SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
Commission file number 0-12405
IMATRON INC.
a New Jersey Corporation
I.D. No. 94-2880078
389 Oyster Point Blvd, South San Francisco, CA 94080
Telephone (415) 583-9964
Common Stock, without Par Value
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 periods 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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The aggregate market value of the voting stock (which is the outstanding Common
Stock) of the Registrant held by non-affiliates thereof, based upon the closing
sale price of the Common Stock on March 18, 1997 on the Nasdaq National Market
System ($2.28 per share) was approximately $173,982,000. For the purpose of the
foregoing computation, only the directors and executive officers of the
Registrant were deemed to be affilliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
As of March 18, 1997, Registrant had 78,176,769 outstanding shares of Common
Stock, no par value, which is the only class of shares publicly traded.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Proxy Statement for Registrant's 1997 Annual Meeting of
Shareholders, to be filed with the Commission on or before 120 days after the
end of the 1996 fiscal year, are incorporated by reference into Part III hereof.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this form 10-K. [ ]
THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM THOSE DESCRIBED IN ANY SUCH FORWARD LOOKING STATEMENTS.
RISKS INHERENT IN IMATRON'S BUSINESS AND FACTORS THAT COULD CAUSE OR CONTRIBUTE
TO SUCH DIFFERENCES INCLUDE WITHOUT LIMITATION THE CONSIDERATIONS SET FORTH
UNDER "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS." THE COMPANY EXPRESSLY DISCLAIMS ANY OBLIGATION TO UPDATE ANY
FORWARD LOOKING STATEMENTS.
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PART I
ITEM 1 - BUSINESS
GENERAL
Imatron Inc. ("Imatron" or 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
("CT") scanner. This scanner uses Electron Beam Tomography ("EBT") technology
based on a scanning electron beam. The scanner is used in large and midsized
hospitals and free-standing imaging clinics. The Company provides service, parts
and maintenance to hospitals and clinics that operate its scanners.
The Company is also engaged in performing research and development for others in
the field of CT devices and licensing its patents and know-how in the fields of
imaging sciences.
HeartScan Imaging, Inc. ("HeartScan"), incorporated in Delaware in 1993, is a
diagnostic services subsidiary of the Company. After completion of a private
placement that raised $14,798,000 in net proceeds in July 1996 and the exercise
of certain incentive stock options by HeartScan and Imatron management team
members, at December 1996, Imatron has a 49.5% interest in HeartScan Imaging
which has been consolidated with Imatron for financial reporting purposes as a
result of certain exchange provisions included in the private placement
agreement. HeartScan offers coronary artery scanning ("CAS") and coronary artery
disease risk assessment services through its five Coronary Artery Disease Risk
Assessment Centers in South San Francisco, California, Seattle, Washington,
Houston, Texas, Pittsburgh, Pennsylvania and Washington D.C. HeartScan is
engaged in the business of developing a nationwide network of coronary artery
disease risk assessment centers.
PRODUCT AND SERVICES
ULTRAFAST CT(R)
PRODUCT DESCRIPTION
A conventional CT scanner is a diagnostic imaging device in which a
cross-sectional (tomographic) image of a patient's anatomy is acquired from
multiple intensity readings (samplings) taken as an x-ray source rotates around
the patient during a scanning cycle. The acquired x-ray data are processed
through a complex mathematical algorithm relating variations in the intensity of
x-rays passing through a patient's body to tissue density differences. The
acquired data are subsequently reconstructed and displayed as images on a video
monitor, typically with white corresponding to high density matter, such as bone
or calcium, and with black corresponding to low density matter, such as air. In
this manner, the patient's anatomy can be displayed in a succession of
cross-sectional, anatomical gray-scale representations.
The Imatron Ultrafast CT scanner design differs from conventional CT scanners in
two important ways. First, the mechanically rotating x-ray tube technology of
conventional CT scanners is replaced by a high power electron beam accelerator
that generates a focused, high-intensity electron beam which is steered along
stationary target rings to produce a rotating fan-shaped x-ray beam. This
patented electron beam technology permits significantly faster scan speeds to be
achieved. The Company's scanner can acquire CT images at a rate of 50 to 100
milliseconds per slice in contrast to conventional CT scanners that require
between 1 and 10 seconds per slice. Second, the Imatron Ultrafast CT permits
rapid scanning of multiple contiguous images without moving the patient. With
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these features, the Ultrafast CT scanner can perform stop-action or dynamic
studies of the heart and various other organs, contributing to the scanner's
usefulness for both diagnostic imaging and functional evaluation.
The Ultrafast CT(R) Scanner can be operated in three scanning modes: Single
Slice mode, Multi-Slice mode and Continuous Volume Scanning mode. The Single
Slice mode can acquire up to 140 images per acquisition and can be timed to the
heart cycle with ECG triggering. This mode employs scan times from 100
milliseconds to 2 seconds as compared to 1 to 4 second exposure times of
conventional CT scanners. The Multi-Slice mode incorporates scan times of 50
milliseconds and can acquire up to 180 images in 6 seconds. This mode can also
be timed over the cardiac cycle with ECG triggering. The Continuous Volume
Scanning mode can acquire up to 140 images in 15 seconds. This continuous data
acquisition mode of the scanner outperforms spiral or helical scanning modes on
conventional CT scanners. Advantages include excellent slice registration for 3D
reconstruction, respiratory motion-free pulmonary imaging, pediatric scanning,
trauma, IV contrast reduction and increased patient throughput.
PRODUCT DEVELOPMENT
In December 1996, the Company completed its version 12.3 software which more
than tripled the image acquisition capability on the Company's C-150 model
Ultrafast CT scanner. Furthermore, improvements were made in image
reconstruction algorithms, ECG triggering capabilities and continuous volume
scanning modes. After completion of Beta testing in early 1997, version 12.3
software will be available for sale.
In addition, the Company began marketing its new workstation, which when
connected to the scanner, increases the functionality and flexibility of
cross-sectional scanning. Images can now be viewed in 2D, 3D, Maximum Intensity
Projections and real-time Multi-planar reformatting. This workstation can also
perform auto filming, auto archiving and DICOM (digital imaging and
communications in medicine) transfer. The Company believes this multi-tasking
feature, along with superior image display and manipulation capabilites creates
a workstation which will provide the user with increased capacity to process,
view, manipulate and store the data produced by the Ultrafast CT scanner.
MARKETS
The Company sells its CT scanner to the diagnostic medical imaging market. This
market includes several different medical imaging modalities such as CT,
ultrasound, nuclear medicine, digital subtraction angiography and magnetic
resonance imaging. These imaging modalities are based upon the ability of
x-rays, sound waves, gamma rays or magnetic fields to penetrate human tissue and
be detected by electronic devices for presentation of an image on a video
monitor. In some cases, these imaging modalities compete with one another for
the same type of diagnostic procedure.
All of these systems have been evaluated in the diagnosis of cardiac diseases,
but the extent of application of several is limited due to distortions arising
from the heart's motion as it beats at a frequency greater than the scanning
speed of these systems. This is not the case for Imatron's Ultrafast CT. One of
the significant benefits of the fast scanning speed is the ability to "freeze"
the motion of the beating heart allowing it to image and quantify small calcium
deposits in the coronary arteries, resulting in sharp, motion artifact-free
images. This procedure is known as the coronary artery scan ("CAS").
Cardiovascular disease is the number one cause of death in the United States
accounting for more than 950,000 deaths annually. Of these deaths, coronary
heart disease contributes to approximately 500,000 deaths annually. Of
particular importance is the fact that in approximately 150,000 cases annually,
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the first, last and only symptom of coronary heart disease is a fatal heart
attack. The Company believes that this widespread incidence of coronary heart
disease in the United States, coupled with the fact that a large number of
asymptomatic individuals experience heart attacks each year, indicates a clear
need for a safe and effective screening test for the earliest stages of coronary
heart disease.
The correlation between calcium in the coronary arteries, atherosclerosis, and
myocardial infarction (heart attack) has been known since the 1950's. In the
mid-1960's, selective coronary angiography was introduced and soon became
routine. Since that time coronary angiography, which demonstrated narrowing or
occlusion of the coronary arteries, has become the "gold standard" for positive
identification of coronary artery disease. Abnormal results from screening
tests, such as exercise electrocardiography (ECG) and thallium stress nuclear
medicine are commonly used as an indication for coronary angiography. These
tests produce a significant percentage of false abnormal results such that as
many as twenty-five to thirty-five percent of the coronary angiograms conducted
are deemed to be normal. The importance of this high level of so-called normal
angiograms is that coronary angiography is both expensive and invasive, exposing
the patient to some risk of morbidity or even death. In addition, statistics
indicate that some patients die suddenly after receiving a "normal" stress ECG
study and are then found upon autopsy to have had significant coronary artery
disease. The Company believes these statistics illustrate the inadequate
predictive value of the standard, noninvasive screening tests used to diagnose
coronary artery disease.
The Company further believes that research demonstrates CAS has the potential to
accurately identify those people who are developing early coronary artery
disease. CAS can then serve as a feedback mechanism to monitor the treatment of
those with early coronary artery disease, a disease which recent research
indicates that treatment may slow, stop or even regress. Until now, the only way
to directly determine the effect of life-style modification and lipid-lowering
pharmacologic treatment on coronary artery disease was to perform repeated
invasive coronary angiography.
For those patients in whom CAS detects advanced coronary artery disease,
intervention may help prevent a crippling heart attack or sudden death. The CAS
test also has great potential for reducing the costs associated with the
unnecessary treatment of those who have coronary risk factors, but show no sign
of coronary artery disease. It is estimated thirty to thirty-five percent of
people with elevated cholesterol levels do not develop coronary artery disease.
Since there has not been, until the advent of the Ultrafast CT scanner, a method
to find those who are beginning to develop coronary disease, everyone with a
high cholesterol reading is treated as if they will develop the disease. The
Company believes that CAS is a powerful and cost-effective method of detecting
or ruling out coronary artery disease and represents a unique market. Currently,
only the Ultrafast CT scanner can provide the necessary technological capability
to address these clinical application requirements. Notwithstanding the
foregoing, CAS to date has not been broadly accepted as a method of identifying
coronary artery disease and there is no assurance that a significant market will
develop for this procedure.
Imatron believes that possible factors affecting the demand for CT products
include, among others, potential customers' budgetary constraints including
those imposed by government regulation, changes in the reimbursement policies of
the government and third party insurers, replacement of older equipment,
advancements in technology, and the introduction of new medical procedures.
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SERVICE
The Company and its distributors provide installation, customer service, and
warranty service to their respective Ultrafast CT customers. Imatron provides a
warranty to its distributors on parts only during the 12 month period following
installation and warrants replacement parts for 90 days.
The Company maintains a staff of technical support engineers who are available
on a contract basis to assist its distributors during installations or during
emergencies. The Company also sells spare parts to its distributors.
CORONARY ARTERY SCANNING - HEARTSCAN IMAGING, INC.
In 1993, the Company organized HeartScan Imaging, Inc. as a wholly-owned
subsidiary. During that year, HeartScan opened a CAS pilot facility at the
Company's headquarters in South San Francisco, California. The principal
purposes of the facility are to test market a variety of consumer advertising
and professional education programs, test software developments for the
Company's scanner products and serve as a corporate demonstration site for the
Company's products and services.
HeartScan is also engaged in the business of developing coronary artery disease
("CAD") risk assessment centers and has developed a business and financing plan
for a nationwide network of Company-owned and operated CAD risk assessment
centers. The services of such centers are being marketed to physicians,
insurers, employers and directly to the public. As of December 31, 1996, five
CAD risk assessment centers were owned and operated by HeartScan. HeartScan's
near-term business strategy involves the development of five to six Coronary
Artery Disease Risk Assessment Centers over the next twelve months and
additional centers thereafter. There is no assurance that HeartScan will be able
to complete the centers provided for in its business plan. The success of
HeartScan's Coronary Artery Disease Risk Assessment Centers depends on a number
of factors including, but not limited to, HeartScan's ability to: obtain and
operate in compliance with appropriate licensing from applicable regulatory
authorities; develop working relationships with local groups of cardiologists;
educate patients, referring physicians and third-party payors about the benefits
of the CAS and HeartScan's centers; and successfully manage the operations of
the centers. HeartScan anticipates negative cash flow and substantial operating
losses during the next several years of its operations and there is no certainty
that HeartScan can operate profitably.
In June, 1996, Imatron completed a private offering whereby Imatron sold 100,000
shares of HeartScan Series A preferred stock to unaffiliated third parties at
$160.00 per share with realized proceeds of $14,798,000 (net of offering costs).
The sale of such shares, together with the exercise of certain incentive stock
options by members of the HeartScan and Imatron management team, reduced
Imatron's ownership in HeartScan to 49.5% as of December 31, 1996. The HeartScan
Series A Preferred Stock may be exchanged at the sole option of the holder into
Imatron common stock at an exchange price of $5.00 per share until the earlier
of a) two year period following closing of the Preferred Stock offering; or b) a
HeartScan initial public offering. If there is no initial public offering within
24 months of the Preferred Stock closing, holders may convert the HeartScan
Series A Preferred Stock into Imatron common stock at a conversion price equal
to the greater of $1.50 per share or a 27% discount from the weighted average
closing price of Imatron common stock for the 90 day period immediately
preceding 24 months of the Preferred Stock closing and each date that is 3
months thereafter to and including the 48th month of the Preferred Stock
closing.
HeartScan believes the net proceeds from the private offering, together with
lease and debt financing, will enable it to open five to six additional Coronary
Artery Disease Risk Assessment
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Centers over the next twelve months. In addition, a portion of the funds will be
used to develop a program to heighten public awareness of the value of coronary
artery scanning and support and expand collaborative research to develop and
further refine potential new tests that could be offered at HeartScan centers.
To satisfy HeartScan's future capital and operating requirements and to complete
its business plan, additional financing may be required. There is no certainty
that HeartScan will, in the future, be able to sell its securities privately or
in a registered public offering. If additional future public or private
financing is required by HeartScan, Imatron may experience dilution of its
current ownership position in HeartScan, along with other holders of HeartScan's
securities. If such financing cannot be obtained, HeartScan may not be able to
complete its business plan and may seek to sell some or all of its assets or to
merge with another company.
HeartScan is dependent on Imatron for the scanners used in its Coronary Artery
Disease Risk Assessment Centers. HeartScan does not believe there are any other
machines which can accomplish the same tests. In the event that Imatron, for any
reason, should cease manufacturing such equipment, HeartScan would be unable to
complete its business plan.
HeartScan's competitors are clinics and hospitals using either Ultrafast CT
scanners or conventional CT scanners for coronary artery screening. In order to
compete successfully against these competitors, it must develop a good working
relationship with cardiologists and educate the public and health insurance
companies about the benefits of coronary artery screening tests as well as
significant advantages over other testing modalities in terms of accuracy, cost,
time and degree of invasiveness.
HeartScan's near-term plans for opening new clinics will place significant
strain on its administrative, operational and financial resources and increased
demands on its systems and controls. If its management is unable to manage
growth effectively, HeartScan's operating results could be adversely effected.
