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Imaging3 (IMGG) is now fielding questions from two regulatory agencies.
More than two years after submitting its Dominion 3-D scanner for clearance by the U.S. Food and Drug Administration, IMGG is still trying to address concerns raised by the agency about its breakthrough medical device. Meanwhile, the company is now attempting to overcome issues raised by the U.S. Securities and Exchange Commission – which derailed its annual shareholder meeting -- as well.
Nevertheless, IMGG downplayed the significance of those government roadblocks during its latest upbeat conference call with investors. The company continued to portray the FDA’s questions as minor in nature, even though another projected deadline for the Dominion’s approval had just passed, while characterizing the SEC’s recent action as an outright “non-event.”
IMGG decided to host this week’s conference call after abruptly postponing a full-blown shareholder meeting that was originally scheduled for Thursday. The company essentially blamed the delay on the SEC, stating in a press release that the agency had yet to approve its annual gathering of shareholders.
But Peter Henning, a former senior attorney for the SEC Enforcement Division, said the agency does not usually interfere with shareholder meetings at all.
“There’s no reason to postpone a shareholder meeting because of the SEC,” said Henning, who now serves as a law professor at Wayne State University. “The SEC does not get involved in that unless there’s fraud.”
To be fair, Henning said, the SEC does review proxy solicitations for securities transactions – such as share increases – that are often decided at shareholder meetings. Even so, he said, companies are free to hold their annual meetings whether the SEC has formally authorized those transactions or not.
When IMGG filed its proxy statement with the SEC, the company did in fact reveal plans to increase its massive share count. Regulators apparently raised some concerns, however, which the company has yet to fully address two months later.
“Lo and behold, it’s the SEC,” IMGG CEO Dean Janes declared during Wednesday’s conference call. “They want to know a bit more.
“I can’t legally tell you exactly what’s going on,” he said. “They just had issues. And it’s been a long back-and-forth” in the meantime.
Following the Money
Originally, IMGG had hoped to increase its mounting share count – which is fast approaching 400 million – to a whopping 750 million at this year’s annual meeting. By now, however, IMGG has already diluted regular investors by selling more than 107 million shares of company stock – at an average price of just 2.5 cents apiece -- through recent private placements.
With IMGG’s stock now fetching around $1.25 a share, the company provided those investors with quite a deal. In return, IMGG collected just $2.59 million in total proceeds. The company then used two-thirds of that sum, or $1.77 million, to repay a loan from its CEO.
Interestingly, after shelling out that cash, IMGG said that “the amount remitted was inadvertently calculated to be in excess of the amount actually owed by the company” to its top executive. As a result, IMGG booked a $1.01 million related-party receivable to reflect that overpayment.
By doing so, critics say, IMGG has essentially violated securities rules against company loans to executives. Moreover, they say, the company – with less than $160,000 in its own bank account – can hardly afford that kind of generosity right now. In fact, they note, the company still owes payroll taxes (plus penalties) that it failed to satisfy years ago.
Meanwhile, IMGG may face limited options to replenish its dwindling resources. Based on its proxy statement, the company clearly assumed that it could sell more stock to finance its activities while it waits for FDA approval – and future sales – of its new device. By cancelling this week’s annual meeting, however, the company has raised some doubts about that funding opportunity.
Doing the Math
Of course, IMGG also planned to win regulatory clearance for its Dominion scanner by now as well. A month after answering the FDA’s latest questions, however, the company is still waiting for the agency’s decision.
“The FDA, in fact, has up to 30 days to respond from the day they received my response,” Janes explained on Wednesday. “I think this week is their 30-day limit … The fact that they’re taking the full 30 days is, in my opinion, a good thing.”
Even IMGG shareholders who expected approval by now continue to place great faith in the company and its leader. IMGG shares, loftily priced based on normal financial metrics, clearly reflect that ongoing support.
To skeptics, however, the stock price makes no sense. If IMGG in fact secures FDA clearance for the Dominion, they note, the company hopes to sell about 100 of the $550,000 scanners per year. Although IMGG expects to realize a 50% gross margin on each device, they say, the company will likely post a net margin (or actual profit) that’s closer to 10% of the product’s sale price.
Based on those projections, IMGG would earn about $5.5 million a year. That total, divided by IMGG’s enormous share count, comes to earnings of just 1.5 cents a share. In other words, even if IMGG achieves its stated goals, the company is already trading at 80 times its future earnings.
In contrast, giant Medtronic (MDT) – hopefully mentioned as a possible buyer for IMGG – sports a far more conservative price-to-earnings ratio of just 12.2 instead.
During this week’s conference call with shareholders, even Dean himself acknowledged that IMGG has enjoyed a “fantastic run” in its stock price. At the same time, he also seemed reluctant to launch a company repurchase of those generously valued shares.
“If we buy back the stock,” he reasoned, “there will be less for great shareholders like you!”
* To contact Melissa Davis, the author of this story, please send an email to editor@thestreetsweeper.org.
