UNITED STATES
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: SEPTEMBER 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: 1-14190
INTELLIGENT MEDICAL IMAGING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 65-0136178
(STATE OR OTHER JURISDICTION (IRS EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
4360 NORTHLAKE BOULEVARD, SUITE 214, PALM BEACH GARDENS, FLORIDA 33410
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (561) 627-0344
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 __
AS OF NOVEMBER 7, 1997, THERE WERE OUTSTANDING 11,012,738 SHARES OF COMMON
STOCK, PAR VALUE $.01, OF THE REGISTRANT.
<PAGE>
INTELLIGENT MEDICAL IMAGING, INC.
QUARTER ENDED SEPTEMBER 30, 1997
INDEX
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS 3
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1997
AND DECEMBER 31, 1996 3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE 4
MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS 5
ENDED SEPTEMBER 30, 1997 AND 1996
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 7
CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURES 12
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
INTELLIGENT MEDICAL IMAGING, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------------------ ---------------------
(UNAUDITED)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $164,818 $288,001
Investments available for sale 11,526,901 24,793,872
Accounts receivable 1,428,516 177,096
Accrued interest receivable 111,005 159,427
Inventory 5,999,654 3,541,993
Prepaid expenses 135,947 52,425
------------------------ ---------------------
Total current assets 19,366,841 29,012,814
Property and equipment, net 3,316,595 1,666,957
Other assets 151,564 52,252
------------------------ ---------------------
$22,835,000 $30,732,023
======================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable $1,055,530 $1,062,979
Accrued salaries and benefits 502,424 319,217
Accrued interest payable 0 421,132
Other accrued liabilities 58,156 0
Contingent settlement liabilities 851,109 2,062,000
------------------------ ---------------------
Total current liabilities 2,467,219 3,865,328
STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY)
Preferred stock, $.01 par value-authorized 2,000,000 shares;
no shares issued or outstanding 0 0
Common stock, $.01 par value-authorized 30,000,000 shares;
issued and outstanding, 11,011,217 shares at September 30, 1997
and 10,898,054 at December 31, 1996 110,112 108,981
Additional paid-in capital 42,534,719 42,425,306
Deferred compensation (251,565) (321,504)
Net unrealized investment gains 86,382 58,027
Accumulated deficit (22,111,867) (15,404,115)
------------------------ ---------------------
Total stockholders' equity 20,367,781 26,866,695
------------------------ ---------------------
$22,835,000 $30,732,023
======================== =====================
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INTELLIGENT MEDICAL IMAGING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $431,516 $258,702 $2,843,559 $3,324,785
Cost of sales 352,578 78,988 1,647,799 1,788,399
----------------------------------------------------------------------------
78,938 179,714 1,195,760 1,536,386
Operating expenses:
Selling, general and administrative 2,469,323 1,004,391 6,042,245 2,260,847
Research and development 931,423 815,020 2,733,469 1,712,709
----------------------------------------------------------------------------
Total operating expenses 3,400,746 1,819,411 8,775,714 3,973,556
----------------------------------------------------------------------------
Loss from operations (3,321,808) (1,639,696) (7,579,954) (2,437,170)
Other income (expense):
Other 0 0 0 76,475
Investment and interest income 207,240 395,631 872,202 806,312
Interest expense 0 (11,179) 0 (141,149)
----------------------------------------------------------------------------
Other income 207,240 384,452 872,202 741,638
----------------------------------------------------------------------------
Net loss $(3,114,568) $(1,255,245) $(6,707,752) $(1,695,532)
============================================================================
Loss per common share $(0.28) $(0.12) $(0.61) $(0.18)
============================================================================
Weighted average common
shares outstanding 10,975,109 10,836,254 10,930,096 9,616,735
============================================================================
See accompanying notes
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INTELLIGENT MEDICAL IMAGING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
OPERATING ACTIVITIES
<S> <C> <C>
Net loss $(6,707,752) $(1,695,532)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation 509,531 206,768
Services exchanged for common stock 69,939 56,540
Changes in operating assets and liabilities
Accounts receivable (1,251,420) (411,391)
Inventory (3,432,376) (1,799,108)
Prepaid expenses & accrued interest
receivable (35,100) (334,258)
