IMRIS 6-K Current report (foreign)

CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2012

IMRIS Inc.
100-1370 Sony Place	TF.	1.888.304.0114
Winnipeg, Manitoba	T.	204.480.7070
Canada R3T 1N5	F.	204.480.7071	www.imris.com

IMRIS INC.

Consolidated Balance Sheets

Expressed in US $000’s except share and per share data,

and except as otherwise indicated

(Unaudited)

	June 30, 2012			December 31, 2011
Assets
Current assets
Cash	$	32,705		$	40,425
Restricted cash (note 4)		1,580			-
Accounts receivable (note 5)		11,177			13,968
Unbilled receivables		8,929			7,069
Inventory, net (note 6)		6,435			5,168
Prepaid expenses		3,704			2,678
		64,530			69,308
Property, plant, and equipment, net		6,798			6,049
Intangibles, net		10,251			10,794
Other assets		2,383			1,641
Goodwill		6,498			6,498
Total assets	$	90,460		$	94,290
Liabilities and Shareholders' equity
Current liabilities
Accounts payable and accrued liabilities (note 7)	$	13,667		$	12,584
Deferred revenue		12,273			7,147
		25,940			19,731
Shareholders' equity
Share capital
Common Shares, unlimited number of voting common shares authorized; 45,803,867 and 44,975,109 issued and outstanding at June 30, 2012 and December 31, 2011 respectively		146,974			144,410
Additional paid-in capital		4,266			4,291
Deficit		(86,616	)		(73,984	)
Accumulated other comprehensive loss		(104	)		(158	)
		64,520			74,559
Contingent liabilities (note 11)
Total liabilities and shareholders' equity	$	90,460		$	94,290

See accompanying notes

IMRIS INC.

Consolidated Statements of Comprehensive Loss

Expressed in US $000’s except share and per share data,

and except as otherwise indicated

(Unaudited)

	Three months ended						Six months ended
	June 30, 2012			June 30, 2011			June 30, 2012			June 30, 2011
Sales	$	17,235		$	18,881		$	20,728		$	29,938
Cost of sales		10,577			12,560			12,676			19,164
Gross profit		6,658			6,321			8,052			10,774
Operating expenses
Administrative		1,899			2,155			3,584			4,172
Sales and marketing		2,549			2,520			4,614			4,855
Customer support and operations		1,892			1,740			3,546			3,503
Research and development		3,401			2,127			6,967			4,626
Amortization		990			871			1,959			1,725
Total operating expenses		10,731			9,413			20,670			18,881
Operating loss		(4,073	)		(3,092	)		(12,618	)		(8,107	)
Other income (expense)
Foreign exchange gain (loss)		(207	)		210			(11	)		615
Interest income (expense)		(2	)		9			15			31
Total other income		(209	)		219			4			646
Net loss before taxes		(4,282	)		(2,873	)		(12,614	)		(7,461	)
Income tax expense (note 9)		-			-			18			-
Net loss for the period	$	(4,282	)	$	(2,873	)	$	(12,632	)		(7,461	)
Other comprehensive income (loss)
Foreign currency translation adjustment		120			(3	)		54			(59	)
Other comprehensive income (loss)	$	120		$	(3	)	$	54		$	(59	)
Comprehensive loss for the period	$	(4,162	)	$	(2,876	)	$	(12,578	)	$	(7,520	)
Weighted average number of common shares outstanding		45,791,346			44,600,721			45,583,216			44,500,628
Basic and diluted loss per share (note 10)	$	(0.09	)	$	(0.06	)	$	(0.28	)	$	(0.17	)

See accompanying notes

IMRIS INC.

