<PAGE>
________________________________________________________________________________
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
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from November 1, 1996 to December 31, 1996
Commission File Number 0-22229
___________________________________________________
VITAL IMAGES, INC.
(Exact name of Registrant as specified in its charter)
Minnesota 42-1321776
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3100 West Lake Street, Suite 100 55416
Minneapolis, Minnesota (Zip Code)
(Address of principal
executive offices)
(612) 915-8000
(Registrant's telephone number, including area code)
___________________________________________________
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 period 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 _____
___________________________________________________
On August 27, 1997, there were 4,772,422 shares of the Registrant's common
stock, par value $.01 per share, outstanding.
1
<PAGE>
VITAL IMAGES, INC.
------------------
Transitional Form 10-Q
December 31, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets as of December 31, 1996 and October 31, 1996............................ 3
Statements of Operations for the Two Months Ended
December 31, 1996 and 1995.......................................................... 4
Statements of Cash Flows for the Two Months Ended
December 31, 1996 and 1995.......................................................... 5
Notes to Financial Statements.......................................................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................................. 8
PART II. OTHER INFORMATION
Item 5. Other Information..................................................................... 12
Item 6. Exhibits and Reports on Form 8-K...................................................... 13
SIGNATURES.......................................................................................... 14
INDEX TO EXHIBITS................................................................................... 15
Exhibit 11 - Computation of Pro Forma Net Loss Per Share
Exhibit 27 - Financial Data Schedule
</TABLE>
2
<PAGE>
________________________________________________________________________________
PART 1. FINANCIAL INFORMATION
________________________________________________________________________________
ITEM 1. FINANCIAL STATEMENTS
VITAL IMAGES, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, October 31,
1996 1996
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and Cash equivalents.................................................. $ 6,481,067 $ -
Accounts receivables, net.................................................. 89,364 190,807
Prepaid expenses and other current assets.................................. 199,315 92,114
------------- ------------
Total current assets.................................................... 6,769,746 282,921
Equipment and leasehold improvements, net.................................... 713,204 651,351
Patent costs, net............................................................ 23,256 8,639
Marketable securities, long-term............................................. 2,986,875 -
------------- ------------
TOTAL ASSETS............................................................ $ 10,493,081 $ 942,911
============= ============
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable........................................................... $ 87,530 $ 59,533
Accrued expenses........................................................... 188,759 196,850
Deferred revenue........................................................... 279,763 285,027
------------- ------------
Total current liabilities............................................... 556,052 541,410
Deferred revenue............................................................. 217,097 227,097
------------- ------------
Total liabilities....................................................... 773,149 768,507
------------- ------------
Equity:
Common Stock: $.01 par value; 1,000 shares authorized,issued and
outstanding at December 31, 1996 and October 31, 1996..................... 10 10
Additional paid-in capital................................................. 13,003,047 3,003,047
Deferred compensation...................................................... (440,834) (460,000)
Net investment by Bio-Vascular, Inc........................................ 3,198,710 3,138,520
Accumulated deficit........................................................ (6,027,876) (5,507,173)
Unrealized marketable securities holding loss.............................. (13,125) -
------------- ------------
Total equity............................................................ 9,719,932 174,404
------------- ------------
TOTAL LIABILITIES AND EQUITY....................................... $ 10,493,081 $ 942,911
============= ============
</TABLE>
(The accompanying notes are an integral part of the financial statements.)
3
<PAGE>
VITAL IMAGES, INC.
STATEMENTS OF OPERATIONS
FOR THE TWO MONTHS ENDED DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Two
Months Ended
December 31,
---------------------
1996 1995
-------- --------
(Unaudited)
<S> <C> <C>
License fee revenue............................. $ 14,176 $ 30,319
Maintenance revenue............................. 50,790 51,715
------------ ------------
Total revenue.............................. 64,966 82,034
Cost of revenue................................. 11,894 21,730
------------ ------------
Gross margin............................... 53,072 60,304
Operating expenses:
Selling, general and administrative............. 327,809 285,211
Research and development........................ 333,011 203,821
------------ ------------
Operating loss............................. (607,748) (428,728)
Other income (expense), net..................... 87,045 (1,596)
------------ ------------
Net loss........................................ $ (520,703) $ (430,324)
============ ============
Pro forma net loss per share.................... $ (0.11) $ (0.09)
============ ============
Pro forma weighted average number of
common shares outstanding...................... 4,744,547 4,691,554
============ ============
</TABLE>
(The accompanying notes are an integral part of the financial statements.)
