FORM 10Q September 30, 1997
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 SEPTEMBER 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 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___
At October 14, 1997, 78,608,598 shares of the Registrant's common stock
(no par value) were issued and outstanding.
Total Number of Pages: 15
<PAGE>
IMATRON INC.
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
PART I. FINANCIAL INFORMATION PAGE
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets - 3
September 30, 1997 (unaudited) and December 31, 1996.
Condensed Consolidated Statements of Operations - 4
Three and Nine Months Ended
September 30, 1997 and 1996 (unaudited).
Condensed Consolidated Statements of Cash Flows - 5
Nine Months Ended
September 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 Operations.
PART II. OTHER INFORMATION 11
SIGNATURES 13
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<TABLE>
<CAPTION>
IMATRON INC.
Condensed Consolidated Balance Sheets
(Amounts in thousands)
ASSETS: September 30, December 31,
1997 1996
------------- -------------
(Unaudited)
Current assets
<S> <C>
Cash and cash equivalents $ 10,971 $ 10,862
Short-term investments 5,269 14,171
Accounts receivable (net of allowance for doubtful accounts
of $1,467 at September 30, 1997 and $1,110 at December 31,
1996):
Trade accounts receivable 8,445 2,940
Accounts receivable from affiliate 1,954 2,660
Inventories 12,023 10,393
Prepaid expenses 868 1,659
-------------------- --------------------
Total current assets
$ 39,530 $ 42,685
Property and equipment, net 8,816 10,102
Other assets 1,214 405
-------------------- --------------------
Total assets 49,560 53,192
==================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities
Accounts payable $ 2,286 $ 2,461
Other accrued liabilities 5,551 5,994
Capital lease obligations - due within one year 1,203 1,188
-------------------- --------------------
Total current liabilities 9,040 9,643
Deferred income on sale leaseback transactions 1,043 1,419
Deferred income on service contract 460 -
Capital lease obligations 3,678 4,604
--------------------- --------------------
Total liabilities 14,221 15,666
Minority interest 15,129 14,941
Shareholders' equity:
Common stock, no par value; authorized-150,000 shares; issued
and outstanding - 78,603 shares in 1997 and 77,919 shares in
1996 90,345 89,223
Deferred compensation (252) (116)
Additional paid-in capital 1,500 1,500
Accumulated deficit (71,383) (68,022)
-------------------- --------------------
Total shareholders' equity 20,210 22,585
-------------------- --------------------
Total liabilities and shareholders' equity
$ 49,560 $ 53,192
==================== ====================
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
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<TABLE>
<CAPTION>
IMATRON INC.
Condensed Consolidated Statements of Operations
(Amounts in thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------- ---------------------------------
1997 1996 1997 1996
------ ------- --------- -------
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 6,869 $ 6,376 $ 22,591 $ 12,393
Product sale leaseback
arrangements - - - 1,774
Service 1,466 1,070 3,436 2,658
Development contracts 1,250 1,250 3,750 3,750
Clinics 668 295 1,712 869
-------------- -------------- ------------ ----------------
Total revenues 10,253 8,991 31,489 21,444
-------------- -------------- ------------ --------------
Cost of revenues:
Product sales 4,875 4,649 15,014 10,020
Product sale-leaseback
arrangements - - - 1,774
Service 1,056 827 2,666 2,299
Development contracts 1,250 1,250 3,750 3,750
Clinics 811 545 2,335 1,511
-------------- -------------- ------------ --------------
Total cost of revenues 7,992 7,271 23,765 19,354
-------------- -------------- ------------ --------------
Gross profit 2,261 1,720 7,724 2,090
Operating expenses:
Research an development 833 879 2,959 2,380
Marketing and sales 1,639 1,140 4,693 3,121
General and administrative 1,294 1,202 3,784 3,040
-------------- -------------- ------------ --------------
Total operating expenses 3,766 3,221 11,436 8,541
-------------- -------------- ------------ --------------
Total operating loss (1,505) (1,501) (3,712) (6,451)
Other income, net 139 2,072 776 2,233
Interest expense (134) (416) (425) (650)
-------------- -------------- ------------ --------------
Net loss $ (1,500) $ 155 $ (3,361) $ (4,868)
============== ============== ============ ==============
Net loss per common share $ (0.02) $ (0.00) $ (0.04) $ (0.07)
============== ============== ============ ==============
Number of shares used in per share
calculation 78,574 76,601 78,351 73,359
============== ============== ============ ==============
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IMATRON INC.
