FORM 10Q MARCH 31, 1997
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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 April 30, 1997, 78,216,111 shares of the Registrant's common stock (no par
value) were issued and outstanding.
Total Number of Pages: 14
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FORM 10Q MARCH 31, 1997
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IMATRON INC.
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PART I. FINANCIAL INFORMATION PAGE
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets - 3
3 March 31, 1997 (unaudited and restated) and
December 31, 1996 (restated).
Condensed Consolidated Statements of 4
Operations - Three Months Ended
March 31, 1997(unaudited and restated) and
1996 (unaudited).
Condensed Consolidated Statements of 5
Cash Flows - Three Months Ended
March 31, 1997(unaudited and restated) and
1996 (unaudited).
Notes to Condensed Consolidated Financial 6
Statements (unaudited).
Item 2. Management's Discussion and Analysis of Financial 10
Condition and Results of Operations.
PART II. OTHER INFORMATION 12
SIGNATURES 13
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<TABLE>
IMATRON INC.
Condensed Consolidated Balance Sheets
(Amounts in thousands)
<CAPTION>
(Restated)
----------------------------------
March 31, December 31,
ASSETS 1997 1996
- ------
------------- -------------
(Unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 16,996 $ 10,862
Short-term investments 5,082 14,171
Accounts receivable (net of allowance for doubtful accounts
of $1,155 at March 31, 1997 and $1,110 at December 31,
1996):
Trade accounts receivable 5,315 2,940
Accounts receivable from affiliate 2,581 2,660
Inventories 11,120 10,393
Prepaid expenses 876 1,659
-------- --------
Total current assets 41,970 42,685
Property and equipment, net 9,721 10,102
Other assets 395 405
-------- --------
Total assets $ 52,086 $ 53,192
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 2,417 $ 2,461
Other accrued liabilities 5,571 5,994
Capital lease obligations - due within one year 1,257 1,188
-------- --------
Total current liabilities 9,245 9,643
Deferred income on sale leaseback transactions 1,293 1,419
Capital lease obligations 4,260 4,604
-------- --------
Total liabilities 14,798 15,666
Minority interest - Note 8 12,759 12,323
Shareholders' equity
Common stock, no par value; authorized-100,000 shares;
issued and outstanding - 78,203 shares in 1997 and 77,919
shares in 1996 89,810 89,223
Deferred compensation (107) (116)
Additional paid-in capital 7,390 7,390
Accumulated deficit (72,564) (71,294)
-------- --------
Total shareholders' equity 24,529 25,203
-------- --------
Total liabilities and shareholders' equity $ 52,086 $ 53,192
======== ========
<FN>
The accompanying notes are an integral part of these condensed consolidated financial statements.
</FN>
</TABLE>
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FORM 10Q MARCH 31, 1997
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<TABLE>
IMATRON INC.
Condensed Consolidated Statements of Operations
(Amounts in thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended March 31,
-----------------------------------
1997 1996
--------- ---------
(Restated)
<S> <C> <C>
Revenues
Product sales $ 7,791 $ 3,791
Service 1,030 767
Development contracts 1,250 1,250
Clinics 506 282
-------- --------
Total revenues 10,577 6,090
-------- --------
Cost of revenues
Product sales 5,441 3,193
Service 705 698
Development contracts 1,250 1,250
Clinics 755 437
-------- --------
Total cost of revenues 8,151 5,578
-------- --------
Gross profit 2,426 512
Operating expenses
Research and development 922 703
Marketing and sales 1,363 1,083
General and administrative 1,111 848
-------- --------
Total operating expenses 3,396 2,634
-------- --------
Operating loss (970) (2,122)
Interest income 310 51
Interest expense (174) (120)
-------- --------
Loss before provision for income taxes (834) (2,191)
Provision for income taxes -- --
-------- --------
Loss before minority interest expense (834) (2,191)
Non-cash return to minority interest (436) --
-------- --------
Net loss $ (1,270) $ (2,191)
======== ========
Net loss per common share $ (0.02) $ (0.03)
======== ========
Number of shares used in per share calculations
78,109 69,112
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<FN>
The accompanying notes are an integral part of these condensed consolidated financial statements.