RESEARCH AND DEVELOPMENT CONTRACTS
In March 1991, the Company entered into an agreement with Siemens Corporation
("Siemens") which included a Development Agreement. (see "Transactions With
Siemens Corporation" below). Pursuant to the Development Agreement, the Company
and Siemens pursued the joint development of certain EBT technology products
funded by Siemens. Upon successful conclusion of the development of such
products, Siemens had the sole right to manufacture the products. The Company
recognized $0, $1,753,000 and $5,013,000 of revenue under this Development
Agreement in 1996, 1995 and 1994, respectively.
On March 31, 1995, the Company and Siemens entered into a new agreement (the
"Memorandum of Understanding") pursuant to which the parties agreed to terminate
the existing Development Agreement and substitute in its place a new
collaborative research agreement. Under the new collaborative research
agreement, the parties will jointly conduct research and development over a
three year period directed toward certain improvements and enhancements to the
Company's C-150 product. Siemens agreed to fund an aggregate of $15 million of
Imatron-managed research and development for a three year period beginning April
1, 1995, subject to addressing mutually agreed upon goals and objectives.
Pursuant to the funding, Imatron will contribute a portion equal to no less than
fifty percent of Siemens' contribution for the sole purpose of conducting the
collaborative research. The primary goals of the research and development
program are to develop and enhance the Ultrafast CT scanner system performance,
increase product reliability, reduce manufacturing costs, and improve system
upgradability. The results of the collaborative research will be jointly owned
by the parties and cross-licensed. The Company recognized $5,000,000 and
$3,884,000 of revenue under the collaborative agreement in 1996 and 1995,
respectively.
MARKETING
The Company's Ultrafast CT scanners are utilized by a variety of customers
including large teaching and research hospitals, medium-size hospitals and
imaging clinics.
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The Company sells its Ultrafast CT product directly and through distributors.
The Company has, or had, the following distribution arrangements:
UNITED STATES, CANADA, AND EUROPE
In April 1995, pursuant to the Memorandum of Understanding above, the Company
entered into an agreement with Siemens giving Siemens the exclusive right to
distribute the Company's C-150 scanner in the United States, Canada, Europe and
India. (see "Transactions With Siemens Corporation" below). Siemens purchased
two, one, and six C-150 scanners in 1996, 1995 and 1994, respectively.
JAPAN
Beginning in 1986, Mitsui & Co., Ltd. ("Mitsui") was the distributor of the
Company's products in Japan, either directly or through a third-party
distributor. On December 10, 1993 Imatron entered into two agreements with
Mitsui that became effective in January 1994; the Settlement Agreement and the
Transition Agreement. Pursuant to these agreements, Mitsui agreed to pay Imatron
$1.5 million in consideration of Imatron's agreement to relieve Mitsui of its
obligation to purchase additional Ultrafast CT scanners from Imatron. Imatron
agreed to purchase certain Ultrafast CT scanner inventory from Mitsui and to
undertake all service and warranty responsiblitiy for Ultrafast CT scanners
installed in Japan. Imatron further agreed to complete certain sales contracts
currently in place between Mitsui and various end users in Japan.
On January 7, 1994, Imatron entered into a Joint Company Agreement with Tobu
Land System Company and Kino Corporation pursuant to which a joint venture
company was established to market, sell, install and service Imatron CT
scanners. The joint venture was designated as Imatron Japan, Inc. and is owned
51% by Tobu Land System Company, 25% by Kino Corporation and 24% by Imatron.
Imatron did not assume any financial funding requirements associated with the
formation of Imatron Japan, Inc. The Company's investment in Imatron Japan, Inc.
is carried at no value in the accompanying financial statements. Imatron is
under no obligation to fund the operations of Imatron Japan, Inc. and is
prepared to abandon its interest.
On February 3, 1994, Imatron and Imatron Japan, Inc. entered into a
Distributorship Agreement pursuant to which Imatron Japan, Inc. has been
appointed as Imatron's exclusive Distributor in Japan. Imatron has transferred
its rights and obligations under the Transition Agreement between Imatron and
Mitsui & Co. Ltd. to Imatron Japan, Inc. Imatron Japan, Inc. took delivery of
five, five, and six C-150 Ultrafast CT scanner systems from Imatron in 1996,
1995 and 1994, respectively. Imatron Japan, Inc. also purchased two refurbished
Ultrafast CT systems in 1995. In connection with these sales, the Company pays
$130,000 in commissions for each new C-150 Ultrafast CT scanner sold to Imatron,
Japan Inc.
Imatron Japan, Inc. has ordered 10 additional Ultrafast CT scanner systems for
delivery in 1997 and 1998 with an option to purchase three additional systems in
the years 1997 and 1998, respectively.
RELIANCE ON DISTRIBUTORS
A substantial portion of the Company's sales of its scanners is done through
distributors. There is no assurance that the Company's distibutors will actually
meet their contractual minimums on a timely basis. Failure by the distributors
to meet their obligations could adversely affect the Company's operations and
financial position.
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SALES INFORMATION
The end user list price for the Ultrafast CT scanner varies depending on the
configuration and country to which the scanner is shipped. The sales price
includes installation by field service personnel, system check and
certification, customer training in the scanner's use, and a limited 12-month
parts warranty. In addition, local taxes and import duties may be added. This
price, which is significantly higher than that of conventional CT scanners, may
serve to limit sales of the Company's scanner to larger hospitals and medical
imaging clinics that are able to generate a higher than average patient usage
volume to offset its higher cost.
Unit export sales for fiscal years ended December 31 are as follows:
1996 1995 1994
---- ---- ----
Total Export Sales 8 7 10
TRANSACTIONS WITH SIEMENS CORPORATION
In March 1991, the Company entered into a Basic Agreement with Siemens
Corporation ("Siemens") which consisted of four separate sub-agreements each of
which has been subsequently modified in various respects by the parties.
On March 31, 1995, the Company and Siemens entered into an agreement (the
"Memorandum of Understanding" or "MOU") pursuant to which the relationship of
the parties as established by the Basic Agreement was substantially
restructured. Pursuant to the MOU, the sub-agreements of the Basic Agreement
were terminated and a number of new relationships were created. First, the $4
million term loan was canceled in exchange for the transfer to Siemens of all of
Imatron's interest in five patents subject to a royalty-bearing license back to
Imatron and the cancellation of the minimum purchase provision of the previous
distribution agreement. Second, the parties agreed to terminate, as of March 31,
1995, the existing Development Agreement and substitute in its place a new
collaborative research agreement pursuant to which the parties will jointly
conduct research and development over a three year period directed toward
certain improvements and enhancements to the Company's C-150 product described
above. Third, Siemens was appointed Imatron's exclusive distributor for the
company's C-150 Ultrafast scanner in the United States, Canada, Europe and India
for a three year period effective April 1, 1995 and ending March 31, 1998.
Imatron retains exclusive distribution rights in the rest of the world. Fourth,
the Company and Siemens granted reciprocal licenses to each other covering the
electron beam technology presently used (and to be developed) relating to the
design and manufacture of electron beam products.
Pursuant to the new collaborative research agreement, Siemens has agreed to fund
a maximum aggregate of $15 million of Imatron-managed research and development
over the three years, subject to addressing certain mutually agreed upon goals
and objectives. Pursuant to the funding, Imatron will contribute a portion equal
to no less than fifty percent of Siemens' contribution for the sole purpose of
conducting the collaborative research. The primary goals of the research and
development program are to develop enhanced system performance, increase product
reliability, reduce manufacturing costs, and improve system upgradability. The
results of the collaborative research will be jointly owned by the parties and
cross-licensed.
Siemens has agreed to use its best efforts to distribute the Company's C-150
product in its exclusive markets subject to no minimum purchase obligations. The
term of the Distribution Agreement may be extended for an additional three year
period, upon mutual agreement by Imatron and Siemens. Any extension of the
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agreement is subject to agreement on minimum purchase commitments and price.
Pursuant to the cross licensing agreement, Siemens has granted Imatron a license
to: (a) all of the research results from the prior development agreement; (b)
the patents transferred by Imatron to Siemens; and (c) Siemens' rights under the
new collaborative research agreement. Imatron has granted a license to Siemens
in the field of medical imaging to: (a) Imatron's rights under the new
collaborative research agreement; and (b) Imatron's electron beam technology.
Pursuant to the license, Imatron has agreed not to grant to any third party a
license in the field of medical imaging during the term of the Distribution
Agreement and the collaborative research agreement and for a period of three
years thereafter. Siemens may not use Imatron's technology to manufacture C-150
scanners until Imatron has delivered to Siemens 50 such units in any year, or in
the event Imatron is unable to perform its obligations to Siemens under the
Distribution Agreement.
INVISION TECHNOLOGIES, INC.
In 1990, the Company established a joint venture company, InVision Technologies,
Inc. ("InVision")(formerly Imatron Industrial Products, Inc.), with FI.M.A.I.
Holding S.A. ("FI.M.A.I."), a former shareholder of Imatron, to develop,
manufacture, market and support advanced CT technology in the baggage, parcel
and freight scanning market. Upon organization, Imatron contributed $250,000,
certain parts, components and material and entered into a Technology License
Agreement.
The Technology License Agreement between the Company, FI.M.A.I. and InVision,
grants InVision an exclusive, worldwide, perpetual and fully-paid license to use
the Company's technology and patents for the development, manufacture, use, and
sale of compact medical scanner products for military field applications, and
mail, freight, parcel or baggage scanner products. Also, InVision has agreed to
grant back to Imatron an exclusive, worldwide, perpetual and fully-paid right
and license to use InVision's technology and patents outside of InVision's field
of use.
In July 1996, Imatron sold its remaining shares of InVision common stock.
InVision common stock was carried at no cost by Imatron. Imatron realized
$1,756,000 from the InVision common stock sale. The gain on sale was recorded as
other income in the Company's consolidated financial statements for the year
ended December 31, 1996.
As of December 31, 1996, Imatron has no ownership interest in InVision.
COMPETITION
In the non-cardiac imaging applications market (comprised principally of
hospital radiology departments), the Company's principal competition is from
current manufacturers of conventional CT scanners, including General Electric
Company, Siemens Corporation, Elscint, Picker International, Inc., Philips
Medical Systems and Toshiba Medical Corporation and others. Non-invasive
diagnostic imaging techniques such as ultrasound, radioisotope imaging, digital
subtraction angiography and magnetic resonance imaging are also partially
competitive with the Company's scanners. Each of the companies named above, as
well as ATL, Accuson and ADAC Laboratories, markets equipment using one or more
of these techniques. All of these companies have greater financial resources and
larger staffs than those of the Company and their products are, in most cases,
substantially less expensive than the Ultrafast CT scanner.
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The Company believes that in order to compete successfully against these
competitors, it must continue to demonstrate that the Ultrafast CT scanner is
both an acceptable substitute for conventional CT scanners in scanning areas of
the body where motion is not a limitation and a valuable cardiac diagnostic tool
capable of producing unique and useful images of the heart. Although the Company
believes that the Ultrafast CT can produce images of a quality and resolution as
good as, or superior to, images produced by "state of the art" conventional CT
scanners, it lacks certain features that many competing premium scanners offer.
These include lack of a high-resolution mode. There is no certainty that
potential purchasers will accept the Company's scanner without such features.
Also, the Company believes that customers and potential customers expect a
continuing development effort to improve the functionality and features of the
scanner. The Company continually seeks to develop product enhancements and
improve product reliability. Imatron's future success may depend on its ability
to complete certain product enhancement and product reliability projects
currently in progress, as well as on its continued ability to develop new
products or product enhancements in response to new products that may be
introduced by other companies. There can be no assurance that Imatron will be
able to continue to improve product reliability or introduce new product models
or product enhancements as required to remain competitive.
Other factors, in addition to those described above, that a potential purchaser
might consider in the decision to replace a conventional CT scanner with an
Ultrafast CT scanner include purchase price, patient throughput capacity,
anticipated operating expenses, estimated useful life and post-sale customer
service and support. The Company believes that its scanner is competitive with
respect to each of these factors.
MANUFACTURING
The Company manufactures its scanner at its South San Francisco, California
headquarters facility. To date, the typical manufacturing cycle has required
approximately six months from the authorization of manufacturing to the delivery
of a 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.
Also, certain vendors currently require cash-on-delivery or prepayment terms.
There can be no assurance that such actions will not adversely affect the
Company's production schedule and its ability to deliver products in a timely
manner. As a result of certain vendors currently requiring cash-on-delivery or
prepayment terms, the Company must maintain higher levels of cash and other
sources of credit to fund material purchases than otherwise would be required.
<PAGE>
GOVERNMENT REGULATION
Amendments to the Federal Food, Drug, and Cosmetic Act ("Amendments") enacted in
1976, and regulations issued or authorized thereunder, provide for regulation by
the Federal Food and Drug Administration ("FDA") of the marketing, manufacture,
labeling, packaging, sale and distribution of "medical devices," including the
Company's scanner. Among these regulations are requirements that medical device
manufacturers register their manufacturing facilities with the FDA, list devices
manufactured by them, file various reports and comply with specified Good
Manufacturing Practice (GMP) regulations. The FDA enforces additional
regulations regarding the safety of equipment utilizing x-rays, including CT
scanners. Various states also impose similar regulations.
The Amendments also impose certain requirements which must be met prior to the
initial marketing of medical devices introduced into commerce after May 28,
1976. Other requirements imposed on medical device manufacturers include a
pre-market notification process commonly known as the 510(k) application to
market a new or modified medical device. Additionally, and specifically, if
required by the FDA, a pre-market approval (PMA) may be required. This process
is potentially expensive and time consuming and must be completed prior to
marketing a new medical device. The Company has received appropriate clearances
from the FDA to market both the C-100 and C-150 Ultrafast CT scanner. The
Company believes that it is presently in substantial compliance with the GMP
requirements and other regulatory issues promulgated by the FDA.
The FDA also regulates the safety and efficacy of radiological devices. Although
the Company believes it is in compliance with all applicable radiological health
regulations established by the FDA, there can be no assurance that the Ultrafast
CT scanner will continue to comply with all such standards and regulations that
may be pronounced. In any event, compliance with all such requirements can be
costly and time consuming, with a resultant materially adverse effect upon the
development of the Company's business and its future profitability.
FDA clearance to market does not guarantee or imply reimbursement by third-party
payors such as Medicare, Medicaid, Blue Cross/Blue Shield or other private
health insurers. Medicare and Medicaid reimburse for procedures that are
generally accepted or that have been proven safe and effective. The Health Care
Financing Administration ("HCFA"), which oversees Medicare and Medicaid payment
policies, will not authorize payment for procedures which are considered to be
experimental. HCFA has determined that diagnostic examinations of the head and
other parts of the body performed by CT scanners are covered if the contractor
who administers the local Medicare program finds that medical and scientific
literature and opinion support the effective use of a scan for the particular
condition.
The Federal government and certain states have enacted cost-containment measures
such as the establishment of maximum fee standards in an attempt to limit the
extent and cost of governmental reimbursement of allowable medical expenses
under Medicare, Medicaid and similar governmental programs. A number of states
have adopted, or are considering the adoption, of similar measures. Such
limitations have led to a reduction in, and may further limit funds available
for, the purchase of diagnostic equipment such as the Company's scanner and in
the number of diagnostic imaging procedures performed in hospitals and other
medical institutions such as HeartScan's imaging clinics.
Certain states have adopted requirements that hospitals and other health care
facilities, such as imaging clinics, obtain a Certificate of Need ("CON") for
major capital expenditures, in the absence of which they will be denied
reimbursement for services and funding relating to such capital expenditures. A
number of states have enacted more stringent CON legislation such as requiring
private physicians to obtain a CON for any CT scanner, regardless of cost. There
can be no assurance that Imatron's potential customers will be able to secure
<PAGE>
CON's or will be willing to pursue the application procedure.