4
<PAGE>
VITAL IMAGES, INC.
STATEMENTS OF CASH FLOWS
FOR THE TWO MONTHS ENDED DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Two
Months Ended
December 31,
-------------------------
1996 1995
-------- --------
(Unaudited)
<S> <C> <C>
NET CASH USED IN OPERATING ACTIVITIES..................... $ (365,329) $ (415,574)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and improvements................. (95,466) (51,428)
Proceeds from sale of equipment......................... - 3,330
Additions to patents.................................... (14,617) -
------------- -------------
Net cash used in investing activities................ (110,083) (48,098)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Received from Bio-Vascular, Inc......................... 6,956,479 463,672
------------- -------------
Net cash provided by financing activities............ 6,956,479 463,672
------------- -------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS......................................... 6,481,067 -
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD...................................... - -
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD................................................... $ 6,481,067 $ -
============= =============
</TABLE>
(The accompanying notes are an integral part of the financial statements.)
5
<PAGE>
VITAL IMAGES, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) BASIS OF PRESENTATION:
On July 17, 1997, the Board of Directors of the Company adopted a resolution
changing the Company's fiscal year end from October 31 to December 31 of each
year. This transitional report on Form 10-Q contains unaudited financial
statements as of December 31, 1996 and for the transition period (November 1,
1996 to December 31, 1996) and the comparable period of the prior calendar year
(November 1, 1995 to December 31, 1995). As required by rule 13-a-10 of
Regulation S-X, the Company will include the audited financial information as of
December 31, 1996 and for the transition period (November 1, 1996 to December
31, 1996) in its annual report on Form 10-K for the year ending December 31,
1997.
The accompanying unaudited financial statements of Vital Images, Inc. ("Vital
Images" or "the Company") 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 complete financial statements. In the
opinion of management, all adjustments considered necessary, including items of
a normal recurring nature, for a fair presentation have been included. These
financial statements should be read in conjunction with the financial statements
and footnotes thereto included in Form 10 filed with the United States
Securities and Exchange Commission on May 1, 1997.
(2) SPIN-OFF OF VITAL IMAGES:
On October 28, 1996, the Board of Directors of Bio-Vascular, Inc. ("Bio-
Vascular"), the parent company of Vital Images, approved the spin-off (the
"Distribution") of Vital Images to the shareholders of Bio-Vascular. On May 12,
1997 (the "Distribution Date"), Bio-Vascular distributed all of the outstanding
shares of Vital Images to Bio-Vascular shareholders and on that date Vital
Images began operating as an independent, publicly-owned company. All Bio-
Vascular shareholders of record as of May 5, 1997 received one share of Vital
Images common stock for each two shares of Bio-Vascular stock held on that date,
and cash in lieu of fractional shares.
In anticipation of the Distribution, Bio-Vascular assigned to Vital Images
$10,000,000 in cash, cash equivalents and marketable securities, effective
November 1, 1996. On the Distribution Date, Bio-Vascular contributed to Vital
Images an additional $1,845,000 in cash equivalents in order to increase Vital
Images' cash, cash equivalents and marketable securities balances to
$10,000,000. Additionally, Bio-Vascular made capital contributions to Vital
Images of approximately $3,200,000 representing net advances of cash over the
period beginning May 24, 1994, the date on which Vital Images was acquired by
Bio-Vascular, and ending May 11, 1997, the last date on which Vital Images was a
part of Bio-Vascular. The accompanying unaudited financial statements of Vital
Images as of December 31, 1996 do not reflect the effect of the spin-off nor the
additional cash equivalents contributed on the Distribution Date, since such
transactions occurred after December 31, 1996.
6
<PAGE>
VITAL IMAGES, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
- --------------------------------------------------------------------------------
(3) MAJOR CUSTOMERS:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Significant Percentage of Percentage of
Customer Revenue Total Revenue Accts Rec
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Two months ended December Stanford University $ 8,000 12.31% 6.21%
31, 1996
Two months ended December IMI Image & Measurement $ 9,713 11.84% -
31, 1995
CogniSeis Development 10,000 12.19% -
Mitsubishi Kasei 9,065 11.05% -
</TABLE>
The Company's accounts receivable are generally concentrated with a small base
of customers. As of December 31, 1996, 3 customers accounted for 58% of
accounts receivable, while at October 31, 1996, five customers accounted for 69%
of accounts receivable.
