<PAGE>
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- --------------------------------------------------------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___ to ____
Commission File Number 0-22229
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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 No X
------ ------
---------------------------------------------------
On June 16, 1997, there were 4,773,769 shares of the Registrant's common stock,
par value $.01 per share, outstanding.
<PAGE>
VITAL IMAGES, INC.
------------------
Form 10-Q
April 30, 1997
Table of Contents
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets at June 30, 1997 and October 31, 1996.........3
Statements of Operations for the Three and Six Months
Ended April 30, 1997 and 1996.............................4
Statements of Cash Flows for the Three and Six Months
Ended April 30, 1997 and 1996.............................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 Loss Per Share..................16
Exhibit 27--Financial Data Schedule..................................17
2
<PAGE>
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PART I. FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
VITAL IMAGES, INC.
BALANCE SHEETS
AS OF APRIL 30, 1997 AND OCTOBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
April 30, October 31,
1997 1996
--------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................... $5,114,127 $ -
Marketable securities......................................................... 2,983,500 -
Accounts receivable, net...................................................... 102,016 190,807
Prepaid expenses and other current assets..................................... 199,812 92,114
---------- -----------
Total current assets...................................................... 8,399,455 282,921
Equipment and leasehold improvements, net....................................... 796,409 651,351
Patent costs, net............................................................... 26,371 8,639
---------- -----------
TOTAL ASSETS.............................................................. $9,222,235 $ 942,911
========== ===========
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable.............................................................. $ 169,960 $ 59,533
Accounts expenses............................................................. 193,753 196,850
Deferred revenue.............................................................. 205,529 285,027
---------- -----------
Total current liabilities................................................. 569,242 541,410
Deferred revenue................................................................ 197,097 227,097
---------- -----------
Total liabilities......................................................... 766,339 768,507
Equity:
Common stock: $.01 par value; 1,000 shares authorized, issued and outstanding
at April 30, 1997 and October 31, 1996....................................... 10 10
Additional paid-in capital.................................................... 13,003,047 3,003,047
Deferred compensation......................................................... (401,082) (460,000)
Net investment by Bio Vascular, Inc........................................... 3,151,660 3,138,520
Accumulated deficit........................................................... (7,281,239) (5,507,173)
Unrealized marketable securities holding loss................................. (16,500) -
---------- -----------
Total equity.............................................................. 8,455,896 174,404
---------- -----------
TOTAL LIABILITIES AND EQUITY.............................................. $9,222,235 $ 942,911
========== ===========
</TABLE>
(The accompanying notes are an integral part of the interim financial
statements.)
3
<PAGE>
VITAL IMAGES, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 1997 AND 1996
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Three For the Six
Months Ended Months Ended
April 30, April 30,
------------------------------- -------------------------------
1997 1996 1997 1996
----------- ---------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
License fee revenue....................... $ 63,571 $ 211,706 $ 139,802 $ 277,200
Maintenance revenue....................... 74,013 80,848 150,275 158,221
----------- ---------- ----------- -----------
Total revenue........................... 137,584 292,554 290,077 435,421
Cost of revenue........................... 31,180 43,280 52,089 76,504
----------- ---------- ----------- -----------
Gross margin............................ 106,404 249,274 237,988 358,917
Operating expenses:
Selling, general and administrative....... 763,688 478,613 1,332,371 985,178
Research and development.................. 469,905 337,715 915,263 644,507
----------- ---------- ----------- -----------
Operating loss.......................... (1,127,189) (567,054) (2,009,646) (1,270,768)
Other income (expense), net............... 107,448 140 236,580 (651)
----------- ---------- ----------- -----------
Loss before income taxes.................. (1,019,741) (566,914) (1,773,066) (1,271,419)
Income tax provision...................... 500 375 1,000 750
----------- ---------- ----------- -----------
Net loss.................................. $(1,020,241) $ (567,289) $(1,774,066) $(1,272,169)
=========== ========== =========== ===========
Pro forma net loss per share.............. $ (0.21) $ (0.12) $ (0.37) $ (0.27)
=========== ========== =========== ===========
Pro forma weighted average number of
common shares outstanding............... 4,755,694 4,719,308 4,750,525 4,691,763
=========== ========== =========== ===========
</TABLE>
(The accompanying notes are an integral part of the interim financial
statements.)
