<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, 1997.
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
-------
IMPATH INC.
(exact name of registrant as specified in its charter)
--------------
DELAWARE 8071 13-3459685
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Classification Identification No.)
Code Number)
1010 THIRD AVENUE, SUITE 302
NEW YORK, NEW YORK 10021
(212) 702-8300
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
--------------
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, 1997
----- --------------------------
Common Stock, par value 5,376,362
$.005 per share
1
<PAGE>
INDEX
IMPATH INC.
PAGE NUMBER
-----------
PART I FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements (Unaudited):
Consolidated Balance Sheets at March 31, 1997
and December 31, 1996........................................ 3
Consolidated Statements of Operations for the Three
Months Ended March 31, 1997 and March 31, 1996............... 4
Consolidated Statement of Stockholders' Equity for the
Three Months Ended March 31, 1997............................ 5
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1997 and March 31, 1996............... 6
Notes to Consolidated 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
2
<PAGE>
IMPATH INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
MARCH 31, DEC. 31,
1997 1996
ASSETS (UNAUDITED) (AUDITED)
------------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,910,985 941,903
Marketable trading securities 19,649,729 23,395,398
Accounts receivable, net of allowance for doubtful accounts 9,122,491 7,059,812
Prepaid expenses and other current assets 633,895 524,599
Deferred tax assets, net 1,359,285 1,359,285
----------- ----------
Total current assets 32,676,385 33,280,997
Fixed assets, less accumulated depreciation and amortization 3,767,174 3,391,965
Deposits and other assets 126,268 98,878
Goodwill, net of accumulated amortization 2,220,840 809,542
----------- ----------
Total Assets $38,790,667 37,581,382
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations $ 594,919 704,399
Accounts payable and accrued expenses 1,592,061 1,116,781
Income taxes payable 544,282 692,193
----------- ----------
Total current liabilities 2,731,262 2,513,373
----------- ----------
Capital lease obligations, net of current portion 1,712,600 1,430,104
Stockholders' equity:
Common stock, $.005 par value, 26,917 26,611
Additional paid-in capital 32,469,960 32,357,260
Accumulated deficit 2,062,355 1,498,878
----------- ----------
34,559,232 33,882,749
Less:
Cost of 7,088 shares of common stock held in treasury (100) (100)
Notes receivable from officers (27,900) (28,421)
Deferred compensation (184,427) (216,323)
----------- ----------
Total stockholders' equity 34,346,805 33,637,905
----------- ----------
Total liabilities and stockholders' equity $38,790,667 37,581,382
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
IMPATH INC.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------
1997 1996
--------------- -------------
<S> <C> <C>
Revenues:
Net diagnostic and prognostic services $7,824,950 4,694,350
Contract laboratory services 20,036 47,676
---------- ----------
Total revenues 7,844,986 4,742,026
---------- ----------
Operating expenses,
Salaries and related costs 3,238,196 2,255,564
Selling, general and administrative 3,775,987 2,258,589
---------- ----------
Total operating expenses 7,014,183 4,514,153
---------- ----------
Income from operations 830,803 227,873
Interest income 62,644 120,738
Interest Expense 81,418 45,705
Gain on trading marketable securities 202,537 -
---------- ----------
Income before income tax expense 1,014,566 302,906
Income tax expense (451,089) (134,740)
---------- ----------
Net income 563,477 168,166
Accrued dividends on preferred stock - (82,346)
---------- ----------
Net income available to common stockholders $ 563,477 85,820
========== ==========
Net income per share $0.10 $0.04
========== ==========
Weighted average common and common
equivalent shares outstanding 5,754,000 4,445,000
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
IMPATH INC.
Consolidated Statement of Stockholder's Equity
Three Months ended March 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
NOTES
COMMON STOCK ADDITIONAL RECEIVABLE
------------------- PAID-IN ACCUMULATED TREASURY FROM DEFERRED
SHARES AMOUNT CAPITAL EARNINGS STOCK STOCKHOLDER COMPENSATION TOTAL
--------- ------- ---------- ----------- -------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 5,322,286 $26,611 32,357,260 1,498,878 (100) (28,421) (216,323) 33,637,905
Common shares issued upon
exercise of stock options 59,878 299 108,206 108,505
Common shares issued upon
exercise of warrant 1,286 7 4,494 4,501
Repayments of loans to
stockholders 521 521
Amortization of deferred
compensation 31,896 31,896
Net income for the period
ended 31-Mar-97 563,477 563,477
--------- ------- ---------- --------- ----- -------- --------- ----------
Balance at March 31, 1997 5,383,450 26,917 32,469,960 2,062,355 (100) (27,900) (184,427) 34,346,805
========= ======= ========== ========= ===== ======== ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
IMPATH INC.