Other assets (99,312) 55,214
Accounts payable (7,449) (383,886)
Accrued salaries and benefits 183,207 122,179
Accrued interest payable (421,132) (139,478)
Other accrued liabilities 58,156 (48,518)
Contingent settlement liability (1,210,891) 0
Due to related party 0 (105,000)
Customer advance 0 (150,000)
-------------------- ------------------------
Net cash used in operating activities (12,344,599) (4,626,470)
INVESTING ACTIVITIES
Purchases of property and equipment (1,184,454) (475,194)
Purchase of investments available for sale 0 (25,881,217)
Sales of investments available for sale 13,295,326 0
-------------------- ------------------------
Net cash provided by investing activities 12,110,872 (26,356,411)
FINANCING ACTIVITIES
Proceeds from long-term notes payable 0 60,000
Repayment of long-term notes payable and
capitalized lease obligations 0 (747,197)
Repayments of notes payable to related parties 0 (338,958)
Advance from factor 0 2,216,614
Repayments to factor 0 (2,216,614)
Due to related party 0 (762,897)
Proceeds from sale of common stock 110,544 34,466,404
-------------------- ------------------------
Net cash provided by financing activities 110,544 32,677,352
Net (decrease) increase in cash and cash
equivalents (123,183) 1,694,471
Cash and cash equivalents at beginning of period 288,001 75,821
-------------------- ------------------------
Cash and cash equivalents at end of period $164,818 $1,770,292
==================== ========================
SUPPLEMENTAL INFORMATION
Interest paid $0 $141,149
==================== ========================
Notes payable and notes payable to related
parties converted to common stock $0 $300,000
==================== ========================
Inventory transferred to property and equipment $974,715 $393,353
==================== ========================
See accompanying notes
</TABLE>
INTELLIGENT MEDICAL IMAGING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited 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 Article 10 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 (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. These financial statements, footnotes and discussions should be
read in conjunction with audited financial statements and related footnotes
included in Intelligent Medical Imaging, Inc.'s ("IMI" or "the Company") annual
report on Form 10-K for the year ended December 31, 1996. Operating results for
the three- and nine-month periods ended September 30, 1997 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1997.
2. INVESTMENTS AVAILABLE-FOR-SALE
Investments available-for-sale consist of asset backed securities, corporate
bonds and U.S. Government agency bonds. Management determines the proper
classifications of investments in obligations with fixed maturities and
marketable equity securities at the time of purchase and re-evaluates such
designations as of each balance sheet date. At September 30, 1997, all
securities were designated as available-for-sale. Accordingly, these securities
are stated at fair market value, with unrealized gains and losses reported as a
separate component of stockholders' equity. Realized gains and losses on sales
of investments, as determined on a specific identification basis, are included
in the consolidated statements of operations.
Investment securities available for sale at September 30, 1997, are summarized
as follows:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
Unrealized Market Unrealized Market
Cost Gains (Losses) Value Cost Gains (Losses) Value
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $225,546 $0 $225,546 $5,389,564 $2,950 $5,392,514
U.S. Government agency bonds and mortgages $8,127,391 $51,718 $8,179,109 $7,525,683 $18,169 $7,543,852
U.S. Corporate bonds and asset backed securities $3,087,582 $34,664 $3,122,246 $11,820,598 $36,908 $11,857,506
==================================================================================
Total investments available-for-sale $11,440,519 $86,382 $11,526,901 $24,735,845 $58,027 $24,793,872
==================================================================================
</TABLE>
<TABLE>
<CAPTION>
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
September 30, December 31,
1997 1996
---------------------- -----------------------
Furniture, fixtures and office
<S> <C> <C>
equipment $1,804,884 $461,690
Computer and development
equipment 2,651,514 1,835,539
---------------------- -----------------------
4,456,398 2,297,229
Accumulated depreciation (1,139,803) (630,272)
---------------------- -----------------------
$3,316,595 $1,666,957
====================== =======================
</TABLE>
4. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, EARNINGS PER SHARE, which is required to be adopted in December 1997. At
that time, the Company will be required to change the method currently used to
compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. Statement 128 would not have an impact on the
periods ended September 30, 1997 and 1996.
