SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTERLY PERIOD ENDED June 30, 1997.
Commission file number 0-12405
IMATRON INC.
New Jersey
I.D. No. 94-2880078
389 Oyster Point Blvd, South San Francisco, CA 94080
(415) 583-9964
Indicate by check mark whether the Registrant (1) had filed all reports require
to be filed by Section 13 or15(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_________
At July 30, 1997 78,534,540 of the Registrant's common stock(no par value) were
issued and outstanding.
Total Number of Pages: 13
<PAGE>
IMATRON INC.
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PART 1. FINANCIAL INFORMATION PAGE
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets - 3
June 30, 1997 (unaudited) and December 31, 1996.
Condensed Consolidated Statements of 4
Operations - Three Month and Six Month Periods Ended
June 30, 1997 and 1996 (unaudited).
Condensed Consolidated Statements of 5
Cash Flows - Six Month Periods Ended
June 30, 1997 and 1996 (unaudited).
Notes to Condensed Consolidated Financial 6
Statements (unaudited).
Item 2. Management's Discussion and Analysis of Financial 9
Condition and Results of Operation.
PART II. OTHER INFORMATION 11
SIGNATURES 14
<PAGE>
<TABLE>
IMATRON INC.
Condensed Consolidated Balance Sheets
(Amounts in thousands)
<CAPTION>
ASSETS: June 30, December 31,
1997 1996
-------- ---------
(Unaudited)
Current assets
<S> <C> <C>
Cash and cash equivalents $ 16,940 $ 10,862
Short-term investments 3,591 14,171
Accounts receivable (net allowance for doubtful accounts
of $1,376 at June 30, 1997 and $1,110 at
December 31, 1996):
Trade accounts receivable 7,065 2,940
Accounts receivable from affiliate 1,845 2,660
Inventories 11,608 10,393
Prepaid expenses 824 1,659
---------------- ------------------
Total current assets 41,873 42,685
Property and equipment, net 9,297 10,102
Other assets 1,205 405
---------------- ------------------
Total assets $ 52,375 $ 53,192
================ ==================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities
Accounts payable $ 2,359 $ 2,461
Other accrued liabilities 6,542 5,994
Capital lease obligations - due within one year 1,290 1,188
---------------- ------------------
Total current liabilities 10,191 9,643
Deferred income on sale leaseback transactions 1,168 1,419
Deferred income on service contract 480 -
Capital lease obligations 3,949 4,604
---------------- ------------------
Total liabilities 15,788 15,666
Minority interest 15,128 14,941
Shareholders' equity:
Common stock, no par value; authorized-100,000 shares; issued
and outstanding - 78,453 shares in 1997 and 77,919 shares in 1996 90,115 89,223
Deferred compensation (273) (116)
Additional paid-in capital 1,500 1,500
Accumulated deficit (69,883) (68,022)
---------------- ------------------
Total shareholders' equity 21,459 22,585
Total liabilities and shareholders' equity $ 52,375 $ 53,192
================ ==================
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
IMATRON INC.