Consolidated Statements of Shareholders' Equity

Expressed in US $000’s except share and per share data,

and except as otherwise indicated

(Unaudited)

											Accumulated
					Additional						Other
	Common Shares				Paid-in						Comprehensive
	Shares		Amount		Capital			Deficit			Loss			Total
Balances at January 1, 2012		44,975,109	$	144,410	$	4,291		$	(73,984	)	$	(158	)	$	74,559
Comprehensive income (loss)									(12,632	)		54			(12,578	)
Issuance of stock on exercise of employee stock options		828,758		2,564											2,564
Stock based compensation expense for the period						709									709
Amount credited to share capital related to options issued						(734	)								(734	)
Balances at June 30, 2012		45,803,867	$	146,974	$	4,266		$	(86,616	)	$	(104	)	$	64,520

IMRIS INC.

Consolidated Statements of Cash Flows

Expressed in US $000’s except share and per share data,

and except as otherwise indicated

(Unaudited)

	Six months ended
	June 30, 2012			June 30, 2011
OPERATING ACTIVITIES
Net loss for the period	$	(12,632	)	$	(7,461	)
Adjustments to reconcile net income to net cashprovided by operating activities:
Amortization		1,959			1,725
Stock based compensation		709			681
Advance payment		127			(1,101	)
Other		7			-
Changes in non-cash working capital items:
Accounts receivable		2,791			2,108
Unbilled receivables		(1,860	)		(4,833	)
Inventory		(1,267	)		784
Prepaid expenses		(1,026	)		(618	)
Accounts payable and accrued liabilities		1,083			(2,291	)
Deferred revenue		5,126			(3,034	)
		(4,983	)		(14,040	)
FINANCING ACTIVITIES
Proceeds from issuance of share capital		1,831			700
		1,831			700
INVESTING ACTIVITIES
Restricted cash		(1,580	)		-
Acquisition of property, plant and equipment		(2,102	)		(789	)
Acquisition of intangibles		(69	)		(775	)
Acquisition of other assets		(1,225	)		-
		(4,976	)		(1,564	)
Foreign exchange translation adjustment on cash		408			(53	)
Decrease in cash		(7,720	)		(14,957	)
Cash, beginning of period		40,425			60,773
Cash, end of period	$	32,705		$	45,816
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest	$	2		$	4
Income taxes	$	145		$	-

See accompanying notes

IMRIS INC.

Notes to the Consolidated Financial Statements

Expressed in US $000’s except share and per share data, and except as otherwise indicated

June 30, 2012

(Unaudited)

1. DESCRIPTION OF BUSINESS

IMRIS Inc. (“IMRIS” or the “Company”) designs, manufactures and markets the VISIUS Surgical Theatre^TM, a multifunctional surgical environment that provides intraoperative vision to clinicians to assist in decision-making and enhance precision in treatment. Designed to meet each hospital’s specific clinical application needs, the VISIUS Surgical Theatre can incorporate MR imaging, CT imaging and x-ray angiography in a number of configurations to provide intraoperative images of diagnostic quality - without introducing additional patient transport risk and delivering real-time information to clinicians while preserving optimal surgical access and techniques. IMRIS sells the VISIUS Surgical Theatres globally to hospitals that deliver clinical services to patients in the neurosurgical, cerebrovascular and cardiovascular markets. We believe that the primary market for our current product portfolio is comprised of those hospitals having relatively large neurosurgical, cerebrovascular or cardiovascular practices. The Company incorporated on May 18, 2005 under the Canada Business Corporations Act. The Company’s shares are traded on the Toronto Stock Exchange under the symbol “IM” and on the NASDAQ Global Select Market (“NASDAQ”) under the symbol “IMRS”.

2. BASIS OF PRESENTATION

The accompanying unaudited interim consolidated financial statements are prepared based on the accounting principles and practices used by the entity in preparing its annual statements and in accordance with United States generally accepted accounting principles (“US GAAP”) and the rules and regulations of the US Securities and Exchange Commission (“SEC”) for the preparation of interim financial statements. These unaudited interim consolidated financial statements do not include all the information and note disclosures required for compliance with US GAAP for annual financial statements. Accordingly, these statements should be read in conjunction with the December 31, 2011 audited consolidated financial statements and notes thereto, which have been prepared in accordance with US GAAP.