Export revenue amounted to 27% and 30% of total revenue for the two-month
periods ended December 31, 1996 and 1995, respectively. Substantially all of
the Company's export revenue is negotiated, invoiced and paid in U.S. dollars.
Gross export revenue by geographic area is summarized as follows:
<TABLE>
<CAPTION>
Two Months Ended
December 31,
-----------------
1996 1995
---- ----
<S> <C> <C>
Europe and Middle East........................ $ 4,007 $ 3,770
Asia and Pacific Region....................... 13,722 20,314
Canada, Mexico and others..................... - 476
</TABLE>
(4) NEW ACCOUNTING STANDARD:
In March 1997, Statement of Financial Accounting Standards No. 128 (SFAS No.
128), Earnings per Share, was issued by the Financial Accounting Standards
Board. This standard, which the Company must adopt effective with its first
quarter of calendar year 1998, requires dual presentation of basic and diluted
EPS on the face of the statement of operations. Pro forma net loss per common
share currently presented by the Company is equivalent to the basic loss per
share required under SFAS 128. Diluted loss per share for the Company would be
calculated based on both common shares outstanding and consideration of the
dilutive effects of common stock equivalents.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
On October 28, 1996, the Board of Directors of Bio-Vascular, Inc. ("Bio-
Vascular"), the parent company of Vital Images, Inc. (the "Company" or "Vital
Images"), approved a plan to spin off and establish Vital Images as an
independent, publicly-owned company. On May 12, 1997 (the "Distribution Date"),
Bio-Vascular distributed all of the shares of Vital Images to the shareholders
of Bio-Vascular (the "Distribution"), and on that date Vital Images began
operating as an independent public company. All Bio-Vascular shareholders of
record as of May 5, 1997 received one share of Vital Images common stock for
each two shares of Bio-Vascular stock held on that date, and cash in lieu of
fractional shares. As a result of Bio-Vascular's spin-off of Vital Images,
Vital Images' financial statements and notes thereto report the business of
Vital Images as an independent company. Vital Images is currently traded on the
OTC Bulletin Board under the symbol VTAL.
In anticipation of the Distribution, Bio-Vascular assigned to Vital Images,
$10,000,000 in cash, cash equivalents and marketable securities, effective
November 1, 1996. On the Distribution Date, Bio-Vascular contributed to Vital
Images an additional $1,845,000 in cash equivalents in order to increase Vital
Images' aggregate cash, cash equivalents and marketable securities balance to
$10,000,000. Additionally, Bio-Vascular made capital contributions to Vital
Images of approximately $3,200,000 representing net advances of cash over the
period beginning May 24, 1994, the date on which Vital Images was acquired by
Bio-Vascular, and ending May 11, 1997, the last date on which Vital Images was a
part of Bio-Vascular. The unaudited financial statements of Vital Images as of
December 31, 1996 do not reflect the effect of the spin-off nor the additional
cash equivalents contributed on the Distribution Date, since such transactions
occurred after December 31, 1996.
On July 17, 1997, the Board of Directors of the Company adopted a resolution
changing the Company's fiscal year end from October 31 to December 31 of each
year. This transitional report on Form 10-Q contains unaudited financial
statements as of December 31, 1996 and for the transition period (November 1,
1996 to December 31, 1996) and the comparable period of the prior calendar year
(November 1, 1995 to December 31, 1995). As required by rule 13-a-10 of
Regulation S-X, the Company will include the audited financial information as of
December 31, 1996 and for the transition period (November 1, 1996 to December
31, 1996) in its annual report on Form 10-K for the year ending December 31,
1997.
Comparison of the Two Months Ended December 31, 1996 with the Two Months Ended
December 31, 1995
Total revenue decreased from $82,000 to $65,000, a decline of 21%. The
decrease was due primarily to a decrease in license fee revenue for the
Company's current product, VoxelView, which decreased from $30,000 to $14,000.
