IMATRON ULTRAFAST CT(R) ELECTRON BEAM TOMOGRAPHY
ANNUAL REPORT 1995
Mission Statement
Imatron's mission is to devote our maximum effort to every aspect of our
Company's business. We are committed to and will tolerate nothing less than the
highest standards of quality and performance in all phases of Imatron's
commercial relationship with our customers. We will treat our customers and
fellow workers with the utmost respect and consideration.
Our goal is to provide each of our employees with a professionally challenging
and intellectually stimulating working environment. We will reward and recognize
individual achievement, initiative, creativity and teamwork.
We value the confidence our customers have shown in our capabilities, products
and services. The satisfaction of our customers' requirements is our focus and
the only effective vehicle to provide long term value to our shareholders.
<PAGE>
PRESIDENT'S MESSAGE
To our shareholders:
I am delighted to report that 1995 has been a pivotal year of achievement at
Imatron both in building a strong foundation for accelerated company growth and
moving aggressively forward with the successful commercialization of our
proprietary Ultrafast CT(R) electron beam computed tomography technology.
This progress has been accomplished while cardiovascular disease, the nation's
number one killer, continues to be the single largest component of the United
States healthcare budget at more than $120 billion annually. More importantly,
of the more than 4,100 Americans who will suffer a heart attack each day (1.5
million Americans annually), nearly half, or about 1,800 per day, will have had
no prior symptoms of heart disease.
1995: A PIVOTAL YEAR OF ACHIEVEMENT
In the past 12 months, Imatron has:
Reached new levels of medical community awareness of the potential for our
proprietary Ultrafast CT coronary artery scanning (CAS) to revolutionize the way
in which coronary artery disease is diagnosed. Several comprehensive studies
have recently been published by the nation's leading cardiologists, in
prestigious peer-reviewed medical journals, documenting the effectiveness of
Ultrafast CT coronary artery scanning in diagnosing persons with--or at risk
of--coronary artery disease (CAD).
Educated the general public on the value of the non-invasive Ultrafast CT
coronary artery scan. During the past year, Ultrafast CT CAS has been featured
in a front page New York Times article, Time Magazine, U.S. News and World
Report, The Wall Street Journal as well as on ABC's "Primetime Live" and
"20/20", "Live With Regis and Kathie Lee" and literally dozens of network
affiliate news shows--all on the effectiveness of CAS.
Positioned our wholly owned HeartScan Imaging, Inc. subsidiary as the engine of
future company growth. With the recent openings of centers in Seattle and
Houston, HeartScan has opened the first of three of what is envisioned to be an
extensive worldwide network of coronary artery disease risk assessment
outpatient centers featuring the Ultrafast CT coronary artery scan and other
factor assessment.
Strengthened Imatron's financial position. Imatron successfully completed a
$10.8 million equity financing and has secured a bank line of credit. This
capital will be used to finance increased worldwide marketing activities,
inventory, and, initially, HeartScan center development until HeartScan secures
its own financing later in 1996.
By mid-1996, we expect to have completed building a solid company foundation and
are already beginning to shift our focus to developing HeartScan Imaging, Inc.,
and to achieving higher levels of Ultrafast CT scanner sales.
1995 FINANCIAL SUMMARY
For 1995, Imatron posted a net loss of $2.4 million, or $0.04 per share, on
revenues of $26.7 million compared with net income of $2.3 million, or $0.04 per
share, on revenues of $33.6 million in the prior year. The year's financial
results reflect: increased investment in worldwide marketing; reduced scanner
sales to Siemens, as well as in the People's Republic of China where recently
enacted currency controls have slowed commerce; and costs associated with
opening new HeartScan Centers in Houston, Seattle and development expenses for
the Washington D.C. and Pittsburgh Centers, both of which are scheduled for
summer 1996 openings.
<PAGE>
On Dec. 31, 1995, Imatron working capital had increased 64 percent to $14.3
million from a year ago; while shareholders' equity increased to $16.2 million
from $6.9 million, or nearly doubled on a per-share basis.
LOOKING AHEAD
During the next twelve months we are focused on achieving the following goals:
Fuel the demand for coronary artery scanning by Ultrafast CT. Imatron will
continue working with leading cardiology advisory organizations to develop
public and medical community awareness of the value of Ultrafast CT compared
with the broad spectrum of conventional cardiac diagnostic procedures.
Deliver additional clinical capabilities to our new and installed Ultrafast CT
Scanner customers. The Imatron/Siemens joint technology development program
ensures our customers access to state-of-the-art technology, and maintains
Imatron's competitive advantage in the market with a major technological barrier
to entry.
Build international product sales through increased marketing activities and
growing demand. Overseas medical markets, many of which are inclined toward a
long term perspective, see the tremendous value in early detection of heart
disease. Imatron is moving aggressively to capitalize on this strong interest.
Complete a substantial equity financing for our wholly owned HeartScan Imaging,
Inc. subsidiary. This capital will be used to develop no less than six
additional Coronary Artery Disease Risk Assessment Centers over the next 12
months in conjunction with major hospitals, universities and other institutions
recognized as opinion leaders in the field of cardiology.
We at Imatron are excited to have an important role in changing the way the
United States deals with coronary artery disease--an often preventable cause of
personal suffering and huge economic loss in America--and we are pleased that
you share our vision. Strong momentum is now building among the American public
and the physician community for the widespread acceptance of the coronary artery
scan as the best "first test" for coronary artery disease. This momentum, and
the increased awareness of the health and economic benefit of our proprietary
technology, forms the intangible foundation for Imatron's future growth.
We are committed to capitalizing on this growing momentum to build Imatron and
HeartScan Imaging into a successful, exemplary companies delivering high quality
products and services to our customers and value to our shareholders.
Thank you for your support and confidence.
/s/ S. Lewis Meyer
S. Lewis Meyer
President and Chief Executive Officer
May 10, 1996
<PAGE>
ULTRAFAST CT: IMATRON'S ELECTRON BEAM TOMOGRAPHY (EBT)
State-of-the-Art Proprietary Technology
Ultrafast CT uses Imaton's patented, proprietary electron-beam computed
tomography technology to scan the beating heart at at speed fast enough to
"freeze" the heart's motion...far faster than any conventional (mechanical) CT
scanning technology. The Ultrafast CT scan data can then be electronically
converted by a computer into a three-dimensional image of the heart clearly
showing the coronary arteries, coronary bypass grafts and significant blockages
of the principal coronary arteries.
Competitive Advantage: World Class Research and Development
Imatron's engineering group consists of more than 60 professionals. This
unusually powerful R&D capability is partly funded by Imatron's strategic
partner, Siemens, who has agreed to contribute $15 million ($5 million annually)
to Imatron's program of electron beam tomography (EBT) technology development
($7.5 million to date). World-class research and development enables Imatron to
maintain its technological superiority in the field of EBT, erecting formidable
barriers to the entry of potential competitors in the marketplace; achieve new
scanner manufacturing efficiencies; and solidify lmatron's position that EBT is
the most advanced CT technology available and the only CT technology capable of
extending "state-of-the-art" CT imaging well into the next century.
"To be screened for heart disease, people are subjected to an exercise stress
test or injected with radioactive thallium before undergoing an X-ray. Now
research shows that an Ultrafast cat-scan can do the job just as well." Time
Magazine, March 25, 1996
Recent studies documenting the effectiveness of coronary artery scanning by
lmatron's Ultrafast CT have created a groundswell of public and healthcare
community interest:
Radiology (September 1995) - Reported that 'clear visualization of stenoses, or
blockages, in the coronary arteries is possible using dramatic, 3-D
visualization of the coronary arteries based on a data set of Ultrafast CT
images.'