In the opinion of management all normal recurring adjustments considered necessary for fair presentation have been included in these financial statements. The preparation of these unaudited interim consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates and the results of operations for the three and six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2012.

Unless otherwise indicated, all dollar amounts are expressed in United States dollars (US dollars). The term dollars and the symbol $ refer to the US dollar.

3. RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

On June 16, 2011, the FASB issued authoritative guidance (ASU 2011-05), which revises the manner in which entities present comprehensive income in their financial statements. The new guidance removes the presentation options currently included in US GAAP (ASC 220) and requires entities to report components of comprehensive income in either: 1) a continuous statement of comprehensive income or 2) two separate but consecutive statements. The authoritative guidance does not change the items that must be reported in other comprehensive income. This guidance is effective for interim and annual periods beginning after December 15, 2011 and was adopted in the quarter commencing January 1, 2012. This guidance affected presentation only and did not have a material impact on the results of operations or financial condition reflected in these consolidated financial statements.

On September 15, 2011, the FASB issued authoritative guidance (ASU 2011-08) on testing goodwill for impairment. The new guidance gives entities the option of performing a qualitative assessment before calculating the fair value of a reporting unit, as required for the first step of the impairment test. If the assessment of qualitative factors indicates it is more likely than not that the fair value is greater than the carrying value, then further testing would not be needed. The new authoritative guidance is effective for annual goodwill impairment tests performed for fiscal years beginning after December 15, 2011 and was adopted in the quarter commencing January 1, 2012. This guidance did not materially impact the Company’s existing process for assessing goodwill for impairment.

IMRIS INC.

Notes to the Consolidated Financial Statements

Expressed in US $000’s except share and per share data, and except as otherwise indicated

June 30, 2012

(Unaudited)

4. RESTRICTED CASH

Restricted cash as at June 30, 2012 consists of short-term deposits totalling $1,580 (December 31, 2011 - $Nil) that have been pledged as security to the Company’s bank for a letter of credit.

5. ACCOUNTS RECEIVABLE

	June 30, 2012		December 31, 2011
Accounts receivable, trade	$	10,448	$	13,530
Commodity taxes receivable		159		231
Refundable investment tax credit receivable		564		200
Other		6		7
	$	11,177	$	13,968

6. INVENTORY

	June 30, 2012		December 31, 2011
Materials	$	4,590	$	3,447
Customer support inventory		708		864
Work in progress		1,137		857
	$	6,435	$	5,168

7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

	June 30, 2012		December 31, 2011
Trade accounts payable	$	6,498	$	7,475
Accruals		5,256		2,527
Payroll related accruals		1,222		1,333
Warranty		418		591
Income taxes payable		219		356
Commodity taxes payable		54		302
	$	13,667	$	12,584

8. STOCK-BASED COMPENSATION

The following table presents information on stock option activity for the period:

	Number of options			Weighted average exercise price (CDN$)		Average remaining contractual life in years		Aggregate intrinsic value
Balance as at January 1, 2012		4,162,061		$	4.23
Granted		581,225			2.77
Exercised		(828,758	)		2.23
Forfeited		(56,722	)		5.25
Expired		(3,000	)		1.71
Balance as at June 30, 2012		3,854,806		$	4.42
Exercisable as at June 30, 2012		1,951,885		$	4.76		2.0	$	522
Vested and expected to vest as at June 30, 2012		3,366,752		$	4.51		3.3	$	847

IMRIS INC.

Notes to the Consolidated Financial Statements

Expressed in US $000’s except share and per share data, and except as otherwise indicated

June 30, 2012

(Unaudited)

8. STOCK-BASED COMPENSATION (Continued)

The aggregate intrinsic value, in the table above, represents the total pre-tax intrinsic value (the aggregate difference between the closing stock price of the Company’s common shares on June 30, 2012 and the exercise price for the in-the-money options) that would have been received by the option holders if all in-the-money options had been exercised on June 30, 2012. The total intrinsic value of the stock options exercised during the three and six months ended June 30, 2012, calculated using the average market price during the period, was $19 and $276 (Three and six months ended June 30, 2011 - $284 and $3,146).

