivery of the first clinical VISIUS iCT and latest generation
MR systems. |
| Ø | Net losses generally vary depending on the timing of when specific projects were installed and the pricing associated with
the respective projects. Net losses in all periods have largely been the result of lower product installations and planned increases
in research and development activity for our MRgRT program and the robotics program and additional product costs related to new
product installations. |
IMRIS Inc.
Management’s Discussion and Analysis
– October 28, 2014
Page 14 of 22
| Ø | Operating expenses during the fourth quarter of 2012 and all of 2013 reflect costs related to the relocation of our operations
from Winnipeg, Canada to Minneapolis, Minnesota, including additional efforts to recruit qualified personnel and severance and
retention, along with costs related to duplicate facilities and the eventual accrual for the discontinued use of our Winnipeg facility
when it was vacated. Additionally, research and development expenses in the fourth quarter of 2013 reflect charges of $8.3 million
related to the planned completion of the collaborative arrangement clinical MRgRT system. |
| Ø | Although the majority of our sales are denominated in U.S. dollars, we sell our VISIUS Surgical Theatres in a variety of foreign
currencies. This gives rise to foreign exchange gains or losses each quarter depending on the change in value of the U.S. dollar
versus these foreign currencies in each quarter. |
| Ø | We generated taxable income in several of our foreign subsidiaries because of our transfer pricing methodology. As a result,
we recognize tax expense related to these subsidiaries when appropriate. |
Backlog
Order bookings (or bookings) are customer orders for VISIUS Surgical
Theatres and service contracts. Bookings have been confirmed with a purchase order or a deposit received, or are orders subject
to the completion of formal documentation. Backlog is the unrecognized portion of revenues anticipated to be recorded from bookings.
When a VISIUS Surgical Theatre is sold, the order booking price
is added to backlog. As the project progresses through delivery and installation, the backlog is converted into revenue. When an
extended maintenance contract is sold, the price of the contract is added to backlog and converted into revenue over the life of
the service contract. We evaluate our backlog and individual order conversion on a regular basis and our experience is that new
system orders typically convert into revenues over 12 to 18 months on average, while service contract backlog typically convert
into revenues over 4 to 5 years.
During the three months ended September 30, 2014, total order
bookings were $6.1 million, consisting of $0.2 million for systems bookings, which includes options and upgrades and $5.9 million
for new service contracts. We converted $6.9 million of backlog into revenues and changes in foreign exchange resulted in a decrease
of $0.5 million in the value of the backlog.
The table below provides the Company’s backlog as of September
30, 2014 and its comparable periods for each of the last three years as of December 31:
|
December 31,
2011 |
December 31,
2012 |
December 31,
2013 |
March 31,
2014 |
June 30,
2014 |
September 30,
2014 |
|
(Thousands of U.S. dollars) |
|
|
VISIUS Surgical Theatres |
$ 58,583 |
$ 69,213 |
$ 40,517 |
$ 46,744 |
$ 62,188 |
$ 57,950 |
Service contracts |
36,430 |
53,326 |
61,881 |
63,633 |
66,484 |
69,232 |
Total backlog |
$ 95,013 |
$ 122,539 |
$ 102,398 |
$ 110,377 |
$ 128,672 |
$ 127,182 |
As of September 30, 2014, we have sold our products into 87 surgical
suites and 52 diagnostic rooms to 61 customers worldwide, of which 67 surgical suites are installed and 20 are in the delivery
phase. Of the surgical suites sold, 60 are in the United States, 6 are in Canada, 16 are in Asia Pacific and 5 are in Europe and
the Middle East.
We use the non-GAAP measure “backlog” to measure aspects
of our financial performance. Backlog is defined as the unrecognized portion of (i) revenues anticipated to be recorded from VISIUS
Surgical Theatre orders, including confirmed orders and orders subject to the completion of formal documentation and (ii) service
contracts with a term of 4 to 5 years and which commence at the conclusion of the warranty period on our VISIUS Surgical Theatres,
which are typically 1 year in length. Service contract revenue is recognized ratably over the term of the contract.