5. COMMITMENTS AND CONTINGENCIES
On June 17, 1997, the Company notified DiaSys Corporation ("DiaSys"), that it
was terminating the Product Integration Agreement dated November 1, 1996 (the
"DiaSys Agreement"), between the Company and DiaSys, due to DiaSys' material
breaches of the DiaSys Agreement. The Company also rejected all goods delivered
by DiaSys to the Company as non-conforming. DiaSys has expressed its
disagreement with the Company's position regarding the conformity of DiaSys'
products and the Company's termination of the DiaSys Agreement. The Company
believes that it had a valid basis to terminate the DiaSys Agreement and is thus
relieved from the minimum purchase requirements set forth in the DiaSys
Agreement.
In the second quarter of 1997, the Company paid Coulter Corporation ("Coulter")
$3,600,000 in exchange for the return of 26 of Coulter's used inventory of
Micro21 Systems and reimbursement to Coulter for certain costs incurred in
connection with the sale and marketing of the Micro21 Systems in accordance with
the terms of a settlement agreement ("Settlement Agreement") executed on March
27, 1997. In the Settlement Agreement, the Company also agreed to pay Coulter
approximately $1,000,000, subject to certain offsets, in exchange for: (i) the
return of certain spare parts and equipment and (ii) the assignment of four of
Coulter's customer contract accounts receivable. Through October 1997, all of
Coulter's customer contract accounts receivable have been assigned to the
Company.
Contingent Settlement Liability includes approximately $900,000 related to Micro
21 Systems which were not part of the Coulter Settlement Agreement. The Company
is in negotiations with Coulter Corporation and anticipates this contingency
will be resolved by December 31, 1997.
On May 22, 1997, the Board of Directors authorized the Company to loan Tyce M.
Fitzmorris, the Company's President and Chief Executive Officer, up to $500,000
on a secured recourse basis. During the third quarter, advances of approximately
$366,509 were made. A repayment, including interest accrued at the rate of 8.5%
per annum, was made by Mr. Fitzmorris to the Company in September 1997, in the
amount of $325,807, leaving a balance as of September 30, 1997 of approximately
$40,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company has developed and is marketing the MICRO21(TM) System, an
intelligent, automated microscope system, for diagnostic use in hospital,
commercial reference and physician group laboratories. The MICRO21 System is
designed to automate a broad range of manual microscopic procedures, potentially
enabling the clinical laboratory to reduce costs and exposure to liabilities,
enhance analytical accuracy and consistency, increase the productivity of
medical technologists and improve patient care.
In August 1995, the Company entered into an exclusive sales and distribution
agreement (the "Coulter Agreement") with Coulter for worldwide sales, marketing
and service of the MICRO21 system. The Company terminated the Coulter Agreement
in the fourth quarter of 1996 because of Coulter's revocation of its commitment
to purchase $5,500,000 of MICRO21 systems during the third and fourth quarters
of 1996 and other breaches of the Coulter Agreement by Coulter. Coulter disputed
the Company's termination of the Coulter Agreement and claimed the Coulter
Agreement remained in effect. The parties submitted the dispute to arbitration,
but settled the dispute as of March 27, 1997. The dispute between the Company
and Coulter has had an adverse effect on sales and marketing and has been a
factor in the return of some
<PAGE>
MICRO21 systems placed with customers by Coulter for evaluation. The Settlement
Agreement provides for the Company to pay Coulter approximately $4,600,000,
subject to offsets, in exchange for: (i) the return of twenty-six (26) of
Coulter's used inventory of MICRO21 systems and certain spare parts and
equipment; (ii) the assignment of four (4) of Coulter's customer contract
receivables; and (iii) reimbursement to Coulter for certain costs incurred in
connection with the sale and marketing of the MICRO21 system. The Company
believes that many of the customers who returned systems under evaluation will
order a MICRO21 system for evaluation, purchase or lease now that the dispute
with Coulter is resolved. In the second quarter of 1997, the Company paid
Coulter $3,600,000 in exchange for the return of 26 of Coulter's used inventory
of Micro21 Systems.
