<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-27750
(Exact name of registrant as specified in its charter) IMPATH INC.
DELAWARE 13-3459685
-------- ------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1010 THIRD AVENUE, NEW YORK, NY 10021
----------------------------------------
(Address of principal executive offices) (Zip Code)
(212) 702-8300
--------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
--------------
(Former names, former address and former fiscal year, if
changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes . No X (due to initial public offering,
----------------------------------
effective 2/15/96)
- ------------------
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
CLASS OUTSTANDING AT MAY 6, 1996
- ----- --------------------------
Common Stock, par value 5,266,096
$ .005 per share
<PAGE>
INDEX
IMPATH INC.
PAGE NUMBER
-----------
PART I FINANCIAL INFORMATION
Item 1 Condensed Financial Statements (Unaudited):
Condensed Balance Sheets at March 31, 1996
and December 31, 1995............................... 3
Condensed Statements of Operations for the Three
Months Ended March 31, 1996 and March 31, 1995...... 4
Condensed Statements of Cash Flows for the Three
Months Ended March 31, 1996 and March 31, 1995...... 5
Condensed Statement of Stockholders' Equity for the
Three Months Ended March 31, 1996................... 6
Notes to Condensed Financial Statements............. 7-8
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations....... 9-11
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K.................... 12-15
Signatures.................................................... 16
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<PAGE>
IMPATH INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS MARCH 31, Dec. 31,
1996 1995
(unaudited) (audited)
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $24,423,065 1,512,695
Investments, at fair value 2,019,600 -
Accounts receivable, net of allowance for doubtful accounts 4,621,035 3,807,376
Prepaid expenses and other current assets 299,911 273,361
Deferred tax assets, net 505,000 505,000
------------- -------------
Total current assets 31,868,611 6,098,432
Fixed assets, less accumulated depreciation and amortization 2,632,218 2,305,739
Deposits and other assets 86,372 79,961
Deferred registration costs - 746,462
Goodwill, net of accumulated amortization 30,193 30,727
------------- -------------
$34,617,394 9,261,321
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Loan payable - current portion - 100,000
Current portion of capital lease obligations $ 433,315 321,125
Accounts payable and accrued expenses 1,223,855 1,498,732
Income taxes payable 78,866 78,415
Accrued dividends payable - 478,000
------------- -------------
Total current liabilities 1,736,036 2,476,272
------------- -------------
Capital lease obligations, net of current portion 1,081,423 946,723
Loan payable, net of current portion - 183,333
Stockholders' equity:
Convertible preferred stock
Series D 8% Convertible Participating Preferred Stock, $.Dl par value. - 1,911,879
Series C 8% Convertible Preferred Stock, $.Ol par value. - 2,702,546
Series B 8% Convertible Preferred Stock. $.Ol par value. - 562,952
Series A 8% Convertible Preferred Stock $.Ol par value. - 1,387,908
Common stock, $.005 par value, 26,330 2,275
Additional paid-in capital 32,494,643 11,447
Accumulated deficit (380,506) (548,672)
------------- -------------
32,140,467 6,030,335
Less-
Cost of shares of common stock held in treasury (100) (100)
Notes receivable from officers (28,421) (31,335)
Deferred compensation (312,011) (343,907)
------------- -------------
Total stockholders' equity 31,799,935 5,654,993
------------- -------------
$34,617,394 9,261,321
============= =============
</TABLE>
See accompanying notes to condensed Financial Statements
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<PAGE>
IMPATH INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
---------------------------
1996 1995
---------- ---------
Revenues,
Net diagnostic and prognostic services $4,694,350 3,178,359
Contract laboratory services 47,676 37,293
---------- ---------
Total revenues 4,742,026 3,215,652
---------- ---------
Operating expenses,
Salaries and related costs 2,255,564 1,473,427
Selling, general and administrative 2,258,589 1,391,153
---------- ---------
Total operating expenses 4,514,153 2,864,580
---------- ---------
Income from operations 227,873 351,072
Interest income 120,738 18,920
Interest expense 45,705 13,095
---------- ---------
Income before income tax expense 302,906 356,897
Income tax expense (134,740) -
---------- ---------
Net income 168,166 356,897
Accrued dividends on preferred stock (82,346) (120,734)
---------- ---------
Net income available to common stockholders $ 85,820 236,163
========== =========
Pro forma net income per share $0.04
==========
Pro forma weighted average common and common
equivalent shares outstanding 4,445,000
==========
See accompanying notes to condensed Financial Statements
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<PAGE>