OUTLOOK
Our priorities for managing the business in 2014 have been:
Convert Prospects to Purchase Orders - Our primary focus
in 2014 has been on improving our order bookings performance and working to convert our large base of qualified customer prospects
to new sales orders. The plan includes leveraging our existing product platform and its proven clinical value proposition, and
exploiting new product offerings such as the new state of the art MR imaging modalities from our OEM partner Siemens. The introduction
of the VISIUS iCT has further expanded our potential customer base as the spine market it serves is significantly larger than the
neurosurgery market with a significantly reduced cost and complexity to a customer to procure and install. The introduction of
the multi-source pricing strategy is also gaining traction as a number of new order bookings recorded to date are the direct result
of this strategy. We believe the clinical benefits of our systems and the broadening of our market with these new product offerings
and pricing strategies will contribute to strengthened bookings.
IMRIS Inc.
Management’s Discussion and Analysis
– October 28, 2014
Page 15 of 22
Deliver on Revenue – Conversion of our order backlog
is key to meeting our revenue goals. Traditionally our installation timelines for any given customer are often in excess of a year
or more, so our ability to influence the timing of such installations and its corresponding revenue is often not in our control.
With the introduction of the VISIUS iCT, the complexity of installation has been reduced, providing us with an opportunity to take
an order and deliver it within a three to nine month timeframe. This changes our ability to influence our revenue opportunity and
reduce the execution risk associated with more complex installations. We have also taken positive steps to increase our recurring
revenue – we have continued to increase our installed base covered under service contracts, identified capital equipment
options upgrades for our existing customers and recently introduced and launched a new line of disposable products. The introduction
of disposables gives us the ability to take advantage of our growing procedural volume within our installed base, allowing us to
drive consistent revenues and providing opportunities to maintain relationships with our customers we did not have before.
Manage our Cash – The transition of our operations
from Canada to the U.S. and the costs to complete our research programs in robotics and our MRgRT system required a significant
capital commitment in 2013. With most of these activities largely completed, our focus in 2014 has been to drive the business toward
becoming cash flow neutral through cost reduction activities, gross margin expansion through active management of our customer
programs and supply chain, generating cash deposits on new order bookings and driving system order book and bill business that
generates 2014 and 2015 period cash flows. We have commenced and undertaken a number of initiatives, some of which have already
shown to be providing results with the goal of becoming a self-sustaining business.
New Product Development
We continue to make significant progress with the development
of the SYMBIS Surgical System, potentially the world's first MR compatible surgical robot. Our first pre-clinical version
of the system is expected to be delivered and installed by the end of 2014 at the University of Calgary, Foothills hospital.
We expect this to be our initial clinical validation site under the direction of Dr. Garnette Sutherland, who is a member of our
clinical advisory board. We expect to submit a 510(k) Premarket Notification with the Food and Drug Administration (FDA)
in late 2014 or early 2015. A 510(k) is a premarket submission made to the FDA to demonstrate that the device to be marketed is
at least as safe and effective, that is, substantially equivalent, to an existing device that is already on the market. The 510(k)
submission may require clinical trial data for evaluation, which would require more time for the submission and clearance.
Financial Outlook
Revenues
Our revenue success remains largely dependent on our ability to
add bookings to backlog and then convert existing backlog into recognized revenue on a timely basis. Our ability to complete installations
and recognize revenue of a timely basis is directly influenced by the circumstances of each hospital where unique customer circumstances
can influence the schedule. Lower bookings in early 2013, resulted in lower backlog in 2013 particularly in new systems orders,
which in turn resulted in lower revenues in 2014 due to the long delivery and installation cycles for our VISIUS Surgical Theatres.
We continue to expect 2014 full year revenues in the range of
$30 million to $34 million. A reduction in the order backlog in 2013 had a negative impact on revenues in 2014. We believed we
would be able to mitigate some of the shortfall in the conversion of 2013 backlog with the introduction of new revenue sources
in iCT systems orders, upgrades and disposables, but given the progression of certain customer prospects, our ability to deliver
more immediate revenue opportunities in 2014 are limited. As we review our current order pipeline, we are optimistic about continuing
to build our order backlog in 2014 and 2015 that can be converted into 2015 and 2016 revenues. We previously provided preliminary
guidance for 2015 revenues of $60 million to $65 million. We will update this guidance when we release our full year 2014 results.
IMRIS’s quarterly revenue profile varies depending on the underlying system installations in each period.