In June 1997, the Company established a new division in The Netherlands - IMI
Europe. IMI Europe will perform sales and marketing functions in the European
market. IMI Europe has not reported any sales in the third quarter.
RESULTS OF OPERATIONS
Product sales were $431,516 for the three months ended September 30, 1997
compared with $258,702 for the three months ended September 30, 1996, an
increase of $172,814. Product sales were $2,843,559 for the nine months ended
September 30, 1997 compared with $3,324,785 for the nine months ended September
30, 1996, a decrease of $481,226. The increase for the three months ended
September 30, 1997 was primarily due to the Micro21 Systems sold by the
Company's sales force as compared to sales by Coulter prior to termination of
the Coulter Agreement in October 1996. The overall decrease in sales for the
nine months ended September 30, 1997 compared to September 30, 1996 was
primarily due to the time required to build up the Company's internal sales and
service organizations following the termination of the Coulter Agreement in
October 1996, and significantly fewer than expected conversions of evaluation
placements to sales during the quarter ended September 30, 1997.
Cost of sales was $352,578 for the three months ended September 30, 1997
compared with $78,988 for the three months ended September 30, 1996, an increase
of $273,590. Cost of sales was $1,647,799 for the nine months ended September
30, 1997 compared with $1,788,399 for the nine months ended September 30, 1996,
a decrease of $140,600. The increase in cost of sales for the quarter was
primarily due to support of evaluation units installed with customers. The
decrease in cost of sales for the nine months ended September 30, 1997 was
primarily due to the overall decrease in sales for the same period ended in the
prior year.
Selling, general and administrative expenses were $2,469,323 for the three
months ended September 30, 1997 compared with $1,004,391 for the three months
ended September 30, 1996, an increase of $1,464,932. Selling, general and
administrative expenses have continued to increase because of the continued
growth of the Company and the need for additional personnel. Selling, general
and administrative expenses were $6,042,245 for the nine months ended September
30, 1997 compared with $2,260,847 for the nine months ended September 30, 1996,
an increase of $3,781,398. The increase was primarily due to increases in
staffing, marketing, legal fees and relocation expenses.
Research and development expenses were $931,423 for the three months ended
September 30, 1997 compared with $815,020 for the three months ended September
30, 1996, an increase of $116,403. Research and development expenses were
$2,733,469 for the nine months ended September 30, 1997 compared with $1,712,709
for the nine months ended September 30, 1996, an increase of $1,020,760.
Research and development expenses have increased due to resources being utilized
in the development of new procedures, technologies and products. Research and
development expenses are expected to continue to increase as new procedures,
technologies and products are developed.
Other income was $0 for the nine months ended September 30, 1997 compared with
$76,475 for the nine months ended September 30, 1996, a decrease of $76,475. The
decrease was due to a gain recognized in 1996 in connection with a discount
negotiated on a note payable to a third party.
Interest income was $207,240 for the three months ended September 30, 1997
compared with $395,631 for the three months ended September 30, 1996, a decrease
of $188,391. The decrease for the three months ended September 30, 1997 was
primarily due to the sale of investment securities to fund operations. Interest
income was $872,202 for the nine months ended September 30, 1997 compared with
$806,312 for the nine months ended September 30, 1996, an increase of $65,890.
