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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 endedMarch 31, 2007
 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
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Index
 Page No.PART I
    
    FINANCIAL INFORMATIONItem 1. Unaudited Financial Statements
    
    
    3Consolidated Balance Sheets at March 31, 2007
and December 31, 2006
    
    
    3Consolidated Statements of Operations for the Three
Months Ended March 31, 2007 and 2006
    
    
    4Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 2007 and 2006
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    10Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    16Item 4. Controls and Procedures
    
    
    17PART II
    
    OTHER INFORMATIONItem 1A. Risk Factors
    
    
    18Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    18Item 6. Exhibits
    
    
    18SIGNATURES
    
    
    
    
    19EX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32 SECTION 906 CERTIFICATIONS OF THE CEO AND CFO




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PART I. FINANCIAL INFORMATION
 
 ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
 
 EMAGEON INC.
CONSOLIDATED BALANCE SHEETS
 (in thousands, except per share amounts)
 (Unaudited)March 31, 2007
    
    
    December 31, 2006ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    18,032
    
    
    $
    23,008Trade accounts receivable, net
    
    
    25,100
    
    
    
    27,602Inventories
    
    
    7,245
    
    
    
    8,579Prepaid expenses and other current assets
    
    
    4,982
    
    
    
    4,459Total current assets
    
    
    55,359
    
    
    
    63,648PROPERTY AND EQUIPMENT,net
    
    
    17,461
    
    
    
    18,362OTHER NONCURRENT ASSETS
    
    
    1,483
    
    
    
    1,808INTANGIBLE ASSETS,net
    
    
    29,509
    
    
    
    30,090TOTAL ASSETS
    
    $
    103,812
    
    
    $
    113,908LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    8,561
    
    
    $
    9,738Accrued payroll and related costs
    
    
    1,549
    
    
    
    3,770Deferred revenue
    
    
    19,897
    
    
    
    24,849Other accrued expenses
    
    
    3,200
    
    
    
    2,946Current portion of long-term debt and capital lease obligations
    
    
    372
    
    
    
    953Total current liabilities
    
    
    33,579
    
    
    
    42,256LONG-TERM DEFERRED REVENUE
    
    
    5,364
    
    
    
    5,851OTHER LONG-TERM LIABILITIES
    
    
    591
    
    
    
    686LONG-TERM PORTION OF CAPITAL LEASE OBLIGATIONS
    
    
    3
    
    
    
    8TOTAL LIABILITIES
    
    
    39,537
    
    
    
    48,801STOCKHOLDERS EQUITY:Common
stock, $0.001 par value, 165,050 shares authorized; 21,474
shares and 21,434 shares issued, and 21,298 shares and 21,258
shares outstanding at March 31, 2007 and December 31, 2006,
respectively
    
    
    21
    
    
    
    21Additional paid-in capital
    
    
    123,511
    
    
    
    122,538Accumulated other comprehensive income
    
    
    292
    
    
    
    262Deficit
    
    
    (59,274
    )
    
    
    (57,439
    )64,550
    
    
    
    65,382Treasury stock, 176 shares, at cost
    
    
    (275
    )
    
    
    (275
    )Total stockholders equity
    
    
    64,275
    
    
    
    65,107TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    103,812
    
    
    $
    113,908
 The accompanying notes are an integral part of these financial statements.
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EMAGEON INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 (in thousands, except per share amounts)
 Three Months Ended March 31,2007
    
    
    2006(1)REVENUE:System sales
    
    $
    13,668
    
    
    $
    17,269Support services
    
    
    13,682
    
    
    
    9,732Total revenue
    
    
    27,350
    
    
    
    27,001COST OF REVENUE:System sales
    
    
    8,722
    
    
    
    13,284Support services
    
    
    7,160
    
    
    
    6,257Total cost of revenue
    
    
    15,882
    
    
    
    19,541GROSS PROFIT
    
    
    11,468
    
    
    
    7,460OPERATING EXPENSES:Research and development
    
    
    5,139
    
    
    
    4,184Sales and marketing
    
    
    4,392
    
    
    
    4,067General and administrative
    
    
    3,623
    
    
    
    4,160Amortization of intangible assets related to
Camtronics acquisition
    
    
    345
    
    
    
    885Integration costs related to Camtronics acquisition
    
    
    
    
    
    
    1,204Total operating expenses
    
    
    13,499
    
    
    
    14,500LOSS FROM OPERATIONS
    
    
    (2,031
    )
    
    
    (7,040
    )INTEREST INCOME
    
    
    229
    
    
    
    156INTEREST EXPENSE
    
    
    (33
    )
    
    
    (109
    )NET LOSS
    
    $
    (1,835
    )
    
    $
    (6,993
    )NET LOSS PER SHARE  BASIC AND DILUTED
    
    $
    (0.09
    )
    
    $
    (0.34
    )WEIGHTED AVERAGE SHARES OUTSTANDINGBASIC AND DILUTED
    
    
    21,272
    
    
    
    20,583
 
 (1)
    
    Certain reclassifications have been made to the
prior year amounts to conform with the current year presentation. The accompanying notes are an integral part of these financial statements.
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EMAGEON INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 (in thousands)
 Three Months EndedMarch 31,2007
    
    
    2006OPERATING ACTIVITIESNet loss
    
    $
    (1,835
    )
    