Gross Profit
We expect full year 2014 gross profit as a percentage of sales
of approximately 35 percent to 36 percent.
Operating Expenses
Carefully managing expenses is a priority for our Company and
in 2014 we continue to expect our cash operating expenses to decrease approximately $7 million from 2013 levels to approximately
$27 million.
Total research and development expenses are anticipated to be
approximately $6.5 million. This is a significant decrease from prior year as 2013 included the impact of $8.3 million in charges
related to completion of the collaborative arrangement with Princess Margaret Hospital for their clinical MRgRT system, along with
relocation costs and costs for technical development associated with image-guided surgical robotics, which are substantially complete.
IMRIS Inc.
Management’s Discussion and Analysis
– October 28, 2014
Page 16 of 22
Taken together, we anticipate total cash and non-cash operating
expenses in 2014 to be approximately $33 million, as summarized below:
2014 Forecast |
$ Millions |
Cash operating expenses |
$ 27.0 |
Amortization and depreciation (non-cash) |
4.0 |
Stock based compensation (non-cash) |
2.0 |
Total operating expenses |
$ 33.0 |
Liquidity and Capital Resources
With cash and accounts receivable at September 30, 2014 of $7.9
million and order backlog of $127.2 million, we believe we have a good base from which to continue to build the business.
On September 23, 2014, we entered into a Waiver and Amendment
Agreement with Deerfield Management Company, L.P. (“Deerfield”) with respect to the Facility Agreement dated as of
September 16, 2013, in order to waive the enforcement of the covenant under the Facility Agreement that we have cash and cash equivalents
greater than $7.5 million at calendar quarter ending September 30, 2014. In connection with the waiver, we have agreed to change
the exercise price of the warrants to purchase 6.1 million shares of IMRIS common stock from $1.94 to $0.70 per share, representing
the closing trading price of the common shares on NASDAQ as of September 23, 2014. The Company proactively sought the waiver so
as to avoid a potential breach of the covenant due to uncertainty in the timing of accounts receivable collected by September 30,
2014.
Cash, restricted cash and accounts receivable at December 31,
2013 were $27.9 million. Our cash requirements in 2014 include funding for operations, and capital investments related to the
development test lab in the Minnetonka facility. Our total capital expenditures for the year are expected to be approximately
$2.5 million.
LIQUIDITY AND CAPITAL RESOURCES
Our principal capital needs are for funding scientific research
and development programs, supporting our sales and marketing activities and funding capital expenditures and working capital. We
have financed our cash requirements primarily through long term debt, issuances of securities, revenue and advanced customer deposits
from new orders.
The following table sets forth the summary statement of cash flows
for the dates and periods indicated:
|
|
|
Nine months ended |
|
September 30 |
|
2014 |
2013 |
Change |
Cash flows: |
|
|
|
Used in Operating Activities |
$ (9,053) |
$ (27,281) |
$ 18,228 |
Provided by Financing Activities |
500 |
42,093 |
(41,593) |
Provided by Investing Activities |
5,070 |
(13,352) |
18,422 |
|
|
|
|
Foreign exchange translation adjustment |
943 |
379 |
564 |
Net decrease |
(2,540) |
1,839 |
(4,379) |
|
|
|
|
Cash and cash equivalents, opening |
6,382 |
19,060 |
|
Cash and cash equivalents, closing |
$ 3,842 |
$ 20,899 |
$ (17,057) |
Operating Activities
The cash used in operating activities for the nine months ended
September 30, 2014 was $9.1 million. The cash used in operating activities was comprised of an operating loss (excluding non-cash
related items) of $18.5 million partially offset by cash provided by changes in working capital of $9.4 million. The cash provided
by changes in working capital consists of a decrease in accounts receivable of $9.9 million, a decrease in unbilled receivables
of $5.0 million, a decrease in inventory of $0.5 million, and an increase in deferred revenue of $0.5 million, partially offset
by a decrease in accounts payable of $6.2 million and a decrease in prepaid expense of $0.4 million.
IMRIS Inc.
