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FORM 10-Q/A
AMENDMENT NO. 1
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, 1998.
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
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IMPATH INC.
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(exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 8071 13-3459685
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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521 West 57th Street, 6th Floor
NEW YORK, NEW YORK 10019
(212) 698-0300
(Address, including zip code, and telephone number,
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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 X No ___
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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 MARCH 31, 1998
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Common Stock, par value 7,825,685
$ .005 per share
1
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The registrant hereby amends its Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998 to correct errors in the Consolidated Statements of Cash
Flows (Unaudited) included in the Financial Statements at Item 1 and to correct
a typographical error in the first sentence of the fourth paragraph (105%
instead of 10.5%) of Management's Discussion and Analysis included at Item 2.
Although the only change to the Financial Statements included in Item 1 is to
the Consolidated Statements of Cash Flows (Unaudited), the Financial Statements
are set forth in full in this Form 10-Q/A pursuant to Regulation Section
240.12b-15.
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PAGE NUMBER
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Item 1. Consolidated Financial Statements (Unaudited):
Consolidated Balance Sheets at March 31, 1998
and December 31, 1997................................................... 3
Consolidated Statements of Operations for the Three
Months Ended March 31, 1998 and March 31, 1997.......................... 4
Consolidated Statement of Stockholders' Equity for the
Three Months Ended March 31, 1998....................................... 5
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1998 and March 31, 1997.......................... 6
Notes to Consolidated Financial Statements.............................. 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations................................ 8
Signatures...................................................................... 10
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2
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Item 1. Consolidated Financial Statements (Unaudited)
IMPATH INC. AND SUBSIDIARIES
Consolidated Balance Sheets
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<CAPTION>
MARCH 31, DEC. 31,
1998 1997
ASSETS (UNAUDITED) (AUDITED)
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Current assets:
Cash and cash equivalents $ 66,208,440 $ 325,285
Marketable securities at market value 17,660,007 13,952,148
Accounts receivable, net of allowance for doubtful accounts 13,759,593 11,948,229
Prepaid expenses 423,240 276,073
Deferred tax assets, net 53,427 53,427
Other current assets 769,251 703,753
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Total current assets 98,873,958 27,258,915
Fixed assets, less accumulated depreciation and amortization 12,390,773 10,475,575
Deposits and other assets 180,034 334,167
Intangible assets, net of accumulated amortization 8,157,531 8,273,636
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Total assets $119,602,296 $46,342,293
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease obligations $ 1,321,439 $ 1,222,281
Current portion of note payable 829,333 700,000
Accounts payable 2,191,362 956,648
Construction payments payable - 1,542,199
Income taxes payable 693,078 158,094
Accrued expenses 935,058 728,353
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Total current liabilities 5,970,270 5,307,575
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Capital lease obligations, net of current portion 2,027,623 2,451,587
Note payable, net of current portion 189,667 274,000
Stockholders' equity:
Common stock 39,164 27,294
Additional paid-in capital 105,752,313 33,893,774
Retained earnings 6,226,228 5,148,077
Unrealized net depreciation of marketable securities (37,569) (83,881)
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111,980,136 38,985,264
Less:
Cost of 7,088 shares of common stock held in treasury (100) (100)
Deferred compensation (565,300) (676,033)
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Total stockholders' equity 111,414,736 38,309,131
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Total liabilities and stockholders' equity $119,602,296 $46,342,293
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See accompanying notes to consolidated financial statements.