The following assumptions were used in the calculation of the fair value of options granted in the period using the Black-Scholes option-pricing model:

	June 30, 2012
Weighted average grant date fair value of stock options granted during the period (CDN$)	$	1.48
Risk-free interest rate		1.31	%
Dividend yield		0	%
Expected life of the options		4.25 years
Expected volatility of the underlying stock		68.78	%

Expected volatilities are based on the historic volatility of the Company’s shares as this represents the most appropriate basis to determine the expected volatility in future periods.

The following table presents information on unvested stock options for the period:

	Number of options			Weighted average grant date fair value (CDN$)
Balance as at January 1, 2012		1,603,300		$	2.59
Granted during the period		581,225			1.48
Vested during the period		(261,615	)		3.31
Forfeited during the period		(19,989	)		2.47
Balance as at June 30, 2012		1,902,921		$	2.15

As at June 30, 2012, there was $2,758 of unrecognized stock-based compensation expense related to unvested stock options. This will be expensed over the vesting period, which on a weighted-average basis, results in a period of approximately 2.8 years. The total fair value of stock options vested during the three and six months ended June 30, 2012 was $294 and $861 (Three and six months ended June 30, 2011 - $221 and $663).

9. INCOME TAXES

For the three and six months ended June 30, 2012, the Company’s income tax expense was $Nil and $18. The Company did not recognize any tax expense for the three and six months ended June 30, 2011. The Company has not recorded a deferred tax asset as of June 30, 2012 or December 31, 2011 because a valuation allowance has been provided against the full amount of the deferred tax assets for both periods.

As of June 30, 2012, the Company has no unrecognized income tax benefits (December 31, 2011 – $Nil). As of June 30, 2012, the Company has not accrued any amounts for interest or penalties related to unrecognized income tax benefits (December 31, 2011 - $Nil).

The Company files tax returns in Australia, Belgium, Canada, India, Japan, Germany and the United States. The years 2007 to 2011 remain subject to examination by tax authorities.

IMRIS INC.

Notes to the Consolidated Financial Statements

Expressed in US $000’s except share and per share data, and except as otherwise indicated

June 30, 2012

(Unaudited)

10. BASIC AND DILUTED LOSS PER SHARE

When the Company is in a loss position, there are no adjustments to the weighted number of shares outstanding for the purposes of calculating diluted loss per share because to do so would be anti-dilutive. As of June 30, 2012, 325,386 stock options (June 30, 2011 – 1,687,372) could potentially dilute basic EPS in the future. These options were not included in the computation of diluted EPS because to do so would have been anti-dilutive for the periods presented.

11. CONTINGENT LIABILITIES

The Company records a liability for future warranty costs to repair or replace its products. The warranty term is generally 12 months. The amount of the liability is determined based on management’s historical experience and the best estimate of probable claims under Company warranties. The Company regularly evaluates the appropriateness of the remaining accrual.

The following table details the changes in the warranty accrual for the period:

	Three months ended June			Six months ended June
	30, 2012			30, 2012
Balance at beginning of the period	$	415		$	591
Accruals		80			80
Utilization		(77	)		(253	)
Balance at end of the period	$	418		$	418

12. SEGMENTED INFORMATION

The Company operates as one business segment. The Company develops, assembles and installs VISIUS Surgical Theatres that are used for a variety of medical applications, as well as providing ancillary products and services and extended maintenance services.

13. FINANCIAL INSTRUMENTS

ASC 820 defines fair value, establishes a framework, prescribes methods for measuring fair value and outlines additional disclosure requirements on the use of fair value measurements. Fair value is defined as the exchange price that would be recovered for an asset or paid to transfer a liability (an exit price in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date). Fair value is determined based on the exchange price that would be received for an asset or paid to transfer a liability utilizing a hierarchy of three different valuation techniques, based on the lowest level input that is significant to the fair value measurement in its entirety.