International Symposium on Electron Beam Tomography (October 1995) - Papers
discussed: (1) Potential of Ultrafast CT to save the U.S. healthcare system
approximately $2 billion annually by eliminating unnecessary hospital
admissions; (2) Cost savings from the use of Ultrafast CT as an initial test for
patients with chest pain as well as those exhibiting no symptoms; and (3)
Coronary calcification, as measured by Ultrafast CT, is more predictive of heart
attack than cholesterol or other conventional risk factors.
68th American Heart Association Scientific Session (November, 1995) - Two
studies on Ultrafast CT suggested that Imatron's EBT technology could be the key
to identifying asymptomatic individuals, who should be candidates for
cholesterol lowering drug therapy.
Circulation (March 1, 1996), - American Heart Association journal - Reported
that CAS by Ultrafast CT has "excellent sensitivity for the detection of
coronary artery disease".
45th Annual Scientific Session of the American College of Cardiology (March
1996) - Ten papers involving Ultrafast CT applications presented, including a
19-month follow-up study which found coronary artery scanning by Ultrafast CT to
be 'highly effective in predicting cardiovascular events, including heart
attacks, in this large sample of asymptomatic persons."
Mayo Clinic Proceedings (April 1996) - Major review article concluded that the
CAS scan by Ultrafast CT has a sensitivity of 94 to 97 percent for detecting
blocked coronary vessels and is greater than 95 percent effective in ruling out
obstructive coronary artery disease.
In addition, the following two landmark studies demonstrated that effective
treatments for coronary artery disease are available to treat persons with, or
at risk for, CAD.
"West of Scotland" study (November l995) - Substantiated the power of
Pravastatin in reducing the risk of cardiac events and CAD related sudden death
in an asymptomatic patient population at high risk for CAD.
Four year follow-up study by Dr. Dean Ornish (Preventive Medicine Research
Institute) - Demonstrated reversal of coronary artery disease through an
aggressive program of lifestyle modification, including diet, exercise and
stress management.
Conclusion: CAD can be diagnosed in individuals with no symptoms and effective
treatments are available.
<PAGE>
IMATRON
R & D
SALES AND DISTRIBUTION
Imatron is focused on the two principal elements of its business: International
sales and distribution of Ultrafast CT scanners; and development of the
HeartScan Imaging, Inc. worldwide network of Coronary Artery Disease Risk
Assessment Centers.
International Sales and Distribution
Imatron's goal in 1996 is to continue to develop and expand a strong
dealer/distributor/sales agent network in Imatron's exclusive distribution
markets: Asia-Pacific, Latin America, Middle East, Australia/New Zealand, South
Africa. Siemens is designated as lmatron's exclusive distributor for our
Evolution/C-1 50 Ultrafast CT product in the U.S., Canada, Europe and India.
Imatron will directly supply C-1 50 systems to lmatron's HeartScan Imaging
subsidiary.
The recent surge in publicity related to the breakthrough applications of
Ultrafast CT in cardiological diagnosis does not automatically lead to sales in
the radiological market segment. The sometimes conflicting objectives between
the cardiology and radiology segments of the medical capital equipment market
need to be successfully bridged in order to secure orders for Imatron's
Ultrafast CT scanner.
To address these challenges, Imatron has reinforced its international sales team
with a Vice President of International Sales and Marketing as well as two
Directors of International Sales. They will lead efforts to highlight the
economic and medical benefits of owning or leasing Ultrafast CT scanners. Many
of our overseas customers have a long-term perspective which, while slowing down
the order process, enables them to see the long-term health and economic
benefits of coronary artery scanning by Ultrafast CT, as well as other
state-of-the-art EBT imaging applications.
These efforts are already producing results. During 1995, lmatron shipped its
first Ultrafast CT scanner to South Korea for installation at the prestigious
Yonsei University in Seoul. This shipment expands market penetration in the
Asia-Pacific region beyond the Company's established base in Japan, Thailand,
Taiwan and China.
Imatron Japan, which is 24 percent owned by Imatron, took delivery of five new
C-1 50 Ultrafast CT scanners and two refurbished systems in 1995. It is
anticipated that Imatron Japan will continue its strong role as a distributor of
Imatron products in 1996.
In July 1995, Imatron shipped its third Ultrafast CT scanner to the Peoples
Republic of China for installation at the prestigious Beijing Hospital. Imatron
is developing new equipment financing strategies to overcome currency control
and related trade challenges with the Peoples Republic of China, a market with
enormous potential.
<PAGE>
HEARTSCAN IMAGING, INC.
"The potential is huge. The Cruttenden Roth review, an investment newsletter,
puts the market at 80 million Americans - every man age 40 to 65 and woman 45 to
70 with at least one risk factor for coronary artery disease. Tapping just 20
percent of the market would generate annual earnings in excess of $7 billion."
U.S. News & World Report, April 8, 1996
Imatron is working to build HeartScan into a worldwide network of Coronary
Artery Disease Risk Assessment Centers offering the non-invasive Ultrafast CT
coronary artery scan (CAS) as part of a comprehensive CAD risk profile. The
market potential for CAS, as reported by Cruttenden Roth Medical Technology
Analyst William Prather, M.D., is estimated at $7 billion annually.
Imatron intends to capture those service revenues by owning and operating
HeartScan Centers, featuring Ultrafast CT, offering CAS and other risk factor
assessment all for about $500 per patient. One HeartScan strategy is to enhance
and capitalize on growing physician-directed demand for its services. HeartScan
will also figure prominently as an important distribution channel for Imatron's
Ultrafast CT scanners. The long term business plan for HeartScan envisions 90
HeartScan Coronary Artery Disease Risk Assessment Centers over the next 5 years.
Imatron and HeartScan are different businesses: Imatron - high tech
manufacturing, and HeartScan - healthcare diagnostic services. The goal is to
move toward the ultimate separation of Imatron and HeartScan to allow both
business to focus on their respective missions.
Imatron's first HeartScan Center was opened in San Francisco in 1994.
In July 1995, Imatron opened its Center in Seattle, Washington on the campus of
Northwest Hospital. This HeartScan Center offers physicians and patients in the
Seattle area access to CAS by Ultrafast CT along with other traditional CAD risk
factor testing in a single outpatient location.
In December 1995, Imatron announced the opening of the HeartScan-Houston
Coronary Artery Disease Risk Assessment Center in affiliation with the Baylor
College of Medicine and The Methodist Hospital.
HeartScan-Washington, D.C., located at the George Washington University Medical
Center is scheduled to open in June 1996, followed by the opening of
HeartScan-Pittsburgh in conjunction with the University of Pittsburgh Medical
Center in August 1996.
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
At December 31, 1995, the Company had working capital of $14.3 million which was
a 64% increase compared to working capital of $8.7 million at December 31, 1994.
The current ratio increased to 2.4:1 from 1.9:1 at December 31, 1994.
The company's assets increased in 1995 by 46% to $30.9 million compared to
December 31, 1994 total assets of $21.2 million primarily due to proceeds
realized of $9,882,000 (net of offering costs) from a private placement
offering. In addition, net property and equipment increased $4.4 million of
which approximately $4.2 million is related to capitalized leases. Capital lease
obligations of $4.2 million were entered into 1995 principally due to the
establishment of two new HeartScan clinic scanners. The deferred income of $1.3
million is related to sales of scanners subject to sale-leaseback arrangements.