Management’s Discussion and Analysis
– October 28, 2014
Page 17 of 22
Financing Activities
The cash provided by financing activities for the nine months
ended September 30, 2014 was $0.5 million compared with $42.1 million in the same period last year. Cash provided by financing
activities of $0.5 million is the result of a loan agreement with the City of Minnetonka and the Minnesota Department of Employment
and Economic Development. The cash generated in financing activities during the nine months ended September 30, 2013 included net
proceeds from the issuance of share capital of $18.9 million and $25.0 million of proceeds from long-term debt offset by payment
of debt issuance costs of $1.8 million.
Investing Activities
The cash provided by investing activities for the nine months
ended September 30, 2014 was $5.1 million compared with cash used of $13.4 million in the same period last year. The cash provided
by investing activities for the nine months ended September 30, 2014 is due to the waiver of our debt covenant requiring a restricted
cash balance at quarter end of $7.5 million. As a result of the waiver, we were able to move the restricted cash to cash. Investing
activities also include acquisition of tangible and intangible capital assets of $2.4 million.
Liquidity and Capital Resources Summary
Our cash as of September 30, 2014 totaled $3.8 million. Our primary
sources of liquidity include cash deposits and cash flows generated by the sale of our products. Our primary operating liquidity
needs relate to our costs of goods sold and general operating expenses.
Our ability to fund our operations beyond the next 12 months is
dependent on our ability to meet our planned business operations, effectively manage our working capital needs and generate positive
cash flows from deposits on new order bookings. Our cash balances can fluctuate based on when we obtain cash deposits and
payments from customers. This could have an impact on our ending cash balance and our ability to meet our operating liquidity needs
and our debt covenant related to cash balances, in which event we would need to find other sources of cash. We believe that if
our cash balances are not sufficient to meet our liquidity needs, we will be able to raise additional capital While there is no
guarantee that we can raise additional capital, we have a history of being able to successfully fund the business through the capital
markets in the form of equity or debt financing. If we are not able to raise additional capital, we may need to eliminate
or suspend research, development and corporate projects.
On October 10, 2014 we filed a $30 million shelf registration
statement on Form F-3 with the SEC. The shelf registration statement cannot be used to offer or sell securities until it is declared
effective by the SEC. The specifics of any potential future offering, along with the prices and terms of any such securities offered
by the Company will be determined at the time of any such offering and will be described in detail in a prospectus supplement filed
in connection with such offering. The shelf registration statement replaces our previously existing shelf registration statement
filed on Form F-10, which expires in November 2014.
OUTSTANDING SHARE DATA
The following table sets forth our outstanding share data as of
the dates given:
|
Authorized |
October 28, 2014 |
December 31, 2013 |
Common shares |
unlimited |
$166,959,000
(52,030,966 common shares) |
$166,959,000
(52,030,966 common shares) |
Preferred shares |
unlimited |
Nil |
Nil
|
Additional paid-in capital |
|
13,662,000 |
$11,337,000 |
As of October 28, 2014, a total of 4,228,264 stock options were
outstanding under the Company’s stock option plan.
NON-GAAP FINANCIAL MEASURES
In this MD&A, we use the non-GAAP measure “Backlog”
and "Adjusted EBITDA". We define backlog as the unrecognized portion of the revenues anticipated to be recorded from
VISIUS Surgical Theatre orders, including confirmed orders and orders subject to completion of formal documentation and the unrecognized
portion of service contracts which have a term of 4-5 years commencing at the conclusion of the warranty period on our theatres,
which is typically one year in length. In view of the long sales cycle, high unit price and limited quarterly installations that
are characteristic of our business, we believe that our backlog provides a better measure at any particular point in time of the
long-term performance prospects of our business than our quarterly operating results. Backlog does not have any standardized meaning
prescribed by U.S GAAP and is, therefore, unlikely to be comparable to similar measures presented by other companies.
IMRIS Inc.
Management’s Discussion and Analysis
– October 28, 2014
Page 18 of 22
We define Adjusted EBITDA as earnings before stock based compensation,
gain on asset disposals, interest and other, foreign exchange income (expense), income tax (benefit) provision, and amortization
and depreciation. We report Adjusted EBITDA because we believe investors use it as another measure of our operating performance.
Adjusted EBITDA does not have a standardized meaning as prescribed by U.S. GAAP and it is not necessarily comparable to similarly
titled measures used by other companies.