The Company's primary customers operate in the healthcare industry. The health
care 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.
In some cases, state or local regulations may be stricter than regulations
imposed by the federal government. The Company was most recently inspected by
the State of California, Department of Occupational Safety and Health
Administration in November 1993. Minor violations were issued by Cal/OSHA and
were immediately corrected by the Company. The subsequent follow up inspection
in December 1993, by the same regulatory body, yielded satisfactory results
without the issuance of further notice of violation. The Company believes that
it is in substantial compliance with California regulations applicable to its
business. In November 1996 and again in January 1997, the FDA conducted routine
inspections of Imatron's manufacturing operations. Both inspections concluded
without Notices of Observations. Imatron frequently provides field modifications
or updates of components and software to operational sites. Imatron voluntarily
advised FDA during these inspections that certain field corrections were
ongoing. FDA concurred with Imatron's decision to field upgrade certain sites
and assigned recall numbers Z-304/307-7 and Z-298/299-7. Imatron is required to
notify the FDA periodically of the status of these corrections and again upon
completion. Imatron is complying with these requests and expects correction to
the above recall numbers by May 31, 1997. Imatron believes that it is in
substantial compliance with the regulations promulgated by the FDA.
HeartScan's activities are subject to extensive regulation, generally by state
and local governmental entities. Although HeartScan believes it is in
substantial compliance with all applicable radiological health standards and
regulations, there can be no assurance that its business will continue to comply
with all such standards and regulations that may be promulgated. In any event,
compliance with all such requirements can be costly and time consuming, with a
resultant materially adverse effect upon the development of HeartScan's business
and its future profitability. HeartScan'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
Federal Food and Drug Administration, Occupational Safety and Health
Administration and the Environmental Protection Agency. Changes in governmental
regulations or new regulations adopted in the future may materially adversely
affect Imatron's business. In some cases, state or local regulations may be
stricter than regulations imposed by the Federal government.
PATENTS AND LICENSES
Imatron relies heavily on proprietary technology which it attempts to protect
through patents and trade secrets.
In February 1981, the Company was granted the exclusive use for five years and
non-exclusive use thereafter of certain technology and a patent pending owned by
the University of California ("UC") under the terms of a license agreement
between UC and Emersub, a wholly-owned subsidiary of a former principal
shareholder of the Company, and a sublicense agreement between 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 13-year life of the patent
in exchange for modified minimum annual royalty payments. Under the terms of
Emersub's license with UC, Emersub was obligated to make certain additional
payments in connection with the license. In October 1990, pursuant to subsequent
amendments of the license and sublicense agreements the Company issued an
aggregate of 132,813 shares of Series A Preferred Stock to UC and Emersub in
satisfaction of this obligation. The University of California converted their
125,000 Series A Preferred Stock into 625,000 common stock shares in 1993.
Emersub converted their 7,813 Series A Preferred Stock into 39,065 common stock
shares in September 1995.
Under the continuing sublicense agreement, as amended, the Company is required
to pay annual royalties to Emersub equal to 2.125% of net sales of certain of
the Company's products. The Company's Chairman of the Board, Dr. Douglas P.
Boyd, receives 6% of all of the royalties paid by Emersub to UC. Loss by Imatron
of its rights under the patent as a result of termination of its sublicense from
Emersub, or the underlying license, could have a material adverse effect upon
Imatron's business and future prospects. There are no present disputes with
either UC or Emersub.
Development of portions of the technology covered by the UC patent and
sublicensed to Imatron has been funded in substantial part through research
financing made available to UC by the National Institutes of Health. As a result
of such financing, it is possible that the U.S. Government may assert certain
<PAGE>
claims in such UC patents, including the right to a royalty-free license for
governmental use.
In addition, Imatron holds twenty-four U.S. Patents of its own (each with a
remaining life in excess of 3 years) and has filed three U.S. patent
applications covering various integral components of the scanner including,
among others, its electron beam assembly and its x-ray detector and has filed
applications corresponding to several of these patents and applications in
various European Patent Convention countries, Canada and Japan. There can be no
assurance that any such applications will result in the issuance of a patent to
the Company. Imatron's patents and patent applications have not been tested in
litigation and no assurance can be given that patent protection will be upheld
or will be as extensive as claimed. Furthermore, no assurance can be given as to
the Company's ability to finance litigation against parties which may infringe
upon such patents or parties which may claim that the Company's scanner
infringes upon their patents. However, the agreement signed by the Company and
Siemens Corporation in March 1991 allows Siemens Corporation to enter litigation
in favor of Imatron.
On March 31, 1995, the Company and Siemens Corporation (Siemens) entered into an
agreement (the "Memorandum of Understanding") relating in part to certain of the
Company's patents (see "Transactions With Siemens Corporation" ). Pursuant to
the agreement, the Company transferred to Siemens five patents, two of which
cover features of the Company's C-150 scanner, in partial consideration of the
cancellation by Siemens of the $4 million term loan to the Company. As part of
the agreement Siemens granted to the Company a non-exclusive, irrevocable,
perpetual license to the five patents. The license is subject to a royalty of
$20,000 for each new C-150 unit sold by the Company beginning with the
twenty-first C-150 unit produced in any year.
In September 1995, Siemens 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 substituted a patent, subject to existing
license-back, currently used in its technology for the previously transferred
patent. Representatives of Siemens have agreed with the Company to these terms.
In the event some or all of the Company's patent applications are denied and/or
some or all of its patents held invalid, the Company would be prevented from
precluding its competitors from using the protected technology set forth in such
patent applications or patents. Because the Company's products involve
confidential proprietary technology and know-how, the Company does not believe
such a loss of patent rights would have a material adverse effect upon the
Company.
The Company also believes that many of its proprietary technologies are better
protected as trade secrets or copyrights than by patents. Moreover, although
protection of the Company's existing proprietary technologies is important,
other factors such as product development, customer support and marketing
ability are also important to the development of the Company's business.
EMPLOYEES
As of February 1, 1997, the Company had 170 employees, including 30 employees in
service, 8 in sales/marketing, 62 scientists and engineers in research and
development, 53 employees in manufacturing, and 17 employees in finance and
administration. HeartScan had 37 employees, including 26 employees in
operations, 7 in sales and marketing and 4 employees in corporate
administration. None of the employees are represented by a labor union and no
work stoppages or strikes have occurred. The Company believes that it has good
<PAGE>
labor relations with its employees.
CERTAIN FACTORS
In evaluating the Company and its business, the following factors should be
given careful consideration, in addition to the information mentioned elsewhere
in this Form 10-K:
OPERATING HISTORY
Imatron was incorporated in February 1983, and incurred losses each quarter from
inception through December 31, 1990. Its first recorded profitable year was the
year ended December 31, 1991 during which a $4,000,000 payment for the licensing
of technology to Siemens Corporation was received. The Company incurred
additional net losses in both 1993 and 1992. In 1994, the Company incurred its
first year of net income from operations amounting to $3,221,000 partially
offset by $911,000 of net losses incurred by HeartScan. In 1996 and 1995, the
Company incurred net losses of $10,465,000 and $2,449,000, respectively. The net
losses are partially a result of the operating losses incurred by HeartScan
which amounted to $4,573,000 and $2,132,000 in 1996 and 1995, respectively.
There is no assurance that Imatron can return to profitable operations in the
future.
In the past, Imatron has funded its losses primarily though the sale of
securities in two public offerings and a number of private placements, through
the exercise of options and warrants, through the 1991 license for medical uses
of its electron-beam technology to Siemens Corporation, and through revolving
lines of credit. In 1995, the Company raised $9,882,000 (net of offering costs)
in two offerings of Common Stock to certain institutional investors. In 1996,
the Company received $16,672,000 through the sale of shares of Common Stock and
the exercise of warrants and stock options for shares of common stock. In
addition, HeartScan raised $14,798,000 (net of offering costs) for use
exclusively to develop its operations. As of December 31, 1996, the Company has
a consolidated accumulated deficit of $68,022,000. As of December 31, 1996,
HeartScan has an accumulated deficit of $8,600,000.
Management believes that cash, cash equivalents and short-term investments
existing at December 31, 1996 and the estimated proceeds from ongoing sales of
products and services in 1996 will provide the Company and HeartScan with
sufficient cash for operating activities and capital requirements through
December 31, 1997.
NEED FOR ADDITIONAL FINANCING
To satisfy the Company's future capital and operating requirements, profitable
operations or additional public or private financing will be required. If future
public or private financing is required by the Company, holders of the Company's
securities may experience dilution. If such financing cannot be obtained, the
Company may seek to sell or license additional portions of its technology, to
sell some or all of its other assets or to merge with another company.
In addition, HeartScan may need additional financing to continue to fund its
plan to own and operate CAS centers. In the event HeartScan can no longer
support its operating expenses and is unable to raise additional funds it will
have to curtail its center development and expansion activities.
MATERIAL DEPENDENCE UPON KEY PERSONNEL
The Company and HeartScan have been, and will continue to be, materially
dependent upon the technical expertise of its engineering and management
personnel. The loss of a
<PAGE>
significant number of such personnel would have a materially adverse effect upon
the Company's business and future prospects. The Company does not maintain
key-man life insurance.
HIGH COST OF SCANNER
The distributor list price of Imatron's Ultrafast CT scanner is significantly
higher than that of commercially available conventional CT scanners and higher
than the price of "top-of-the-line" scanners. Such pricing may limit the market
for Imatron's product. Potential customers' budgetary limitations, including
those imposed by government regulation, may often compel the purchase of lower
cost, conventional CT scanners.
LIMITED CLINICAL DEMONSTRATION OF CERTAIN ADVANTAGES OF THE COMPANY'S SCANNER
The Company's scanner has been used in a clinical environment since April 1983.
Clinical use of the C-100 XL scanner model began in February 1989. The C-150
Ultrafast CT scanner was first used in 1992. Fifty-four C-150 scanners are
currently installed in a clinical setting. The Company believes that market
acceptance of the Ultrafast CT scanner continues to depend in substantial part
upon the clinical demonstration of certain asserted technological advantages and
diagnostic capabilities. There is no assurance that these asserted technological
advantages and diagnostic capabilities will result in the development of a
significant market for the Ultrafast CT that will allow the Company to operate
profitably.
PRODUCT LIABILITY RISKS
As a manufacturer and marketer of medical diagnostic equipment, the Company is
subject to potential product liability claims. As a supplier of radiological
diagnostic services, HeartScan is also subject to potential liability claims.
For example, the exposure of normal human tissue to x-rays, which is inherent in
the use of CT scanners for diagnostic imaging, may result in potential injury to
patients subjecting the Company to possible liability claims. The Company
presently maintains primary and excess product liability insurance with
aggregate limits of $5.0 million per occurrence. No assurance can be given that
the Company's product liability insurance coverage will continue to be available
or, if available, that it can be obtained in sufficient amounts or at reasonable
cost or that it will prove sufficient to pay any claims that may arise.
VOLATILITY OF STOCK PRICE
The market prices for securities of advanced technology companies have
historically been highly volatile, including the market price of shares of the
Company's Common Stock. Future announcements by the Company or its competitors,
including announcements concerning technological innovations or new commercial
products, results of clinical testing, changes in government regulations,
regulatory actions, health care reform, proprietary rights, litigation and
public concerns as to the safety of the Company's or its collaborators'
products, as well as period-to-period variances in financial results could cause
the market price of the Common Stock to fluctuate substantially. In addition,
the stock market has experienced extreme price and volume fluctuations that have
particularly affected the market price for many advanced technology companies
that have often been unrelated to the operating performance of these companies.
These broad market fluctuations may adversely affect the market price of the
Company's Common Stock.
NO DIVIDENDS ON PREFERRED AND COMMON STOCK
The Company has not paid dividends on its Preferred or Common Stock since
inception. Even if its future operations result in revenues and/or
<PAGE>
profitability, as to which there can be no assurance, there is no present
anticipation that dividends will be paid. Rather, the Company expects that any
future earnings will be applied toward the further development of the Company's
business.
ITEM 2 - PROPERTIES
The Company's manufacturing, research and development, marketing and
administrative operations occupy approximately 70,000 square feet of leased
space in buildings located in South San Francisco, California under leases
expiring in October, 2001. Under certain future conditions the facilities could
be expanded to approximately 75,000 square feet.
The HeartScan clinics located in Seattle, WA, Houston, TX, Washington DC and
Pittsburgh, PA occupy approximately 3,000 square feet each of leased space in
medical buildings close to hospitals. The leases are renewable in July 1998, May
2000, December 2005 and June 2001, respectively.
The Company believes its facilities are adequate for its current needs and that
suitable additional or substitute space will be available as needed to
accommodate any future expansion of the Company's operations.
ITEM 3 - LEGAL PROCEEDINGS
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of Imatron's shareholders during the
quarter ended December 31, 1996.
<PAGE>
PART II
ITEM 5 - 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.
1996 1995
-------------- ---------------
Quarter: High Low High Low
----------- ------------ ----------- --------
First $ 3.50 $ 1.75 $ 1.31 $ .97
Second 8.38 3.00 1.22 .81
Third 6.63 3.94 3.63 .75
Fourth 4.81 2.50 2.97 1.47
As of March 18, 1997 there were approximately 6,823 holders of record of the
Company's common stock. On March 18, 1997 the closing price of the Company's
common stock on Nasdaq was $ 2.28.
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>
ITEM 6 - SELECTED FINANCIAL DATA
IMATRON INC.
SELECTED FINANCIAL INFORMATION
(In thousands, except per share amounts)
OPERATING INFORMATION
Year Ended December 31 1996 1995 1994 1993 1992
- --------------------- --------- -------- -------- ------- ------
Total revenues $25,768 $26,700 $33,571 $25,111 $14,263
Net income(loss) $(10,465) $(2,449) $ 2,310 $(2,871) $(6,523)
Net income(loss)per share $ (0.14) $ (0.04) $ 0.04 $ (0.06) $ (0.15)
Number of shares used
in per share calculations 74,406 57,598 62,102 47,865 43,294
BALANCE SHEET INFORMATION
At December 31 1996 1995 1994 1993 1992
- --------------- --------- --------- --------- --------- --------
Working capital $ 33,042 $ 14,252 $ 8,741 $ 5,536 $ 6,971
Total assets $ 53,192 $ 30,876 $21,173 $15,903 $18,602
Long-term debt $ - $ - $ 4,992 $ 4,992 $ 4,992
Total liabilities $ 15,666 $ 14,651 $14,303 $12,265 $12,332
Minority Interest $ 14,941 $ - $ - $ - $ -
Shareholders' equity $ 22,585 $ 16,225 $ 6,870 $ 3,638 $ 6,270
The Company did not pay any cash dividends on its Common Stock during any of the
periods presented above.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had working capital of $33.0 million which was
a 131% increase compared to working capital of $14.3 million at December 31,
1995. The current ratio increased to 4.4:1.0 from 2.4:1.0 at December 31, 1995.
The Company's assets increased in 1996 by 72% to $53.2 million compared to
December 31, 1995 total assets of $30.9 million primarily due to proceeds
realized of $31.7 million (net of offering costs) from private placement
offerings and exercises of warrants and stock options. In addition, property and
equipment increased by $2.5 million exclusive of $2.7 million in additions that
are related to capitalized leases. Capital lease obligations were entered into
in 1996 principally due to the establishment of two new HeartScan clinic
scanners. The deferred income of $1.4 million is related to deferred profit on
sales of scanners under 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 obligations.