4
<PAGE>
VITAL IMAGES, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Three For the Six
Months Ended Months Ended
April 30, April 30,
--------------------------- ---------------------------
1997 1996 1997 1996
---------- ---------- ------------ -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET CASH USED IN OPERATING ACTIVITIES......... $ (857,106) $(453,981) $(1,516,926) $(1,213,034)
---------- --------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and improvements..... (80,582) (125,518) (256,157) (186,131)
Proceeds from sale of equipment............. - - - 3,330
Additions to patents........................ (2,913) - (17,732) -
---------- --------- ---------- -----------
Net cash used in investing activities..... (83,495) (125,518) (273,889) (182,801)
---------- --------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Received from Bio-Vascular, Inc............. 8,889 579,499 6,904,942 1,395,835
---------- --------- ---------- -----------
Net cash provided by financing activities 8,889 579,499 6,904,942 1,395,835
---------- --------- ---------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS............................. (931,712) 0 5,114,127 0
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD.......................... 6,045,839 0 0 0
---------- --------- ---------- -----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD....................................... $5,114,127 $ 0 $5,114,127 $ 0
========== ========= ========== ===========
</TABLE>
(The accompanying notes are an integral part of the interim financial
statements.)
5
<PAGE>
VITAL IMAGES, INC.
NOTES TO FINANCIAL STATEMENTS
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(1) BASIS OF PRESENTATION:
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.
Operating results for the three and six months ended April 30, 1997 are not
necessarily indicative of the results that may be expected for the year ending
October 31, 1997. These financial statements should be read in conjunction with
the financial statements and footnotes thereto included in Form 10 filed with
the U. S. Securities and Exchange Commission 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 April 30, 1997 do not reflect the effect of the spin-off nor the
additional cash equivalents contributed on the Distribution Date, since such
transactions occurred after April 30, 1997.
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>
Six months ended April 30, CogniSeis Development $ 46,128 16% 41%
1997
Advanced Technology Labs 30,000 10% -
Six months ended April 30, Mitsubishi Chemical $ 76,804 18% -
1996
Advanced Technology Labs 63,000 14% 22%
Duke University Medical 44,625 10% 18%
</TABLE>
The Company's accounts receivable are generally concentrated with a small base
of customers. As of April 30, 1997, four customers accounted for 83% of
accounts receivable, while at October 31, 1996, five customers accounted for 69%
of accounts receivable.
Export revenue amounted to 24% and 29% of total revenue for the six-month
periods ended April 30, 1997 and 1996, 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>
Six Months Ended
April 30,
--------------------
1997 1996
---- ----
<S> <C> <C>
Europe and Middle East........................................ $ 35,210 $ 18,277
Asia and Pacific Region....................................... 34,236 104,044
Canada, Mexico and others..................................... 1,395 2,944
</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 fiscal 1998, requires dual presentation of basic and diluted EPS on
the face of the statement of operations. 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 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
April 30, 1997 do not reflect the effect of the spin-off nor the additional cash
equivalents contributed on the Distribution Date, since such transactions
occurred after April 30, 1997.
Comparison of the Three Months Ended April 30, 1997 with the Three Months Ended
April 30, 1996
Total revenue decreased from $293,000 to $138,000, a decline of 53%. The
decrease was due primarily to a decrease in license fee revenue for the
Company's current product, VoxelView, which decreased from $212,000 to $64,000.
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 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.
The gross margin percentage decreased from 85% to 77%, primarily due to fixed
costs being spread over a smaller revenue base and an increase in occupancy
costs for the Company's new facilities in Minneapolis. 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.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--CONTINUED
- -------------------------------------------------------------------------------
Selling, general and administrative expenses increased 60% from $479,000 to
$764,000. Selling expenses incurred in the 1997 quarter included, among other
items, $90,000 in increased costs for marketing materials related to the
commercial release of Vitrea (currently scheduled for the second half of
calendar 1997), and $85,000 in increased compensation costs related to an
increase in the number of marketing personnel, including the addition of a Vice
President of Marketing and Business Development. General and administrative
expenses incurred in the 1997 quarter included, among other items, $94,000 in
increased compensation costs related to an increase in the number of general and
administrative personnel, including the addition of a Chief Financial Officer.
The Company anticipates that selling, general and administrative costs will
increase in future periods as additional personnel are hired for Vitrea customer
support and administrative infrastructure.
Research and development expenses increased from $338,000 to $470,000, or 39%,
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 $1,127,000 for the three months
ended April 30, 1997, compared to an operating loss of $567,000 for the three
months ended April 30, 1996.