Reconciliation to the most comparable U.S. GAAP measure for Adjusted
EBITDA is as follows:
(Thousands of US dollars) |
Three months ended |
Nine months ended |
(Unaudited) |
September 30 |
September 30 |
|
2014 |
2013 |
2014 |
2013 |
|
|
|
|
|
Net loss |
$ (8,392) |
$ (3,804) |
$ (23,320) |
$ (20,385) |
Stock based compensation |
365 |
492 |
1,205 |
1,448 |
Gain (loss) on asset disposals |
206 |
- |
194 |
- |
Foreign exchange (income) loss |
1,357 |
(387) |
1,390 |
651 |
Interest and other |
1,092 |
195 |
3,219 |
231 |
Amortization and depreciation |
702 |
963 |
2,171 |
2,856 |
Income tax (benefit) provision |
(11) |
6 |
(132) |
32 |
Adjusted EBITDA |
$ (4,681) |
$ (2,535) |
$ (15,273) |
$ (15,167) |
FINANCIAL INSTRUMENTS
Our financial instruments consist of cash, cash equivalents, accounts
receivables, unbilled receivables, and accounts payable and accrued liabilities.
We are subject to credit risk with respect to our accounts receivable
and unbilled receivables to the extent debtors do not meet their obligations and we are subject to foreign exchange risk with respect
to financial instruments denominated in a currency other than the U.S. dollar.
Our accounts receivable at September 30, 2014 were $4.1 million,
of which $2.3 million is considered current (less than 60 days old). Accounts receivable includes $0.9 million denominated in
a currency other than the U.S. dollar.
RELATED PARTY TRANSACTIONS
During the three months ended March 31, 2013, we leased air travel
time from a corporation that is controlled by the Chairman of IMRIS Inc. There have been no charges for the three and nine months
ended September 30, 2014. The amount charged to travel expenses during the three and nine months ended September 30, 2013 with
respect to transactions with this related party totaled $0 and $55. As of September 30, 2014 and December 31, 2013 there were
no receivable or payable balances owing to this corporation.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Use of Estimates
The preparation of financial statements in accordance with U.S.
GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during
the year. Among the accounting estimates described in the notes to the financial statements, we consider the accounting estimates
used in the determination of recognized revenues, the value of goodwill and the valuation of stock options to be critical. Our
results as determined by actual events could differ materially from the previously mentioned estimates.
IMRIS Inc.
Management’s Discussion and Analysis
– October 28, 2014
Page 19 of 22
Revenue Recognition
We recognize revenues for our VISIUS Surgical Theatre sales on
a percentage-of-completion basis as the theatre is installed. The percentage-of-completion is determined by the ratio of actual
costs incurred to date to the estimated cost of completion for the project. Actual costs include only those costs that are directly
attributable to contract performance with respect to the revenue recognized. In the event that the actual costs of completion differ
from the estimated cost we have used in determining the percentage-of-completion, recognized revenues may be over or under-estimated
until all costs have been incurred and the project is complete. Funds received from our customers in advance of meeting the criteria
for recognition of revenues are recorded as deferred revenue until the revenue is recognized. Revenues recognized in advance of
the criteria for invoicing to our customer are recorded as unbilled receivables.
Value of Goodwill
We recorded goodwill on the purchase of the assets of a predecessor
company. The value of goodwill is tested for impairment annually or more frequently, if an event or circumstance occurs which we
feel may result in an impairment of the value of goodwill.
As of September 30, 2014, the Company’s stock price was $.60
USD per share. During the three months and nine months ended September 30, 2014, the Company’s stock price declined from
$1.13 USD per share and $ $1.59 USD per share, respectively. As a result, we performed an assessment to determine if this stock
price decline was a triggering event that required further impairment testing. We considered, among other things, the excess of
the market capitalization of the Company as of September 30, 2014 over the Company’s net assets. Based on our assessment,
we believe there to be no triggering event requiring further impairment testing at this time.