</FN>
</TABLE>
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<TABLE>
IMATRON INC.
Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,270) $ (2,191)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 520 257
Amortization of deferred compensation 9 --
Non cash return to minority interest 436 --
Common stock issued for services 78 40
Provision for bad debt 45 145
Changes in operating assets and liabilities:
Accounts and notes receivable (2,341) (973)
Inventories (727) (994)
Prepaid expenses 783 (65)
Other assets 10 (7)
Accounts payable (44) 34
Other accrued liabilities (423) (968)
Deferred revenue (126) (89)
-------- --------
Net cash used in operating activities (3,050) (4,811)
-------- --------
Cash flows from investing activities:
Capital expenditures (139) (205)
Purchases of available-for-sale securities (5,082) (2,027)
Maturities of available-for-sale securities 14,171 --
-------- --------
Net cash provided by (used in) investing activities 8,950 (2,232)
Cash flows from financing activities:
Payments of obligations under capital leases (275) (155)
Proceeds from issuance of common stock 509 1,008
-------- --------
Net cash provided by
financing activities 234 853
-------- --------
Net increase (decrease) in cash and
cash equivalents 6,134 (6,190)
Cash and cash equivalents, at beginning
of the period 10,862 7,269
-------- --------
Cash and cash equivalents, at end of the
period $ 16,996 $ 1,079
======== ========
Supplemental Disclosure of Non cash Investing and Financing Activities:
Cash paid for interest on capital lease
obligations $ 114 $ 130
======== ========
<FN>
The accompanying notes are an integral part of these condensed consolidated financial statements
</FN>
</TABLE>
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FORM 10Q MARCH 31, 1997
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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 month period ended
March 31, 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 Restated Form 10-K/A for the year ended
December 31, 1996.
2. BASIS OF CONSOLIDATION
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.
3. 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 March 31, 1997 consist of A1, P1 commercial
papers and government securities.
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.
4. INVENTORIES
Inventories consist of March 31, December 31,
(in thousands of dollars): 1997 1996
------------ ------------
Purchased parts and sub-assemblies $3,423 $ 2,994
Service parts 1,215 1,142
Work-in-process 4,205 2,574
Finished goods 2,277 3,683
------------ ------------
TOTAL $ 11,120 $ 10,393
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5. INCOME (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
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FORM 10Q MARCH 31, 1997
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to change the method currently used to compute earnings per share and
to restate all prior periods. Under the new requirements for
calculating primary 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 first quarter ended March 31, 1997 and March 31, 1996.
6. 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
March 31,
--------------------
1997 1996
---- ----
Net product sales 21% 3%
Service 27% 44%
Development contracts 100% 100%
Total revenues 30% 40%
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 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.
7. JOINT VENTURE
As of March 31, 1997 Imatron's interest in 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 on the equity method. Summarized financial
information for the Joint Venture is not included in the notes to the
consolidated financial statements for the period ended or as of March
31, 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 between the Company and Imatron Japan Inc.:
Three months ended
March 31,
--------------------
1997 1996
---- ----
Net product sales 18% 97%
Service 13% 9%
Total revenues 15% 52%
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8. RESTATEMENT
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) 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.
In March 1997, subsequent to the Company finalizing its 1996
consolidated financial statements, the Securities and Exchange
Commission ("SEC") announced its position on accounting for the
issuance of convertible preferred stock with a nondetachable conversion
feature that is deemed "in the money" at the date of issue (a
"beneficial conversion feature"). The beneficial conversion feature is
initially recognized and measured by allocating a portion of the
preferred stock proceeds equal to the intrinsic value of that feature
to additional paid-in-capital. The intrinsic value is calculated at the
date of issue as the difference of the conversion price and the quoted
market price of the Company's common stock, into which the security is
convertible, multiplied by the number of shares into which the security
is convertible. The discount resulting from the allocation of proceeds
to the beneficial conversion feature is treated as a dividend and is
recognized as a return to the preferred shareholders over the minimum
period in which the preferred shareholders can realize that return
(i.e. from the date the securities are issued to the date they are
first convertible).
