##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2008
 o
    
    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 0-51149
 EMAGEON INC.
 
  Delaware
    
    63-1240138(State or other jurisdiction of incorporation or 
organization)
    
    (I.R.S. Employer Identification No.)1200 Corporate Drive, Suite 200
Birmingham, Alabama
    
    35242(Address of principal executive offices)
    
    (Zip Code)
 (205) 980-9222
 
   þ o
  Large accelerated filer o
    
    Accelerated filer
þ
    
    Non-accelerated filer
o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
  o þ




---



##### 



Index
 Page No.PART
I FINANCIAL INFORMATION
    
    
    3Item 1. Financial Statements
    
    
    3Consolidated
Balance Sheets at March 31, 2008 (unaudited) and December 31, 2007
    
    
    3Consolidated Statements of Operations (unaudited) for the Three Months Ended March 31, 2008 and 2007
    
    
    4Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 2008 and 2007
    
    
    5Notes
to Condensed Consolidated Financial Statements (unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    17Item 4. Controls and Procedures
    
    
    17PART II OTHER INFORMATION
    
    
    18Item 1A. Risk Factors
    
    
    18Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    18Item 6. Exhibits
    
    
    18SIGNATURES
    
    
    19EX-31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICEREX-31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICEREX-32 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
 EMAGEON INC.
 
 CONSOLIDATED BALANCE SHEETS
 (in thousands)
 (Unaudited)March 31, 2008
    
    
    December 31, 2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    18,283
    
    
    $
    17,034Trade
accounts receivable, net of allowance for doubtful accounts of $910
at March 31, 2008 and December 31, 2007
    
    
    17,853
    
    
    
    26,796Inventories
    
    
    6,869
    
    
    
    6,249Prepaid expenses and other current assets
    
    
    4,454
    
    
    
    3,398Total current assets
    
    
    47,459
    
    
    
    53,477Property and equipment, net
    
    
    14,932
    
    
    
    15,143Other noncurrent assets
    
    
    3,522
    
    
    
    3,070Intangible assets, net
    
    
    26,753
    
    
    
    27,604TOTAL ASSETS
    
    $
    92,666
    
    
    $
    99,294LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    8,213
    
    
    $
    9,581Accrued payroll and related costs
    
    
    1,428
    
    
    
    2,877Deferred revenue
    
    
    16,919
    
    
    
    16,382Other accrued expenses
    
    
    2,777
    
    
    
    3,297Current portion of capital lease obligations
    
    
    30
    
    
    
    36Total current liabilities
    
    
    29,367
    
    
    
    32,173Long-term deferred revenue
    
    
    3,742
    
    
    
    4,306Other long-term liabilities
    
    
    436
    
    
    
    466Capital lease obligations
    
    
    41
    
    
    
    53TOTAL LIABILITIES
    
    
    33,586
    
    
    
    36,998STOCKHOLDERS EQUITY:Common stock, $0.001 par value, 165,050
shares authorized; 21,637 shares and 21,626
shares issued, and 21,461 shares and 21,450
shares outstanding at March 31, 2008 and
December 31, 2007, respectively
    
    
    22
    
    
    
    22Additional paid-in capital
    
    
    127,819
    
    
    
    126,332Accumulated other comprehensive income
    
    
    628
    
    
    
    741Accumulated deficit
    
    
    (69,114
    )
    
    
    (64,524
    )59,355
    
    
    
    62,571Treasury stock, 175 shares, at cost
    
    
    (275
    )
    
    
    (275
    )Total stockholders equity
    
    
    59,080
    
    
    
    62,296TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    92,666
    
    
    $
    99,294
 The accompanying notes are an integral part of these financial statements.
 3




---



##### Table of Contents



EMAGEON INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (unaudited)
 (in thousands, except per share amounts)
 Three Months Ended March 31,2008
    
    

2007(1)REVENUE:System sales
    
    $
    5,820
    
    
    $
    13,668Support services
    
    
    13,447
    
    
    
    13,682Total revenue
    
    
    19,267
    
    
    
    27,350COST OF REVENUE:System sales
    
    
    4,272
    
    
    
    8,722Support services
    
    
    6,676
    
    
    
    7,681Total cost of revenue
    
    
    10,948
    
    
    
    16,403GROSS PROFIT
    
    
    8,319
    
    
    
    10,947OPERATING EXPENSES:Research and development
    
    
    4,326
    
    
    
    4,618Sales and marketing
    
    
    3,785
    
    
    
    4,392General and administrative
    
    
    3,775
    
    
    
    3,623Amortization of intangible assets
    
    
    345
    
    
    
    345Employee severance and related expenses
    
    
    819
    
    
    
    Total operating expenses
    
    
    13,050
    
    
    
    12,978OPERATING LOSS
    
    
    (4,731
    )
    