It is expected that license fee revenue will continue to decrease until the
Company releases its new product, Vitrea, currently scheduled for release in the
second half of calendar year 1997. However, actual results could vary materially
from the foregoing forward-looking statement as a result of the timing of the
Company's general market release of Vitrea, lower than expected demand for
Vitrea or higher than expected demand for VoxelView.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--CONTINUED
- --------------------------------------------------------------------------------
The gross margin percentage increased from 74% to 82%, primarily due to the
elimination of existing royalty obligations on software, which were satisfied on
May 24, 1996. Once Vitrea is released, and Vitrea systems revenue increases as
a proportion of the Company's total revenue, the Company expects that the
overall gross margin percentage will decrease due to lower margins anticipated
on the third party hardware component of Vitrea systems. However, actual results
could vary materially from the foregoing forward-looking statement due to
significant fluctuations in gross margins on the proprietary and third party
components of the Vitrea system and on the Company's anticipated product mix.
Selling, general and administrative expenses increased 15% from $285,000 to
$328,000. General and administrative expenses incurred in the two months ended
December 31, 1995 included hiring costs related to the employment of the
Company's Chief Executive Officer during that period. The absence of these
expenses in the two months ended December 31, 1996 resulted in a decrease in
general and administrative expenses of $78,000 between these periods. Selling
expenses increased by $121,000 as a result of increased marketing activity and
the employment of additional sales personnel, including a Vice President of
Sales during the two months ended December 31, 1996. The Company anticipates
that selling, general and administrative costs will increase in future periods
as additional personnel are hired for Vitrea sales, customer support and
administrative infrastructure.
Research and development expenses increased from $204,000 to $333,000, or 63%,
due to increased compensation costs associated with the hiring of additional
personnel intended to grow the Company's development capabilities. The Company
anticipates that research and development costs will increase in future periods
as additional personnel are hired.
The increased expenses attributable to the continuing development of the
Company's management team and infrastructure, and the development and promotion
of Vitrea, resulted in an operating loss of $608,000 for the two months ended
December 31, 1996, compared to an operating loss of $429,000 for the two months
ended December 31, 1995.
Other income, consisting primarily of interest income, was $87,000 for the two
months ended December 31, 1996, compared to other expense of $2,000 for the two
months ended December 31, 1995. The $10,000,000 in cash, cash equivalents and
marketable securities assigned by Bio-Vascular to the Company, effective
November 1, 1996, resulted in the increase in interest income during the two
months ended December 31, 1996.
Liquidity And Capital Resources
At October 31, 1996, Vital Images had no cash and participated in Bio-Vascular's
centralized funding and cash management. When Bio-Vascular acquired Vital
Images on May 24, 1994, Vital Images had $286,000 in cash. Within a month,
Vital Images had effectively used its cash and Bio-Vascular began financing the
Company's activities. Bio-Vascular conducted the investing activities and
continued to finance the activities of Vital Images. The advances of cash by
Bio-Vascular to Vital Images had no payment requirements and were interest-free,
as Vital Images had, substantially, no ability to repay these advances.
Accordingly, the net cash received from Bio-Vascular through intercompany
advances was considered to be a contribution of capital.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--CONTINUED
- --------------------------------------------------------------------------------
In anticipation of the Distribution, Bio-Vascular agreed to assign to Vital
Images $10,000,000 in cash, cash equivalents and marketable securities effective
November 1, 1996. Subsequent to November 1, 1996, Bio-Vascular's Board of
Directors determined to make such additional capital contributions as necessary
to increase Vital Images' cash, cash equivalents and marketable securities to
$10,000,000, effective as of the Distribution Date. Accordingly, on the
Distribution Date, Bio-Vascular transferred an additional $1,845,000 in cash
equivalents to Vital Images in order to increase Vital Images' cash, cash
equivalents and marketable securities to an aggregate of $10,000,000.
If Vital Images' operations progress as anticipated, of which there can be no
assurance, management believes that its cash, cash equivalents and marketable
securities should be sufficient to satisfy its cash requirements for at least
two years from the Distribution Date. The timing of Vital Images' future
capital requirements, however, will depend on a number of factors, including the
ability of Vital Images to launch successfully its Vitrea product line; the
ability and willingness of physicians to use three-dimensional visualization
software in clinical diagnosis, surgical planning patient screening and other
diagnosis and treatment protocols; the impact of competition in the medical
visualization business; and the ability to enhance existing products and develop
new products on a timely basis. To the extent that Vital Images' operations do
not progress as anticipated, additional capital will be required sooner. There
can be no assurance that any required additional capital will be available on
acceptable terms or at all, and the failure to obtain any such required capital
would have a material adverse effect on Vital Images' business.