The accounting for the beneficial conversion feature requires the use
of an unadjusted quoted market price (i.e. no valuation discounts
allowed) as the fair value used in order to determine the intrinsic
value dividend. Additionally, preferred dividends of a subsidiary are
included in minority interest as charge against income.
Prior to applying the accounting described above in its previously
issued financial statements, the Company had not recognized an
intrinsic value dividend on the HeartScan preferred stock which was
issued in June 1996. The discounted conversion features of this
preferred stock into Imatron common stock (the immediate conversion at
$5.00 per share and the conversion in two years from the date of the
preferred stock issuance at a 27% discount) was provided to the
preferred shareholders, in essence to provide them with an exit
strategy in the absence of a HeartScan IPO. Thus, the Company did not
believe a discount should be recognized on a contingently issuable
security.
Furthermore, at the time of agreeing to the terms of the transaction
the $5 per share immediate conversion price was above the market price
of the Company's common stock but at the time the HeartScan preferred
stock was actually issued, the market price had increased to $5.75 and
thereafter, it dropped below $5 again. Accordingly, the Company did not
believe that any calculation of the discount should include the impact
of this short-term market fluctuation.
In December 1997, the staff of the SEC gave a speech further refining
its March 1997 announcement. Based on discussions with the staff of the
SEC in April 1998, the staff concluded that the Company should
retroactively apply its announcement because it should be applied to
contingently issuable securities and, as discussed in the December
speech, the portion attributable to the discount that could have been
obtained immediately on conversion (even though the shares had not been
registered yet) should be recognized on the day the preferred shares
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FORM 10Q MARCH 31, 1997
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were issued. The balance of the discount based on a market value of
$5.75 per common share is being recognized over two years from the date
of issuance.
The consolidated financial statements as of and for the year ended
December 31, 1996 have been restated to give effect to the accounting
treatment described above. The restatement resulted in (1) a
reclassification in the consolidated balance sheet of $5,890,000
reducing minority interests and increasing additional paid-in capital
(equity) and (2) the recognition of a minority interest charge of
$3,272,000 (including $2,400,000 as of the date of the preferred shares
were issued) in the consolidated statement of operations increasing the
Company's net loss from $10,465,000 to $13,737,000. The remaining
discount of $2,618,000 will be charged to minority interests through
June 30, 1998.
The restatement of the previously issued 1996 consolidated financial
statements, in order to apply the accounting described herein for the
intrinsic value of the beneficial conversion features, does not affect
the cash flows of the Company. The minority interest is recognized as
an increase in minority interest in the balance sheet. If the preferred
shareholders elect to convert their shares to Imatron common stock, the
minority interest will then convert to Imatron equity.
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FORM 10Q MARCH 31, 1997
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations:
Three months ended March 31, 1997 versus 1996
Overall revenues for the first quarter ended March 31, 1997 of $10,577,000
increased $4,487,000 or 74% compared to 1996 revenues of $6,090,000. Net product
revenues increased to $4,000,000 in 1997 from $3,791,000 in 1996 primarily
because of increases in scanner shipments from five in 1997 to two in 1996.
Service revenues increase to $1,030,000 in 1997 from $767,000 in 1996 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 HeartScan
Imaging, Inc. ("HeartScan") increased by 79% to $506,000 in 1997 compared to
$282,000 in 1996 as a result of five coronary artery disease risk assessment
centers ("clinics") operating in 1997 compared to two in 1996.
Total cost of revenues as a percent of revenues for the first quarter of 1997
was lower at 77% as compared with 92% in 1996. Product cost of revenues as a
percent of product revenues decreased to 70% in 1997 from 84% in 1996 due to
shipment of five scanners with higher realized gross margin compared to two
shipments in 1996. Service cost of revenues as a percent of service revenue
decreased to 68% in 1997 from 91% in 1996 due to higher margins on spares
shipments and lower scanner maintenance costs. Development contract revenue and
cost of revenue is equal due to the terms of the three year Memorandum of
Understanding with Siemens.