In connection with the March 1995 Memorandum of Understanding with Siemens, the
$4 million note payable to Siemens was cancelled in exchange for five patents
and termination of the minimum purchase obligation. (See Note 5 to the
Consolidated Financial Statements.)
Management believes that cash, cash equivalents and short-term investments
existing at December 31, 1995 and the estimated proceeds from ongoing sales of
products and services in 1996 will provide the Company with sufficient cash for
operating activities and capital requirements through December 31, 1996.
The Company anticipates that 1996 capital equipment acquisitions will increase
from 1995 due to the expansion of HeartScan clinics.
To satisfy the Company's capital and operating requirements beyond 1996,
profitable operations, additional public and/or private financing or the
incurrence of debt may be required. If future public or private financing is
required by the Company, holders of the Company's securities may experience
dilution. There can be no assurance that equity or debt sources, if required,
will be available or, if available, will be on terms favorable to the Company or
its shareholders.
The Company does not believe that inflation has had a material effect on its
revenues or results of operations.
<PAGE>
Results of Operations
1995 vs. 1994
Overall revenues decreased 20% from $33.6 million in 1994 to $26.7 million in
1995. Product sales, including $1.8 million under the sale-leaseback
arrangements, decreased 35% due to decreased scanner shipments which was
partially offset by higher option/upgrade revenues. Scanner shipments in 1995
were 10 units versus 16 units in 1994. Service revenues increased 16% from $4.8
million in 1994 to $5.5 million in 1995 primarily due to higher spare parts
shipment. Research and development contract revenues went up by 5% to $5.6
million compared to $5.4 million in 1994. Clinic revenues increased by 99% due
to an increase in number of patient scans attributed to increased clinic
advertisements.
Product costs as a percentage of revenues was 89% in 1995 versus 71% in 1994.
This increase is the result of lower realized per unit revenue and overhead
expenses being allocated to a smaller number of units. The cost of service
revenues as a percentage of revenues decreased to 71% in 1995 versus 85% in
1994. This decrease is the result of lower scanner maintenance costs. Cost of
clinic revenues as a percentage of revenues went up to 293% as compared to 226%
in 1994 because of start-up expenses related to the establishment of new
HeartScan clinics.
The cost of development contracts as a percent of development contract revenues
decreased to 88% in 1995 versus 97% in 1994. The continued high level of cost is
due primarily to head count and associated costs required to continue activities
under the Siemens Collaborative Agreement.
Operating expenses for 1995 increased by 38% as compared to 1994. Research and
development expenses are 63% higher in 1995 primarily due to the increased use
of consultants and prototype materials necessary under the Siemens'
Collaborative Agreement. Marketing and sales expenses were up 51% in 1995 versus
1994 primarily because of commissions paid for scanners sold to Imatron Japan KK
and increased marketing costs for HeartScan, a wholly-owned subsidiary of
Imatron. General and administrative expenses increased 6% in 1995 as compared to
1994.
The increase in other income in 1995 is a result of the elimination of the $4.0
million term loan with Siemens in exchange for the transfer of five Imatron EBT
patents and the cancellation of Siemens' existing minimum purchase obligations
under the previous distribution agreement.
Interest expense decreased 44% as compared to 1994 primarily due to the
elimination of the $4.0 million term loan with Siemens.
<PAGE>
1994 vs 1993
Overall revenues increased 34% from $25.1 million in 1993 to $33.6 million in
1994. Product sales increased 56% due to increased scanner shipments and higher
option/upgrade revenue. Scanner shipments in 1994 were 16 units versus 12 units
in 1993. Service and Research and Development contract revenues in 1994 of $4.7
million and $5.4 million, respectively, remained essentially flat with 1993
levels.
The cost of revenues as a percentage of revenues improved to 78% in 1994 from
94% in 1993.
Product cost as a percentage of revenues was 71% in 1994 versus 88% in 1993.
This decrease is due partially to higher average unit revenue and lower overhead
expenses. The cost of service revenues decreased to $4.0 million in 1994 from
$4.9 million in 1993 due to reduced site costs related to servicing installed
scanners.
The cost of development contracts as a percent of development contract revenues
of 97% in 1994 remained consistent with 1993. The continued high level of cost
is due primarily to head count and associated costs required to meet the
remaining milestones of the Siemens development contract.
Operating expenses for 1994 increased by 41% as compared to 1993. Research and
development expenses were 28% higher in 1994 primarily due to the increased use
of consultants and prototype materials. Marketing and sales expenses were up 74%
in 1994 versus 1993 largely because of increased sales expense related to the
higher level of scanner shipments, support of the distributor agreements in Asia
and increased marketing costs for HeartScan, a wholly-owned subsidiary of
Imatron. General and administrative expenses increased 31% in 1994 as compared
to 1993 due to increased salaries and benefit expenses, higher costs for
shareholder and investor relations, and increased HeartScan costs.
The increase in other income in 1994 is a result of the $1.5 million payment
received for the termination of Imatron's exclusive distributorship agreement
with Mitsui & Co., Ltd. Of Japan and the extinguishment of a $.8 million
contingency with Siemens AG. Other 1994 expenses were 30% higher compared to
1993 primarily due to higher interest rates on Imatron's debt obligations.
<PAGE>
IMATRON INC.
Consolidated Balance Sheets
(Amounts in thousands)
December 31,
ASSETS 1995 1994
- ------ -------- --------
Current Assets
Cash and cash equivalents $ 7,269 $ 1,694
Short-term investments 1,266 -
Accounts receivable 3,083 6,066
Accounts receivable from affiliate 2,957 780
Notes receivable 250 660
Inventories 8,937 8,236
Prepaid expenses 563 616
-------- ------
Total current assets 24,325 18,052
Property and equipment, net 6,260 1,893
Capitalized software, net 12 143
Development machinery, net - 566
Other assets 279 519
-------- -------
Total assets $ 30,876 $ 21,173
========= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Borrowings under line of credit $ 992 $ -
Accounts payable 2,785 4,242
Other accrued liabilities 5,607 5,069
Captial lease obligations - due within one year 689 -
---------- --------
Total current liabilities 10,073 9,311
Long term debt - 4,992
Deferred income on sale leaseback transactions 1,267 -
Capital lease obligations 3,311 -
----------- -------
Total Liabilities 14,651 14,303
Commitments and contingencies - Note 3 & 6
Shareholders' Equity
Convertible preferred stock, authorized-10,000
shares;issued and outstanding-0 shares in 1995
and 1,308 in 1994 - 2,602
Common stock, no par value;authorized-100,000
shares;issued and outstanding-68,835 shares
in 1995 and 53,631 in 1994 72,282 57,876
Additional paid-in capital 1,500 1,500
Accumulated deficit (57,557) (55,108)
--------- ---------
Total Shareholders' Equity 16,225 6,870
---------- ---------
Total Liabilities and Shareholders' Equity $ 30,876 $ 21,173
========== =========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
IMATRON INC.