Cash used by operating activities in the two months ended December 31, 1996 and
1995 was $365,000 and $416,000, respectively. The Company invested $95,000 and
$51,000 in equipment and improvements during the two months ended December 31,
1996 and 1995, respectively, primarily for the acquisition of computer hardware
and peripherals.
The Company has no material commitments at this time other than facility leases
and expected employment contracts, but will be using cash in the near term as it
continues to develop the infrastructure to support its business and develop the
market for its products.
Foreign Currency Transactions
Substantially all of the Company's foreign transactions are negotiated, invoiced
and paid in U.S. dollars.
New Accounting Standard
In March 1997, Statement of Financial Accounting Standards No. 128 (SFAS No.
128), Earnings per Share, was issued by the Financial Accounting Standards
Board. This standard, which the Company must adopt effective with its first
quarter of calendar year 1998, requires dual presentation of basic and diluted
EPS on the face of the statement of operations. Pro forma net loss per common
share currently presented by the Company is equivalent to the basic loss per
share required under SFAS 128. Diluted loss per share for the Company would be
calculated based on both common shares outstanding and consideration of the
dilutive effects of common stock equivalents.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--CONTINUED
- --------------------------------------------------------------------------------
Certain Important Factors
This Form 10-Q contains certain forward-looking statements and information that
are based on management's beliefs as well as on assumptions made by, and upon
information currently available to, management. When used in this Form 10-Q,
the words "expect," "anticipate," "intend," "plan," "believe," "seek," and
"estimate" or similar expressions are intended to identify such forward-looking
statements. However, this Form 10-Q also contains other forward-looking
statements. Forward-looking statements are not guarantees of future performance
and are subject to certain risks, uncertainties and assumptions, including, but
not limited to, the following factors, which could cause the Company's future
results and shareholder values to differ materially from those expressed in any
forward-looking statements made by or on behalf of the Company: the early stage
of the industry and business in which the Company operates, the Company's
transition to an independent medical visualization business, the extent to which
the Company's products gain market acceptance, litigation regarding patent and
other intellectual property rights, the introduction of competitive products by
others, the progress of product development, the availability of third-party
reimbursement, and the receipt and timing of regulatory approvals, among others.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
________________________________________________________________________________
PART II. OTHER INFORMATION
________________________________________________________________________________
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
11
<PAGE>
ITEM 5. OTHER INFORMATION
Effective May 12, 1997 (the "Distribution Date"), Bio-Vascular, Inc. ("Bio-
Vascular"), completed the spin-off distribution (the "Distribution") of all of
the issued and outstanding shares of common stock, together with certain
preferred stock purchase rights attached thereto ("Vital Images Common Stock"),
of Vital Images, Inc. ("Vital Images"). Prior to the Distribution, Vital Images
was a wholly-owned subsidiary of Bio-Vascular engaged in Bio-Vascular's Medical
Visualization Business.
The Distribution was made to holders of record of Bio-Vascular's common stock
("Bio-Vascular Common Stock"), as of May 5, 1997, on the basis of one share of
Vital Images Common Stock for each two shares of Bio-Vascular Common Stock held
as of that date. No holder of Bio-Vascular Common Stock was required to pay any
cash or other consideration for the shares of Vital Images Common Stock received
in the Distribution, to surrender or exchange any shares of Bio-Vascular Common
Stock, or to take any other action in order to receive the shares of Vital
Images Common Stock to which they were entitled in the Distribution. No
certificates or scrip representing fractional shares of Vital Images Common
Stock were issued to Bio-Vascular's shareholders in the Distribution. Pursuant
to an agreement among Bio-Vascular, Vital Images and American Stock Transfer &
Trust Company as distribution agent (the "Distribution Agent"), the Distribution
Agent was directed to aggregate all fractional shares of Vital Images Common
Stock otherwise issuable in the Distribution into whole shares and sell them in
the open market at then-prevailing prices on behalf of shareholders who would
have otherwise been entitled to receive such fractional share interests. Cash
payments in the amount of the pro rata share of such total sale proceeds, net of
any commissions incurred in connection with such sales, was made in lieu of such
fractional interests.