Operating expenses of $3,396,000 increased $762,000 or 29% compared to 1996
expenses of $2,634,000. R&D expenses of $922,000 in 1997 reflect the portion of
R&D spending not covered by the Siemens research and development contract.
Selling expenses increased to $1,363,000 from $1,083,000 in 1996 primarily due
to higher advertising expenses incurred by HeartScan for its five clinics.
Administrative expenses increased $263,000 to $1,111,000 due to increases in
HeartScan headcount and start-up expenses related to the establishment of new
clinics.
Interest income increased to $310,000 for the first quarter of 1997 from $51,000
in the comparable period of 1996. The increase were attributable to higher cash
balances and investments in interest-bearing securities which were purchased
with the proceeds from the private placements in 1996. Interest expense
increased to 174,000 for the first quarter of 1997 from $120,000 in the
comparable period of 1996 due primarily to an increase in capital lease
obligations related to scanners leased back by HeartScan.
The Company incurred a non-cash charge to income of $436,000 recorded as
minority interest expense in the first quarter of 1997 in connection with
certain beneficial conversion features granted to the holders of the HeartScan
convertible Series A Preferred Stock (see Note 8 to the Notes to the Condensed
Consolidated Financial Statements).
Liquidity and Capital Resources:
At March 31, 1997, working capital slightly decreased to $32,725,000 compared to
December 31, 1996 working capital of $33,042,000 primarily as a result of the
operating losses sustained by HeartScan amounting to $1,573,000. The current
ratio was flat at 4.5:1 at March 31, 1997 and 4.4:1 at December 31, 1996.
The Company's assets decreased to $52,086,000 compared to December 31, 1996
total assets of $53,192,000 primarily due to decreases in cash, cash equivalents
and short-term investments partially offset by increases in receivables and
inventories. There were four scanners receivable at the end of March 1997
compared to three at December 31, 1996.
The Company's management believes that the cash, cash equivalents and short-term
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FORM 10Q MARCH 31, 1997
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investments existing at March 31, 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 10-Q/A 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 Restated Annual Report on Form 10-K/A for the
year ended December 31, 1996.
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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
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
No. 11 - Computation of per share earnings.
(b) Form 8-K Reports:
Not applicable.
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FORM 10Q MARCH 31, 1997
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 13, 1997
IMATRON INC.
(Registrant)
/s/Gary H. Brooks
---------------------------------------
Gary H. Brooks
Vice President, Finance/Administration,
Chief Financial Officer and Secretary
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FORM 10Q MARCH 31, 1997
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Exhibit No. 11
IMATRON INC.
Computation of Per Share Earnings
(Amounts in thousands, except per share data)
(Unaudited)
March 31, March 31,
1997 1996
---------------- ---------------
(Restated)
PRIMARY:
Weighted average common shares outstanding 78,109 66,112
---------------- ---------------
TOTAL 78,109 69,112
================ ===============
Net loss $(1,270) $(2,191)
================ ===============
Net loss per common share $ (0.02) $ (0.03)
================ ===============
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14
<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
<CURRENCY> U.S.Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-1-1997
<PERIOD-END> Mar-31-1997
<EXCHANGE-RATE> 1
<CASH> 16996
<SECURITIES> 5082
<RECEIVABLES> 9051
<ALLOWANCES> (1155)
<INVENTORY> 11120
<CURRENT-ASSETS> 41970
<PP&E> 16950
<DEPRECIATION> (7229)
<TOTAL-ASSETS> 52086
<CURRENT-LIABILITIES> 9245
<BONDS> 0
0
0
<COMMON> 89810
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 52086
<SALES> 10577
<TOTAL-REVENUES> 10577
<CGS> 8151
<TOTAL-COSTS> 8151
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 174
<INCOME-PRETAX> (834)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1270)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