Consolidated Statements of Operations
(Amounts in thousands, except per share amounts)
<CAPTION>
Year ended December 31,
1995 1994 1993
--------------- --------------- --------------
<S> <C> <C> <C>
Revenues
Product sales $ 13,254 $ 23,210 $ 14,902
Product sale-leaseback arrangements 1,820 - -
Service 5,529 4,750 4,553
Development contracts 5,637 5,380 5,513
Clinics 460 231 143
--------------- --------------- --------------
Total revenues 26,700 33,571 25,111
--------------- --------------- --------------
Cost of revenues
Product sales 11,533 16,556 13,169
Product sale-leaseback arrangements 1,820 - -
Service 3,952 4,021 4,859
Development contracts 4,978 5,227 5,332
Clinics 1,350 521 309
--------------- --------------- --------------
Total cost of revenues 23,633 26,325 23,669
--------------- --------------- --------------
Gross profit 3,067 7,246 1,442
Operating expenses
Research and Development 3,430 2,101 1,646
Marketing and Sales 3,137 2,077 1,190
General and Administrative 2,658 2,519 1,925
--------------- --------------- --------------
Total operating expenses 9,225 6,697 4,761
--------------- --------------- --------------
Operating income (loss) (6,158) 549 (3,319)
Other income 4,021 2,342 912
Interest expense (312) (558) (464)
--------------- --------------- --------------
Income (loss) before provision for income taxes (2,449) 2,333 (2,871)
--------------- --------------- --------------
Provision for income taxes - (23) -
--------------- --------------- --------------
Net income (loss) $ (2,449) $ 2,310 $ (2,871)
=============== =============== ==============
Net income (loss) per common share $ (.04 ) $ .04 $ (.06)
=============== =============== ==============
Number of shares used in per share calculations 57,598 62,102 47,865
=============== =============== ==============
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
IMATRON INC.
Consolidated Statements of Shareholders' Equity
(Amounts in thousands)
<CAPTION>
Convertible
Preferred Stock Common Stock Additional Accum-
Paid-in ulated
Shares Amount Shares Amount Capital Deficit Total
-------- -------- ------- -------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1992 2,133 $4,247 47,267 $55,070 $1,500 $(54,547) $6,270
Preferred stock converted to
common stock (125) (250) 625 250 - - -
Common stock issued for employee
stock bonus and purchase plans,
and exercise of employee stock
options - - 262 139 - - 139
Warrants exercised - - 200 100 - - 100
Net loss - - - - - (2,871) (2,871)
-------- -------- ------- -------- --------- --------- ----------
Balances at December 31, 1993 2,088 3,997 48,354 55,559 1,500 (57,418) 3,638
Preferred stock converted to
common stock (700) (1,395) 3,500 1,395 - - -
Common stock issued for employee
stock bonus and purchase plans,
and exercise of employee stock
options - - 1,650 837 - - 837
Common stock issued for services - - 127 85 - - 85
Net Income - - - - - 2,310 2,310
-------- -------- ------- -------- --------- --------- -------
Balances at December 31, 1994 (1,308) 2,602 53,631 57,876 1,500 (55,108) 6,870
Preferred stock converted to
common stock 1,308 (2,602) 6,539 2,602 - - -
Common stock sold in a private
placement, net of offering costs - - 6,459 9,882 - - 9,882
Common stock issued for employee
stock purchase plans and
exercise of employee stock
options - - 1,656 1,147 - - 1,147
Warrants exercised - - 550 775 - - 775
Net loss - - - - - (2,449) (2,449)
-------- -------- ------- -------- -------- ---------- -------
Balances at December 31, 1995 - - 68,835 $ 72,282 $1,500 $ (57,557) $ 16,225
========== ======== ========== ========= ========= =========== =======
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
IMATRON INC.
Consolidated Statements of Cash Flows
(Amounts in thousands)
<CAPTION>
Year Ended December 31,
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (2,449) $ 2,310 $ (2,871)
Adjustments to reconcile net income(loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,709 1,786 2,332
Other income (4,000) - -
Changes in:
Accounts and notes receivable 1,216 (2,945) (2,435)
Unbilled receivables - - 151
Inventories (701) (3,343) 3,049
Prepaid expenses 53 (252) 51
Other assets (26) (414) (5)
Accounts payable (1,457) 2,232 652
Other accrued liabilities 538 584 487
Deferred income 1,267 (778) (868)
-------------- -------------- --------------
Net cash provided by (used in) operating activities (3,850) (820) 543
-------------- -------------- --------------
Cash flows from investing activities:
Capital expenditures (1,132) (621) (658)
Purchases of short-term investments (1,000) - -
-------------- -------------- --------------
Net cash used in investing activities (2,132) (621) (658)
-------------- -------------- --------------
Cash flows from financing activities:
Payments of obligations under capital leases (247) - -
Repayment of borrowings - - (338)
Proceeeds from issuance of common stock 11,804 922 239
-------------- -------------- --------------
Net cash used in financing activities 11,557 922 (99)
-------------- -------------- --------------
Net increase(decrease) in cash and cash equivalents 5,575 (519) (214)
Cash and cash equivalents,at beginning of year 1,694 2,213 2,427
-------------- -------------- --------------
Cash and cash equivalents, at end of year $ 7,269 $ 1,694 $ 2,213
============== ============== ==============
Supplemental Disclosure of Noncash Investing Activities:
Preferred stock converted to common stock $ 2,602 $ 1,395 $ 250
============== =============== ===============
Equipment acquired under capital leases $ (4,247) $ - $ -
============== =============== ===============
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
IMATRON INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF COMPANY
Imatron Inc., (the "Company"), a New Jersey corporation incorporated in 1983, is
a technology-based company principally engaged in the business of designing,
manufacturing, and marketing a high performance computed tomography scanner. The
scanner is used in large and mid-sized hospitals and free standing imaging
clinics. The Company provides service, parts and maintenance to hospitals and
clinics that operate its scanners.
HeartScan Imaging, Inc.(HSI), incorporated in Delaware in 1993, is a
wholly-owned subsidiary of Imatron. HSI operates coronary artery scanning test
facilities in the United States.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Imatron Inc. and
its wholly-owned subsidiary HeartScan Imaging, Inc. All intercompany accounts
and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
CASH EQUIVALENTS
Cash equivalents consist of liquid instruments purchased with a maturity date of
three months or less and money market funds. In accordance with Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," the Company has classified its investments in money
market funds as available-for-sale. Available-for-sale securities are carried at
amounts which approximate fair value, with unrealized gains and losses reported
in a separate component of shareholders' equity when material. Realized gains
and losses and declines in value judged to be other than temporary on
available-for-sale securities are included in interest income and expense.
SHORT-TERM INVESTMENTS
Short-term investments at December 31, 1995 consist of certificates of deposit
and debt securities (U.S. Treasury Bills). Management determines the appropriate
classification of debt securities at the time of purchase and reevaluates such
designation as of each balance sheet date. Debt securities are classified as
held-to-maturity when the Company has the positive intent and ability to hold
the securities to maturity. Held-to-maturity securities are stated at amortized
cost.
The amortized cost of debt securities classified as held-to-maturity is adjusted
for amortization of premiums and accretion of discounts to maturity. Such
amortization is included in interest income from investments. Interest and
dividends are included in interest income from investments. Realized gains and
losses, and declines in value judged to be other-than-temporary are included in
net securities gains (losses). The cost of securities sold is based on the
specific identification method.
<PAGE>
The Company has classified all its short-term investments as held-to-maturity,
at December 31, 1995.
CONCENTRATIONS OF RISK
The Company's primary customers operate in the healthcare industry. The
healthcare industry is highly regulated. Both existing and future governmental
regulations could adversely impact the market for the Company's Ultrafast CT
scanner and the Company's business. The Company's operations are also subject to
regulation by other federal, state and local governmental entities empowered to
enforce pertinent statutes and regulations, such as those enforced by the
Occupational Safety and Health Agency and the Environmental Protection Agency.