Consolidated Statements of Cash Flows
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 563,477 168,166
Adjustments to reconcile net income to net cash provided by operating activities-
Depreciation and amortization 349,239 182,974
Provision for uncollectible accounts receivable 1,100,349 582,728
Amortization of deferred compensation 31,896 31,896
Changes in assets and liabilities:
(Increase) in accounts receivable (2,688,028) (1,396,387)
(Increase) in prepaid expenses and current assets (109,296) (26,550)
Decrease (increase) in marketable securities 3,745,669 (2,019,600)
(Increase) in deposits and other assets (12,390) (6,411)
(Decrease) in accounts payable and accrued expenses (444,180) (274,877)
(Decrease) increase in income taxes payable (147,911) 451
----------- ----------
Total adjustments 1,825,348 (2,925,776)
----------- ----------
Net cash provided (used) by operating activities 2,388,825 (2,757,610)
----------- ----------
Cash flow from investing activities:
Purchase of Oncogenetics Inc. (750,000) -
Purchase of Immunodiagnostic Inc. customer list (425,000) -
Capital expenditures (145,279) (150,761)
----------- ----------
Net cash used in investing activities (1,320,279) (150,761)
----------- ----------
Cash flows from financing activities:
Payment of dividends on preferred stock - (560,346)
Issuance of common stock 113,006 26,024,312
Repayments of bank loan - (283,333)
Payments of capital lease obligations (212,991) (111,268)
Payments received on officer loans 521 2,914
Deferred Registration Costs - 746,462
----------- ----------
Net cash (used) provided by financing activities (99,464) 25,818,741
----------- ----------
Net increase in cash and cash equivalents 969,082 22,910,370
Cash and cash equivalents at beginning of period 941,903 1,512,695
----------- ----------
Cash and cash equivalents at end of period $ 1,910,985 24,423,065
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
IMPATH INC.
Notes to Consolidated Financial Statements
(unaudited)
GENERAL:
The accompanying unaudited consolidated 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 consolidated 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, 1996.
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.
INVESTMENT:
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, 1997, approximately $1,300,000 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.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997
COMPARED WITH THREE MONTHS ENDED MARCH 31, 1996
The Company's total revenues for the first three months of 1997 and 1996 were
$7,845,000 and $4,742,000, respectively, representing an increase of $3,103,000,
or 65.5%, in 1997. This growth was primarily attributable to a 37.2% 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 1997 and 1996 were
$3,238,000 and $2,256,000, respectively, representing an increase of $982,000,
or 43.5%, in 1997. This increase was the result of increased personnel
headcount due to the increase in case volume, as well as personnel costs
incurred in connection with the Company's expansion. Salaries and related
costs, as a percentage of total revenues decreased to 41.3% in 1997 from 47.6%
in 1996.
Selling, general and administrative expenses for the first three months of 1997
and 1996 were $3,776,000 and $2,259,000, respectively, representing an increase
of $1,517,000, or 67.2%, in 1997. The largest component of this increase was an
increase in bad debt expense of approximately $517,000 associated with higher
revenues, and a shift to more revenues requiring copayments. Third-party
revenues have historically had a higher bad debt rate than institutional
revenues. The Company also incurred $239,000 in selling, general and
administrative expenses associated with the Phoenix based cancer testing
facility acquired from Oncogenetics, Inc. in January, 1997. 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 newly acquired
testing facility, selling, general and administrative expenses as a percentage
of total revenues increased to 48.1% in 1997 from 47.7% in 1996.
Income from operations for the first three months of 1997 and 1996 was $831,000
and $228,000, respectively, representing an increase of $603,000, or 264.5%, in
1997. The 1997 figure reflects the effect on earnings of the net operating
expenses incurred in connection with the addition of the Phoenix facility, which
was purchased in January, 1997. This facility was able to generate sufficient
incremental volume and revenues to cover the facility's operating expenses in
the first quarter of 1997. As a percentage of total revenues, income from
operations increased to 10.6% in 1997 from 4.8% in 1996.
Other income, net for the first three months of 1997 and 1996 was $184,000 and
$75,000, respectively, representing an increase of $109,000 in 1997. The
increase was the result of increased income generated from trading gains on
marketable securities using 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 1997 of approximately $452,000
reflects federal, state and local income tax expense. The Company has estimated
its annual effective tax rate for 1997 to be approximately 45% which is in line
with the current provision.