<PAGE>
Management believes that cash, cash equivalents and short-term investments
existing at December 31, 1996 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, 1997.
HeartScan anticipates that 1997 capital equipment acquisitions will increase
from 1996 due to the expansion of clinic base.
To satisfy the Company's capital and operating requirements beyond 1997,
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.
RESULTS OF OPERATIONS
1996 vs. 1995
Overall revenues decreased 3% from $26,700,000 in 1995 to $25,768,000 in 1996.
Product sales, including $1.8 million under sale-leaseback arrangements with
various leasing companies in both 1996 and 1995, increased 6% due to a higher
option/upgrade revenues. There were 10 scanners and 1 refurbished unit sold in
1996 versus 10 scanners in 1995. Service revenues decreased 37% from $5,529,000
in 1995 to $3,465,000 in 1996 primarily due to lower spare parts shipment.
Research and development contract revenues decreased by 11% to $5,000,000
compared to $5,637,000 in 1995 due to the lower revenue recognized under the
Memorandum of Understanding with Siemens as compared to the previous Siemens
development agreement that was terminated in March 1995. Clinic revenues related
to the HeartScan subsidiary increased by 181% to $1,293,000 in 1996 compared to
$460,000 in 1995 as a result of additional coronary artery disease risk
assessment centers (clinics) operating in 1996.
The costs of revenues as a percent of revenues for 1996 is higher at 96% as
compared to 89% in 1995. Product cost of revenues as a percent of product
revenues increased to 90% in 1996 from 89% in 1995 as a result of lower realized
margin on scanners sold. Service cost of revenues as a percent of service
revenues increased to 91% in 1996 as compared to 71% in 1995 due primarily to
lower volume of spares shipped. Development contract revenue and cost of revenue
is identical in 1996 due to the terms of the three year Memorandum of
Understanding with Siemens. In 1995, development revenue also included a
development contract with Siemens which provided a higher gross margin to the
Company. This contract was terminated in 1995. Clinic cost of revenues as a
percent of clinic revenues decreased to 173% in 1996 as compared to 293% in 1995
primarily due to additional revenues related to the establishment of new
Heartscan clinics.
Operating expenses of $13,390,000 for 1996 increased by 45% as compared to 1995
expenses of $9,225,000. Research and development expenses of $3,318,000 reflect
the research and development spending not covered by the Siemens research and
development contract. Marketing and sales expenses increased to $4,676,000 from
$3,137,000 in 1995 primarily due to higher advertising expenses incurred by
HeartScan and expenses related to studies conducted promoting the benefit of the
Company's product. General and administrative expenses increased to $5,396,000
from $2,658,000 in 1995 mainly due to increases in bad debt expense related to
Imatron receivables and overhead expenses related to the establishment of new
HeartScan clinics.
<PAGE>
Other income decreased to $2,508,000 from $4,021,000 in 1995 as a result of the
transaction recorded in 1995 eliminating 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 . In 1996, the Company recognized $1,756,000 in other income from the
sale of 59,090 shares of Invision Technologies common stock.
Interest expense increased to $564,000 from $312,000 in 1995 due primarily to an
increase in capitalized scanners leased back by HeartScan.
1995 vs. 1994
Overall revenues decreased 20% from $33,571,000 in 1994 to $26,700,000 in 1995.
Product sales, including $1,820,000 under the sale-leaseback arrangements in
1995, 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 $4,750,000 in
1994 to $5,529,000 in 1995 primarily due to higher spare parts shipment.
Research and development contract revenues went up by 5% to $5,637,000 compared
to $5,380,000 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 was 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 was 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. 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
$4,000,000 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 $4,000,000 term loan with Siemens.
ITEM 8 - CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
See Consolidated Financial Statements and Consolidated Financial Statement
Schedules listed in Item 14 (a) 1 and 2.
<PAGE>
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of Registrant, their ages and executive
positions as appropriate, are set forth below. Directors are elected for terms
of one year or, if appointed mid-term, serve until the next meeting of
shareholders. Unless otherwise indicated, officers are full-time employees and
serve at the discretion of the board of directors.
Name Age Director Executive Position
Dr. Douglas P. Boyd 55 Yes Chairman of the Board;
Chief Technology Officer
John L. Couch 55 Yes
S. Lewis Meyer 52 Yes President; Chief Executive Officer
Jose Filipe Guedes 50 Yes
William J. McDaniel 54 Yes
Terry Ross 49 Yes
Aldo J. Test 73 Yes
Gary H. Brooks 48 No Vice President, Finance &
Administration, Chief Financial
Officer, Secretary
Dr. Boyd has held several positions with the Company since its inception in 1983
including Chief Executive Officer, President, Chief Technical Officer and
Director. Dr. Boyd is currently Chairman of the Board and Chief Technology
Officer. He is an Adjunct Professor of Radiology (Physics) at the University of
California, San Francisco ("UCSF") and spends approximately 5% of his time on
his duties at the University. He has held various academic positions with UCSF
for more than the past five years. Dr. Boyd also serves as a director of
InVision Technologies, Inc.
<PAGE>
Dr. Couch has been a director of the Company since its inception in 1983. In May
1987 he became Vice President, Scientific Affairs. He served as Secretary from
March 1990 to December 1993.
Mr. Jose Filipe Guedes was elected a director of the Company on October 11,
1996. From January 1991 to March 1995 he acted as the Chief Executive Officer of
Cerexport/Vista Alegre, a ceramic manufacturer. In 1996 Mr. Guedes became the
President of Ceramic, S.A., a ceramic tile manufacturer.
Admiral William J. McDaniel, M.D., a retired United States Navy Rear Admiral,
was elected a director on January 28, 1997. From 1992 to 1995 he was Chief
Executive Officer of Naval Medical Center, Portsmouth, Virginia, a 346 bed
tertiary training medical center for the Navy. From 1995 to 1997 Admiral
McDaniel was the Surgeon General of the U.S. Pacific Command. In such position
he was responsible for all U.S. military contingency plans for the Pacific half
of the world, including preparing for responses to wartime, natural disasters,
and peacetime humanitarian relief efforts.
Mr. Meyer was elected President and Chief Executive Officer of the Company on
June 23, 1993. From April 1991 until joining the Company he was Vice President,
Operations of Otsuka Electronics (U.S.A.), Inc., Fort Collins, Colorado, a
manufacturer of clinical MR systems and analytical NMR spectrometers. From
August 1990 to April 1991 he was a founding partner of Medical Capital
Management, a company engaged in providing consulting services to medical
equipment manufacturers, imaging services providers and related medical
professionals. Prior thereto he was President and Chief Executive Officer of
American Health Services Corp., a developer and operator of diagnostic imaging
and treatment centers. Mr. Meyer is a director of BSD Medical Corporation.
Mr. Ross has been a director of the Company since January 1987 and served as its
Vice President, Marketing and Sales from October 1985 to December 1987. Since
January 1988 Mr. Ross has been President of CEMAX ICON, Inc., a privately held
company engaged in the manufacture and sale of medical imaging and networking
software.
<PAGE>
Mr. Test has been a director of the Company since its inception in 1983. He is a
senior partner of the San Francisco and Palo Alto law firm of Flehr, Hohbach,
Test, Albritton & Herbert where he has practiced patent law for more than the
past five years.
Mr. Brooks was appointed Vice President, Finance and Administration, Chief
Financial Officer and Secretary of Imatron in December, 1993. For the five years
prior to joining Imatron, he was Chief Financial Officer for Avocet, a privately
held sports electronics manufacturer. Prior thereto, he held progressively more
responsible positions in accounting and finance at several Fortune 500 companies
including Ford, Rockwell, Bendix and ITT."
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Executive officers, directors, and greater than ten percent shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that one report was not timely
filed. Aldo Test, a director of the Company, made one late filing of a Form 4
beneficial ownership report; such filing reflected five transactions not timely
reported.
<PAGE>
ITEM 11 - EXECUTIVE COMPENSATION
The Summary Compensation Table shows certain compensation information for each
person who served as Chief Executive Officer during the year and the other most
highly compensated executive officers whose aggregate compensation exceeded
$100,000 for services rendered in all capacities during fiscal year 1996
(collectively referred to as the "Named Executive Officers"). Compensation data
is shown for the fiscal years ended December 31, 1996, 1995 and 1994. This
information includes the dollar value of base salaries, bonus awards, the number
of stock options granted, and certain other compensation, if any, whether paid
or deferred.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
Name and Principal Options/ All Other
Position Year Salary($)(a) Bonus SARS Compensation (b)
<S> <C> <C> <C> <C> <C>
Douglas P. Boyd 1996 166,000 4,700
Chairman of the 1995 158,000 4,620
Board 1994 150,000 2,250
S. Lewis Meyer 1996 211,000 75,000(d) 4,750
President and Chief 1995 201,000 4,620
Executive Officer 1994 196,833 25,000(c) 1,845
Dale E. Grant (h) 1996 172,000 3,193
Executive Vice President 1995 164,000 75,000(f)
1994 156,000 50,000(e) 400,000(g)
Gary H. Brooks 1996 131,000 40,000(i) 3,880
Vice President and 1995 125,000 37,500(f) 3,627
Chief Financial Officer 1994 120,000 1,710
- ----------------------------- ---------- ------------------ -------------- ----------------- ------------------------
<FN>
(a) Amounts shown include cash and non-cash compensation earned with respect to
the year shown above.
(b) Represents the Company's matching contributions to its 401(k) plan.
(c) Represents portion of a $75,000 bonus payable to Mr.Meyer upon commencement
of his employment with the Company.
(d) Represents HeartScan options granted in February 1996 under the HeartScan
1995 Stock Option Plan, $142, 500 in deferred compensation was recorded in
1996.
(e) Represents a bonus payable to Mr. Grant upon commencement of his employment
with the Company.
(f) Represents HeartScan options granted in October 1995 under the HeartScan
1995 Stock Option Plan.
(g) Represents options granted in January 1994 under the 1994 Stock Option Plan.
(h) Mr. Grant resigned as the Executive Vice President of the Company as of
September 1, 1996. He is currently the President and Chief Operating Officer
of HeartScan Imaging, Inc.
(i) Represents options granted in March 1996 under the 1994 Stock Option Plan.
</FN>
</TABLE>
<PAGE>
Options Granted in Last Fiscal Year
- -------------------------------------
The following table sets forth the options granted during the last fiscal year
to each of the named executive officers of Registrant.
<TABLE>
Option/SAR Grants In Last Fiscal Year
==========================================================================================================================
<CAPTION>
Potential Realizable Value
Individual Grants at Assumed Annual Rates
of Stock Price Appreciation
For Option Term
==========================================================================================================================
% Of Total
Options
Granted to
Options Employees Exercise or
Granted in Fiscal Base Price Market Expiration
Name (#) Year(a) ($/Sh) Price Date 0%($) 5%($)(b) 10%($)(b)
===== ======== ========== ============ ====== =========== ======= ======== =========
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John L. Couch 20,000 4.5% $2.06 $2.06 3/01/01 -0- $ 5,520 $12,220
Gary Brooks 40,000 9.1% $2.06 $2.06 3/01/01 -0- $11,040 $24,440
<FN>
(a) Based on 439,728 options granted to all employees.
(b) Based on 5-year option term and annual compounding; results in total
appreciation of 27.6% (at 5% per year) and 61.1% (at 10% per year).
</FN>
</TABLE>
<PAGE>
Option Exercises in Last Fiscal Year and Year-End Option Values
- ---------------------------------------------------------------
The following table sets forth the options exercised during the last fiscal year
by named executive officers of Registrant.
<TABLE>
Aggregated Options Exercised and Option Values in Fiscal Year 1996
<CAPTION>
Number of securities Value of unexercised
underlying unexercised In-the-Money options at
options at year-end (#) year-end ($)
Shares acquired Value
Name on exercise (#) realized ($) exercisable/unexercisable exercisable/unexercisable
- ---- --------------- ------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
Douglas P. Boyd -0- -0- 211,200/18,750 $590,328/$53,109
S. Lewis Meyer 400,000(a) $2,400,000 525,000/75,000 $1,445,063/$206,438
Dale E. Grant 150,000 $ 872,062 74,000/125,000 $213,305/$360,313
Gary H. Brooks 100,000 $ 644,875 57,500/82,500 $156,519/$103,331
<FN>
(a) Represents shares acquired on exercise of warrants granted at the time of
employment.
</FN>
</TABLE>
Compensation of Directors
Aldo Test, a director of the Company, renders consulting services to the Company
on a month-to-month basis for which he received compensation of $16,200 during
1996, and may be expected to do so in the future. The law firm of Flehr,
Hohbach, Test, Albritton & Herbert, of which Mr. Test is a member, represents
the Company with respect to intellectual property matters and may be expected to
continue to do so in the future. Terry Ross, a director of the Company, renders
consulting services to the Company pursuant to a month-to-month consulting
agreement which commenced in November 1993. In 1996 Mr. Ross received $18,000
pursuant to such agreement.
<PAGE>
Non-Employee Director Options. In connection with their services to the Company,
directors who are not employees of the Company have periodically received stock
options under the 1991 Non-Employee Directors' Stock Option Plan (the
"Directors' Plan") to purchase shares of Common Stock. The exercise price of the
options is 85% of the fair market value of the Common Stock on the date of grant
as quoted on the NASDAQ National Market System. Typically, the options granted
to directors vest 25% per year on the anniversary of the date of grant and have
a term of five years. Each option terminates prior to the expiration date if the
optionee's service as a non-employee director, or, subsequently as an employee,
of the Company terminates.
In 1991 the directors and shareholders approved the Directors' Plan in order to
attract and retain highly qualified non-employee directors by providing each
non-employee director with an opportunity to purchase the Company's stock and to
provide incentives for such persons to exert maximum efforts on behalf of the
Company. Subject to provisions relating to adjustments upon changes in stock,
the Directors' Plan currently covers an aggregate of 550,000 shares of the
Company's Common Stock.
The Directors' Plan is administered by the Board of Directors. The Board may
suspend or terminate the Directors' Plan at any time. If no such termination
occurs, the Directors' Plan will terminate in the year 2001.
<PAGE>
Options may be granted only to directors of the Company who are not employees of
the Company or any affiliate of the Company. The Directors' Plan provides for
the automatic grant of options to purchase shares of Common Stock of the Company
to non-employee directors. Each person elected for the first time to be a
Non-Employee Director automatically receives an option to purchase 25,000 shares
of the Company's Common Stock. The Directors' Plan also provides that every
non-employee director is to receive an option to purchase 25,000 shares on July
1st of each year if such director served continuously as such for the entire
preceding twelve months.
The non-employee directors (Messrs. Guedes, McDaniel, Ross and Test) are
entitled to receive options to purchase 25,000 shares each under the plan on
July 1st of each year. In fiscal 1996 Messrs. Ross and Test received 25,000
shares each at an option price of $4.99 per share and Mr. Guedes received 25,000
shares at an exercise price of $3.99 per share representing options for service
during the 1995-1996 plan year. In January 1997, Mr. McDaniel received 25,000
shares at an option price of $2.24 per share representing options for service
during the 1997 plan year. In addition, directors who are not officers of the
Company are eligible for reimbursement in accordance with Company policy for
their expenses in connection with attending meetings of the Board of Directors
and any committees thereof.