IMPATH INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1996 1995
----------- ----------
<S> <C> <C>
Cash flows from operating activities,
Net income $ 168,166 320,456
Adjustments to reconcile net income to net cash provided by operating activities-
Depreciation and amortization 182,974 62,859
Provision for uncollectible accounts receivable 582,728 286,395
Amortization of deferred compensation 31,896 -
Changes in assets and liabilities
(Increase) in accounts receivable (1,396,387) (449,508)
(Increase) in prepaid expenses and current assets (26,550) (120,799)
(Increase) in marketable securities (2,019,600) -
(Increase) in deposits and other assets (6,411) (8,460)
Increase (decrease) in accounts payable and accrued expenses (274,877) 75,045
Increase in income taxes payable 451 -
----------- ----------
Total adjustments (2,925,776) (154,468)
----------- ----------
Net cash provided (used) by operating activities (2,757,610) 165,988
----------- ----------
Cash flow from investing activities:
Capital expenditures (150,761) (228,583)
----------- ----------
Net cash used in investing activities (150,761) (228,583)
----------- ----------
Cash flows from financing activities:
Payment of dividends on preferred stock (560,346) -
Issuance of common stock 26,024,312 1,320
Issuance of preferred stock - 1,999,982
Repayments of bank loan (283,333) (100,000)
Payments of capital lease obligations (111,268) 115,837
Payments received on officer loans 2,914 -
Deferred Registration Costs 746,462 -
----------- ----------
Net cash provided by financing activities 25,818,741 2,017,139
----------- ----------
Net increase in cash and cash equivalents 22,910,370 1,954,544
Cash and cash equivalents at beginning of period 1,512,695 615,317
----------- ----------
Cash and cash equivalents at end of period 24,423,065 2,569,861
=========== ==========
</TABLE>
See accompanying notes to condensed Financial Statements
-5-
<PAGE>
IMPATH INC.
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
Three months ended March 31,1996
(unaudited)
<TABLE>
<CAPTION>
Nonredeemable
Convertible Additional
Common stock preferred stock paid-in
-------------------- -------------------------- capital
Shares Amount Shares Amount (deficiency)
---------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 455,007 $ 2,275 7,192,724 $ 6,565,285 11,447
Common shares issued upon
initial public offering 2,242,500 11,212 25,998,338
Common shares issued upon
exercise of stock options 19,656 98 14,664
Conversion of preferred
shares into common
shares upon initial
public offering 2,548,933 12,745 (7,192,724) (6,565,285) 6,552,540
Accrual of preferred stock
dividends (82,346)
Amortization of deferred
compensation
Repayment of loans to
officers
Net income to, the year
ended 31-Mar-96
---------- -------- ------------ ------------ ----------
Balance at March 31, 1996 5,266,096 26,330 32,494,643
========== ======== ============ ============ ==========
</TABLE>
<TABLE>
<CAPTION>
Notes
receivable Deferred
Accumulated Treasury from compen-
deficit stock stockholders sation Total
----------- ---------- ------------ -------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 (548,672) (100) (31,335) (343,907) 5,654,993
Common shares issued upon
offering 26,009,550
Common shares issued upon
exercise
of stock options 14,762
Conversion of preferred
shares into common
shares upon initial
publis offering -
Accrual of preferred stock
dividends (82,346)
Amortization of deferred
compensation 31,896 31,896
Repayment of loans to
officers 2,914 2,914
Net income to, the year
ended 31-Mar-96 168,166 168,166
----------- ---------- ------------ -------- ----------
Balance at March 31, 1996 (380,506) (100) (28,421) (312,011) 31,799,935
=========== ========== ============ ======== ==========
</TABLE>
See accompanying notes to condensed Financial Statements
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<PAGE>
IMPATH INC.
Notes to Condensed Financial Statements
(unaudited)
NOTE 1 - GENERAL:
The accompanying unaudited condensed financial statements have been prepared by
management in accordance with the rules and regulations of the United States
Securities and Exchange Commission.
In the opinion of Impath Inc. (the "Company" or "IMPATH"), the accompanying
unaudited condensed financial statements contain all adjustments, consisting
only of normal recurring adjustments necessary for the fair presentation of the
financial information for all periods presented. Results for the interim periods
are not necessarily indicative of the results for an entire year and do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. These financial
statements should be read in conjunction with the financial statements and the
notes thereto contained in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995.
NOTE 2 - PRO FORMA NET INCOME PER SHARE:
Pro forma net income per share is based on the weighted average number of shares
of common stock outstanding after giving effect to the conversion (calculated
using the as-converted method) of the convertible preferred stock that converted
upon the completion of the Company's initial public offering in February 1996.