As a result, net income for the first three months of 1997 and 1996 was $563,000
and $168,000, respectively, representing an increase of $395,000 or 235% in
1997. As a percentage of total revenues, net income increased to 7.2% in 1997
from 3.5% in 1996.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations through its February
1996 initial public offering, the private issuance of convertible preferred
stock, secured term loans and operating and capital equipment leases. Since its
inception, the Company has raised approximately $32,500,000 of capital through
the initial public offering of Common Stock and private placements of preferred
stock, all of which was converted into common stock at the closing of the
initial public offering. The Company's working capital and capital expenditure
needs have increased and are expected to continue to increase as the Company
expands its existing facilities and pursues its growth strategy.
The Company's cash and cash equivalent balances at March 31, 1997 and December
31, 1996 were $1,911,000 and $942,000, respectively, representing an increase of
$969,000 in 1997. The Company has also invested approximately $20,000,000 in a
portfolio of fixed income securities managed by a Wall Street investment firm.
For the quarter ended March 31, 1997, the Company provided net cash from
operating activities of approximately $2,389,000. This resulted from the sale
of marketable trading securities of approximately $3,746,000, offset by an
increase in accounts receivable net of allowance for bad debt of approximately
$1,588,000 due to rapid sales growth. These inflows were complimented by higher
net income. In addition, a portion of the proceeds from the sale of
approximately $3,746,000 in marketable securities was used for company expansion
activities: the $750,000 purchase of Oncogenetics Inc.'s cancer testing
facility and the $425,000 purchase of Immunodiagnostic Inc's customer list.
In August 1996, the Company renewed its line of credit at an aggregate amount of
$2,500,000 with the Chase Manhattan Bank. Borrowing under the line will bear
interest at the Chase Manhattan Bank's prime rate. The availability of the line
of credit is subject to the execution of such additional documentation as the
Chase Manhattan Bank may request. As of March 31, 1997 the Company had not
drawn on the line of credit.
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 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.
IMPACT OF INFLATION AND CHANGING PRICES
The impact of inflation and changing prices on the Company has been primarily
limited to salary, laboratory and operating supplies and rent increases and has
not been material to date to the Company's operations. In the future, the
Company may not be able to raise the prices for its cases by an amount
sufficient to cover the cost of inflation, although the Company is responding to
these concerns by attempting to increase the volume and adjust the product mix
of its business.
9
<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.
10
<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.
Dated: May 9, 1997 IMPATH INC.
-----------
(Registrant)
Dated: May 9, 1997 By /s/ ANU D. SAAD
--------------------
Anu D. Saad, Ph.D.
President and Chief
Executive Officer
Dated: May 9, 1997 By /s/ JOHN P. GANDOLFO
------------------------
John P. Gandolfo
Executive Vice President,
Chief Financial Officer
and Principal Accounting
Officer
11
<PAGE>
INDEX TO EXHIBITS
-----------------
Exhibit Page
Number Description Number
- -------- ----------------------------------------- ------
11 Statement re Computation of Per Share Earnings
for the Three Months Ended March 31, 1997
and 1996 (Unaudited) 14
27 Financial Data Schedule 15
<PAGE>
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
--------------- ---------------
1997 1996
------ ------
<S> <C> <C>
Net income available to common stockholders $ 563,476 $ 85,820
Accrued dividends on preferred stock - 82,346
---------- ----------
Net income for computing net income per share 563,476 168,166
========== ==========
Weighted average common shares outstanding
assuming conversion of all preferred stock 5,352,033 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 401,967 457,509
---------- ----------
Weighted average number of common and common
equivalent shares outstanding during the period 5,754,000 4,445,000
========== ==========
Net income per share $0.10 $0.04
========== ==========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,910,985
<SECURITIES> 19,649,729
<RECEIVABLES> 13,560,400
<ALLOWANCES> 4,437,909
<INVENTORY> 88,311
<CURRENT-ASSETS> 32,676,385
<PP&E> 7,962,763
<DEPRECIATION> 1,974,749
<TOTAL-ASSETS> 38,790,667
<CURRENT-LIABILITIES> 2,731,262
<BONDS> 0
0
0
<COMMON> 26,917
<OTHER-SE> 34,319,888
<TOTAL-LIABILITY-AND-EQUITY> 38,790,667
<SALES> 7,844,986
<TOTAL-REVENUES> 7,844,986
<CGS> 2,751,553
<TOTAL-COSTS> 7,014,183
<OTHER-EXPENSES> 4,262,631
<LOSS-PROVISION> 1,100,349
<INTEREST-EXPENSE> 81,420
<INCOME-PRETAX> 1,014,565
<INCOME-TAX> 451,089
<INCOME-CONTINUING> 563,476
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 563,476
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