Employee Director Compensation. Employees who serve as directors of the Company
receive no additional compensation for such service.
Employment Contracts,Termination of Employment and Change-in-Control
Arrangements
S. Lewis Meyer became President and Chief Executive Officer of the Company on
June 14, 1994. In connection with such employment the Company entered into an
Executive Employment Agreement with Mr. Meyer providing for an initial term
ending December 31, 1993 and continuing for rolling six month periods. Pursuant
to the agreement Mr. Meyer is entitled to a base salary of $185,000 per year
subject to annual review, a one time hiring bonus of $75,000, a non-qualified
stock option to purchase 600,000 shares of the Company's Common Stock at $0.58
per share (85% of the closing price of a share of the Company's Common Stock on
the date of grant) (subsequently repriced to $0.56), to be vested over a four
year period, a warrant to purchase 400,000 shares of the Company's Common Stock
at an exercise price of $1.50 (subsequently reduced to $0.75 per share)
exercisable for six years commencing June 14, 1994, but not later than 12 months
following Mr. Meyer's termination of employment, and certain other benefits.
<PAGE>
Compensation Committee Report
This report is provided by the Compensation Committee of the Board of Directors
(the "Committee") to assist stockholders in understanding the Committee's
objectives and procedures in establishing the compensation of Imatron's Chief
Executive Officer and other executive officers. The Committee, made up of
non-employee Directors, is responsible for establishing and administering the
Company's executive compensation program. None of the members of the Committee
are eligible to receive awards under the Company's incentive compensation
programs.
Imatron's executive compensation program is designed to motivate, reward, and
retain the management talent needed to achieve its business objectives and
maintain its competitiveness in the medical imaging industry. It does this by
utilizing competitive base salaries that recognize a philosophy of career
continuity and by rewarding exceptional performance and accomplishments that
contribute to the Company's success.
Compensation Philosophy and Objective
The philosophical basis of the compensation program is to pay for performance
and the level of responsibility of an individual's position. The Committee finds
greatest value in executives who possess the ability to implement the Company's
business plans as well as to react to unanticipated external factors that can
have a significant impact on corporate performance. Compensation decisions for
all executives, including the named executive officers and the Chief Executive
Officer, are based on the same criteria. These include quantitative factors that
directly improve the Company's short-term financial performance, as well as
qualitative factors that strengthen the Company over the long term, such as
demonstrated leadership skills and the ability to deal quickly and effectively
with difficulties which sometimes arise.
The Committee believes that compensation of Imatron's key executives should:
*Link rewards to business results and stockholder returns;
*Encourage creation of stockholder value and achievement of
strategic objectives; *Maintain an appropriate balance between
base salary and short-and long-term incentive opportunity;
*Attract and retain, on a long-term basis, highly qualified
executive personnel; and
*Provide total compensation opportunity that is competitive with
that provided by competitors in the medical imaging industry,
taking into account relative company size and performance as well
as individual responsibilities and performance.
<PAGE>
Key Elements of Executive Compensation
Imatron's executive compensation program consists of three elements: Base
Salary, Short-Term Incentives and Long-Term Incentives. Payout of short-term
incentives depends on corporate performance measured against annual objectives
and overall performance. Payout of the long-term incentives depends on
performance of Imatron stock, both in absolute and relative terms.
Base Salary
A competitive base salary is crucial to support the philosophy of management
development and career orientation of executives. Salaries are targeted to pay
levels of the Company's competitors and companies having similar capitalization
and revenues, among other attributes. Executive salaries are reviewed annually.
Short-Term Incentive
Short-term awards to executives are made in cash and in stock to recognize
contributions to the Company's business during the past year. The bonus an
executive receives is dependent on individual performance and level of
responsibility. Assessment of an individual's relative performance is made
annually based on a number of factors which include initiative, business
judgment, technical expertise, and management skills.
Stock Bonus Incentive Plan. In 1988 the shareholders approved the adoption of
the 1987 Stock Bonus Incentive Plan. Under the terms of the Stock Bonus Plan the
Committee may award shares of the Company's Common Stock to employees, including
executive officers. During 1996 79,409 shares were awarded under the plan no
shares were awarded to named executive officers.
Long-Term Incentive
Long-term incentive awards provided by shareholder-approved compensation
programs are designed to develop and maintain strong management through share
ownership and incentive awards. Stock options were the only long term incentive
granted to executive officers in 1995.
<PAGE>
Stock Option Plan. In 1994, the shareholders approved the adoption of the 1993
Stock Option Plan (which replaced the 1983 Stock Option Plan). In 1995 the
directors and shareholders approved an increase in the number of shares reserved
under the Option Plan from 3,000,000 shares to 5,500,000 shares. At the sole
discretion of the Committee, eligible officers and employees periodically
receive options to purchase shares of the Company's Common Stock pursuant to the
Option Plan. The value of the options depends entirely on appreciation of
Imatron stock. Grant of options depends upon quarterly and annual Company
performance, as determined by review of qualitative and quantitative factors. As
of March 31, 1997 1,204,041 shares were available for issuance under the plan.
Employee Stock Purchase Plan. In 1994 the directors and shareholders approved
the adoption of the 1994 Employee Stock Purchase Plan. All employees, including
executive officers, may purchase shares of the Company's Common Stock at a
discount of 15% from the market price of the shares. The Plan became effective
January 1, 1994. In 1996 228,222 shares were purchased under the plan.
1996 Compensation. During 1996 the Company's revenues decreased 25.6% from the
prior year and the Company incurred a loss of $10,465,000 versus a loss of
$2,449,000 during the prior fiscal year. However, the Company made significant
progress in improving its technology, raised additional equity capital and bank
credit to finance the future growth of its HeartScan Imaging, Inc. subsidiary,
and was successful in the opening of additional coronary artery disease risk
assessment centers. Based on this performance, only selective cost-of-living and
merit salary increases were implemented during the year and no new stock option
grants or bonuses of cash or stock were given during the year to any Named
Executive Officers except an option to purchase 40,000 shares of Common Stock at
$2.06 was granted to Gary H. Brooks, Vice President Finance and Administration
and Chief Financial Officer in connection with his annual merit review. Stock
Options were granted to other employees of the Company based on the employee's
level of responsibility and other factors. If the Company's financial condition
improves in 1997, the Company anticipates implementing a program of regular
merit salary adjustments for executive officers together with other forms of
compensation such as incentive stock option awards and bonus payments based on
achievement of specific goals and objectives.
<PAGE>
1996 Chief Executive Officer Compensation
Mr. Meyer's 1995 base salary of $195,000 was increased on March 1, 1996 to
$205,000 and effective January 1, 1997 was increased to $215,250. The Committee
believes that the base salary and other terms and conditions of his employment
are consistent with the foregoing philosophy and objectives and reflect the
scope and level of his responsibilities.
Members of the Compensation Committee
Terry Ross
Aldo Test
Share Investment Performance
The following table compares the total return performance of the Company for the
periods indicated with the performance of the NASDAQ Index (presented on a
dividends reinvested basis) and the performance of the Hambrecht & Quist
Technology Index. The Company's shares are traded on the NASDAQ National Market
System under the symbol "IMAT". The Hambrecht & Quist Technology Index is
comprised of the publicly traded stocks of 200 technology companies and include
companies in the electronics, medical and related technology industries. The
total return indices reflect reinvested dividends and are weighted on a market
capitalization basis at the time of each reported data point.
Year 1991 1992 1993 1994 1995 1996
- ---- ---- ------ ------ ------ ------ -----
Imatron Inc. 100 166.67 304.88 166.77 304.88 155.91
NASDAQ Index 100 186.85 214.50 209.67 296.51 227.16
Hambrecht & Quist 100 170.04 185.56 215.39 323.40 262.49
Technology Index
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The following tables, based in part upon information supplied by officers,
directors and principal shareholders, set forth certain information regarding
the ownership of the Company's voting securities as of March 1, 1997 by (i) all
those known by the Company to be beneficial owners of more than five percent of
any class of the Company's voting securities; (ii) each director; (iii) each
named executive officer; and (iv) all executive officers and directors of the
Company as a group. Unless otherwise indicated, each of the shareholders has
sole voting and investment power with respect to the shares beneficially owned,
subject to community property laws where applicable.
Security Ownership of Certain Beneficial Owners(a)
Amount of Direct
Name and Address of Beneficial
Title of Class Beneficial Owner Ownership Percent of Class
- -------------- ---------------- --------- ---------------
Common Marukin Corporation(b) 5,471,617 7.0%
(a) Security ownership information for beneficial owners is taken from
statements filed with the Securities and Exchange Commission pursuant to
Sections 13(d), 13(g) and 16(a) and information made known to the Company.
(b) Marukin Corporation, 6, Rokuban-Cho Chiyoda-Ku, Tokyo 10
<TABLE>
Security Ownership of Directors and Executive Officers
The table below presents the security ownership of the Company's Directors and
Named Executive Officers.
<CAPTION>
Title of Amount and Nature of Percent of
Class Name of Beneficial Owner Beneficial Ownership(a) Class(b)
<S> <C> <C> <C>
Common Douglas P. Boyd 2,048,251(c) 2.6%
Common Gary H. Brooks 83,042(d) *
Common John L. Couch 34,000(e) *
Common Dale E. Grant 124,000(e) *
Common Jose Filipe Guedes 0 *
Common William J. McDaniel 16,000 *
Common S. Lewis Meyer 568,996(f) *
Common Terry Ross 0 *
Common Aldo Test 35,000(g) *
Common All Directors and Executive Officers 2,908,303(h) 3.7%
as a Group
- --------
<FN>
* Does not exceed 1% of the referenced class of securities.
(a) Ownership is Direct unless indicated otherwise.
(b) Calculation based on 78,176,769 shares of Common Stock outstanding as of
March 18, 1997.
(c) Includes 1,830,801 shares owned directly and 217,450 shares issuable upon
the exercise of stock options that are exercisable as of March 1, 1997 or that
will become exercisable within 60 days thereafter.
(d) Includes 10,542 shares owned directly and 72,500 shares issuable upon the
exercise of stock options that are exercisable as of March 1, 1997 or that will
become exercisable within 60 days thereafter.
(e) All shares are issuable upon the exercise of stock options that are
exercisable as of March 1, 1997 or that will become exercisable within 60 days
thereafter.
(f) Includes 6,496 shares owned directly and 562,500 shares issuable upon the
exercise of stock options that are exercisable as of March 1, 1997 or that will
become exercisable within 60 days thereafter.
(g) Includes 10,000 shares owned directly and 25,000 shares issuable upon the
exercise of stock options exercisable as of March 1, 1997 or that will become
exercisable within 60 days thereafter.
(h) Includes 1,035,450 shares that directors and executive officers had the
right to acquire pursuant to the exercise of options that were exercisable on
March 1, 1997 or that will become exercisable within 60 days thereafter. The
percentage of beneficial ownership assumes the exercise of the aforesaid options
by officers and directors.
</FN>
</TABLE>
<PAGE>
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
None.
PART IV
ITEM 14 - EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) 1. Consolidated Financial Statements See "Index to Consolidated
Financial Statements" attached here to and made a part hereof.
2. Consolidated Financial Statement Schedules Schedule II - Valuation
and qualifying accounts. All other schedules are omitted because they
are not applicable, or the required information is shown in the
financial statements or the notes thereto.
3. Exhibits The exhibits listed on the accompanying "Index to Exhibits"
are filed as part hereof and are incorporated herein by reference.
(b) Reports on Form 8-K
None filed during the Company's fourth quarter ended December 31, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this amended report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: April 30, 1997 IMATRON INC.
By S. Lewis Meyer
----------------
S. Lewis Meyer
President, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
amendedreport has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------- ------------------------ ---------------------
Douglas P. Boyd Director, April 30, 1997
- --------------- Chairman of the Board
Douglas P. Boyd
William J. McDaniel Director April 30,1997
- -------------------
William J. McDaniel
John L. Couch Director April 30, 1997
- --------------
John L. Couch
Jose Filipe Guedes Director April 30, 1997
- -------------------
Jose Filipe Guedes
S. Lewis Meyer Director, April 30, 1997
- -------------- President and Chief
S. Lewis Meyer Executive Officer
Terry Ross Director April 30, 1997
- -----------
Terry Ross
Aldo J. Test Director April 30, 1997
- ------------
Aldo J. Test
Gary H. Brooks Chief Financial Officer, April 30, 1997
- -------------- Vice President, Finance
Gary H. Brooks and Administration, Secretary
<PAGE>
IMATRON INC.
Index to Consolidated Financial Statements
STATEMENT PAGE
Report of Independent Auditors 25
Consolidated Balance Sheets at December 31, 1996 and 1995 26
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 27
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1996, 1995 and 1994 28
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 29
Notes to Consolidated Financial Statements 30
<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, 1996 and 1995, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 1996. Our audits also included the financial
statement schedule listed in the index at Item 14 (a). These consolidated
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule 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, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
ERNST & YOUNG LLP
San Francisco, California
February 14, 1997
<PAGE>
<TABLE>
IMATRON INC.
Consolidated Balance Sheets
(Amounts in thousands)
<CAPTION>
December 31,
ASSETS 1996 1995
- ------
-------------------- ------------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 10,862 $ 7,269
Short-term investments 14,171 1,266
Accounts receivable (net of allowance for doubtful acccounts
of $1,110 and $171 at December 31, 1996 and 1995):
Trade accounts receivable 2,940 3,083
Accounts receivable from affiliate 2,660 2,957
Notes receivable - 250
Inventories 10,393 8,937
Prepaid expenses 1,659 563
-------------------- ------------------
Total current assets 42,685 24,325
Property and equipment, net 10,102 6,260
Other assets 405 291
------------------ ------------------
Total assets $ 53,192 $ 30,876
=================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Borrowings under line of credit $ - $ 992
Accounts payable 2,461 2,785
Other accrued liabilities 5,994 5,607
Captial lease obligations - due within one year 1,188 689
------------------- ------------------
Total current liabilities 9,643 10,073
Deferred income on sale leaseback transactions 1,419 1,267
Capital lease obligations 4,604 3,311
------------------ ------------------
Total liabilities 15,666 14,651
Commitments and contingencies - Note 3 and 6
Minority interest 14,941 -
Shareholders' equity
Common stock, no par value; authorized-100,000 shares; issued
and outstanding-77,919 shares in 1996 and 68,835 shares in 1995 89,223 72,282
Deferred compensation (116) -
Additional paid-in capital 1,500 1,500
Accumulated deficit (68,022) (57,557)
------------------ -----------------
Total shareholders' equity 22,585 16,225
----------------- ------------------
Total liabilities and shareholders' equity $ 53,192 $ 30,876
================= ==================
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
IMATRON INC.