Other income, consisting primarily of interest income, was $107,000 for the
three months ended April 30, 1997, compared to other income of less than $1,000
for the three months ended April 30, 1996. 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 three months ended April 30, 1997.
Comparison of the Six Months Ended April 30, 1997 with the Six Months Ended
April 30, 1996
Total revenue decreased from $435,000 to $290,000, a decline of 33% due
primarily to the decrease in license fee revenue for VoxelView discussed above
in the comparison of the three months ended April 30, 1997 with the three months
ended April 30, 1996.
The gross margin percentage remained flat at 82% for both periods.
Selling, general and administrative expenses increased 35% from $985,000 to
$1,332,000. Selling expenses increased $331,000 as a result of increased
marketing activity and the addition of sales and marketing personnel, including
the addition of a Vice President of Marketing and Business Development. General
and administrative expenses increased $45,000 due to increased compensation
costs associated with an increase in the number of general and administrative
personnel including the addition of a Chief Financial Officer.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--CONTINUED
- -------------------------------------------------------------------------------
Research and development expenses increased from $645,000 to $915,000, or 42%,
due to increased compensation costs associated with the hiring of additional
personnel intended to increase the Company's development capabilities.
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 $2,010,000 for the six months ended
April 30, 1997, compared to an operating loss of $1,271,000 for the six months
ended April 30, 1996.
Other income, consisting primarily of interest income, was $237,000 for the six
months ended April 30, 1997, compared to other expense of less than $1,000 for
the six months ended April 30, 1996. 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 six
months ended April 30, 1997.
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.
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, Vital Images believes that the capital contribution made by Bio-
Vascular should be sufficient to satisfy its cash requirements for at least two
years. 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.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--CONTINUED
- -------------------------------------------------------------------------------
Cash used by operating activities in the six months ended April 30, 1997 and
1996 was $1,517,000 and $1,213,000, respectively. The Company invested $256,000
and $186,000 in equipment and improvements during the six months ended April 30,
1997 and 1996, respectively, primarily on 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 fiscal 1998, requires dual presentation of basic and diluted EPS on
the face of the statement of operations. 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.
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.
11
<PAGE>
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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.
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 the 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.
12
<PAGE>
ITEM 5. OTHER INFORMATION--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.
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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The exhibits to this quarterly 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 quarter
ended April 30, 1997.
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.
June 16, 1997 /s/ Gregory S. Furness
-----------------------------
Gregory S. Furness
Vice President of Finance and
Chief Financial Officer
(Principal Financial Officer)
14
<PAGE>
EXHIBIT 11.1
VITAL IMAGES, INC.
COMPUTATION OF PRO FORMA LOSS PER SHARE
(In thousands, except share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
(unaudited) (unaudited)
------------------ ----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loss................................................... $ (1,020) $ (567) $ (1,774) $ (1,272)
========== ========== ========== ==========
Pro forma net loss per share............................... $ (.21) $ (.12) $ (.37) $ (.27)
========== ========== ========== ==========
PRO FORMA AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
Weighted average number of common shares of
Bio-Vascular common stock outstanding................... 9,511,389 9,438,617 9,501,050 9,383,526
========== ========== ========== ==========
Divide by two to reflect the distribution of one share
of Vital Images common stock for two shares of
Bio-Vascular common stock............................... 4,755,694 4,719,308 4,750,525 4,691,763
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the financial statements and related notes for the three and six months ended
April 30, 1997 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> APR-30-1997
<CASH> 5,114,127
<SECURITIES> 2,983,500
<RECEIVABLES> 113,316
<ALLOWANCES> 11,300
<INVENTORY> 0
<CURRENT-ASSETS> 8,399,455
<PP&E> 1,732,354
<DEPRECIATION> 935,945
<TOTAL-ASSETS> 9,222,235
<CURRENT-LIABILITIES> 569,242
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 8,455,886
<TOTAL-LIABILITY-AND-EQUITY> 9,222,235
<SALES> 137,584
<TOTAL-REVENUES> 137,584
<CGS> 31,180
<TOTAL-COSTS> 1,233,593
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,019,741)
<INCOME-TAX> 500
<INCOME-CONTINUING> (1,020,241)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,020,241)
<EPS-PRIMARY> (.21)<F1>
<EPS-DILUTED> (.21)<F1>
<FN>
<F1> Pro forma loss per share.
</FN>
</TABLE>