The increase was due to interest income earned on the proceeds from the
Company's initial public offering which closed on March 27, 1996.
<PAGE>
Interest expense was $0 for the three months ended September 30, 1997 compared
with $11,179 for three months ended September 30, 1996, a decrease of $11,179.
Interest expense was $0 for the nine months ended September 30, 1997 compared
with $141,149 for the nine months ended September 30, 1996, a decrease of
$141,149. The Company had no notes payable outstanding during 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Settlement Agreement provides that the Company will pay to Coulter
approximately $4,600,000, of which $3,600,000 was paid in 1997. In addition, the
Settlement Agreement required Coulter to purchase four current model MICRO21
systems, to replace certain units returned, at a discounted purchase price.
These units were purchased in April 1997. As of October 1997, units previously
sold by Coulter to customers have been assigned and acquired by the Company.
In March 1996, the Company completed its initial public offering, selling
3,450,000 shares of common stock at $11.00 per share, resulting in approximately
$34,000,000 in net proceeds to the Company. In 1996, the Company paid all
long-term notes payable, indebtedness and amounts due to related parties
totaling approximately $4,300,000. For the year ended December 31, 1996, cash,
cash equivalents and investments increased approximately $25,000,000, primarily
due to net cash provided by proceeds from the initial public offering.
In May 1996, the Company employed investment advisors to manage the cash assets
of the Company subject to specific restrictions and limitations. The advisors
are allowed to buy, sell, exchange and otherwise trade in any stocks, bonds and
other securities consistent with the Company's objectives. The specific
restrictions and limitations limit the advisors to investments characterized as
investment grade only and of maturities no longer than two years. These
investments are classified as available-for-sale.
Cash and cash equivalents consist of cash and liquid investments with a maturity
of 90 days or less. Investments available-for-sale consist of asset backed
securities, corporate bonds and U.S. Government agency bonds. Management
determines the appropriate classification of debt securities at the time of
purchase and re-evaluates such designation as of each balance sheet date.
Unrealized holding gains and losses on securities classified as available for
sale are reported as a separate component of stockholders' equity.
For the nine months ended September 30, 1997, net cash used in operating
activities of $12,344,599 was primarily due to the Company's operating loss due
to an increase in overall expenses because of the increase in personnel,
increase in inventory and payment of $3,600,000 to Coulter Corporation to
repurchase Micro21 Systems as specified in the Settlement Agreement.
For the nine months ended September 30, 1997, net cash provided by investing
activities of $12,110,872 was primarily the result of sales of investments
available-for-sale, partially offset by purchases of computer equipment to be
used in research and development and leasehold improvements to the manufacturing
facility.
For the nine months ended September 30, 1997, net cash provided by financing
activities of $110,544 was primarily the result of proceeds from the exercise of
common stock options.
At September 30, 1997 the Company had a net operating loss ("NOL") carryforward
of approximately $11,000,000 available for income tax purposes that expire
through the year 2011. Section 382 of the Internal Revenue Code, as amended,
limits the amount of federal taxable income that may be offset by pre-existing
NOLs of a corporation following a change in ownership ("Ownership Change") of
the corporation. A portion of the Company's NOLs are currently subject to these
limitations because the Company experienced an Ownership Change on June 30,
1995, due to the issuance of common stock.
The Company believes that cash, cash equivalents and investments held for sale,
together with projected cash flow from operations, will be sufficient to meet
the Company's liquidity and capital requirements for projected annual
expenditures through 1998, although no assurance exists that the Company will
not require additional capital prior to the end of such period.
<PAGE>
Statements contained in this Form 10-Q that are not historical facts are
forward-looking statements that are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. The Company cautions
that a number of important factors could cause the Company's actual results for
1997 and beyond to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, the Company.