Consolidated Statements of Operations
(Amounts in thousands, except per share amounts)
<CAPTION>
Years ended December 31,
1996 1995 1994
--------------- --------------- --------------
<S> <C> <C> <C>
Revenues
Product sales $ 14,236 $ 13,254 $ 23,210
Product sale-leaseback arrangements 1,774 1,820 -
Service 3,465 5,529 4,750
Development contracts 5,000 5,637 5,380
Clinics 1,293 460 231
--------------- --------------- --------------
Total revenues 25,768 26,700 33,571
--------------- --------------- --------------
Cost of revenues
Product sales 12,617 11,533 16,556
Product sale-leaseback arrangements 1,774 1,820 -
Service 3,158 3,952 4,021
Development contracts 5,000 4,978 5,227
Clinics 2,238 1,350 521
--------------- --------------- --------------
Total cost of revenues 24,787 23,633 26,325
--------------- --------------- --------------
Gross profit 981 3,067 7,246
Operating expenses
Research and development 3,318 3,430 2,101
Marketing and sales 4,676 3,137 2,077
General and administrative 5,396 2,658 2,519
--------------- --------------- --------------
Total operating expenses 13,390 9,225 6,697
--------------- --------------- --------------
Operating income (loss) (12,409) (6,158) 549
Interest and other income 2,508 4,021 2,342
Interest expense (564) (312) (558)
--------------- --------------- --------------
Income (loss) before provision for income taxes (10,465) (2,449) 2,333
--------------- --------------- --------------
Provision for income taxes - - (23)
--------------- --------------- --------------
Net income (loss) $ (10,465) $ (2,449) $ 2,310
=============== =============== ==============
Net income (loss) per common share $ (.14 ) $ (.04 ) $ .04
=============== =============== ==============
Number of shares used in per share calculations 74,406 57,598 62,102
=============== =============== ==============
<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>
Additional
Preferred Stock Common Stock paid-in Accumulated
--------------- ------------ Deferred
Shares Amount Shares Amount Compensation Capital Deficit Total
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1993 2,008 $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 plan,
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 bonus and purchase plans,
and exercise of employee stock
options - - 1,656 1,147 - - - 1,147
Warrants exercised - - 550 775 - - - 775
Net income - - - - - - (2,449) (2,449)
---------------------------------------------------------------------------------------
Balances at December 31, 1995 - - 68,835 72,282 - 1,500 (57,557) 16,225
Common stock sold in a private
placement, net of offering costs - - 4,559 11,348 - - - 11,348
Common stock issued for employee
stock purchase plans, stock bonus,
and exercise of employee stock
options - - 1,188 1,194 - - - 1,194
Common stock issued for services 115 269 - 269
Deferred compensation from issuance
of stock options by consolidated subsidiary - - - - (143) - - (143)
Amortization of deferred compensation - - - - 27 - - 27
Warrants exercised - - 3,222 4,130 - - - 4,130
Net loss - - - - - - (10,465) (10,465)
---------------------------------------------------------------------------------------
Balances at December 31, 1996 - $ - 77,919 $89,223 $(116) $1,500 $(68,022) $22,585
=======================================================================================
<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>
Years Ended December 31,
1996 1995 1994
--------------- ----------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income(loss) $(10,465) $ (2,449) $ 2,310
Adjustments to reconcile net income(loss)to net
cash used in operating activities:
Depreciation and amortization 1,374 1,709 1,786
Other income - (4,000) -
Amortization of deferred compensation 27 - -
Common stock issued for services 269 - 85
Changes in operating assets and liabilities:
Accounts and notes receivable 690 1,216 (2,945)
Inventories (1,456) (701) (3,343)
Prepaid expenses (1,096) 53 (252)
Other assets 140 (26) (414)
Accounts payable (324) (1,457) 2,232
Other accrued liabilities 387 538 584
Deferred income 152 1,267 (778)
--------------- ----------------- ----------------
Net cash used in operating activities (10,302) (3,850) (735)
--------------- ----------------- ----------------
Cash flows from investing activities:
Capital expenditures (2,489) (1,132) (621)
Purchases of available-for-sale securities (38,891) - -
Purchases of held-to-maturity securities - (1,000) -
Maturities of available-for-sale securities 24,720 - -
Maturities of held-to-maturity securities 1,000 - -
--------------- ----------------- ----------------
Net cash used in investing activities (15,660) (2,132) (621)
--------------- ----------------- ----------------
Cash flows from financing activities:
Payments of obligations under capital leases (923) (247) -
Payment of notes payable (992) - -
Proceeeds from issuance of common stock 16,672 11,804 837
Proceeeds from issuance of preferred stock
of consolidated subsidiary 14,798 - -
--------------- ----------------- ----------------
Net cash provided by financing activities 29,555 11,557 837
--------------- ----------------- ----------------
Net increase(decrease)in cash and cash equivalents 3,593 5,575 (519)
Cash and cash equivalents, at beginning of year 7,269 1,694 2,213
--------------- ----------------- ----------------
Cash and cash equivalents, at end of year $ 10,862 $ 7,269 $ 1,694
=============== ================= ================
Supplemental Disclosure of Noncash Investing
and Financing Activities:
Deferred compensation from common stock
option grant of consolidated subsidiary $ 143 $ - $ -
=============== ================= =================
Preferred stock converted to common stock $ - $ 2,602 $ 1,395
================ ================ ==================
Equipment acquired under capital leases $ 2,715 $ 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, 1996
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF COMPANY
Imatron Inc., 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. In addition, the Company operates coronary
artery scanning test facilities through its consolidated subsidary HeartScan
Imaging, Inc. ("HeartScan"),in the United States.
The consolidated financial statements include the accounts of Imatron Inc. and
its subsidiary HeartScan Imaging, Inc. (collectively the "Company"). All
intercompany accounts and transactions have been eliminated in consolidation.
HeartScan was incorporated in Delaware in 1994. As of December 31, 1996
Imatron's interest in HeartScan is 49.5% (see Note 7). On June 28, 1996 Imatron
sold 100,000 shares of HeartScan Series A preferred stock to unaffiliated third
parties. The sale reduced the Company's ownership interest in HeartScan to
48.3%. Imatron originally reported $554,000 (48.3%) of HeartScan losses in its
third quarter of fiscal 1996 using the equity method of accounting. The
remaining losses of $594,000 were attributed to the preferred stock ownership
interest of HeartScan in the third quarter of fiscal 1996. Due to certain equity
exchange provisions provided to these HeartScan preferred shareholders (see note
7), HeartScan's 1996 results of operations have been fully consolidated for the
year ended December 31, 1996 in the accompanying consolidated financial
statements. The result of the consolidation of HeartScan was to increase the
Company's net loss by $4,573,000 for the year ended December 31, 1996. Of this
amount, $594,000 of losses that were originally attributed to the preferred
shareholders' ownership interest in the third quarter of 1996 have now been
consolidated with the Company's 1996 losses. No future HeartScan operating
losses will be attributed to the preferred shareholders until the preferred
stock exchange provisions are extinguished. Additionally, the net proceeds
realized from the Heartscan preferred stock offering will be classified as a
minority interest in the Company's balance sheet until the exchange provisions
are extinguished.
The Company's results of operations in fiscal 1996 includes revenues of
$1,293,000 attributed to HeartScan's operations.
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.
<PAGE>
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
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 all 1996 purchases of
investments 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, if material. Fair values of
investments are based on quoted market prices. Short-term investments at
December 31, 1996 consist of A1, P1 commercial papers and government securities.
As of December 31, 1995, the company classified certain investments as
held-for-maturity. All held-to-maturity investments matured during 1996.
Management determines the appropriate classification of marketable securities at
the time of purchase and reevaluates such designation as of each balance sheet
date.
Realized gains and losses, and declines in value judged to be
other-than-temporary are included in other income. The cost of securities sold
is based on the specific identification method.
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 in the
United States, Europe, Canada, India, Imatron Japan, Inc. in Japan, 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 short-term instruments with at least an
A1/P1 credit rating. These funds have virtually no principal risk and have a
variable interest rate. The Company has not experienced any principal losses on
its investments.
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
<PAGE>
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
Property and equipment are stated at cost and are depreciated on a straight-line
method over their estimated useful lives (3-5 years). Equipment under capital
leases, except for scanner equipment, 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.
Scanner equipment under capital lease is amortized over a period using the
units-of-production method based on the estimated usage of the equipment. It is
reasonably possible that the estimates of anticipated scans, the remaining
useful lives, or both will be reduced significantly in the near term. As a
result, the carrying amount of the scanner equipment could be reduced materially
in future periods.
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
$160,000 and $155,000 at December 31,1996 and 1995 respectively. These this
restricted cash amounts have been classified as non-current assets (included in
other assets).
JOINT VENTURE COMPANY
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 in the Joint Venture, which is being funded by the other joint venture
partners.
The Company recognized revenues of $8,726,000 and $9,213,000 in 1996 and 1995,
respectively, from sales to the Joint Venture and has $2,660,000 and $2,957,000
in accounts receivable from the Joint Venture at December 31, 1996 and 1995,
respectively.
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
<PAGE>
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.
NET INCOME / (LOSS) PER SHARE
Net loss per common share in 1996 and 1995 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 - INVESTMENTS
Investments as of December 31, were as follows (in thousands):
1996 1995
----------------- ----------------
Money market mutual funds $4,262 $ 352
U.S. government obligations 8,077 1,000
Certificate of deposit 96 266
Commercial paper 12,231 -
----------------- ----------------
Total investments 24,666 1,618
Less amounts classified as cash equivalents (10,495) (352)
----------------- ----------------
Short-term investments $ 14,171 $ 1,266
================= ================
As of December 31, 1996, all investments were classified as available for sale.
As of December 31, 1995, all investments were classified as held-to-maturity,
other than money market mutual funds, which were classified as
available-for-sale. There were no material gross realized or unrealized gains or
losses in any category of investment in 1996 or 1995.
Note 3 - TRANSACTIONS WITH SIEMENS CORPORATION
In March 1995, the Company and Siemens Corporation ("Siemens") entered into a
Memorandum of Understanding. Under the terms of the Memorandum, Siemens agreed
to provide a maximum $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. Imatron funds a portion equal to a minimum
fifty percent of Siemens' contribution for the sole purpose of conducting the
collaborative agreement. In connection with this agreement, 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
$5,000,000 and $3,884,000 of revenue under the collaborative development
agreement in 1996 and 1995, respectively. Under the now expired product
development agreement with
<PAGE>
Siemens, the Company recognized $0, $1,753,000 and $5,013,000 in revenue in
1996, 1995 and 1994, respectively.
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.
In September 1995, Siemens 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 substituted a patent, subject to existing
license-back, currently used in its technology, for the previously transferred
patent. Representatives of Siemens have agreed with the Company to these terms.
Note 4 - BALANCE SHEET DETAIL
(in thousands)
December 31,
1996 1995
------------- ------------
Inventories consist of:
Purchased parts and sub-assemblies $ 2,994 $ 2,594
Service parts 1,142 1,079
Work-in-process 2,574 2,403
Finished product 3,683 2,861
------------- -------------
Inventories $ 10,393 $ 8,937
============= ==============
Property and equipment, at cost, consist of:
Machinery and equipment $ 11,964 $ 9,266
Furniture and fixtures 1,408 1,444
Leasehold improvements 3,442 2,380
--------------- --------------
16,814 13,090
Less accumulated depreciation and amortization (6,712) (6,830)
--------------- --------------
Net property and equipment $ 10,102 $ 6,260
=============== ==============
Other accrued liabilities consist of:
Warranty and product upgrades $ 1,867 $ 1,740
Customer deposits 2,345 2,331
Employee compensation 758 628
Deferred service revenues 225 265
Other 799 643
--------------- --------------
Other accrued liabilities $ 5,994 $ 5,607
============== ==============
<PAGE>
Note 5 - DEBT
At December 31, 1995, debt consisted of borrowings due under a line of credit,
at prime rate plus one percent. At December 31, 1996, the Company has $5,000,000
available under a line of credit.Interest paid was $582,000, $386,000 and
$479,000 in 1996, 1995 and 1994, respectively.
Note 6 - COMMITMENTS, CONTINGENCIES AND OTHER
OPERATING LEASES
The Company leases its present facilities under various operating leases
expiring between December 31, 1996 and December 31, 2005. Future minimum rental
payments under the leases as of December 31, 1996 are as follows (in thousands):
1997 $ 1,168
1998 1,118
1999 1,047
2000 1,046
2001 834
Thereafter 353
------------
Total remaining $5,566
============
Rent expense for all leases totaled $1,080,000, $921,000 and $855,000 in 1996,
1995 and 1994, respectively.
CAPITAL LEASE OBLIGATIONS
The Company leases certain equipment under noncancelable lease agreements. In
addition, HeartScan leases four scanners for its clinics, payments of which are
guaranteed by Imatron. The equipment leased by Imatron and HeartScan are
accounted for as capital leases. As of December 31, 1996, equipment under the
capital lease arrangements and included in property and equipment, aggregated
$6,962,000. Accumulated amortization totalled $674,000 at December 31, 1996.
Amortization expense is included in depreciation and amortization.
Future minimum lease payments under capital lease obligations at December 31,
1996 are as follows (in thousands):
1997 $ 1,718
1998 1,764
1999 1,759
2000 1,477
2001 431
-----------------
Total minimum payments 7,149
Less amounts representing interest (1,357)
-----------------
Total principal 5,792
Less portion due within one year (1,188)
-----------------
Long-term portion $ 4,604
=================
<PAGE>
The Company sold two scanners to leasing finance institutions during fiscal 1996
and 1995, which were immediately leased back to HeartScan. The sales were
accounted for as sales-leaseback transactions. Remaining deferred income on
sale-leaseback transactions amounted to $1,419,000 and $1,267,000 at December
31, 1996 and 1995, respectively.
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 1996, 1995
and 1994 were $91,470, $91,470 and $151,980, respectively.
Note 7 - CAPITAL STOCK
COMMON STOCK
In 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.
In 1996, Imatron sold 4,500,000 shares of common stock and issued warrants to
purchase common shares in two private placement offerings, netting proceeds of
$11,348,000. In addition, in 1996, the company issued additional 59,093 shares
of common stock as a result of the adjustment on the stock price based on the
60-day average price pertaining to the previous 1995 private placement. As of
December 31, 1996, no further rights for adjustments remain for the common
stock.
HEARTSCAN EQUITY TRANSACTIONS
In June 1996, Imatron completed a private placement offering whereby 100,000
shares of HeartScan Series A Preferred Stock were sold at $160 per share and
realized net proceeds of $14,798,000. The preferred stock is convertible on a
ten-to-one basis into HeartScan common shares at any time. Mandatory conversion
of the preferred stock into common stock will occur upon the successful
completion of a HeartScan initial public offering. The HeartScan Series A
Preferred Stock may be exchanged at the sole option of the holder into Imatron
common stock at an exchange price of $5.00 per share until the earlier of a) two
year period following closing of the Preferred Stock offering; or b) a HeartScan
initial public offering. If there is no initial public offering within 24 months
of the Preferred Stock closing, holders may convert the HeartScan Series A
Preferred Stock into Imatron common stock at a conversion price equal to the
greater of $1.50 per share or a 27% discount from the weighted average closing
price of Imatron common stock for the 90 day period immediately preceding 24
months of the Preferred Stock closing and each date that is 3 months thereafter
to and including the 48th month of the Preferred Stock closing.
<PAGE>
Due to the exchange provision built into the private offering as discussed in
the preceding paragraph, Imatron will include HeartScan's results of operations
in its consolidated financial statements until either the conclusion of the four
year exchange period or a HeartScan initial public offering.
The HeartScan Series A Preferred Stock is held entirely by an unaffiliated third
parties and is classified in the accompanying consolidated balance sheet at
December 31, 1996 as a minority interest.