Common equivalent shares from stock options and warrants are included in the
computation using the treasury stock method to the extent their effect is
dilutive. All stock options and warrants issued within a one year period prior
to the initial public offering have been treated as outstanding for all reported
periods.
NOTE 3 - INITIAL PUBLIC OFFERING
On October 13, 1995 the Board of Directors authorized the Company to file a
registration statement with the Securities and Exchange Commission to register
shares of its common stock in connection with an initial public offering. Such
offering was consummated on February 26, 1996, for a total of 2,242,500 common
shares at an offering price of $13 per share. The net proceeds to the Company
amounted to approximately $26,062,000.
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<PAGE>
NOTE 4 - INVESTMENTS
The Company invested approximately $20,000,000 of the net proceeds from its
initial public offering in a portfolio of short term fixed income securities
that are actively traded by an investment manager. In accordance with Statement
of Financial Accounting Standards No. 115, the Company's investments are being
recorded at fair value with gains and losses reported in the Statement of
Operations. At March 31, 1996, approximately $18,000,000 of securities with
original maturities of three months or less were included as cash equivalents.
The remaining securities included in the investment portfolio with original
maturities that exceed three months are included in current assets.
-8-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 Compared with Three Months
- ------------------------------------------------------------
Ended March 31, 1995
- --------------------
The Company's total revenues for the first three months of 1996 and 1995 were
$4,742,000 and $3,216,000, respectively, representing an increase of $1,526,000,
or 47.5%, in 1996. This growth was primarily attributable to a 28.0% increase
in case volume resulting from increased sales and marketing activities. In
addition, revenue realization per case increased due to product mix changes
toward cases which carry higher reimbursement rates.
Salaries and related costs for the first three months of 1996 and 1995 were
$2,256,000 and $1,473,000, respectively, representing an increase of $783,000,
or 53.2%, in 1996. This increase was the result of increased personnel
headcount in the Company's New York facility due to the increase in case volume,
as well as personnel costs incurred in connection with the establishment of the
Company's California facility which commenced operations in December 1995. As a
result of these increased personnel costs, salaries and related costs, as a
percentage of total revenues increased to 47.6% in 1996 from 45.8% in 1995.
Selling, general and administrative expenses for the first three months of 1996
and 1995 were $2,259,000 and $1,391,000, respectively, representing an increase
of $868,000, or 62.4%, in 1996. The largest component of this increase was an
increase in bad debt expense of approximately $296,000 associated with higher
revenues, and a shift to more revenues requiring copayments. The Company also
incurred approximately $200,000 of selling, general and administrative expenses
at its California facility which commenced operations in December 1995. In
addition, the Company incurred higher supply costs due to its increased volume
as well as higher travel related expenses associated with expanded sales and
marketing activities. Due to the costs associated with the Company's California
facility, selling, general and administrative expenses as a percentage of total
revenues increased to 47.7% in 1996 from 43.3% in 1995.
Income from operations for the first three months of 1996 and 1995 was $228,000
and $351,000, respectively, representing a decrease of $123,000, or 35.0%, in
1996. The 1996 figure reflects the effect on earnings of the net operating
expenses incurred in connection with the establishment of the Company's
California facility, which commenced operations during December 1995. This
facility will continue to have a negative effect on earnings through at least
the second quarter of 1996 or until it generates sufficient incremental volume
and revenues to cover the facility's operating expenses.
-9-
<PAGE>
Interest income, net for the first three months of 1996 and 1995 was $75,000
and $6,000, respectively, representing an increase of $69,000 in 1996. The
increase was the result of increased interest income generated from the proceeds
of the Company's initial public offering of common stock in February 1996,
partially offset by increased interest expense due to additional capital lease
obligations.
The tax provision for the first three months of 1996 of approximately $135,000
reflects federal, state and local income tax expense. The Company has estimated
its annual effective tax rate for 1996 to be approximately 45% which is in line
with the current provision. For 1995, the Company had recorded deferred tax
assets to the extent of taxes that it expected to pay on estimated 1995 taxable
earnings. Management believes that realization of such deferred assets is more
likely than not. As such, it estimated its annual effective tax rate for 1995
to be zero.
As a result, net income for the first three months of 1996 and 1995 was $168,000
and $357,000, respectively, representing a decrease of $189,000 or 52.9% in
1996. As a percentage of total revenues, net income decreased to 3.5% in 1996
from 11.1% in 1995.