Forward-looking statements involve a number of risks and uncertainties
including, but not limited to, the Company's history of operating losses;
uncertainty of profitability and uncertainty of widespread market acceptance for
the MICRO21 system; uncertainty, risks and costs associated with the Company's
need to expand and enhance its own sales and marketing organization to replace
Coulter; the anticipated loss of revenue and earnings during the period of
transition of sales, marketing and service responsibilities from Coulter to the
Company; the delays and impediments to customer acceptance associated with
industry and market perception of the historical dispute between the Company and
Coulter; the risk that expansion of sales in foreign markets may be possible
only through distributors, such as Coulter, at transfer prices too low for
favorable profitability; the inability of the Company to enter into an
alternative exclusive distribution arrangement due to certain rights granted to
Coulter under the Coulter Settlement Agreement; the delays and impediments
associated with the industry and market perception of the dispute, even if
amicably settled, between the Company and DiaSys, and the inability of the
Company to resolve its dispute with DiaSys amicably; possible delays in the
development of monolayer procedures as a result of the termination of the
license agreement with MonoGen, Inc.; potential delays and technical problems in
the development and commercial release of new products and procedures such as
the proposed MICRO21 Microscopic Workstation System; delays in closing sales of
systems placed for evaluation due to length of the closing cycle, uncertainty
due to industry consolidation and customer budget processes and restrictions;
the expense of product development and the related delay and uncertainty as to
receipt of any requisite FDA clearance or other governmental clearance or
approval for new products and new procedures for use on the MICRO21 system; the
uncertainty of profitability and sustainability of revenues and profitability;
the uncertainty of availability of capital for future capital needs, especially
in the event of further delays in anticipated market acceptance and market
penetration of MICRO21 systems; the Company's limited manufacturing experience;
fluctuations in operating results; the Company's ability to its protect trade
secrets and proprietary technology; competition and technological change in the
industry in which the Company is engaged; product liability and the ability of
the Company to obtain adequate insurance for product liability; uncertainty of
third party reimbursement and health care reform policies; and government
regulation. The Company cannot assure that it will be able to anticipate or
respond timely to any of the factors, or changes in any of the factors, listed
above, which could adversely affect the operating results in one or more fiscal
quarters. Results of operations in any past period should not be considered
indicative of the results to be expected for future periods. Fluctuations in
operating results may also result in fluctuations in the price of the Company's
common stock.
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
LIST OF EXHIBITS DESCRIPTION
27 Financial Data Schedule
(b) Reports on Form 8-K:
A current Report on Form 8-K was filed on July 30, 1997, to
report a press release issued by the Company describing the
termination of its Product Integration Agreement with Diasys
Corporation and the basis for such termination.
<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.
INTELLIGENT MEDICAL IMAGING, INC.
Date: NOVEMBER 14, 1997 BY: /S/ TYCE M. FITZMORRIS
-----------------------------
Tyce M. Fitzmorris,
President and Chief
Executive Officer
Date: NOVEMBER 14, 1997 BY: /S/ GENE M. COCHRAN
-----------------------------
Gene M. Cochran,
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 164,818
<SECURITIES> 11,526,901
<RECEIVABLES> 1,428,516
<ALLOWANCES> 0
<INVENTORY> 5,999,654
<CURRENT-ASSETS> 19,366,841
<PP&E> 4,456,398
<DEPRECIATION> 1,139,803
<TOTAL-ASSETS> 22,835,000
<CURRENT-LIABILITIES> 2,467,219
<BONDS> 0
0
0
<COMMON> 110,112
<OTHER-SE> 20,257,669
<TOTAL-LIABILITY-AND-EQUITY> 22,835,000
<SALES> 2,843,559
<TOTAL-REVENUES> 2,843,559
<CGS> 1,647,799
<TOTAL-COSTS> 1,647,799
<OTHER-EXPENSES> (872,202)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (6,707,752)
<INCOME-TAX> 0
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</TABLE>