The Company sells its products primarily through exclusive distributors such as
Siemens in the United States, Europe, Canada and India, as well as other
distributors in the Pacific rim. The Company usually requires cash deposits
based on a percentage of the sales price and maintains allowances for potential
credit losses. Such losses have been within management's expectations.
The Company invests its excess cash in money market funds and treasury bills
with major banks. These funds have virtually no principal risk and have a
variable interest rate. The Company has not experienced any losses on its money
market funds.
The Company revenues are principally derived from the Ultrafast CT scanner. Many
of the components and sub-assemblies used in the scanner have been developed and
designed by Imatron to its custom specifications and are obtainable from limited
or single sources of supply. In view of the customized nature of many of these
components and sub-assemblies, there may be extended delays between their order
and delivery. Delays in such delivery could adversely affect Imatron's present
and future production schedules. The Company has made and continues to make
inventory investments to acquire long lead time components and sub-assemblies to
minimize the impact of such delays. In recent years, the Company has developed
alternative sources for many of its scanner subcomponents and continues its
programs to qualify vendors for the remaining critical parts.
INVENTORIES
Inventories are stated at the lower of standard cost (which approximates cost on
a first-in, first-out basis) or market. Provisions are made in each period for
the estimated effects of excess and obsolete inventories. Actual excess and
obsolete inventories may differ from the Company's estimates and such
differences could be material to the consolidated financial statements.
PROPERTY AND EQUIPMENT
Major additions and betterments are capitalized at cost, while maintenance and
repairs which do not improve or extend the life of the respective assets are
expensed currently. When assets are retired or otherwise disposed of, the costs
and related accumulated depreciation are removed from the accounts, and any gain
or loss on disposal is included in the statements of operations. Property and
equipment, other than leasehold improvements, are depreciated on a straight-line
method over their estimated useful lives (3-5 years). Equipment under capital
leases and leasehold improvements are amortized on a straight-line method over
the lesser of their estimated useful lives or the remaining term of the related
leases.
CAPITALIZED SOFTWARE
Costs related to the conceptual formulation and design of software products are
expensed as product development. Costs incurred subsequent to establishing the
technological feasibility of software products are capitalized. Capitalized
software costs are amortized using the straight-line method over the expected
product lives, generally estimated to be five years. Since 1992, the Company has
<PAGE>
not capitalized any software development costs. Amortization of capitalized
software costs for 1995, 1994 and 1993 was $131,000, $203,000 and $275,000,
respectively. Amortization of these costs has been charged to cost of product
revenues.
RESTRICTED CASH
In connection with a sales agreement in 1994, the Company has issued letters of
credits to a purchasor related to performance bond requirements. The letters of
credit are collaterized by Certificates of Deposit totalling approximately
$155,000 and $404,000 at December 31,1995 and 1994 respectively. Accordingly,
this restricted cash amount has been classified as a non-current asset (included
in other assets).
JOINT VENTURES
In 1994, the Company formed a joint venture, Imatron Japan Inc. ("Joint
Venture") with two unrelated parties. Imatron holds a 24% interest in the Joint
Venture, which is carried at no value in the accompanying consolidated balance
sheets. Imatron has no financial commitments, and is prepared to abandon its
interest to the Joint Venture, which is being funded by the other joint venture
partners.
The Company recognized revenues of $9,213,000 and $8,240,000 in 1995 and 1994,
respectively, from sales to the Joint Venture and has $2,957,000 and $780,000 in
accounts receivable from the Joint Venture at December 31, 1995 and 1994,
respectively.
The Joint Venture assumed maintenance and service obligations of a former
distributor and has a commitment to purchase five additional scanner units both
in 1995 and 1996.
In exchange for permitting the former distributor to terminate its maintenance
and service agreement with the Company, Imatron received $1,500,000 in 1994.
This amount is classified as other income in the consolidated statement of
operations in 1994.
REVENUE RECOGNITION
Revenues related to product sales are recognized upon shipment to the customer
or to a customer designated location, at which time title and risk of ownership
passes. The Company accrues for estimated installation and warranty costs at the
time of sale. Revenues related to service are recognized ratably over the
relevant contractual period or as the service is performed. Service revenue
billed but unearned is included on the consolidated balance sheets as other
accrued liabilities. Revenues related to development contracts are recognized
ratably over the contract. Revenues from clinics are recognized when services
are performed for the clinic customer.
RESEARCH AND DEVELOPMENT
Research and development expenditures are charged to operations as incurred.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement No.
123, "Accounting for Stock-Based Compensation." The statement is effective for
fiscal years beginning after December 15, 1995. Under Statement No. 123,
stock-based compensation expense is measured using either the intrinsic-value
method as prescribed by Accounting Principle Board Opinion No. 25 or the
fair-value method described in Statement No. 123. Companies choosing the
intrinsic-value method will be required to disclose the pro forma impact of the
fair-value method on net income and earnings per share. Imatron Inc. plans to
continue using the intrinsic-value method to account for stock-based
compensation; there will be no effect of adopting the standard on the Company's
financial position and results of operations.
<PAGE>
NET INCOME / (LOSS) PER SHARE
Net loss per common share in 1995 and 1993 has been computed using the weighted
average number of common shares outstanding. Net income per common share in 1994
has been computed using the weighted average number of common shares outstanding
after considering the dilutive effect of convertible preferred shares (using the
"as if" converted method) and, common stock options and warrants (using the
"treasury stock" method).
Note 2 - SHORT-TERM INVESTMENTS
The following is a summary of Held-to-Maturity Securities as of December 31,
1995 (in thousands):
U.S. Treasury Bills $1,000
Certificates of deposit 266
============
Total $1,266
============
These short-term investments are recorded at cost and approximate fair value at
December 31, 1995.
Note 3 - TRANSACTIONS WITH SIEMENS CORPORATION
In March of 1991, the Company entered into a multi-part agreement with Siemens
Corporation ("Siemens"). The Agreement contains four principal segments: a
Distribution Agreement, a Development Agreement, a License Agreement and a Loan
Agreement.
Pursuant to the Distribution Agreement, beginning in July 1992 and expiring on
the earlier of (i) December 31, 1995, (ii) the date on which the parties develop
a successor product, or (iii) termination of the Development Agreement, Siemens
had exclusive rights to distribute the C-150 Ultrafast CT worldwide (excluding
Japan, Hong Kong, the People's Republic of China, and Taiwan). Siemens had
minimum annual purchase requirements at fixed prices under this agreement.
Pursuant to this, the Company recognized product sales of $1,751,000, $7,161,000
and $8,309,000 in 1995, 1994 and 1993 respectively. Siemens also had
manufacturing rights for the C-150 should the Company be unable to deliver
sufficient quantities.
Pursuant to the Development Agreement, the Company and Siemens agreed to the
joint development of other medical scanner products. Siemens provided the
funding to the Company of $1,753,000, $5,013,000 and $4,667,000 under this
agreement in 1995, 1994 and 1993, respectively.
Under an amendment to the Agreement in November 1992, the minimum purchase
obligation was reduced by 50% and the Company granted Siemens a right to
terminate the Agreement without cause or liability. In December 1993 this
agreement was further amended to provide for an extension of Siemens' right to
terminate the agreement through August 31, 1994 in exchange for a $1 million
reduction in the aggregate termination payments. In 1994 an Amendment to the
Agreement was executed that stated the Company has the right but no obligation
to purchase the developed technology should Siemens terminate the Agreement.