Financial instruments measured at fair value should be classified into one of three levels that distinguish fair value measurements by the significance of the inputs used for valuation.

Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2 - Observable inputs other than Level 1 quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs other than quoted prices that are observable or corroborated by observable market data; and

Level 3 - Unobservable inputs that are supported by little or no market activity. Valuation techniques are primarily model-based.

The Company’s financial assets and liabilities that are measured at fair value on a recurring basis have been segregated into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value measurement date in the table below. For cash and restricted cash, fair value approximates cost.

IMRIS INC.

Notes to the Consolidated Financial Statements

Expressed in US $000’s except share and per share data, and except as otherwise indicated

June 30, 2012

(Unaudited)

13. FINANCIAL INSTRUMENTS (Continued)

Financial assets and liabilities measured at fair value as at June 30, 2012 in the consolidated financial statements on a recurring basis are summarized below:

	Level 1		Level 2		Level 3
Cash	$	32,705	$	-	$	-
Restricted cash		1,580
	$	34,285	$	-	$	-

Financial assets and liabilities measured at fair value as at December 31, 2011 in the consolidated financial statements on a recurring basis are summarized below:

	Level 1		Level 2		Level 3
Cash	$	40,425	$	-	$	-
Restricted cash		-		-		-
	$	40,425	$	-	$	-

14. GUARANTEES

The Company has entered into an agreement, which meets the definition of a guarantee. Under the terms of the agreement, the Company has agreed to be legally bound to pay the obligation. The Company’s maximum obligation under this agreement is $298 and the obligation expires once the Company satisfies the conditions of the original agreement. To offset the arrangement the Company entered into a reciprocal arrangement with a financial institution to cover the amount of the obligation, should the need arise. The financial institution, involved in the reciprocal arrangement did not require any of the Company’s assets to be pledged as collateral. The Company has not recorded a liability related to the original arrangement.

The Company periodically enters into agreements that include limited intellectual property indemnifications that are customary in the industry. These guarantees generally require the Company to indemnify the other party for certain damages and costs incurred as a result of third party intellectual property claims arising from these transactions. The nature of the intellectual property indemnification obligations prevent the Company from making a reasonable estimate of the maximum potential amount it could be required to pay to its customers and suppliers. The Company has not made any indemnification payments under such agreements and no amount has been accrued in the accompanying consolidated financial statements with respect to these indemnification obligations.

15. COLLABORATIVE ARRANGEMENT

During the quarter, IMRIS entered into a collaborative arrangement with a third party to encourage research, education, and patient care activities of mutual benefit in the areas of interventional cerebrovascular science and imaging, with specific focus in the integration of angiography and MR imaging modalities during interventional stroke procedures. As part of a master research agreement, IMRIS agreed to provide the necessary equipment, maintenance and support staff to achieve the purpose intended by the agreement. The third party agrees to provide the Company with clinical validation over a five year period.

Revenue resulting from the arrangement is recognized in accordance with the Company’s current revenue recognition policy. Revenue and cost of sales of $266 is included in the consolidated statement of comprehensive loss for both the three and six months ended June 30, 2012. (Three and six months ended June 30, 2011 - $Nil). The Company will recognize in other assets an advance payment for the non-cash portion of the arrangement. Once installation is complete this advance payment will be amortized over the term of the agreement. The advance payment will be regularly tested for impairment. As at June 30, 2012 the Company has not recognized an advance payment related to this arrangement. Once an advance payment is recognized it will be regularly tested for impairment.

IMRIS INC.

Notes to the Consolidated Financial Statements

Expressed in US $000’s except share and per share data, and except as otherwise indicated

June 30, 2012

(Unaudited)

16. COMPARATIVE FIGURES

Certain prior period operating expenses have been reclassified to conform to the current period’s presentation. For the three and six months ended June 30, 2012 $403 and $735 respectively, has been reclassified from Administrative to the other operating expense categories (excluding amortization) and $154 and $364 respectively, has been reclassified from Customer Support and Operations to Sales and Marketing.