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
Nine Months Ended September 30,
-------------------------------------------
1997 1996
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,361) $ (4,868)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 1,681 918
Amortization of deferred compensation 50 18
Common stock issued for services 192 129
Changes in:
Accounts receivable (4,799) (2,658)
Inventories (1,630) (781)
Prepaid expenses 791 (109)
Other assets (809) 207
Accounts payable (175) (1,198)
Other accrued liabilities 17 (112)
Deferred income (376) 284
----------------- -----------------
Net cash used in operating activities (8,419) (8,170)
Cash flows from investing activities:
Capital expenditures (395) (1,501)
Purchases of marketable securities (23,459) (22,036)
Maturities of marketable securities 32,361 3,068
Sales of marketable securities - 1,015
----------------- -----------------
Net cash provided by / (used in) investing activities 8,507 (19,454)
----------------- -----------------
Cash flows from financing activities:
Payment of obligations under capitalized leases (911) (616)
Payment of notes payable - (992)
Proceeds from issuance of common stock 932 15,543
Proceeds from issuance of preferred stock of consolidated
subsidiary - 14,798
----------------- -----------------
Net cash provided by financing activities 21 28,733
----------------- -----------------
Net increase in cash and cash equivalents 109 1,109
----------------- -----------------
Cash and cash equivalents, at beginning of the period 10,862 7,269
----------------- -----------------
Cash and cash equivalents, at end of the period $ 10,971 $ 8,378
================= =================
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 nine months period ended September 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 September 30, 1997 consist
of commercial papers and government securities with at least an AI / PI
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.
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5. INVENTORIES
Inventories consist of (in thousands of dollars):
September 30, December 31,
1997 1996
----------------- ----------------
Purchased parts and sub-assemblies $ 3,084 $ 2,994
Service parts 1,270 1,142
Work-in-process 4,520 2,574
Finished goods 3,149 3,683
================= ================
TOTAL $ 12,023 $ 10,393
================= ================
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 nine month periods
ended September 30, 1997 and September 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 Nine months ended
September 30, September 30,
----------------- -----------------
1997 1996 1997 1996
----- ----- ----- -----
Net product sales 12% - 18% 2%
Service 46% 22% 34% 18%
Development contracts 100% 100% 100% 100%
Total revenues 27% 17% 29% 21%
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
Siemen's. Revenues for warranty services are recognized over the life of
the contracts while other service revenues are recognized upon completion
of work.
<PAGE>
8. JOINT VENTURE
As of September 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 September 30, 1997, as such information is not considered
material to the operations of Imatron Inc.
The following table represents the percent of revenues attributable to the
Joint Venture:
Three months ended Nine months ended
September 30, September 30,
---------------------- -------------------
1997 1996 1997 1996
------- ------- ------- -------
Net product sales 20% 36% 19% 63%
Service 9% 20% 11% 22%
Percentage of total revenues 15% 25% 14% 42%
9. DEVELOPMENT AGREEMENT WITH TERARECON INC.
On July 22, 1997, the Company and TeraRecon Inc. entered into a development
agreement whereby TeraRecon will provide Imatron with a real-time image
reconstruction system for use in conjuction with Imatron's Ultrafast CT
scanner. Upon completion and when delivered, the RTR-2000 system will be
exclusive to Imatron's Ultrafast CT scanner and will expand its current
applications to include new three-dimensional, CT flurography or real-time
viewing of computerized tomography (CT) images.
In consideration for the successful development and delivery of RTR-2000
systems, the Company has agreed to issue an aggregate of 6 million warrants
to purchase the Company's Common Stock at $4.50 per share. The warrants
will be issued in installments based on TeraRecon achieving certain
milestones in connection with the development of image reconstruction
systems. In addition, TeraRecon has agreed to pay the Company an aggregate
of $2 million for 4 million of the warrants and to make royalty payments to
Imatron equal to 3% of net sales of certain RTR-2000 systems sold to third
parties.
10. INCREASE IN AUTHORIZED COMMON STOCK
On July 7, 1997 the Company filed an amendment to its Certificate of
Incoporation. The amendment which was approved by the Board of Directors on
April 30, 1997 and by the shareholders at the annual meeting on June 30,
1997, increases the number of authorized shares of the Company's Common
Stock from 100 million shares to 150 million.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations:
Three months ended September 30, 1997 versus 1996
Total revenues for the third quarter ended September 30, 1997 of
$10,253,000 increased $1,262,000 or 14% compared to 1996 revenues of
$8,991,000. Net product revenues of $6,869,000 remained relatively
unchanged in 1997 as compared to $6,376,000 in 1996 due to shipment of four
scanners in both years. Service revenues increased to $1,466,000 in 1997
from $1,070,000 in 1996 due to an increase in scanners under service
contracts. The increase primarily resulted from the service support
agreement entered into with Siemens (see Note 6 - Transactions with Siemens
Corporation). Development contract revenue of $1,250,000 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 126% to $668,000 in 1997 compared to
$295,000 in 1996 as a result of higher load of revenue scans per clinic and
increase in number of coronary artery disease risk assessment centers
(clinics). There were five clinics operating in 1997 as compared to three
in 1996.