The terms of the preferred stock provide certain additional rights to the
holders including participation and approval of any future HeartScan equity
financing and approval of transactions with affiliates.
The terms of the Series A Preferred Shares include 1,000,000 authorized shares
and 100,000 issued and outstanding shares at December 31, 1996.
As of December 31, 1996, 30,002 warrants to purchase one share each of HeartScan
Common Stock were issued in connection with the above-mentioned private
placement. These warrants are exercisable at $16.00 per share and expire in June
2001.
<TABLE>
WARRANTS
<CAPTION>
At December 31, 1996, 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 2000, to purchase shares of common stock at $2.31 per 826,038
share issued under the October 1995 private placement
Warrants, expiring in 2001, to purchase shares of common stock at $1.71 per 162,609
share issued to Sitrick & Company in lieu of investor relation fees
Warrants, expiring in 1999, to purchase shares of common stock at $3.25 per 1,200,000
share issued under the May 1996 private placement
Warrants, expiring in 1999, to purchase shares of common stock at $3.75 per 800,000
share issued under the May 1996 private placement
Warrants, expiring in 2001, to purchase shares of common stock at $6.20 per 182,803
share issued under the 1996 HeartScan private placement -------------------------
Total at December 31, 1996 3,171,450
===========================
<FN>
In 1995, warrants were exercised to purchase a total of 550,000 shares of common
stock at prices ranging from $1.00 to $1.50 per share.
In 1996, warrants were exercised to purchase a total of 3,222,000 shares of
common stock at prices ranging from $0.40 to $2.31 per share.
</FN>
</TABLE>
Note 8 - STOCK BONUS PLAN AND STOCK OPTION PLANS
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
<PAGE>
awarded in any fiscal year. In 1996, the Company granted 19,409 shares under the
plan. There were no shares granted under the plan in 1995 and 1994. As of
December 31, 1996, 770,910 common shares are 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 425,000 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 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. During 1995, the shareholders
approved an increase in the number of shares reserved for the 1993 Plan from
3,000,000 to 5,500,000.
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.
STOCK BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No. 25, "
Accounting for Stock Issued to Employees ("APB 25") and related Interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), requires use of option
valuation models that were not developed for use in valuing stock options. Under
APB 25, compensation expense is measured as the excess of the market price of
the underlying stock over the exercise price on the date of the grant, if any.
Pro forma information regarding net loss and loss per share is required by SFAS
123, and has been determined as if the Company has accounted for its employee
stock options under the fair value method of that Statement. The fair value of
these options was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions:
1996 1995
---- ----
Expected stock price volatility 80.2% 80.2%
Risk-free interest rate 6.25% 6.37%
Expected life - Years 3.64 3.55
Expected dividend yield 0.00% 0.00%
The Black- Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
<PAGE>
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. Had the Company
elected to recognize compensation expense based on the fair value of the options
granted at grant dates as prescribed by SFAS 123, net loss and loss per share
would have been increased to the pro forma amounts indicated in the table below
(in thousands):
1996 1995
---------- ----------
Net loss - as reported ($10,465) ($2,449)
Net loss - pro forma ($10,884) ($2,620)
Loss per share - as reported ($0.14) ($0.04)
Loss per share - pro forma ($0.15) ($0.05)
The weighted average fair value of options granted in 1996 and 1995 was $2.63
and $1.24 per share, respectively. The weighted average remaining contractual
life of all options at December 31, 1996 is 3.64 years.
The pro forma effect on net loss for 1996 is not representative of the pro forma
effect on net income in future years because it does not take into consideration
pro forma compensation expense related to grants prior to 1995, and the
compensation expense that will be recognized in future years as the graded
vesting periods become exercisable.
<PAGE>
<TABLE>
A summary of the activity under the stock option plans is as follows:
<CAPTION>
Outstanding Options
Shares --------------------- Aggregate
available Number Price per Exercise
for grant of shares share price(in thousands)
----------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
Balances at December 31, 1993 2,392,000 3,745,216 $0.48 - $0.56 $2,523
Options granted (2,230,808) 2,230,808 $0.43 - $1.22 2,052
Options exercised - (1,147,002) $0.48 - $0.61 (616)
Options cancelled 236,263 (236,263) $0.48 - $1.22 (173)
1983 option plan termination (28,563) - $0.51 - $0.56 (159)
------------- ----------- ------------- -------
Balances at December 31, 1994 368,892 4,592,759 $0.43 - $1.22 $3,627
Shares reserved - 1993 Plan 2,500,000 - -
1983 option plan termination (83,950) - $0.51 - $0.56 (45)
Options granted (413,800) 413,800 $1.03 426
Options exercised - (1,320,377) $0.51 - $1.22 (981)
Options cancelled 301,125 (301,125) $0.56 - $1.22 (288)
--------------- ------------ ------------- --------
Balances at December 31, 1995 2,672,267 3,385,057 $0.43 - $1.22 $2,739
1983 option plan termination (5,550) - $0.51 - $0.56 (3)
Options granted (514,728) 514,728 $2.06 1,060
Options exercised - (940,235) $0.51 - $2.06 (795)
Options cancelled 102,175 (102,175) $0.56 - $1.22 (93)
---------------- ------------- ------------- ----------
Balances at December 31, 1996 2,254,164 2,857,375 $0.43 - $2.06 $2,908
================ ============= ============= ==========
</TABLE>
<TABLE>
The following table summarizes information concerning outstanding and
exercisable options as of December 31, 1996 (In thousands except per share
amounts):
<CAPTION>
Options Outstanding Options Exercisable
Weighted
Average
Range of Exercise Remaining Weighted Weighted Average
Prices Number of Contractual Average Number of Exercise Price
------ Shares Life Exercise Price Shares
-------------- --------------- --------------- ----------------- --------------------
<C> <C> <C> <C> <C> <C>
$0.51 - $2.00 2,421 3.30 $0.75 1,534 $0.75
$2.01 - $3.50 361 4.00 $2.06 55 $2.06
$3.51 - $5.00 75 4.70 $4.67 0 0
-------------- ---------------- --------------- ----------------- --------------------
2,857 3.64 $1.02 1,589 $0.92
============== ================ =============== ================= ====================
<FN>
Options for 1,588,533 and 1,406,997 shares of the Company's common stock were
exercisable under the plans at December 31, 1996 and 1995 at an aggregate
exercise price of $1,460,599 and $1,146,916, respectively.
</FN>
</TABLE>
<PAGE>
In October 1995, HeartScan approved the adoption of the HeartScan Imaging Inc.
1995 Stock Option Plan ("HSI 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. 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 annually over four years following the grant date and has a
maximum term of ten years.
<TABLE>
A summary of the activity under the HSI Stock Option Plan is as follows:
<CAPTION>
Outstanding Options
Shares -------------------- Aggregate
available Number Price per Exercise
for grant of shares share Price(in thousands)
<S> <C> <C> <C> <C>
Balances at December 31, 1994 - - - -
Shares reserved - 1995 Plan 250,000 - - -
Options granted (112,500) 112,500 $0.001 -
---------------- ------------ -------------- -----------
Balances at December 31, 1995 137,500 112,500 $0.001 -
Options granted (75,000) 75,000 $0.10 $8
Options exercised - (72,656) $0.001 -
---------------- ------------- ------------- -----------
Balances at December 31, 1996 62,500 114,844 $0.07 $8
================ ============= =========== ===========
<FN>
At December 31, 1996, options to purchase 18,750 shares of HeartScan common
stock were exercisable at an aggregate exercise price of $1,875.
</FN>
</TABLE>
The difference between the exercise price and fair market value, of the
HeartScan's common stock at the date of issue of the stock options, totalling
$143,000 has been recorded as deferred compensation and a component of
stockholders' equity. Of this amount, $27,000 has been recognized as an expense
through December 31, 1996. The remaining $116,000 will be recognized as an
expense as the shares vest over a period of up to four years.
COMMON STOCK RESERVED
At December 31, 1996, the Company has reserved shares of common stock for future
issuances as follows (in thousands):
Stock option plans 5,111
Stock options outside the plans 1,500
Stock purchase plan 727
Stock warrants 3,347
Stock bonus plan 771
Conversion of HeartScan Preferred A 10,667
---------------
Total 22,123
===============
<PAGE>
Note 9 - STOCK PURCHASE PLAN AND RETIREMENT SAVINGS PLAN
EMPLOYEE STOCK PURCHASE PLAN
In March 1994, 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 offering period or end of each
three-month interim offering period. The maximum number of shares offered under
the Plan is 1,800,000 shares of common stock. At December 31, 1996, 727,095
shares were reserved and available for future issuance under the plan. A total
of 228,222, 334,975 and 503,243 shares were issued at an average price of $1.44,
$0.75 and $0.75 per share in 1996, 1995 and 1994, respectively.
RETIREMENT SAVINGS PLAN
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 $212,000, $169,000 and $76,000 in 1996, 1995 and 1994,
respectively.
Note 10 - INCOME TAXES
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.
<TABLE>
Significant components of the Company's deferred tax assets and liabilities as
of December 31, are as follows (in thousands):
<CAPTION>
1996 1995
--------------- -------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 24,489 $ 19,733
Federal credit carryforwards 842 880
Expenses not currently deductible for tax purposes 3,446 -
Deferred revenue previously taxed 614 -
Other 150 2,807
Deferred tax assets - -
--------------- -------------
29,541 23,420
Valuation allowance
(28,838) (22,407)
--------------- -------------
Net deferred tax assets
703 1,013
Deferred tax liabilities:
Capitalized development costs - 42
State income taxes 479 504
Other 224 467
--------------- -------------
Deferred tax liabilities 703 1,013
Net deferred taxes $ - $ -
=============== =============
</TABLE>
<PAGE>
The net change in the valuation allowance was $6,431,000, $925,000, and
($1,792,000) for 1996, 1995 and 1994, 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:
1996 1995 1994
----------- ---------- -----------
Federal statutory rate (34%) (34%) 34%
Net operating loss carry forwards - - (33%)
Valuation Allowance 34% 34% -
------------ ---------- -----------
Effective tax rate 0% 0% 1%
=========== =========== ==========
Due to the issuance of preferred stock which occurred June 28, 1996, utilization
of the net operating loss and tax credit carryforwards for the Company and its
subsidiary, HeartScan, will be subjected to separate return limitations.
At December 31, 1996 the Company has net operating loss carryforwards for
federal and state income tax purposes of approximately $61,200,000 and
$10,600,000 respectively. Additionally, the Company has research and development
and alternative minimum tax credit carryforwards of approximately $842,000 at
December 31, 1996. The net operating loss and the research and development tax
credit carryforwards expire in various years from 1998 through 2011.
In addition, HeartScan has net operating loss carryforwards for federal and
state income tax purposes of approximately $7,500,000 and $1,800,000,
respectively. The net operating loss carryforwards expire in various years from
2001 through 2011.
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. Sales of products to
end-users outside the United States were $11,528,000, $13,254,000 and
$14,990,000 in 1996, 1995 and 1994, respectively.
<PAGE>
IMATRON INC.
Index of Exhibits
Exhibit SEC
Number Description Page No.
(See Footnotes)
3.1 (1) Certificate of Incorporation of the Company as
amended as of March 31, 1983
3.2 (2) Certificate of Amendment of Certificate of
Incorporation filed with the New Jersey Secretary
of State on June 7, 1988
3.3 (2) Certificate of Amendment of Certificate of
Incorporation filed with the New Jersey Secretary
of State on June 17, 1988
3.4 (2) Certificate of Amendment of Certificate of
Incorporation filed with the New Jersey Secretary
of state on July 26, 1988
3.5 (9) Certificate of Correction of Certificate of
Amendment of Certificate of Incorporation filed
with the New Jersey Secretary of State on
February 7, 1989
3.6 (10) Certificate of Amendment of Certificate of
Incorporation filed with the New Jersey Secretary
of State on March 29, 1990
3.7 (11) Certificate of Amendment of Certificate of
Incorporation filed with the New Jersey Secretary
of State on December 7, 1990
3.8 (12) Bylaws, as amended April 30, 1992
<PAGE>
Exhibit SEC
Number Description Page No.
(See Footnotes)
4.1 (23) Form of Warrant issued to investors in Private
Offering concluded October 19, 1995
4.2 (24) Form of Warrant issued to investors in Private
Offering concluded May 24, 1996
4.3 (25) Warrant issued to Sitrick And Company Inc. in
conjunction with public relations services
4.4 (25) Form of Warrant issued to investors in HeartScan
Private Offering concluded June 24, 1996
10.1 (1) Sublicense Agreement between the Company and
Emersub Incorporated dated February 1, 1981
10.2 (6) Amendment to Sublicense Agreement between
Registrant and Emersub Incorporated dated
June 30, 1986
10.6 (7) Lease Agreement between the Company and Diodati
Trust and Patrician Association, Inc. for the
premises located at 389 Oyster Point Boulevard,
South San Francisco, California
10.7 (3) Common Stock Purchase Agreement dated February
26, 1987 between the Company and Mitsui & Co.
(U.S.A.), Inc.
10.8 (9) Common Stock Purchase Agreement dated February
26, 1988 between the Company and Pacific
Scientific Commerce Ltd.
10.9 (10) License Agreement dated as of September 13, 1988
between the Company and EMI Limited
10.10 (8) Series A Preferred Stock Purchase Agreement,
dated as of July 20, 1988, by and among the
Company, FI.M.A.I. Holding S.A. and Compagnie
Financiere Espirito Santo, S.A.
10.11 (9) Convertible Debenture between the Company and
Analogic Corporation
10.12 (26) 1997 Stock Bonus Incentive Plan
10.14 (9) Security Agreement dated December 15, 1988
between the Company and John Hancock Leasing
Corporation and Promissory Note dated December
30, 1988 from the Company to John Hancock Leasing
Corporation
10.15 (9) Agreement to Issue Warrant dated January 19, 1989
between the Company and John Hancock Leasing Corporation
<PAGE>
Exhibit SEC
Number Description Page No.
(See Footnotes)
10.16 (9) Amendment dated July 20, 1987 to Lease dated
August 23, 1983 by and between the Company and
Diodati Property Trust and Patrician Associates, Inc.
10.17 (10) Series B Preferred Stock Purchase Agreement and
Option to Form Joint Venture dated March 26, 1990
between the Company and FI.M.A.I. Holding, S.A.,
and the exhibits thereto
10.18 (10) Letter Agreement dated March 26, 1990 between
the Company and FI.M.A.I. Holding, S.A.
10.19 (10) Second Amendment to Sublicense Agreement between
Company and Emersub Incorporated dated
October 10, 1990
10.20 (12) Polly Force Distribution Agreement
10.21 (13) * Basic Agreement between the Company and Siemens
Corporation dated March 14, 1991
10.22 (13) Loan Agreement between the Company and Siemens
Corporation dated March 14, 1991
10.23 (12) Revolving Line of Credit Agreement between the
Company and Instituto Bancario San Paolo di
Torino dated November 9, 1990
10.24 (13) Registration Rights Agreements dated November 6,
1990 among the Company, FI.M.A.I. Holding, S.A.
and Societe d'Investissments dans des
Entreprises Commerciales, Industrielles et
Technologiques S.A.
10.25 (13) Stockholders Agreement dated August 13, 1990
between the Company and FI.M.A.I. Holding, S.A.