In anticipation of the Distribution, Bio-Vascular agreed to assign to Vital
Images $10,000,000 in cash, cash equivalents and marketable securities effective
November 1, 1996. Subsequent to November 1, 1996, Bio-Vascular's Board of
Directors determined to make such additional capital contributions as necessary
to increase Vital Images' cash, cash equivalents and marketable securities to
$10,000,000, effective as of the Distribution Date. Accordingly, on the
Distribution Date, Bio-Vascular transferred an additional $1,845,000 in cash
equivalents to Vital Images in order to increase Vital Images' cash, cash
equivalents and marketable securities to an aggregate of $10,000,000.
Upon completion of the Distribution, Vital Images became an independent,
publicly-owned company, separate from Bio-Vascular. However, in order to
provide for an orderly transition of Vital Images to an independent company,
Bio-Vascular and Vital Images entered into certain agreements regarding
corporate matters relating to the Distribution, transition services to be
provided to Vital Images by Bio-Vascular for a limited period following the
Distribution, employee benefit matters and tax and indemnification matters. Each
of these agreements is intended to set forth, on an arms-length basis, the
agreement of the parties with respect to the subject matter thereof.
Following the Distribution, Bio-Vascular and Vital Images have separate
management and Boards of Directors. Two individuals, Messrs. Richard W. Perkins
and Edward E. Strickland, currently serve as directors of both Bio-Vascular and
Vital Images, although it is expected that Mr. Perkins will only serve as a
director of Vital Images for a transitional period of approximately 12 to 18
months and will not seek reelection as a director of Vital Images thereafter.
12
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The exhibits to this transitional report on Form 10-Q are
--------
listed in the exhibit index beginning on page 15.
(b) Form 8-K. The Company filed no reports on Form 8-K during the two-month
--------
period ended December 31, 1996. The Company filed an 8-K on July 28, 1997,
which reported that on July 17, 1997, the Board of Directors of the Company
adopted a resolution changing the Company's fiscal year end from October 31
to December 31 of each year.
13
<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.
VITAL IMAGES, INC.
September 2, 1997 /s/ Gregory S. Furness
------------------------------------------
Gregory S. Furness
Vice President of Finance and
Chief Financial Officer
(Principal Financial Officer)
14
<PAGE>
VITAL IMAGES, INC.
INDEX TO EXHIBITS
- --------------------------------------------------------------------------------
11.1 Computation of Pro Forma Net Loss Per Share (filed herewith
electronically).
27.1 Financial Data Schedule for the two-month period ended December 31, 1996
(filed herewith electronically).
<PAGE>
EXHIBIT 11.1
VITAL IMAGES, INC.
COMPUTATION OF PRO FORMA NET LOSS PER SHARE
<TABLE>
<CAPTION>
Two Months Ended
December 31,
(unaudited)
----------------
1996 1995
---- ----
<S> <C> <C>
Net loss................................................. $ (520,703) $ (430,324)
========== ==========
Pro forma net loss per share............................. $ (0.11) $ (0.09)
========== =========
PRO FORMA AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
Weighted average number of common shares of
Bio-Vascular common stock outstanding.................. 9,489,093 9,383,107
========== ==========
Divide by two to reflect the distribution of one share
of Vital Images common stock for two shares of
Bio-Vascular common stock.............................. 4,744,547 4,691,554
========== ==========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS AND RELATED NOTES FOR THE TWO MONTHS ENDED DECEMBER 31,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 2-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> NOV-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 6,481,067
<SECURITIES> 2,986,875
<RECEIVABLES> 138,864
<ALLOWANCES> 49,500
<INVENTORY> 855
<CURRENT-ASSETS> 6,769,746
<PP&E> 1,571,662
<DEPRECIATION> 858,458
<TOTAL-ASSETS> 10,493,081
<CURRENT-LIABILITIES> 556,052
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 9,719,922
<TOTAL-LIABILITY-AND-EQUITY> 10,493,081
<SALES> 64,966
<TOTAL-REVENUES> 64,966
<CGS> 11,894
<TOTAL-COSTS> 660,820
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (520,703)
<INCOME-TAX> 0
<INCOME-CONTINUING> (520,703)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (520,703)
<EPS-PRIMARY> (.11)<F1>
<EPS-DILUTED> (.11)<F1>
<FN>
<F1>PRO FORMA NET LOSS PER SHARE
</FN>
</TABLE>