Siemens' right to terminate the Agreement was extended through February 28,
1995. With the progressive extinguishment of the termination agreement, the
Company reduced the recorded liability by $778,000 and $868,000 in 1994 and
1993, respectively, recognizing this reduction as other income.
In March 1995, the Company and Siemens entered into a Memorandum of
Understanding. Under the terms of the Memorandum, Siemens agreed to provide $15
million to the Company's C-150 Evolution Ultrafast CT scanner research and
development program over the next three years in order to improve and enhance
the scanner. The previous agreement was discontinued. Imatron will fund a
<PAGE>
portion equal to fifty percent of Siemens' contribution for the sole purpose of
conducting the collaborative agreement. In connection with this revision,
Siemens retains exclusive distribution rights, through March 31, 1998, in
certain geographical regions for sales of the C-150/Evolution scanner. The
Company has recognized $3,884,000 of revenue under the collaborative development
agreement in 1995.
In conjunction with this Memorandum of Understanding, Imatron transferred the
ownership of five Imatron EBT patents to Siemens and cancelled the minimum
purchase provision of the previous distribution agreement in satisfaction of
Imatron's $4 million note payable to Siemens. Imatron has classified the entire
$4 million as other income in 1995.
Siemens has recently asserted a claim against the Company regarding the lapse of
certain foreign registrations of one of the patents assigned to Siemens by the
Company in connection with the March 31, 1995 agreement between the companies.
The technology involved in the patent is not used presently in any of the
Company's products. The Company believes that it can provide a new patent to
Siemens to replace the lapsed patent. While the resolution of the claim is not
expected to have a material effect on the Company's financial position, it could
however, have a material effect on the results of operations of a particular
future period if resolved unfavorably.
The Company's Loan Agreement with Siemens is discussed in Note 5.
<TABLE>
Note 4 - BALANCE SHEET DETAIL:
(Amounts in thousands)
<CAPTION>
December 31,
1995 1994
------------- ---------------
<S> <C> <C>
Inventories consist of:
Purchased parts and sub-assemblies $ 2,594 $ 3,899
Service parts 1,079 808
Work-in-process 2,403 3,529
Finished goods 2,861 -
------------- ---------------
Net Inventories $ 8,937 $ 8,236
============= ===============
Property and equipment, at cost consist of:
Machinery and equipment $ 9,266 $ 5,614
Furniture and fixtures 1,444 1,000
Leasehold improvements 2,380 1,632
------------- ---------------
13,090 8,246
Less accumulated depreciation (6,830) (6,353)
------------- ---------------
Net property and equipment $ 6,260 $ 1,893
============= ===============
Other accrued liabilities consist of:
Warranty and product upgrades $ 1,740 $ 2,052
Customer deposits 2,331 903
Employee compensation 628 711
Deferred service revenues 265 400
Other 643 1,003
------------- ---------------
Net other accrued liabilities $ 5,607 $ 5,069
============= ===============
</TABLE>
<PAGE>
<TABLE>
Note 5 - LONG-TERM DEBT
<CAPTION>
December 31,
Long-term debt consists of (in thousands):
1995 1994
------------ ------------
<S> <C> <C>
Secured note payable to Siemens, cancelled in exchange for
transfer of five patents to Siemens and cancellation of the
Siemens minimum purchase obligation in March 1995 $ - $ 4,000
Borrowings under the line of credit, due March 1996, interest at
prime rate plus one percent (9.5% at December 31, 1995) 992 992
------------ ------------
Total long term debt 992 4,992
Less amount due within one year (992) -
------------ ------------
$ - $ 4,992
============ ============
</TABLE>
In connection with the March 1995 Memorandum of Understanding with Siemens, the
$4 million note payable to Siemens was cancelled in exchange for the transfer of
five patents to Siemens and the cancellation of the Siemens minimum purchase
obligation under the previous Distribution Agreement.
The line of credit described above is guaranteed through March 1996 by
FI.M.A.I., a shareholder. The Company has pledged 650,000 shares of InVision
Preferred A Stock (Note 1) as collateral for the guarantee.
Interest paid was $386,000, $479,000 and $446,000 in 1995, 1994 and 1993,
respectively.
Note 6 - COMMITMENTS, CONTINGENCIES AND OTHER
OPERATING LEASES
The Company leases its present facilities under four operating leases expiring
between December 31, 1996 and October 30, 2001. Future minimum rental payments
under the leases as of December 31, 1995 are as follows (in thousands):
1996 $ 952
1997 829
1998 796
1999 751
2000 751
Thereafter 567
===========
Total remaining $4,646
===========
Rent expense for all leases totaled $921,000, $855,000 and $804,000 in 1995,
1994 and 1993 respectively.
CAPITAL LEASE OBLIGATIONS
The Company leases certain equipment, including two HeartScan clinic scanners
under noncancelable lease agreements that are accounted for as capital leases.
As of December 31, 1995, equipment under the capital lease arrangements and
included in property and equipment, aggregated $4,247,000. Accumulated
<PAGE>
amortization totalled $113,000 at December 31, 1995. Amortization expense is
included in depreciation and amortization.
Future minimum lease payments under capital lease obligations at December 31,
1995 are as follows (in thousands):
1996 $ 1,056
1997 1,056
1998 1,044
1999 1,041
2000 760
Thereafter 73
-------------------
Total minimum payments 5,030
Less amounts representing interest 1,030
-------------------
4,000
Less portion due within one year 689
===================
$ 3 ,311
===================
In 1995, the Company sold two scanners to leasing finance institutions with
their wholly-owned subsidiary, HeartScan, immediately leasing them back. The
sales were accounted for as sales-leaseback transactions resulting in $1,267,000
in deferred income on the sale-leaseback transactions at December 31, 1995.
Imatron Inc. is the guarantor of the HeartScan capital lease obligations.
LICENSE AGREEMENTS
In February 1981, the Company was granted the exclusive use for five years and
nonexclusive use thereafter of certain technology and a patent pending owned by
the University of California (UC) under the terms of license and sublicense
agreements between UC and Emersub Incorporated (Emersub), a wholly owned
subsidiary of Emerson Radio Corp., and Emersub and Imatron Associates, (the
predecessor to the Company), respectively. In June 1986, the license and
sublicense agreements were amended to extend the Company's exclusive use of the
technology through the remaining life of the patent in exchange for modified
annual royalty payments. The sublicense agreement, as amended, requires the
Company to pay annual royalties to Emersub equal to 2.125% of the net sales of
products utilizing the licensed technology. Charges to operations for the fiscal
years ended December 31, 1995, 1994 and 1993 were $91,470, $151,980 and
$140,582, respectively.
Note 7 - CAPITAL STOCK
PREFERRED STOCK
The Company is authorized to issue 10,000,000 shares for all series of preferred
stock. There are no outstanding shares of preferred stock at December 31, 1995.
The holders of outstanding shares of Series A Preferred Stock are entitled to
receive dividends in preference to the payment of any dividends on common stock.
Before any dividend may be paid on the common stock a dividend in an amount
equal to or greater than the dividend proposed to be paid on the common shares
must be paid on the Series A Preferred Stock.