10.26 (13) Sales and Distribution Agreement dated July 20,
1988 between the Company and FI.M.A.I. Holding,
S.A.
10.27 (13) * Exclusive Importer Agreement dated November 12,
1990 between the Company and Mitsui & Co., Ltd.
10.28 (13) * Distributorship Agreement dated November 12, 1990
among the Company, Mitsui & Co., Ltd. and PASCO
Corporation
<PAGE>
Exhibit SEC
Number Description Page No.
(See Footnotes)
10.29 (13) Common Stock Purchase Agreement dated October 15,
1990 between the Company and PASCO Corporation
10.30 (14) Revolving Line of credit Agreement between the
Company and Istituto Bancario San Paolo di Torini
dated March 4, 1992
10.31 (14) Reimbursement and Security Agreement between the
Company and FIMAI Holding, S.A. dated February
22, 1992
10.32 (14) Stock Pledge Agreement between the Company and
FI.M.A.I. Holding, S.A. dated February 22, 1992
10.33 (14) Promissory Note dated February 22, 1992 granted
to Italimprese S.p.A.
10.34 (14) Sales Agreement between the Company and Picker
International, Inc. dated March 11, 1992
10.35 (14) 1991 Non-Employee Director's Stock Option Plan
10.36 (14) Agreement dated December 12, 1991 between the
Company and Mitsui & Co. Ltd.
10.37 (14) Letter Agreement dated April 2, 1992 from
FI.M.A.I. Holding S.A.
10.38 (15) Lease Agreement between the Company and J. Grant
Monahon, James S. Keagy and Jeffrey H.
Stevenson, as Trustees of AEW #79 Trust for the
premises located at 389 Oyster Point Boulevard,
South San Francisco, California, dated November
1, 1991
10.39 (15) Amendment No. 1 to Lease Agreement between the
Company and J. Grant Monahon, James S. Keagy
and Jeffrey H. Stevenson, as Trustees of AEW #79
Trust for the premises located at 389 Oyster
Point Boulevard, California, dated June 15, 1992
10.40 (15) Second amendment to Sublicense Agreement between
the Company and Emersub Incorporated dated
October 1, 1990
10.41 (15) Agreement dated October 31, 1991, to terminate
Lease Agreement dated August 23, 1983
<PAGE>
Exhibit SEC
Number Description Page No.
(See Footnotes)
10.42 (15) Release and Settlement Agreement between the
Company and Arthur P. Gould & Co. dated July 27,
1992
10.43 (16) Revolving line of credit agreement between the
Company and Instituto Bancario San Paolo di
Torini dated September 15, 1992
10.44 (16) First Amendment to Agreement for revolving line
of credit between the Company and Instituto
Bancario San Paolo di Torini dated February
2, 1993
10.45 (16) Right of first refusal and option agreement
between the Company and FI.M.A.I. Holding, S.A.
dated January 22, 1993
10.46 (16) * Amendment No.1 to Basic Agreement between the
Company and Siemens Corporation dated
September 30, 1992
10.47 (16) Amendment No.1 to loan agreement between the
Company and Siemens Corporation dated
December 31, 1992
10.48 (16) Amendment No.2 to loan agreement between the
Company and Siemens Corporation dated March 12,
1993
10.49 (16) Mortgage and Security Agreement dated as of March 12,
1993 between Imatron Inc. and Siemens Corporation
10.50 (16) * Patent License Agreement dated as of March 12, 1993
between Imatron Inc. and Severson & Werson, A
Professional Corporation
10.51 (16) Escrow Holder Agreement dated as of March 12, 1993
by and among Imatron Inc., Siemens Corporation and
Severson & Werson, A Professional Corporation
10.52 (16) * Sole License Agreement dated as of March 12, 1993
between Imatron Inc. and Siemens Corporation
10.53 (16) C-150 License Agreement dated as of March 12, 1993
between Imatron Inc. and Siemens Corporation
10.54 (16) * License Agreement dated as of March 12, 1993
between Imatron Inc. and Siemens Corporation
<PAGE>
Exhibit SEC
Number Description Page No.
(See Footnotes)
10.55 (16) Amendment No. 2 to Lease Agreement between the
Company and J. Grant Monahon, James S. Keagy
and Jeffrey H. Stevenson, as Trustees of AEW #79
Trust for the premises located at 389 Oyster
Point Boulevard, California dated December 31, 1992
10.56 (16) Termination Agreement dated December 9, 1992,
terminating Stockholders Agreement dated August
13,1990, between the Company and FI.M.A.I.
Holding, S.A.
10.57 (16) Amendment No.1 dated February 23, 1993, to
Release & Settlement Agreement
10.58 (16) Form of Registration Rights Agreement between the
Company and investors in Private Offering
concluded September 15, 1992
10.59 (17) 1993 Stock Option Plan, as amended to date
10.60 (18) 1994 Employee Stock Purchase Plan, as amended to date
10.61 (19) Settlement Agreement dated December 10, 1993
between the Company and Mitsui & Co., ltd.
10.62 (19) Transition Agreement dated December 10, 1993
between the Company and Mitsui & Co., Ltd.
10.63 (20) Amendment No. 2 to Basic Agreement dated
December 14, 1993 between the Company and
Siemens Corporation.
10.64 (20) Amendment to Loan Agreement and Waiver dated
December 14, 1993 between the Company and
Siemens Corporation.
10.65 (21) Executive Employment Agreement dated as of June
11, 1993 between the Company and S. Lewis Meyer.
10.66 (21) Warrant Agreement dated June 7, 1993 between the
Company and S. Lewis Meyer.
10.67 (21) Employment Agreement dated December 15, 1993
between the Company and Gary H. Brooks.
10.68 (21) Employment Agreement dated October 1, 1993
between the Company and Dale Grant.
<PAGE>
Exhibit SEC
Number Description Page No.
(See Footnotes)
10.69 (21) Agreement and Joint Company Agreement between
the Company, Tobu Land System Company and
Kino Corporation dated January 7, 1994
10.70 (21) Distributorship Agreement between the Company and
Imatron Japan K. K. dated February 3, 1994.
10.71 (21) First Amendment to Distributorship Agreement between
the Company and Imatron Japan K. K. dated February
8, 1994.
10.72 (21) Memorandum of Understanding dated February 2,
1994 between the Company and Siemens AG,
Medical Engineering Group.
10.73 (21) Memorandum of Understanding dated February 2,
1994 between Company and Siemens AG,
Medical Engineering Group (Evolution Upgrade project
and distribution agreement).
10.74 (21) Letter Agreement dated March 7, 1994 from FI.M.A.I.
Holding S. A.
10.75 (22) * Amendment No. 3 to Basic Agreement dated March 1,
1994 between the Company and Siemens Corporation.
10.76 (22) * Amendment No. 4 to Basic Agreement dated as of
October 20, 1994 between the Company and Siemens
Corporation.
10.77 (22) * Amendment No. 5 to Basic Agreement dated as of
November 17, 1994 between the Company and Siemens
Corporation.
10.78 (22) * Amendment No. 6 to Basic Agreement dated as of
December 28, 1994 between the Company and Siemens
Corporation and related Letter Agreement dated
December 29, 1994.
<PAGE>
10.79 (22) * Amendment No. 7 to Basic Agreement dated as of
February 28, 1995 between the Company and Siemens
Corporation.
10.80 (22) * Memorandum of Understanding dated March 31, 1995
between the Company and Siemens Corporation.
SEC
Page No.
11.0 Computation of Per Share Earnings. -
23.0 Consent of Independent Auditors. -
_______________
Confidential Treatment Request granted by the Securities
and Exchange Commission.
<PAGE>
(1) Filed as an exhibit to the Company's Registration Statement on Form
S-1 filed with the Commission on June 1, 1983 (File No. 2-84146)
and incorporated herein by reference.
(2) Filed as an exhibit to the Company's Registration Statement on Form
S-8 filed with the Comission on February 3, 1989 (File No. 33-26833)
and incorporated herein by reference.
(3) Filed as an exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1986 and incorporated herein by
reference.
(4) Filed as an exhibit to Amendment No. 2 to the Company's Registration
Statement on Form S-1 filed with the Commission on November 12, 1986
(File No. 33-8668) and incorporated herein by reference.
(5) Filed as an exhibit to Amendment No. 1 to the Company's
Registration Statement on Form S-1 filed with the Commission on
November 5, 1986 (File No. 33-8668) and incorporated herein by
reference.
(6) Filed as an exhibit to the Company's Registration Statement on Form
S-1 filed with the Commission on September 11, 1986 (File No. 33-
8668) and incorporated herein by reference.
(7) Filed as an exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1983 and incorporated herein by
reference.
(8) Filed as an exhibit to the Company's Current Report on Form 8-K filed
with the Commission on September 16, 1988.
(9) Filed as an exhibit to the Form 8 Amendment Number 1 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1988 and incorporated herein by reference.
(10) Filed as an exhibit to the Company's Annual Report Form 10-K for the
Fiscal year ended December 31, 1989 and incorporated herein by
reference.
(11) Filed as an exhibit to the Company's Registration Statement Form S-3
filed on January 24, 1991 (File No. 33-38676) and incorporated
herein by reference.
(12) Filed as an exhibit to Post-Effective Amendment Number 1 to the
Company's Registration Statement Form S-3 filed with the
Commission on May 5, 1992 (File No. 33-32218) and incorporated
herein by reference.
(13) Filed as an exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1990 and incorporated herein by
reference.
<PAGE>
(14) Filed as an exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991 and incorporated herein by
reference.
(15) Filed as an exhibit to the Company's Amendment No.1 to Post-
Effective Amendment No.1 to Form S-3 (file No. 33-32218) filed with
the Commission on August 7, 1992 and incorporated herein by
reference.
(16) Filed as an exhibit to the Company's Annual Report on Form 10-K for
the fiscal year ended December, 1992 and incorporated herein by
reference.
(17) Filed as an exhibit to the Company's Registration Statement on Form
S-8 filed on August 3, 1993 (Registration No. 33-66992).
(18) Filed as an exhibit to the Company's Registration Statement on Form
S-8 filed on November 16, 1993 (Registration No. 33-71786).
(19) Filed as an Exhibit to the Company's Current Report on Form 8-K
filed on January 26, 1994.
(20) Filed as an Exhibit to the Company's Current Report on Form 8-K
filed on February 4, 1994
(21) Filed as an Exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31 1993, and incorporated herein by
reference.
(22) Filed as an Exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31,1994 and incorporated herein by
reference.
(23) Filed as an Exhibit to the Company's Registration Statement on Form
S-8 filed on October 30, 1996 (Registration No. 333-15081) and
incorporated herein by reference.
(23) Filed as an Exhibit to the Company's Registration Statement on Form
S-3 filed on May 10, 1996 (Registration No. 333-3529) and
incorporated herein by reference.
(24) Filed as an Exhibit to the Company's Registration Statement on Form
S-3 filed on June 25, 1996 (Registration No. 333-6749) and
incorporated herein by reference.
(25) Filed as an Exhibit to the Company's Registration Statement on Form
S-3 filed on September 6, 1996 (Registration No. 333-11515) and
incorporated herein by reference.
<TABLE>
EXHIBIT No. 11
IMATRON INC.
Computation of Per Share Earnings
(In thousands, except per share data)
<CAPTION>
Year ended Year ended Year ended
December 31,1996 December 31,1995 December 31, 1994
--------------------- -------------------- ------------------
<S> <C> <C> <C>
PRIMARY
Weighted average shares outstanding 74,406 57,598 53,059
Assumed conversion of preferred
stock, based on the "as if"
converted method - - 6,539
Net effect of dilutive stock
options based on the
treasury stock method using
the average market price - - 1,746
Net effect of dilutive stock
warrants based on the
treasury stock method using
the average market price - - 758
---------------------- --------------------- --------------------
TOTAL 74,406 57,598 62,102
---------------------- --------------------- --------------------
Net income (loss) $ (10,465) $ (2,449) $ 2,310
---------------------- --------------------- --------------------
Net income(loss) per share (0.14) $ (.04) $ .04
---------------------- --------------------- --------------------
</TABLE>
<PAGE>
<TABLE>
SCHEDULE II
IMATRON INC.
Valuation and Qualifying Accounts and Reserves
(In thousands)
<CAPTION>
Balance at Charged to Balance at
Beginning of Costs and End of the
Description Period Expenses Period
--------------------- ------------------- ----------------- -----------------
<S> <C> <C> <C>
Balances for the year ended December 31, 1994:
Allowance for doubtful accounts receivable $84 $76 $160
Balances for the year ended December 31, 1995:
Allowance for doubtful accounts receivable 160 11 171
Balances for the year ended December 31, 1996:
Allowance for doubtful accounts receivable 171 939 1,110
</TABLE>
EXHIBIT 24.1
Consent of Independent Auditors
We consent to the incorporation by reference in:
- - Form S-8 (Registration No. 333-15081) dated October 30, 1996 pertaining to
Imatron Inc. Stock Bonus Incentive Plan
- - Form S-3 (Registration No. 333-11515) dated September 6, 1996 and related
Prospectus
- - Form S-8 (Registration No. 333-9989) dated August 12, 1996 pertaining to
Imatron Inc. 1994 Employee Stock Purchase Plan
- - Form S-3 (Registration No. 333-6749) dated June 25, 1996 and related
Prospectus
- - Form S-3 (Registration No. 333-3529) dated May 10, 1996 and related
Prospectus
- - Form S-3 (Registration No. 333-647) dated February 2, 1996 and related
Prospectus
- - Form S-3 (Registration No. 333-63123) dated October 2, 1995 and related
Prospectus
- - Form S-8 (Registration No. 33-61179) dated July 20, 1995 pertaining to 1993
Stock Option Plan
- - Form S-8 (Registration No. 33-71786) dated November 15, 1993 pertaining to
1994 Employee Stock Purchase Plan
- - Form S-8 (Registration No. 33-66992) dated August 3, 1993 pertaining to 1993
Stock Option Plan
- - Form S-8 (Registration No. 33-66952) dated August 3, 1993 pertaining to 1991
Non-Employee Directors' Stock Option Plan
- - Form S-8 (Registration No. 33-40391) dated May 6, 1991 pertaining to Director
Stock Option Grant
- - Form S-8 (Registration No. 33-28662) dated May 11, 1989 pertaining to 1983
Stock Option Plan
- - Form S-8 (Registration No. 33-26833) dated February 3, 1989 pertaining to
1984 Employee Stock Participation Plan
of our report dated February 14, 1997, with respect to the consolidated
financial statements and schedule of Imatron Inc. included in the Annual Report
on Form 10K for the year ended December 31, 1996.
ERNST & YOUNG LLP
San Francisco, California
March 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM IMATRON
INC.'S CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND CONSOLIDATED CONDENSED
BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000720477
<NAME> Imatron Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 10862
<SECURITIES> 14171
<RECEIVABLES> 6710
<ALLOWANCES> (1110)
<INVENTORY> 10393
<CURRENT-ASSETS> 42685
<PP&E> 16814
<DEPRECIATION> (6712)
<TOTAL-ASSETS> 53192
<CURRENT-LIABILITIES> 9643
<BONDS> 0
0
0
<COMMON> 89223
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 53192
<SALES> 25768
<TOTAL-REVENUES> 25768
<CGS> 24787
<TOTAL-COSTS> 24787
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 564
<INCOME-PRETAX> 10465
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10465
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