    
    (2,031
    )Interest income
    
    
    157
    
    
    
    229Interest expense
    
    
    (16
    )
    
    
    (33
    )NET LOSS
    
    $
    (4,590
    )
    
    $
    (1,835
    )NET LOSS PER SHARE  BASIC AND DILUTED
    
    $
    (0.21
    )
    
    $
    (0.09
    )WEIGHTED AVERAGE SHARES OUTSTANDING, BASIC
AND DILUTED
    
    
    21,453
    
    
    
    21,297
 
 (1)
    
    Certain reclassifications have been made to prior year
amounts to conform with the current year presentation. The accompanying notes are an integral part of these financial statements.
 4




---



##### Table of Contents



EMAGEON INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (unaudited)
 (in thousands)
 Three Months Ended March 31,2008
    
    
    2007OPERATING ACTIVITIESNet loss
    
    $
    (4,590
    )
    
    $
    (1,835
    )Adjustments to reconcile net loss to net cash provided by (used in) operating activities:Depreciation
    
    
    1,075
    
    
    
    1,717Amortization of intangible assets
    
    
    774
    
    
    
    720Stock-based compensation expense
    
    
    1,487
    
    
    
    687Other operating activities
    
    
    4
    
    
    
    169Changes in operating assets and liabilities, net
    
    
    3,866
    
    
    
    (5,486
    )Net cash provided by (used in) operations
    
    
    2,616
    
    
    
    (4,028
    )INVESTING ACTIVITIESPurchases of property and equipment
    
    
    (813
    )
    
    
    (985
    )Capitalized software development costs
    
    
    (39
    )
    
    
    (111
    )Other investing activities
    
    
    (500
    )
    
    
    Net cash used in investing activities
    
    
    (1,352
    )
    
    
    (1,096
    )FINANCING ACTIVITIESProceeds of issuance of common stock
    
    
    
    
    
    
    286Payment of debt and capital lease obligations
    
    
    (18
    )
    
    
    (586
    )Decrease in restricted cash
    
    
    
    
    
    
    446Net cash (used in) provided by financing activities
    
    
    (18
    )
    
    
    146Effect of exchange rate changes on cash
    
    
    3
    
    
    
    2NET
INCREASE (DECREASE) IN Cash and Cash Equivalents
    
    
    1,249
    
    
    
    (4,976
    )Cash and Cash Equivalents at beginning of period
    
    
    17,034
    
    
    
    23,008Cash and Cash Equivalents at end of period
    
    $
    18,283
    
    
    $
    18,032
 The accompanying notes are an integral part of these financial statements.
 5




---



##### Table of Contents



EMAGEON INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1 . BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
    Fair Value Measurements
    NOTE 2. EMPLOYEE SEVERANCE AND RELATED EXPENSES
  6




---



##### Table of Contents



NOTE 3. EXIT LIABILITY
  Three
Months EndedMarch 31, 2008Beginning liability balance
    
    $
    600Lease payments, net
    
    
    (32
    )Ending liability balance
    
    $
    568
  NOTE 4. INTANGIBLE ASSETS
  7




---



##### Table of Contents



March 31, 2008
    
    
    December 31, 2007Gross
    
    
    
    
    
    
    
    
    
    
    GrossCarrying
    
    
    Total
    
    
    Net Carrying
    
    
    Carrying
    
    
    Total
    
    
    Net CarryingAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountAcquired technology
    
    $
    5,240
    
    
    $
    4,893
    
    
    $
    347
    
    
    $
    5,240
    
    
    $
    4,595
    
    
    $
    645Customer relationships
    
    
    8,010
    
    
    
    3,338
    
    
    
    4,672
    
    
    
    8,010
    
    
    
    2,993
    
    
    
    5,017Software development
costs
    
    
    1,559
    
    
    
    1,376
    
    
    
    183
    
    
    
    1,521
    
    
    
    1,246
    
    
    
    275Goodwill
    
    
    21,551
    
    
    
    
    
    
    
    21,551
    
    
    
    21,667
    
    
    
    
    
    
    
    21,667Total
    
    $
    36,360
    
    
    $
    9,607
    
    
    $
    26,753
    
    
    $
    36,438
    
    
    $
    8,834
    
    
    $
    27,604
   Remainder of 2008
    
    $
    1,4942009
    
    
    1,4552010
    
    
    1,3352011
    
    
    9182012 and thereafter
    
    
    Total
    
    $
    5,202
 NOTE 5. INVENTORIES
  March 31, 2008
    
    
    December 31, 2007Third-party components
    
    $
    3,134
    
    
    $
    3,086Work-in-process
    
    
    305
    
    
    
    447Completed systems
    
    
    3,430
    
    
    