Stock Based Compensation Plan
From time to time we issue stock options to employees, directors,
officers or consultants. The Company measures compensation expense at the date of granting stock options to employees and recognizes
the expense based on their fair values determined in accordance with the U.S. GAAP codification Accounting Standards Codification
718. The fair value of options is determined using the Black-Scholes option-pricing model. The fair value amount is amortized
to earnings over the vesting period, with the related credit recorded as additional paid-in capital. Amortization takes into consideration
estimated forfeitures, determined on a historical basis, at the time of grant to determine the number of awards that will ultimately
vest. Upon exercise of these stock options, amounts previously credited to additional paid-in capital are reversed and credited
to share capital.
FUTURE ACCOUNTING STANDARDS
On August 27, 2014, the Financial Accounting Standards Board (“FASB”)
issued authoritative guidance (ASU 2014-15), Presentation of Financial Statements—Going Concern. The guidance requires
Management to perform interim and annual assessments on whether there are conditions or events that raise substantial doubt about
the Company's ability to continue as a going concern within one year of the date the financial statements are issued and to provide
related disclosures, if required. The new standard is effective for us for the year ended December 31, 2016 and for subsequent
interim periods. The adoption of the standard is not expected to have a material effect on our consolidated financial statements
and related disclosures.
On May 28, 2014, the FASB issued
authoritative guidance (ASU 2014-09), Revenue from Contracts with Customers, a standard convergence project with the International
Accounting Standards Board (“IASB”). The guidance will replace most existing revenue recognition guidance in U.S.
GAAP when it becomes effective. The new standard is effective for us on January 1, 2017. Early application is not permitted. The
standard permits the use of either the retrospective or cumulative effect transition method. We are evaluating the effect the
guidance will have on our consolidated financial statements and related disclosures. We have not yet selected a transition method
nor have we determined the effect of the standard on our ongoing financial reporting.
DISCLOSURE AND INTERNAL CONTROLS
We have established and maintain disclosure controls and procedures
in order to provide reasonable assurance that material information relating to IMRIS is made known in a timely manner. We have
evaluated the effectiveness of our disclosure controls and procedures as of the date of our 2013 Financial Statements and are not
aware of any material changes that are required to be made to these controls and procedures; we believe them to be effective in
providing such reasonable assurance.
We are also responsible for the design of our internal controls
over financial reporting (ICFR) in order to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with U.S. GAAP. Management used the framework established
in Internal Control-Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) to evaluate the effectiveness of internal controls in fiscal 2013, based on this evaluation management concluded that our
internal control over financial reporting was effective as of December 31, 2013. The Company’s independent registered public
accounting firm, Deloitte & Touche LLP, has issued an unqualified opinion on the Company’s internal controls over financial
reporting as of December 31, 2013.
IMRIS Inc.
Management’s Discussion and Analysis
– October 28, 2014
Page 20 of 22
As of the date of this report, there have been no changes to the
Company’s internal controls over financial reporting that materially affect, or are reasonably likely to materially affect,
its internal controls over financial reporting.
In compliance with rules of the Canadian Securities Administration
and the U.S. Securities and Exchange Commission, we have filed certificates signed by our Chief Executive Officer (‘‘CEO’’)
and Chief Financial Officer (‘‘CFO’’) regarding the effectiveness of our disclosure controls and our internal
controls over financial reporting. It should be noted however, that while the Company’s CEO and CFO believe the organization’s
disclosure controls and internal controls over financial reporting are effective any system of internal control has inherent limitations
and cannot prevent all errors or fraud. Even systems determined to be effective can provide only reasonable assurance of the reliability
of financial statement preparation and presentation.
RISKS AND UNCERTAINTIES
The operating results, business prospects and financial position
of the Company are subject to a number of risks and uncertainties. Risks relating to our business include: our long sales cycle;
high unit price and limited quarterly installations; our limited operating history and accumulated deficit; our lack of product
diversity; our dependence on our suppliers; the development of VISIUS Surgical Theatres for cardiovascular, cerebrovascular and
spinal procedures; market competition and technological advances; patent protection and trade secrets; intellectual property litigation;
our ability to shift from research and development to commercialization; our ability to manage growth; foreign exchange fluctuations;
additional financing requirements; our ability to achieve the synergies expected as part of our relocation to Minnesota; and regulatory
matters as well as various factors set forth from time to time.