Condensed Consolidated Statements of Operations
(Amounts in thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------- ----------------------------------
1997 1996 1997 1996
------------ -------------- ------------- ---------------
<CAPTION>
Revenues:
<S> <C> <C> <C> <C>
Product sales $ 7,931 $ 2,226 $ 15,722 $ 6,017
Product sale leaseback
arrangements - 1,774 - 1,774
Service 940 821 1,970 1,588
Development contracts 1,250 1,250 2,500 2,500
Clinics 538 292 1,044 574
------------ -------------- -------------- ------------
Total revenues 10,659 6,363 21,236 12,453
------------ -------------- ------------- ---------------
Cost of revenues:
Product sales 4,698 2,178 10,139 5,371
Product sale-leaseback
arrangements - 1,774 - 1,774
Service 905 774 1,610 1,472
Development contracts 1,250 1,250 2,500 2,500
Clinics 769 529 1,524 966
------------ -------------- ------------- ---------------
Total cost of revenues 7,622 6,505 15,773 12,083
------------ -------------- ------------- ---------------
Gross profit 3,037 (142) 5,463 370
Operating expenses:
Research and development 1,204 798 2,126 1,501
Marketing and sales 1,691 898 3,054 1,981
General and administrative 1,379 990 2,490 1,838
------------ -------------- ------------- ---------------
Total operating expenses 4,274 2,686 7,670 5,320
------------ -------------- ------------- ---------------
Total operating loss (1,237) (2,828) (2,207) (4,950)
Other income, net 358 110 637 161
Interest expense (148) (114) (291) (234)
------------ -------------- ------------- ---------------
Net loss $ (1,027) $ (2,832) $ (1,861) $ (5,023)
============ ============== ============= ===============
Net loss per common share $ (0.01) $ (0.04) $ (0.02) $ (0.07)
============ ============== ============= ===============
Number of shares used in per
share calculation 78,370 73,980 78,239 71,546
============ ============== ============= ===============
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
IMATRON INC.
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
<CAPTION>
Six Months Ended June 30,
---------------------------------------------
1997 1996
------------------ ----------------
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (1,861) $ (5,023)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 1,088 555
Amortization of deferred compensation 29 -
Common stock issued for services 158 74
Changes in:
Accounts and notes receivable (4,120) (1,175)
Inventories (1,215) (928)
Prepaid expenses and deposits 835 (202)
Other assets 10 (11)
Accounts payable (102) (392)
Other accrued liabilities 1,028 49
Deferred income (251) 403
------------------ ----------------
Net cash used in operating activities (4,401) (6,650)
Cash flows from investing activities:
Capital expenditures (283) (835)
Purchases of marketable securities (6,598) (11,501)
Maturities of marketable securities 17,178 1,013
Sales of marketable securities - 1,014
------------------ ----------------
Net cash provided by / (used in) investing activities 10,297 (10,309)
------------------ ----------------
Cash flows from financing activities:
Payment of obligations under capitalized leases (553) (319)
Payment of notes payable - (992)
Proceeds from issuance of common stock 735 14,922
Proceeds from issuance of preferred stock of consolidated
subsidiary - 14,798
------------------ ----------------
Net cash provided by financing activities 182 28,107
------------------ ----------------
Net increase in cash and cash equivalents 6,078 11,148
------------------ ----------------
Cash and cash equivalents, at beginning of the period 10,862 7,269
------------------ ----------------
Cash and cash equivalents, at end of the period $ 16,940 $ 18,417
================== ================
Supplemental Disclosure of Non cash Investing and Financing Activities:
Deferred compensation of common stock option grant
of consolidated subsidiary $186 $143
================== ================
<FN>
The accompanying notes are an integral part of these consolidated financial statements
</FN>
</TABLE>
<PAGE>
IMATRON INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for annual consolidated financial statements. In the
opinion of management, adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and six months period ended June 30, 1997
are not necessarily indicative of the results that may be expected for the
year ended December 31, 1997. For further information, refer to the
consolidated financial statements and notes thereto included in the
Company's Annual Report to Shareholders for the year ended December 31,
1996.
2. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Imatron Inc.
and its subsidiary HeartScan Imaging, Inc. (HeartScan). All intercompany
accounts and transactions have been eliminated in consolidation.
3. NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income"
(SFAS 130) which will be effective for financial statements for periods
beginning after December 15, 1997, and establishes standards for reporting
and display of comprehensive income and its components in a full set of
general purpose financial statements. Earlier application is permitted. The
Company will make the required reporting of comprehensive income in its
consolidated financial statements for the first quarter ending March 31,
1998.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 "Disclosures about Segments of a
Business Enterprise" (SFAS 131) which will be effective for financial
statements beginning after December 15, 1997, and establishes standards for
disclosures about segments of an enterprise. Earlier application is
encouraged. In its consolidated financial statements for the year December
31, 1998, the Company will make the required disclosures.