    2,716Total
    
    $
    6,869
    
    
    $
    6,249
  8




---



##### Table of Contents



NOTE 6. SUPPLEMENTARY CASH FLOW INFORMATION
  Three Months Ended March 31,2008
    
    
    2007(Increase) decrease in:Trade accounts receivable, net
    
    $
    8,943
    
    
    $
    2,502Inventories
    
    
    (620
    )
    
    
    1,334Prepaid expenses and other current assets
    
    
    (1,056
    )
    
    
    (523
    )Other noncurrent assets
    
    
    (452
    )
    
    
    (121
    )Increase (decrease) in:Accounts payable
    
    
    (1,423
    )
    
    
    (1,177
    )Accrued payroll and related costs
    
    
    (1,449
    )
    
    
    (2,221
    )Other accrued expenses
    
    
    (50
    )
    
    
    159Deferred revenue
    
    
    (27
    )
    
    
    (5,439
    )Net changes in operating assets and liabilities
    
    $
    3,866
    
    
    $
    (5,486
    )
  NOTE 7. COMPUTATION OF NET LOSS PER SHARE
  NOTE 8. STOCK BASED COMPENSATION
  9




---



##### Table of Contents



Three Months Ended March 31,2008
    
    2007Dividend yield
    
    
    0
    %
    
    
    0
    %Expected volatility
    
    
    50.0
    %
    
    
    70.9
    %Risk-free interest rate
    
    
    2.53
    %
    
    
    4.62
    %Expected life of options (in years)
    
    
    5.0
    
    
    
    5.0
    Three Months Ended March 31,2008
    
    2007Stock options:Grants, in shares
    
    
    804
    
    
    
    297Weighted average grant date fair value, per share
    
    $
    1.16
    
    
    $
    7.75Exercises, in shares
    
    
    
    
    
    
    41Proceeds of exercises
    
    
    
    
    
    $
    286Restricted stock units:Grants, in shares
    
    
    48
    
    
    
    61Weighted average grant date fair value, per share
    
    $
    2.52
    
    
    $
    12.46Shares vested in the period
    
    
    11
    
    
    
    7
  10




---



##### Table of Contents



NOTE 9. COMPREHENSIVE LOSS
  NOTE 10. INCOME TAXES
     NOTE 11. WARRANTY OBLIGATION
   11




---



##### Table of Contents



Three Months EndedMarch 31, 2008Beginning liability balance
    
    $
    440Additions charged to expense
    
    
    37Deductions for claim resolution
    
    
    (67
    )Ending liability balance
    
    $
    410
 
 ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 FORWARD-LOOKING STATEMENTS
    12




---



##### Table of Contents



COMPANY OVERVIEW
  RESULTS SUMMARY
    Revenue and Gross Margin
    13




---



##### Table of Contents



Three Months Ended March 31,2008
    
    
    2007Revenue:System sales
    
    $
    5,820
    
    
    $
    13,668Support services
    
    
    13,447
    
    
    
    13,682Total
    
    $
    19,267
    
    
    $
    27,350Cost of Revenue:System sales
    
    $
    4,272
    
    
    $
    8,722Support services
    
    
    6,676
    
    
    
    7,681Total
    
    $
    10,948
    
    
    $
    16,403Gross Profit:System sales
    
    $
    1,548
    
    
    $
    4,946Support services
    
    
    6,771
    
    
    
    6,001Total
    
    $
    8,319
    
    
    $
    10,947Gross Margin:System sales
    
    
    26.6
    %
    
    
    36.2
    %Support services
    
    
    50.4
    %
    
    
    43.9
    %Total
    
    
    43.2
    %
    
    
    40.0
    %
 Summary
  System
Sales Revenue
  System
Sales Gross Margin
  14




---



##### Table of Contents



Support Services Revenue
  Support Services Gross Margin
  Research & Development, Sales & Marketing, and General & Administrative Expenses
   Research and Development Expenses
  Sales and Marketing Expenses
  15




---



##### Table of Contents



General and Administrative Expenses
  LIQUIDITY AND CAPITAL RESOURCES
 Summary
  Cash From Operating Activities
   Cash Used In Investing Activities
   Cash From Financing Activities
  16




---



##### Table of Contents



Contractual Cash Obligations
  Available Credit
   
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
 ITEM 4. CONTROLS AND PROCEDURES
  17




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 6. EXHIBITS
 Exhibit No.
    
    Description31.1*
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under
the Securities Exchange Act of 193431.2*
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a)
under the Securities Exchange Act of 193432*
    
    Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 *
    
    Filed herewith 18




---



##### Table of Contents



SIGNATURES
  EMAGEON, INC.By:
    /s/ Charles A. Jett, Jr.Charles A. Jett, Jr.Chairman, Chief Executive Officer, and President
(Principal Executive Officer)By:
    /s/ John W. WilhoiteJohn W. WilhoiteChief Financial Officer and Treasurer
(Principal Financial and Accounting Officer) 19