Our common stock price has been and is likely to continue to be
volatile, and an investment in our common stock could decline in value. During the three months ended September 30, 2014 our common
stock’s closing price on the NASDAQ was less than $1.00 per share. On August 25, 2014, we received a received a letter
from the NASDAQ Stock Market LLC ("Nasdaq") stating that for the previous 30 consecutive business days the bid price
of the Company's common stock closed below the minimum $1.00 per share required for continued listing under Nasdaq Listing Rule
5450(a)(1). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has a period of 180 calendar days, or until
February 23, 2015, to regain compliance with the minimum bid requirement. If at any time during the 180 calendar day grace
period, the closing bid price per share of the Company's common stock is at or above $1.00 for a minimum of ten consecutive business
days, the Company will regain compliance and the matter will be closed. In the event the Company does not regain compliance,
the Company may be eligible for an additional period to regain compliance, subject to satisfying certain Nasdaq requirements.
If it appears to the Nasdaq staff that the Company will not be able to cure the deficiency or if the Company is not otherwise eligible
for the additional compliance period, the Company's common stock will be subject to delisting by Nasdaq.
We evaluate assets on our balance sheet, including intangible
assets and goodwill, annually as of November 30 or whenever events or changes in circumstances indicate that their carrying value
may not be recoverable. We monitor factors or indicators, such as unfavorable variances from forecasted cash flows, established
business plans or volatility inherent to external markets and industries that would require an impairment test. The test for impairment
of tangible and intangible assets requires a comparison of the carrying value of the asset or asset group with their estimated
undiscounted future cash flows. The test for impairment of goodwill requires a comparison of the carrying value of the goodwill
with its estimated fair value. If the carrying value of the asset or asset group is considered impaired, an impairment charge is
recorded for the amount by which the carrying value of the asset or asset group exceeds its fair value. Negative or uncertain global
economic conditions could result in circumstances such as a sustained decline in our stock price and market capitalization and/or
a decrease in our forecasted cash flow such that they are insufficient, indicating that the carrying value of our acquired goodwill
may be impaired. If we are required to record a significant charge to earnings because an impairment of our acquired goodwill is
determined, our results of operations will be adversely impacted.
As of September 30, 2014, the Company’s stock price was $.60
USD per share. During the three months and nine months ended September 30, 2014, the Company’s stock price declined from
$1.13 USD per share and $ $1.59 USD per share, respectively. As a result, we performed an assessment to determine if this stock
price decline was a triggering event that requires further impairment testing. Based on our assessment, we believe there to be
no triggering event requiring further impairment testing at this time.
There has been no other material change in risks since our Form
40-F for the year ended December 31, 2013. If any of the events described as risks or uncertainties actually occurs, our business,
prospects, financial condition and operating results would likely suffer, possibly materially. For a more comprehensive list of
the risks and uncertainties affecting the business, readers are advised to refer to our 2013 Annual Information Form (AIF). The
AIF and Base Shelf are available at www.sedar.com and on the United States Securities and Exchange Commission (SEC) website at
www.sec.gov. The AIF is located in the Company’s Annual Report on Form 40-F. - see Item 3.2 Risks Related to Our
Business.
IMRIS Inc.
Management’s Discussion and Analysis
– October 28, 2014
Page 21 of 22
ADDITIONAL INFORMATION
Additional information about IMRIS, including our annual information
form, can be found on the SEDAR website at www.sedar.com or the United States Securities and Exchange Commission (SEC) website
at www.sec.gov.
IMRIS Inc.