<PAGE>
Each share of Series A Preferred stock is entitled to five votes, a preference
in liquidation of $2.00 per share, and is convertible into five shares of common
stock, which could be increased if the Company issues common stock under certain
circumstances for less than $0.40 per share.
Each share of Series B Preferred stock if and when issued would be entitled to
five votes, a preference in liquidation of $5.00 per share, and would be
convertible into five shares of common stock, which would be increased if the
Company issues common shares under certain circumstances for less than $0.75 per
share.
In 1993, the Regents of the University of California converted 125,000 shares of
Series A Preferred stock to 625,000 shares of common stock.
In 1994, FI.M.A.I. Holding S.A., an affiliate of Italimprese, converted 500,000
shares of Series A Preferred Stock to 2,500,000 shares of Common Stock. SIECIT,
the Company's largest shareholder converted 200,000 shares of Series A Preferred
stock to 1,000,000 shares of Common Stock.
In 1995, FI.M.A.I. and SIECIT each converted 650,000 shares of Series A
Preferred Stock to 6,500,000 shares of Common Stock. Regents of the University
of California converted 7,813 Series A Preferred Stock to 39,065 shares of
Common Stock.
COMMON STOCK
On October 20, 1995, the Company closed a private placement of its common stock.
The private placement realized proceeds of $9,882,000 (net of offering costs)
through the sale of 1,200,000 units. A unit consists of five shares of Imatron
Inc. Common Stock and one five-year Imatron Inc. Common Stock purchase warrant.
In connection with the private placements, the Company issued an additional
91,819 units as a result of the adjustment on the stock price based on the
60-day average price as stated in the Common Stock purchase agreement. The
adjusted price per unit was $8.25 or $1.65 per share of Common Stock.
<TABLE>
WARRANTS
<CAPTION>
At December 31, 1995, outstanding warrants to purchase shares of the Company's
common stock were as follows: Shares reserved for
exercise of warrants
------------------------
<S> <C>
Warrants, expiring in 1996, to purchase shares of common stock at $1.50 per 875,000
share issued under the July 1992 private placement
Warrants, expiring in 1997, to purchase shares of common stock at $0.40 per 1,000,000
share issued to FI.M.A.I. for bank credit line guarantee
Warrants, expiring in 2000, to purchase shares of common stock at $0.75 per 400,000
share issued to the Company's president
Warrants, expiring in 2000, to purchase shares of common stock at $2.31 per
share issued under the October 1995 private placement 1,291,820
------------------------
Total at December 31, 1995 3,566,820
========================
<FN>
In 1993, warrants were exercised to purchase 200,000 shares of common stock at
$0.50 per share.
In 1995, warrants were exercised to purchase a total of 550,000 shares of common
stock at $1.50 and $1.00 per share,
respectively.
</FN>
</TABLE>
<PAGE>
Note 8 - STOCK BONUS PLAN AND STOCK OPTION PLAN
STOCK BONUS PLAN
In February 1987, the Company adopted the 1987 Stock Bonus Plan which was
approved by the shareholders. The stock bonus plan was adopted to reward and to
provide incentive to participants for services. The total number of common
shares that may be granted is 1,200,000, with no more than 400,000 shares
awarded in any fiscal year. The Company has granted no shares since 1993,
leaving 590,894 common shares reserved for future grants.
DIRECTOR STOCK OPTION PLAN
In June 1991, the Company adopted a non-employee Directors' Stock Option Plan
for the directors of Imatron. The Directors Plan provides for the automatic
grant of non-statutory options to non-employee directors. The Directors Plan
covers 250,000 shares of the Company's common stock. In June 1993 an amendment
to the non-employee Directors Plan was approved increasing the number of shares
to 550,000. Under the plan, options for 350,000 shares have been granted to
non-employee Directors.
EMPLOYEE STOCK OPTION PLAN
In March 1983, the Company adopted a stock option plan which provides for the
granting of incentive stock options to employees and nonstatutory stock options
to employees, nonemployee directors, and certain consultants. The shareholders
approved the plan, as amended, in March 1984. In 1993 the original plan (1983
Plan) terminated and a new plan (1993 Plan) was approved. The terms of the 1993
Plan are consistent with the terms of the 1983 Plan.
All incentive stock options are granted at the common stock's fair market value
at the grant date and nonstatutory stock options are granted at not less than
85% of the common stock's fair market value at the grant date. Options granted
under the plan generally vest evenly over four years following the grant date
and expire five years from the grant date.
<PAGE>
<TABLE>
A summary of the activity under the stock option plans is as follows:
<CAPTION>
Reserved Optioned Shares
but Number Price per
unoptioned shares of shares share
<S> <C> <C> <C>
Balances at January 1, 1993 515,788 3,431,243 $0.51 - $1.83
Shares reserved - 1993 Plan 3,000,000 -
Shares reserved - 1991 Plan 300,000 -
Options granted (1,083,000) 1,083,000 $0.48 - $0.56
Options exercised - (103,000) $0.51 - $0.60
Options cancelled 666,027 (666,027) $0.51 - $1.83
1983 option plan termination (1,006,815) - $0.51 - $1.83
------------------ -------------------
Balances at December 31, 1993 2,392,000 3,745,216 $0.48 - $0.56
Options granted (2,230,808) 2,230,808 $0.43 - $1.22
Options exercised - (1,147,002) $0.48 - $0.61
Options cancelled 236,263 (236,263) $0.48 - $1.22
1983 option plan termination (28,563) - $0.51 - $0.56
------------------ -------------------
Balances at December 31, 1994 368,892 4,592,759 $0.43 - $1.22
Shares reserved - 1993 Plan 2,500,000 -
1983 option plan termination (83,950) - $0.51 - $0.56
Options granted (413,800) 413,800 $1.03
Options exercised - (1,320,377) $0.51 - $1.22
Options cancelled 301,125 (301,125) $0.56 - $1.22
------------------ -------------------
Balances at December 31, 1995 2,672,267 3,385,057
================== ===================
</TABLE>
<PAGE>
At the June 23, 1993 annual meeting, the shareholders approved an increase in
the number of shares reserved for option awards by 300,000 for the 1991
Directors Plan. The 1993 Option Plan was approved and 3,000,000 shares of common
stock were reserved under the plan. At the June 2, 1995 annual meeting, the
shareholders approved an increase in the number of shares reserved for the 1993
Option Plan from 3,000,000 to 5,500,000.
Options for 1,406,997 shares of the Company's common stock at prices ranging
from $0.51 to $1.50 per share were exercisable under the plans at December 31,
1995.
The Board of Directors, on August 25, 1993, approved the repricing of all stock
options to their then current market value of $0.56.
Note 9 - STOCK PURCHASE PLAN AND RETIREMENT SAVINGS PLAN
In March 1984, the Company adopted an employee stock purchase plan covering most
employees. Under the plan, employees may contribute up to 10% of their
compensation to purchase shares of the Company's common stock at the lesser of
85% of the stock's fair market value at the beginning or end of each six-month
offering period. This plan terminated on January 18, 1994. In order to replace
this Plan, the Board of Directors and shareholders approved the 1994 Employee
Stock Purchase Plan to provide eligible employees with an opportunity through
regular payroll deductions to purchase common stock of Imatron Inc. so that they
may increase their proprietary interest in the Company. The Plan is intended to
qualify as an "ESPP" under Section 423 of the Internal Revenue Code. This plan
contains pricing and vesting provisions that are consistent with the 1984 Plan.