Liquidity and Capital Resources
- -------------------------------
The Company's cash and cash equivalent balances at March 31, 1996 and December
31, 1995 were $24,423,000 and $1,513,000, respectively, representing an increase
of $22,910,000 in 1996. This increase was primarily attributable to
approximately $26,000,000 of net proceeds from the initial public offering of
the Company's common stock, which was consummated on February 26, 1996. In
addition, the Company invested approximately $2,020,000 of the net proceeds in
marketable securities.
For the three months ended March 31, 1996, the Company used net cash in
operating activities of approximately $2,758,000. This utilization of net
operating cash was the result of an investment in short term marketable
securities of approximately $2,020,000 and an increase in accounts receivable of
approximately $1,400,000 due to rapid sales growth. In addition, the Company
paid approximately $560,000 in accrued dividends on preferred stock prior to the
initial public offering.
At March 31, 1996, the Company had working capital of approximately $28,113,000.
The Company's capital expenditures through March 31, 1996 in connection with the
establishment of its California facility were approximately $1,140,000, which
were partially financed through capital equipment leases, a $300,000 secured
term loan, and a $145,200 leasehold improvement allowance from the landlord.
The Company prepaid the balance of the $300,000 secured term loan with the
proceeds from the initial public offering.
The Company's growth strategy is anticipated to be financed through the net
proceeds from the initial public offering, its current cash resources and
existing third party credit facilities. The Company believes the combination of
these sources will be sufficient to fund its operations and satisfy the
Company's cash requirements for the next 12 months and the foreseeable future.
There may be circumstances, however, that would accelerate the Company's use of
proceeds
-10-
<PAGE>
from the initial public offering. If this occurs, the Company may,
from time to time, incur additional indebtedness or issue, in public or private
transactions, equity or debt securities. However, there can be no assurance
that suitable debt or equity financing will be available to the Company.
-11-
<PAGE>
Item 6 Exhibits and Reports on Form 8-K
--------------------------------
(a) The exhibits required to be filed as part of this
Quarterly Report on Form 10-Q are listed in the attached Index to Exhibits.
(b) No reports on Form 8-K were filed during the quarter for
which this Quarterly Report on Form 10-Q is filed.
-12-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 14, 1996 IMPATH INC.
------------ -----------
(Registrant)
Date: May 14, 1996 By / s / ANU D. SAAD
------------ ----------------------------
Anu D. Saad, Ph.D.
President and Chief
Executive Officer
Date: May 14, 1996 By / s / JOHN P. GANDOLFO
------------ ----------------------------
John P. Gandolfo
Executive Vice President,
Chief Financial Officer
and Principal Accounting
Officer
-16-
<PAGE>
INDEX TO EXHIBITS
-----------------
Exhibit Page
Number Description Number
- -------- ----------- ------
11 Statement re Computation of Per Share Earnings
for the Three Months Ended March 31, 1996
and 1995 (Unaudited) 14
27 Financial Data Schedule 15
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<PAGE>
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months
Ended March 31,
---------------
1996
----------
<S> <C>
Net income available to common stockholders $ 85,820
Accrued dividends on preferred stock 82,346
----------
Net income for computing pro forma net income per share 168,166
==========
Pro forma weighted average common shares outstanding
assuming conversion of all preferred stock 3,987,491
Shares of common stock assumed to be issued upon
exercise of common stock options and warrants to
purchase common stock using treasury stock method,
including "cheap" options and warrants as outstanding for
all periods 457,509
----------
Weighted average number of common and common
equivalent shares outstanding during the period 4,445,000
==========
Pro forma net income per share $0.04
==========
</TABLE>
-14-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 24,423,065
<SECURITIES> 0
<RECEIVABLES> 6,533,417
<ALLOWANCES> 1,912,382
<INVENTORY> 105,294
<CURRENT-ASSETS> 31,868,611
<PP&E> 3,624,826
<DEPRECIATION> 992,608
<TOTAL-ASSETS> 34,617,394
<CURRENT-LIABILITIES> 1,736,036
<BONDS> 0
0
0
<COMMON> 26,330
<OTHER-SE> 32,494,643
<TOTAL-LIABILITY-AND-EQUITY> 34,617,394
<SALES> 4,742,026
<TOTAL-REVENUES> 4,742,026
<CGS> 1,964,271
<TOTAL-COSTS> 4,514,153
<OTHER-EXPENSES> 2,549,882
<LOSS-PROVISION> 582,728
<INTEREST-EXPENSE> 45,705
<INCOME-PRETAX> 302,906
<INCOME-TAX> 134,740
<INCOME-CONTINUING> 227,873
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 168,166
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