Total cost of revenues as a percent of revenues for the third quarter of
1997 was lower at 78% as compared with 81% in 1996. Product cost of
revenues as a percent of product remained relatively unchanged in 1997 at
71% as compared to 73% in 1996 due to shipment of four scanners in 1997 and
1996. Service cost of revenues as a percent of service revenue decreased to
72% in 1997 from 77% in 1996 due to increase in scanners under service
contracts partially offset by startup expenses incurred 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 121% in 1997 as compared to 185% in 1996 primarily due to an increase in
revenues related to the establishment of additional Heartscan clinics.
Total operating expenses of $3,766,000 increased $545,000 or 17% compared
to 1996 expenses of $3,221,000. R&D expenses of $833,000 slightly decreased
from $879,000 in 1996 due to reduced prototype expenses used for product
development. Selling expenses increased to $1,639,000 from $1,140,000 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 to $1,294,000 from
$1,202,000 in 1996 due primarily to increase in HeartScan bad debt expense.
Nine months ended September 30, 1997 versus 1996
Total revenues for the nine months ended September 30, 1997 of $31,489,000
increased $10,045,000 or 47% compared to revenues of $21,444,000 for the
same period in 1996. Net product revenues increased to $22,591,000 in 1997
from $14,167,000 in 1996, which included $1,774,000 under the
sale-leaseback arrangements, due to fourteen scanners shipped in 1997
compared to nine in 1996. Service revenues increased 29% to $3,436,000 in
1997 due to an increase in scanners under service contracts. Development
contract revenue of $3,750,000 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
$1,712,000 in 1997 from $869,000 in 1996 as a result of five clinics
operating in 1997 compared to three in 1996.
Total cost of revenues as a percent of revenues for the first nine months
of 1997 was lower at 75% as compared with 90% in 1996. Product cost of
revenues as a percent of product revenues decreased to 66% in 1997 from 83%
in 1996 due to shipment of fourteen scanners with higher realized gross
margin compared to nine shipments in 1996. Service cost of revenues as a
percent of service revenue decreased to 78% in 1997 from 86% 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 136% in 1997 as compared to 174% in 1996
primarily due to an increase in load of revenue scans and establishment of
additional Heartscan clinics.
Total operating expenses of $11,436,000 increased $2,895,000 or 34%
compared to 1996 expenses of $8,541,000. R&D expenses of $2,959,000 in 1997
increased $579,000 from $2,380,000 in 1996 due to increases in headcount
and materials for new projects. Selling expenses increased to $4,693,000 in
1997 from $3,121,000 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
$744,000 to $3,784,000 in 1997 from $3,040,000 in 1996 due to increases in
HeartScan headcount and bad debt expenses.
Other income decreased to $776,000 in 1997 from $2,233,000 during the same
period in 1996. In the prior year, the Company sold 59,090 shares of
Invision Technologies common stock at $30.00 per share for a gain of
$1,756,000.
Liquidity and Capital Resources:
At September 30, 1997, working capital decreased to $30,490,000 compared to
December 31, 1996 working capital of $33,042,000 primarily as a result of
the operating losses sustained by HeartScan amounting to $4,790,000
partially offset by net income generated by Imatron amounting to
$1,429,000. The current ratio remained consistent at 4.4:1 for the periods
ending September 30, 1997 and December 31, 1996.
The Company's assets decreased to $49,560,000 compared to December 31, 1996
total assets of $53,192,000. Net cash used in operating activities during
the nine months ended September 30, 1997 was $8,419,000 compared to
$8,170,000 in 1996. The increase in cash used in operations stems from the
Company's growth in revenues by 47% and related increases in accounts
receivables and inventories.
Cash provided by investing activities increased $27,961,000 to $8,507,000
in 1997 as compared to the same nine 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 nine 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 $929,000 during the first nine month period in 1997
as compared to $15,543,000 during the same period in 1996.
The Company's management believes that the cash, cash equivalents and
short-term investments existing at September 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
<PAGE>
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
abstained.
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:
Item 4 - Changes in Registrant's certifying accountants
filed on July 2, 1997
Item 5 - Increase in authorized common stock filed on
July 16, 1997
Item 5 - Development agreement with TeraRecon Inc. filed on
August 5, 1997
<PAGE>
Exhibit No. 11
IMATRON INC.
Computation of Net Loss per Common Share
(Amounts in thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ---------------------
1997 1996 1997 1996
PRIMARY:
Weighted average common shares
outstanding 78,574 76,601 78,351 73,359
--------- --------- ---------- ---------
TOTAL 78,574 76,601 78,351 73,359
========= ========= ========== =======
Net loss $ (1,500) $ 155 $ (3,361) $ (4,868)
======== ======== ========== =========
Net loss per common share $ (0.02) $ 0.00 $ (0.04) $ (0.07)
========= ======== =========== =========
<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: November 13, 1997
IMATRON INC.
(Registrant)
/s/ Gary H. Brooks
----------------------------------
Gary H. Brooks
Vice President, Finance/Administration,
Chief Financial Officer and Secretary
<PAGE>
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<LEGEND>
(Replace this text with the legend)
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<NAME> Imatron Inc.
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