The maximum number of shares offered under the Plan is 1,000,000 shares of
common stock. At December 31, 1995, 161,783 shares were reserved and available
for future issuance under the plan. A total of 334,975, 503,243 and 162,220
shares were issued at an average price of $0.75, $0.75, and $0.54 per share in
1995, 1994 and 1993, respectively.
In 1987, the Company established a qualified retirement plan, under the
provisions of section 401(K) of the Internal Revenue Code, in which eligible
employees may participate. Substantially all participants in this plan are able
to defer compensation up to the annual maximum amount allowable under the
Internal Revenue Service regulations. The Plan was amended in 1994 to provide
for employer contributions equal to 50% of every dollar of employee
contribution, with a maximum of 6% of employee wages. The Company contributed
approximately $169,000 in 1995, and $76,000 in 1994.
Note 10 - INCOME TAXES
Effective January 1, 1993 the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by FASB
Statement No. 109, "Accounting for Income Taxes". As permitted under the new
rules, prior years' financial statements have not been restated. There was no
cumulative effect of adopting SFAS No. 109 at January 1, 1993.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
<PAGE>
<TABLE>
Significant components of the Company's deferred tax assets and liabilities as
of December 31, are as follows (in thousands):
<CAPTION>
1995 1994 1993
--------------- ------------- --------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 19,733 $ 18,626 $ 19,431
Federal credit carryforwards 880 858 821
Expenses not currently deductible for tax purposes 2,807 2,829 3,434
Other - 26 893
--------------- ------------- --------------
Deferred tax assets 23,420 22,339 24,579
Valuation allowance (22,407) (21,482) (23,274)
--------------- ------------- --------------
Net deferred tax assets 1,013 857 1,305
Deferred tax liabilities:
Capitalized development costs 42 339 638
State income taxes 504 429 565
Other 467 89 102
--------------- ------------- --------------
Deferred tax liabilities 1,013 857 1,305
Net deferred taxes $ - $ - $ -
=============== ============= ==============
</TABLE>
The net change in the valuation allowance was $925,000, ($1,792,000), and
$874,000 for the years ended December 31, 1995, 1994 and 1993, respectively,
principally resulting from net operating loss carryforwards.
The reconciliation of income tax attributable to continuing operations compared
at the U.S. federal statutory rates to income tax expense is as follows:
1995 1994 1993
----------- ---------- ---------
Federal statutory rate (34%) 34% (34%)
Net operating loss carry forwards - (33%) -
Valuation Allowance 34% - 34%
---------- ---------- ---------
Effective tax rate 0% 1% 0%
=========== =========== =========
At December 31, 1995 the Company has net operating loss carryforwards for
federal and state income tax purposes of approximately $55,200,000 and
$9,400,000 respectively. Additionally, the Company has research and development
and alternative minimum tax credit carry-forwards of approximately $821,000 at
December 31, 1995. The net operating loss and the research and development tax
credit carryforwards expire in various years from 1998 through 2008.
Pursuant to the Tax Reform Act of 1986, annual utilization of the Company's net
operating loss and tax credit carryforwards may be limited if a cumulative
change in ownership of more than 50% is deemed to occur within any three-year
period.
Note 11 - SEGMENT INFORMATION AND FOREIGN SALES
The Company operates in one industry segment in which it designs, manufactures
and markets a computed tomography scanner. The Company has distributors that
sell and service its scanner throughout the world (except China). Sales of
products to end-users outside the United States were $13,254,000, $14,990,000
and $2,583,000 in 1995, 1994 and 1993, respectively.
<PAGE>
Report of Independent Auditors
Board of Directors and Shareholders
Imatron Inc.
We have audited the accompanying consolidated balance sheets of Imatron Inc. as
of December 31, 1995 and 1994, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 1995. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Imatron
Inc. at December 31, 1995 and 1994, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
San Francisco, California
February 9, 1996
<PAGE>
MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Since April 1985, the Company's Common Stock has traded on the NASDAQ National
Market System under the NASDAQ symbol "IMAT".
The following table sets forth, for the periods indicated, the range of high and
low sales prices, all as reported by NASDAQ. These prices reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
1995 1994
Quarter: High Low High Low
-------------- ----------- ------------ -----------
First $ 1.31 $ .97 $ 2.06 $ .50
Second 1.22 .81 1.88 .81
Third 3.63 .75 1.41 .88
Fourth 2.97 1.47 1.56 .88
As of March 20, 1996 there were approximately 6,570 holders of record of the
Company's common stock. On March 20, 1996 the closing price of the Company's
common stock on NASDAQ was $ 2.75.
DIVIDEND INFORMATION
The Company has paid no cash dividends on its Common Stock since incorporation
and anticipates that for the foreseeable future it will retain any earnings for
use in its business.
<PAGE>
SELECTED FINANCIAL DATA
IMATRON INC.
SELECTED FINANCIAL INFORMATION
(In thousands, except per share amounts)
OPERATING INFORMATION
Year Ended December 31 1995 1994 1993 1992 1991
- ---------------------- ------- ------- ------ ------ -----
Total revenues $26,700 $33,571 $25,111 $14,263 $22,933
Net income(loss) $(2,449) $ 2,310 $(2,871) $(6,523) $ 1,010
Net income(loss)per share $ (0.04) $ 0.04 $ (0.06) $ (0.15) $ 0.02
Number of shares used
in per share calculations 57,598 62,102 47,865 43,294 51,889
BALANCE SHEET INFORMATION
At December 31 1995 1994 1993 1992 1991
- ---------------------- ------- ------ ------ ------ ------
Working capital $14,252 $ 8,741 $ 5,536 $ 6,971 $ 4,471
Total assets $30,876 $21,173 $15,903 $18,602 $19,399
Long-term debt $ - $ 4,992 $ 4,992 $ 4,992 $ 2,667
Total liabilities $14,651 $14,303 $12,265 $12,332 $11,010
Shareholders' equity $16,225 $ 6,870 $ 3,638 $ 6,270 $ 8,389
The Company did not pay any cash dividends on its Common Stock during any of the
periods presented above.
<PAGE>
Corporate Directory
Directors and Officers
S. Lewis Meyer
President and Chief Executive Officer
Director
Douglas P. Boyd
Chairman of the Board and
Chief Technology Officer
Director
Dale E. Grant
Executive Vice President of Sales and Marketing
President and Chief Operating Officer of HeartScan Imaging, Inc.
Gary H. Brooks
Vice President, Finance and Administration and Chief Financial Officer
Secretary
John L. Couch
Vice President
Engineering/Electronic Systems
Director
Giovanni Lanzara
Director
Consultant, Italimprese SpA
Terry Ross
Director
President, CEMAX, Inc.
Aldo Test
Director, Attorney-at-law
Partner, Flehr, Hohbach, Test, Albritton & Herbert
Independent Public Accountants
Ernst & Young
San Francisco, CA
General Counsel
Severson & Werson
San Francisco, CA
Transfer Agent
Trust Company of New Jersey
35 Journal Square
Jersey City, New Jersey 07306
Annual Meeting
The Annual Meeting of Shareholders of Imatron Inc. will be held on June 28, 1996
at 10:00 a.m. at the Ramada Inn, South San Francisco.
Form 10-K
The Company's annual report to the Securities and Exchange Commission on Form
10-K may be obtained without charge by writing to:
Investor Relations
Imatron Inc.
Corporate Address
Imatron Inc.
389 Oyster Point Blvd.
South San Francisco, CA 94080
Telephone: 415-583-9964
Fax: 415-871-0418