Management’s Discussion and Analysis
– October 28, 2014
Page 22 of 22
Exhibit
99.4
FORM
52-109F2
CERTIFICATION
OF INTERIM FILINGS
FULL
CERTIFICATE
I, Jay
D. Miller, President and Chief Executive Officer of IMRIS Inc., certify the following:
| 1. | Review:
I have reviewed the interim financial statements and interim MD&A (together,
the "interim filings") of IMRIS Inc. (the "issuer") for the interim
period ended September 30, 2014. |
| 2. | No
misrepresentations: Based on my knowledge, having exercised reasonable diligence,
the interim filings do not contain any untrue statement of a material fact or omit to
state a material fact required to be stated or that is necessary to make a statement
not misleading in light of the circumstances under which it was made, with respect to
the period covered by the interim filings. |
| 3. | Fair
presentation: Based on my knowledge, having exercised reasonable diligence,
the interim financial report together with the other financial information included in
the interim filings fairly present in all material respects the financial condition,
financial performance and cash flows of the issuer, as of the date of and for the periods
presented in the interim filings. |
| 4. | Responsibility:
The issuer's other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (DC&P) and internal control over financial
reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification
of Disclosure in Issuers' Annual and Interim Filings, for the issuer. |
| 5. | Design:
Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer's
other certifying officer(s) and I have, as at the end of the period covered by the interim
filings |
| (a) | designed
DC&P, or caused it to be designed under our supervision, to provide reasonable assurance
that |
| (i) | material
information relating to the issuer is made known to us by others, particularly during
the period in which the interim filings are being prepared; and |
| (ii) | information
required to be disclosed by the issuer in its annual filings, interim filings or other
reports filed or submitted by it under securities legislation is recorded, processed,
summarized and reported within the time periods specified in securities legislation;
and |
| (b) | designed
ICFR, or caused it to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with the issuer's GAAP. |
5.1 Control
framework: The control framework the issuer's other certifying officer(s) and I used to design the issuer's ICFR is based
on the Internal Control – Integrated Framework (COSO Framework) published by The Committee of Sponsoring Organizations of
the Treadway Commission.
5.2 N/A.
5.3 N/A.
| 6. | Reporting
changes in ICFR: The issuer has disclosed in its interim MD&A any change
in the issuer's ICFR that occurred during the period beginning on July 1, 2014
and ended on September 30, 2014 that has materially affected, or is reasonably
likely to materially affect, the issuer's ICFR. |
Date:
October 28, 2014
/s/ Jay D. Miller |
|
|
|
Jay D. Miller |
|
President and Chief Executive Officer |
|
Exhibit 99.5
FORM
52-109F2
CERTIFICATION
OF INTERIM FILINGS
FULL
CERTIFICATE
I, Jeffery
Bartels, Director - Finance of IMRIS Inc., certify the following:
| 7. | Review:
I have reviewed the interim financial statements and interim MD&A (together,
the "interim filings") of IMRIS Inc. (the "issuer") for the interim
period ended September 30, 2014. |
| 8. | No
misrepresentations: Based on my knowledge, having exercised reasonable diligence,
the interim filings do not contain any untrue statement of a material fact or omit to
state a material fact required to be stated or that is necessary to make a statement
not misleading in light of the circumstances under which it was made, with respect to
the period covered by the interim filings. |
| 9. | Fair
presentation: Based on my knowledge, having exercised reasonable diligence,
the interim financial report together with the other financial information included in
the interim filings fairly present in all material respects the financial condition,
financial performance and cash flows of the issuer, as of the date of and for the periods
presented in the interim filings. |
| 10. | Responsibility:
The issuer's other certifying officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (DC&P) and internal control over financial
reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification
of Disclosure in Issuers' Annual and Interim Filings, for the issuer. |
| 11. | Design:
Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer's
other certifying officer(s) and I have, as at the end of the period covered by the interim
filings |
| (a) | designed
DC&P, or caused it to be designed under our supervision, to provide reasonable assurance
that |
| (iii) | material
information relating to the issuer is made known to us by others, particularly during
the period in which the interim filings are being prepared; and |
| (iv) | information
required to be disclosed by the issuer in its annual filings, interim filings or other
reports filed or submitted by it under securities legislation is recorded, processed,
summarized and reported within the time periods specified in securities legislation;
and |
| (b) | designed
ICFR, or caused it to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with the issuer's GAAP. |
| 5.1 | Control
framework: The control framework the issuer's other certifying officer(s) and I used
to design the issuer's ICFR is based on the Internal Control – Integrated Framework
(COSO Framework) published by The Committee of Sponsoring Organizations of the Treadway
Commission. |
| 12. | Reporting
changes in ICFR: The issuer has disclosed in its interim MD&A any change in the
issuer's ICFR that occurred during the period beginning on July 1, 2014 and ended
on September 30, 2014 that has materially affected, or is reasonably likely to
materially affect, the issuer's ICFR. |
Date:
October 28, 2014
/s/ Jeffery Bartels |
|
|
|
|
|
Jeffery Bartels |
|
|
Director – Finance (Principal Financial Officer
and Principal Accounting Officer) |
|
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