3
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IMPATH INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
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THREE MONTHS ENDED MARCH 31,
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1998 1997
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Revenues:
Net diagnostic and prognostic services $11,603,161 $7,824,950
Contract laboratory services 109,347 20,036
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Total revenues 11,712,508 7,844,986
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Operating expenses:
Salaries and related costs 4,729,622 3,238,196
Selling, general and administrative 5,282,104 3,775,987
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Total operating expenses 10,011,726 7,014,183
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Income from operations 1,700,782 830,803
Interest income 341,138 62,644
Interest expense 133,109 81,418
Gains on marketable securities, net - 202,537
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Income before income tax expense 1,908,811 1,014,566
Income tax expense (830,660) (451,089)
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Net income available to common stockholders $ 1,078,151 $ 563,477
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Per common and common equivalent share:
Basic:
Net income per common share $.18 $.11
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Weighted average common and common
Equivalent shares outstanding 6,011,000 5,352,000
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Dilutive:
Net income per common share-assuming dilution $.17 $.10
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Weighted average common and common
Equivalent shares outstanding-assuming dilution 6,460,000 5,754,000
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IMPATH INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
Three Months ended March 31, 1998
(Unaudited)
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COMMON STOCK Additional UNREALIZED NET
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PAID-IN ACCUMULATED DEPRECIATION OF
Shares Amount CAPITAL EARNINGS SECURITIES
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<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 5,458,827 $27,294 $ 33,893,774 $5,148,077 ($83,881)
========= ======= ============ ========== ========
Common shares issued upon
exercise of stock options 44,615 223 91,069
Common shares issued upon
exercise of warrants 29,331 147 102,659
Common shares issued upon
secondary offering, net 2,300,000 11,500 71,704,811
Compensation associated with
issuance of options to non-
employees
Amortization of deferred
compensation (40,000)
Change in unrealized net
depreciation of securities 46,312
Net income for the period
ended March 31, 1998 1,078,151
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Balance at March 31, 1998 7,832,773 $39,164 $105,752,313 $6,226,228 ($37,569)
========= ======= ============ ========== ========
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TREASURY DEFERRED
STOCK COMPENSATION TOTAL
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<S> <C> <C> <C>
Balance at December 31, 1997 ($100) ($676,033) $ 38,309,131
===== ========= ============
Common shares issued upon
exercise of stock options 91,292
Common shares issued upon
exercise of warrants 102,806
Common shares issued upon
secondary offering, net 71,716,311
Compensation associated with
issuance of options to non-
employees
Amortization of deferred 40,500 40,500
compensation 70,233 30,233
Change in unrealized net
depreciation of securities 46,312
Net income for the period
ended March 31, 1998 1,078,151
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Balance at March 31, 1998 ($100) ($565,300) $111,414,736
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See accompanying notes to consolidated financial statements.
5
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IMPATH INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
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<CAPTION>
THREE MONTHS ENDED MARCH 31,
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1998 1997
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Cash flows from operating activities:
Net income $ 1,078,151 $ 563,477
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 553,457 349,239
Provision for uncollectible accounts receivable 1,163,396 1,100,349
Non-cash compensation 70,733 31,896
Changes in assets and liabilities:
(Increase) in accounts receivable (2,974,760) (2,688,028)
(Increase) in prepaid expenses and current assets (212,665) (109,296)
Decrease (increase) in deposits and other assets 154,133 (12,390)
(Decrease) in accounts payable and accrued expenses (100,780) (444,180)
Increase (decrease) in income taxes payable 534,984 (147,911)
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Total adjustments (811,502) (1,920,321)
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Net cash provided by (used in) operating activities 266,649 (1,356,844)
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Cash flows from investing activities:
Purchases of marketable securities (7,273,339) 3,745,669
Sales/maturities of marketable securities 3,611,792 -
Acquisitions of businesses - (1,175,000)
Capital expenditures (2,307,550) (145,279)
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Net cash (used in) provided by investing activities (5,969,097) 2,425,390
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Cash flows from financing activities:
Issuance of common stock 194,098 113,006
Proceeds of secondary offering, net of registration costs to date 71,716,311 -
Payments of capital lease obligations (324,806) (212,991)
Payments received on officer loans - 521
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Net cash provided by (used in) financing activities 71,585,603 (99,464)
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Net increase in cash and cash equivalents 65,883,155 969,082
Cash and cash equivalents at beginning of period 325,285 941,903
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Cash and cash equivalents at end of period $66,208,440 $ 1,910,985
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See accompanying notes to consolidated financial statements.
6
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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 consolidated
financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto contained in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
NET INCOME PER SHARE:
Net income per share, basic is based on the weighted average number of shares of
common stock outstanding. Fully diluted earnings per share is based on the
weighted average number of shares of common stock and common equivalent shares
outstanding. 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.
Comprehensive net income is equal to the net income reported adjusted for the
unrealized net appreciation of marketable securities, net of related deferred
taxes. Comprehensive net income for the three months ended March 31, 1998 and
1997 was $1,124,463 and $563,477, respectively.
INVESTMENT:
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 115,
the Company's investments (consisting primarily of government and corporate
fixed income securities) were classified as available for sale. As a result,
the unrealized depreciation is recorded as a separate component of stockholder's
equity, net of related deferred taxes. Prior to October 1, 1997, the Company's
investments were classified as trading securities with unrealized gains and
losses reported in the consolidated statement of operations. The Company
currently has approximately $83,000,000 invested in a portfolio of short term
fixed income securities , approximately $70,000,000 of which was generated from
the net proceeds of an underwritten public offering of 2,300,000 shares of
common stock in March 1998. At March 31, 1998, approximately $66,000,000 of
securities with original maturities of three month 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
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
COMPARED WITH THREE MONTHS ENDED MARCH 31, 1997
The Company's total revenues for the first three months of 1998 and 1997 were
$11,713,000 and $7,845,000, respectively, representing an increase of
$3,868,000, or 49.3%, in 1998. This growth was primarily attributable to a
53.6% increase in case volume resulting from increased sales and marketing
activities and to the successful integration of the Company's 1997 acquisitions
of certain assets of Oncogenetics, Inc., Immunodiagnostic Laboratories, Inc.,
the Gencare division of BioReference Laboratories, Inc. and Aeron Biotechnology,
Inc. In addition, revenue realization per case increased due to product mix
changes toward cases which carry higher reimbursement rates and to payor mix
shifts away from direct hospital billing towards private insurance.