4. 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 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 June 30, 1997 consist of
commercial papers and government securities with at least an A1/P1 credit
rating. These funds have virtually no principal risk and have a variable
interest rate.
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.
5. INVENTORIES
Inventories consist of (in thousands of dollars):
June 30, December 31,
1997 1996
--------- ----------
Purchased parts and sub-assemblies
$ 3,669 $ 2,994
Service parts 1,462 1,142
Work-in-process 4,180 2,574
Finished goods 2,297 3,683
======= =======
TOTAL 11,608 10,393
======= ========
<PAGE>
6. LOSS PER SHARE
Net loss per common share is computed using the weighted average number of
common shares outstanding. Stock options and warrants have not been
included in the computation as their effect would have been antidilutive.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted on December
31, 1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating basic earnings per
share, the dilutive effect of stock options will be excluded. The impact of
Statement 128 on calculations of basic and fully diluted earnings per share
is not expected to be material for the quarters and six month periods ended
June 30, 1997 and June 30, 1996.
7. TRANSACTIONS WITH SIEMENS CORPORATION
The following table represents the percent of revenues attributable to the
development and distribution agreements between the Company and Siemens
Corporation:
Three months ended Six months ended
June 30, June 30,
----------------- -------------------
1997 1996 1997 1996
Net product sales 21% 5% 21% 4%
Service 26% 17% 26% 16%
Development contracts 100% 100% 100% 100%
Total revenues 30% 25% 30% 24%
Siemens has 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 April 1997, Imatron and Siemens entered into a service support
agreement, whereby the Company will provide customer services for C-150
scanners sold by Siemens. For an agreed-upon amount, Imatron will provide
all pre-installation site planning, installation and application support,
as well as, warranty and post-warranty services, as a subcontractor to
Siemens. Revenues for warranty services are recognized over the life of the
contracts while other service revenues are recognized upon completion of
work.
8. JOINT VENTURE
As of June 30, 1997 Imatron's interest in Imatron Japan, Inc. ("the Joint
Venture") is carried in the accompanying condensed consolidated financial
statements at no value. The Company has no financial commitments to the
Joint Venture and is prepared to abandon its interest. The Company intends
to carry this investment at no value until such time as the Joint Venture
can demonstrate that it will be able to sustain profitable operations. Once
profitable operations are sustained, the Company will account for the Joint
Venture investment using the equity method. Summarized financial
information for the Joint Venture is not included in the notes to the
condensed consolidated financial statements for the period ended or as of
June 30, 1997, as such information is not considered material to the
operations of Imatron Inc.
<PAGE>
The following table represents the percent of revenues attributable to the
Joint Venture:
Three months ended Six months ended
June 30, June 30,
-------------------- ------------------
1997 1996 1997 1996
--------- --------- -------- -------
Net product sales 18% 36% 18% 63%
Service 11% 20% 12% 22%
Percentage of total revenues 14% 25% 14% 42%
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations:
Three months ended June 30, 1997 versus 1996
Total revenues for the second quarter ended June 30, 1997 of $10,659,000
increased $4,296,000 or 68% compared to 1996 revenues of $6,363,000. Net product
revenues increased to $7,931,000 in 1997 from $4,000,000 in 1996, which included
$1,774,000 under the sale-leaseback arrangements, primarily because of increase
in scanner shipments from three in 1996 to five in 1997. Service revenues
increased to $940,000 in 1997 from $821,000 in 1996 due to an increase in
scanners under service contracts. Development contract revenue is identical in
1996 due to the terms of the three year Memorandum of Understanding entered into
with Siemens in March 1995. Clinic revenues related to the HeartScan Imaging,
Inc. (HeartScan) increased by 84% to $538,000 in 1997 compared to $292,000 in
1996 as a result of five coronary artery disease risk assessment centers
(clinics) operating in 1997 compared to three in 1996.