Imaging3 (IMGG) is now fielding questions from two regulatory agencies.
More than two years after submitting its Dominion 3-D scanner for clearance by the U.S. Food and Drug Administration, IMGG is still trying to address concerns raised by the agency about its breakthrough medical device. Meanwhile, the company is now attempting to overcome issues raised by the U.S. Securities and Exchange Commission – which derailed its annual shareholder meeting -- as well.
Nevertheless, IMGG downplayed the significance of those government roadblocks during its latest upbeat conference call with investors. The company continued to portray the FDA’s questions as minor in nature, even though another projected deadline for the Dominion’s approval had just passed, while characterizing the SEC’s recent action as an outright “non-event.”
IMGG decided to host this week’s conference call after abruptly postponing a full-blown shareholder meeting that was originally scheduled for Thursday. The company essentially blamed the delay on the SEC, stating in a press release that the agency had yet to approve its annual gathering of shareholders.
But Peter Henning, a former senior attorney for the SEC Enforcement Division, said the agency does not usually interfere with shareholder meetings at all.
“There’s no reason to postpone a shareholder meeting because of the SEC,” said Henning, who now serves as a law professor at Wayne State University. “The SEC does not get involved in that unless there’s fraud.”
To be fair, Henning said, the SEC does review proxy solicitations for securities transactions – such as share increases – that are often decided at shareholder meetings. Even so, he said, companies are free to hold their annual meetings whether the SEC has formally authorized those transactions or not.
When IMGG filed its proxy statement with the SEC, the company did in fact reveal plans to increase its massive share count. Regulators apparently raised some concerns, however, which the company has yet to fully address two months later.
“Lo and behold, it’s the SEC,” IMGG CEO Dean Janes declared during Wednesday’s conference call. “They want to know a bit more.
“I can’t legally tell you exactly what’s going on,” he said. “They just had issues. And it’s been a long back-and-forth” in the meantime.
Following the Money
Originally, IMGG had hoped to increase its mounting share count – which is fast approaching 400 million – to a whopping 750 million at this year’s annual meeting. By now, however, IMGG has already diluted regular investors by selling more than 107 million shares of company stock – at an average price of just 2.5 cents apiece -- through recent private placements.
With IMGG’s stock now fetching around $1.25 a share, the company provided those investors with quite a deal. In return, IMGG collected just $2.59 million in total proceeds. The company then used two-thirds of that sum, or $1.77 million, to repay a loan from its CEO.
Interestingly, after shelling out that cash, IMGG said that “the amount remitted was inadvertently calculated to be in excess of the amount actually owed by the company” to its top executive. As a result, IMGG booked a $1.01 million related-party receivable to reflect that overpayment.
By doing so, critics say, IMGG has essentially violated securities rules against company loans to executives. Moreover, they say, the company – with less than $160,000 in its own bank account – can hardly afford that kind of generosity right now. In fact, they note, the company still owes payroll taxes (plus penalties) that it failed to satisfy years ago.
Meanwhile, IMGG may face limited options to replenish its dwindling resources. Based on its proxy statement, the company clearly assumed that it could sell more stock to finance its activities while it waits for FDA approval – and future sales – of its new device. By cancelling this week’s annual meeting, however, the company has raised some doubts about that funding opportunity.
Doing the Math
Of course, IMGG also planned to win regulatory clearance for its Dominion scanner by now as well. A month after answering the FDA’s latest questions, however, the company is still waiting for the agency’s decision.
“The FDA, in fact, has up to 30 days to respond from the day they received my response,” Janes explained on Wednesday. “I think this week is their 30-day limit … The fact that they’re taking the full 30 days is, in my opinion, a good thing.”
Even IMGG shareholders who expected approval by now continue to place great faith in the company and its leader. IMGG shares, loftily priced based on normal financial metrics, clearly reflect that ongoing support.
To skeptics, however, the stock price makes no sense. If IMGG in fact secures FDA clearance for the Dominion, they note, the company hopes to sell about 100 of the $550,000 scanners per year. Although IMGG expects to realize a 50% gross margin on each device, they say, the company will likely post a net margin (or actual profit) that’s closer to 10% of the product’s sale price.
Based on those projections, IMGG would earn about $5.5 million a year. That total, divided by IMGG’s enormous share count, comes to earnings of just 1.5 cents a share. In other words, even if IMGG achieves its stated goals, the company is already trading at 80 times its future earnings.
In contrast, giant Medtronic (MDT) – hopefully mentioned as a possible buyer for IMGG – sports a far more conservative price-to-earnings ratio of just 12.2 instead.
During this week’s conference call with shareholders, even Dean himself acknowledged that IMGG has enjoyed a “fantastic run” in its stock price. At the same time, he also seemed reluctant to launch a company repurchase of those generously valued shares.
“If we buy back the stock,” he reasoned, “there will be less for great shareholders like you!”
* To contact Melissa Davis, the author of this story, please send an email to editor@thestreetsweeper.org.