Salaries and related costs for the first three months of 1998 and 1997 were
$4,730,000 and $3,238,000, respectively, representing an increase of $1,492,000,
or 46.1%, in 1998. 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 40.4% in 1998 from 41.3%
in 1997.
Selling, general and administrative expenses for the first three months of 1998
and 1997 were $5,282,000 and $3,776,000, respectively, representing an increase
of $1,506,000, or 39.9%, in 1998. The largest component of this increase was
$502,000 in incremental courier and laboratory supply costs due to rapid case
volume growth. The Company also incurred an additional $204,000 in amortization
and depreciation expenses associated with the Company's asset acquisitions and
capital equipment requirements. In addition, the Company incurred $156,000 in
incremental travel related expenses and professional fees associated with
expanded sales, marketing and investor relations activities. Selling, general
and administrative expenses as a percentage of total revenues decreased to 45.1%
in 1998 from 48.1% in 1997.
Income from operations for the first three months of 1998 and 1997 was
$1,701,000 and $831,000, respectively, representing an increase of $870,000, or
105%, in 1998. The 1998 figure reflects increased company operating margins
from its core diagnostic and prognostic services and the Company's continued
expansion of its oncology business, particularly in molecular and Cytogenetics
testing for cancer. As a percentage of total revenues, income from operations
increased to 14.5% in 1998 from 10.6% in 1997.
Other income, net for the first three months of 1998 and 1997 was $208,000 and
$184,000, respectively, representing an increase of $24,000 in 1998. The
increase was the result of increased interest income generated from the proceeds
of the Company's secondary public offering of common stock in March 1998,
partially offset by increased interest expense due to additional capital lease
obligations.
The tax provision for the first three months of 1998 of approximately $831,000
reflects federal, state and local income tax expense. The Company has estimated
its annual effective tax rate for 1998 to be approximately 44% which is in line
with the current provision.
Net income for the first three months of 1998 and 1997 was $1,078,000 and
$563,000, respectively, representing an increase of $515,000, or 91.5% in 1998.
As a percentage of total revenues, net income increased to 9.2% in 1998 from
7.2% in 1997, which was due to the factors described above.
8
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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. In March
1998, the Company raised approximately $72,000,000 of capital through an
underwritten secondary public offering of Common Stock. The proceeds will be
used to fund the Company's growth strategy and the continued development of its
outcomes database.
The Company's cash and cash equivalent balances at March 31, 1998 and December
31, 1997 were $66,208,000 and $325,000, respectively, representing an increase
of $65,883,000 in 1998, primarily due to the net cash proceeds generated from
the secondary public offering of 2.3 million shares of common stock. The
Company has invested approximately $70,000,000 of the proceeds in a portfolio of
short-term government and corporate fixed income securities.
For the quarter ended March 31, 1998, net cash provided by operating activities
was approximately $266,000. This resulted from higher net income, as well as an
increase in income taxes payable of $535,000 due to timing differences between
book and taxable income, offset by an increase in accounts receivable net of
allowance for bad debt of approximately $1,811,000 due to rapid sales growth.
The Company also reduced its accounts payable and accrued expenses by
approximately $100,000.
For the quarter ending March 31, 1998, the Company invested approximately
$3,600,000 of the proceeds from the secondary offering in marketable securities
and incurred approximately $2,300,000 in capital expenditures, including costs
associated with the Company's relocation of its New York facilities.
The Company received approximately $194,000 for the quarter ended March 31, 1998
through the issuance of Common Stock upon the exercise of incentive stock
options and warrants. The Company used approximately $325,000 to satisfy its
capital lease obligations.
In March 1998, the Company established an unsecured line of credit at an
aggregate amount of $10.0 million with Fleet Bank. Borrowing under the line
will bear interest at LIBOR plus 2.25%. As of March 31, 1998, 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 secondary public offering of 2,300,000 shares of its Common
Stock, 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 secondary 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
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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 14, 1998 IMPATH INC.
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(Registrant)
Dated: May 14, 1998 By /s/ ANU D. SAAD
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Anu D. Saad, Ph.D.
President and Chief
Executive Officer
Dated: May 14, 1998 By /s/ JOHN P. GANDOLFO
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John P. Gandolfo
Executive Vice President,
Chief Financial Officer
and Principal Accounting
Officer
10