Total cost of revenues as a percent of revenues for the second quarter of 1997
was lower at 72% as compared with 102% in 1996. Product cost of revenues as a
percent of product revenues decreased to 59% in 1997 from 99% in 1996 due to
shipment of five scanners with higher realized gross margin compared to three
shipments in 1996. Service cost of revenues as a percent of service revenue
increased to 96% in 1997 from 94% in 1996 due to startup expenses related to the
establishment of a service center in Europe (see Note 6 - Transactions with
Siemens Corporation). Development contract revenue and cost of revenue is equal
due to the terms of the three year Memorandum of Understanding with Siemens.
Clinic costs of revenues as a percent of clinic revenues decreased to 146% in
1997 as compared to 168% in 1996 primarily due to an increase in revenues
related to the establishment of additional Heartscan clinics.
Total operating expenses of $4,274,000 increased $1,588,000 or 59% compared to
1996 expenses of $2,686,000. R&D expenses of $1,204,000 increased $406,000 from
$798,000 in 1996 due to increases in headcount and materials for new projects
being developed. Selling expenses increased to $1,691,000 from $898,000 in 1996
primarily due to higher advertising expenses incurred by HeartScan and expenses
related to studies conducted promoting the benefits of the Company's product.
Administrative expenses increased $389,000 to $1,379,000 due primarily to
increases in HeartScan headcount and bad debt expenses.
Six months ended June 30, 1997 versus 1996
Total revenues for the six months ended June 30, 1997 of $21,236,000 increased
$8,783,000 or 71% compared to revenues of $12,453,000 for the same period in
1996. Net product revenues increased to $15,722,000 in 1997 from $7,791,000 in
1996, which included $1,774,000 under the sale-leaseback arrangements, due to
ten scanners shipped in 1997 compared to five in 1996. Service revenues
increased 24% to $1,970,000 in 1997 due to an increase in scanners under service
contract. Development contract revenue is identical in 1996 due to the terms of
the three year Memorandum of Understanding entered into with Siemens in March
1995. Clinic revenues related to the HeartScan Imaging, Inc. increased to
$1,044,000 in 1997 from $574,000 in 1996 as a result of five coronary artery
disease risk assessment centers (clinics) operating in 1997 compared to three in
1996.
Total cost of revenues as a percent of revenues for the first six months of 1997
was lower at 74% as compared with 97% in 1996. Product cost of revenues as a
percent of product revenues decreased to 64% in 1997 from 92% in 1996 due to
shipment of ten scanners with higher realized gross margin compared to five
shipments in 1996. Service cost of revenues as a percent of service revenue
decreased to 82% in 1997 from 93% in 1996 due to higher service contract revenue
partially offset by an increase in startup expenses related to the establishment
of a service center in Europe (see Note 6 - Transactions with Siemens
Corporation). Development contract revenue and cost of revenue is equal due to
the terms of the three year Memorandum of Understanding with Siemens. Clinic
costs of revenues as a percent of clinic revenues decreased to 168% in 1997 as
compared to 181% in 1996 primarily due to an increase in additional revenues
related to the establishment of additional Heartscan clinics.
Total operating expenses of $7,670,000 increased $2,350,000 or 44% compared to
1996 expenses of $5,320,000. R&D expenses of $2,126,000 in 1997 increased
$625,000 from $1,501,000 in 1996 due to increases in headcount and materials for
new projects. Selling expenses increased to $3,054,000 in 1997 from $1,981,000
in 1996 primarily due to higher advertising expenses incurred by HeartScan and
expenses related to studies conducted promoting the benefits of the Company's
product. Administrative expenses increased $652,000 to$2,490,000 in 1997 due to
increases in HeartScan headcount and bad debt expenses.
Other income increased $476,000 to $637,000 in 1997 due to higher yield in cash
investments.
Liquidity and Capital Resources:
At June 30, 1997, working capital decreased to $31,682,000 compared to December
31, 1996 working capital of $33,042,000 primarily as a result of the operating
losses sustained by HeartScan amounting to $3,269,000. The current ratio
decreased to 4.1:1 at June 30, 1997 from 4.4:1 at December 31, 1996.
The Company's assets decreased to $52,375,000 compared to December 31, 1996
total assets of $53,192,000. Net cash used in operating activities during the
first six months of 1997 was $4,401,000 compared to $6,650,000 in 1996. The
decrease in cash used in operations were primarily attributable to increases in
accounts receivables, as revenues grew 71% in 1997 over the same six month
period in 1996.
Cash used in investing activities increased $20,606,000 to $10,297,000 in 1997
as compared to the same six month period in 1996 due to an increase in
securities held for sale maturing in three months and less. Key financing
activities in the first six months of 1996 included proceeds from a private
offering whereby Imatron sold 100,000 shares of HeartScan Series A preferred
stock to unaffiliated third parties with realized proceeds of $14,798,000 (net
of offering costs). During the same period, the Company also sold 4,500,000
shares of its common stock and issued warrants to purchase common stock, netting
proceeds of $11,348,000. Additionally, exercises of stock options, employee
stock purchase plan and warrants decreased to $735,000 during the first six
month period in 1997 as compared to $3,149,000 during the same period in 1996.
The Company's management believes that the cash, cash equivalents and short-term
investments existing at June 30, 1997 and the estimated proceeds from ongoing
sales of products and services in 1997 will provide the Company with sufficient
cash for operating activities and capital requirements through December 31,
1997.
To satisfy the Company's capital and operating requirements beyond 1997,
profitable operations, additional public 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.
This Form 10Q contains forward-looking statements which involve risk and
uncertainties. The company's actual results may differ significantly from the
results discussed in the forward-looking statements as a result of certain risk
factors set forth in the company's Annual Report on Form 10-K for the year ended
December 31, 1996.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a vote of Security Holders
The Company's Annual Meeting of Shareholders was held on
June 30, 1997. At the meeting all existing directors were
re-elected. In addition, a proposal to increase the number
of authorized shares of common stock from 100 million to 150
million shares was approved. The proposal received
55,353,748 shares for, 4,301,831 against and 439,479
abstentions.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
No. 11 - Computation of per share earnings.
No. 27 - Financial data schedules
(b) Form 8-K Reports:
None filed during the Company's second quarter ended
June 30, 1997.
<PAGE>
<TABLE>
Exhibit No. 11
IMATRON INC.
Computation of Net Loss per Common Share
(Amounts in thousands, except per share data)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- -------------------------------
1997 1996 1997 1996
PRIMARY:
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding 78,370 73,980 78,239 71,546
-------------- ------------ ------------ -------------
TOTAL 78,370 73,980 78,239 71,546
============== ============ ============ =============
Net loss $ (1,027) $ (2,832) $ (1,861) $ (5,023)
============== ============ ============ =============
Net loss per common share $ (0.01) $ (0.04) $ (0.02) $ (0.07)
============== ============ ============ =============
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 6, 1997
IMATRON INC.
(Registrant)
/s/ Gary H. Brooks
------------------------------------
Gary H. Brooks Vice President
Finance/Administration,
Chief Financial Officer and Secretary
<PAGE>
<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>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 16940
<SECURITIES> 3591
<RECEIVABLES> 10286
<ALLOWANCES> (1376)
<INVENTORY> 11608
<CURRENT-ASSETS> 41873
<PP&E> 17089
<DEPRECIATION> (7792)
<TOTAL-ASSETS> 52375
<CURRENT-LIABILITIES> 10191
<BONDS> 0
0
0
<COMMON> 90115
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 52,375
<SALES> 21,236
<TOTAL-REVENUES> 21,236
<CGS> 15,773
<TOTAL-COSTS> 15,773
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 291
<INCOME-PRETAX> (1861)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1861)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