    $
    (6,993
    )Adjustments
to reconcile net loss to net cash used in operating
activities:Depreciation
    
    
    1,717
    
    
    
    1,731Amortization of intangible assets
    
    
    720
    
    
    
    1,293Stock-based compensation expense
    
    
    687
    
    
    
    575Other
operating activities, net
    
    
    169
    
    
    
    36Changes in operating assets and liabilities, net
    
    
    (5,486
    )
    
    
    (1,089
    )Net cash used in operations
    
    
    (4,028
    )
    
    
    (4,447
    )INVESTING ACTIVITIESPurchases of property and equipment
    
    
    (985
    )
    
    
    (1,413
    )Maturities of marketable securities
    
    
    
    
    
    
    5,000Capitalized software development costs
    
    
    (111
    )
    
    
    (109
    )Other investing activities
    
    
    
    
    
    
    219Net cash (used in) provided by investing activities
    
    
    (1,096
    )
    
    
    3,697FINANCING ACTIVITIESProceeds of issuance of common stock
    
    
    286
    
    
    
    1,516Payment of debt and capital lease obligations
    
    
    (586
    )
    
    
    (686
    )Decrease in
restricted cash
    
    
    446
    
    
    
    Net cash provided by financing activities
    
    
    146
    
    
    
    830EFFECT OF EXCHANGE RATE CHANGES ON CASH
    
    
    2
    
    
    
    (3
    )NET (DECREASE) INCREASE IN CASH
    
    
    (4,976
    )
    
    
    77CASH at beginning of period
    
    
    23,008
    
    
    
    15,520CASH at end of period
    
    $
    18,032
    
    
    $
    15,597
 The accompanying notes are an integral part of these financial statements.
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EMAGEON INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1 . BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
        NOTE 2. ACQUISITIONS AND INTANGIBLE ASSETS
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March 31, 2007
    
    
    December 31, 2006Gross
    
    
    
    
    
    
    
    
    
    
    GrossCarrying
    
    
    Total
    
    
    Net Carrying
    
    
    Carrying
    
    
    Total
    
    
    Net CarryingAmount
    
    
    Amortization
    
    
    Amount
    
    
    Amount
    
    
    Amortization
    
    
    AmountAcquired technology
    
    $
    5,240
    
    
    $
    3,701
    
    
    $
    1,539
    
    
    $
    5,240
    
    
    $
    3,404
    
    
    $
    1,836Customer relationships
    
    
    8,010
    
    
    
    1,957
    
    
    
    6,053
    
    
    
    10,028
    
    
    
    3,629
    
    
    
    6,399Trade names
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    501
    
    
    
    501
    
    
    
    Software development
costs
    
    
    1,561
    
    
    
    882
    
    
    
    679
    
    
    
    1,451
    
    
    
    806
    
    
    
    645Goodwill
    
    
    21,238
    
    
    
    
    
    
    
    21,238
    
    
    
    21,210
    
    
    
    
    
    
    
    21,210Total
    
    $
    36,049
    
    
    $
    6,540
    
    
    $
    29,509
    
    
    $
    38,430
    
    
    $
    8,340
    
    
    $
    30,090
   2007
    
    $
    2,2702008
    
    
    2,3662009
    
    
    1,3812010
    
    
    1,3352011 and thereafter
    
    
    919Total
    
    $
    8,271
 NOTE 3. MARKETABLE SECURITIES
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NOTE 4. INVENTORIES
  March 31, 2007
    
    
    December 31, 2006Third-party components
    
    $
    3,532
    
    
    $
    2,716Work-in-process
    
    
    331
    
    
    
    336Completed systems
    
    
    3,382
    
    
    
    5,527Total
    
    $
    7,245
    
    
    $
    8,579
  NOTE 5. SUPPLEMENTARY CASH FLOW INFORMATION
  Three Months Ended March 31,2007
    
    
    2006(Increase) decrease in:Trade accounts receivable, net
    
    $
    2,502
    
    
    $
    670Inventories, net
    
    
    1,334
    
    
    
    (1,695
    )Prepaid expenses and other current assets
    
    
    (523
    )
    
    
    (745
    )Other noncurrent assets
    
    
    (121
    )
    
    
    (5
    )Increase (decrease) in:Accounts payable
    
    
    (1,177
    )
    
    
    (1,522
    )Accrued payroll and related costs
    
    
    (2,221
    )
    
    
    (1,270
    )Other accrued expenses
    
    
    159
    
    
    
    1,717Deferred revenue
    
    
    (5,439
    )
    
    
    1,761Net changes in operating assets and liabilities
    
    $
    (5,486
    )
    
    $
    (1,089
    )
  NOTE 6. COMPUTATION OF NET LOSS PER SHARE
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NOTE 7. STOCK-BASED COMPENSATION
  Share Based Payment Accounting for Stock Issued to Employees
  Dividend yield
    
    
    0.0
    %Expected volatility
    
    
    70.9
    %Risk-free interest rate
    
    
    4.62
    %Expected life of options (in years)
    
    
    5.0
    NOTE 8. COMPREHENSIVE LOSS
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NOTE 9. INCOME TAXES
 Accounting For Uncertainty In Income Taxes Accounting For
Income Taxes
     NOTE 10. SUBSEQUENT EVENT
  
 ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 FORWARD-LOOKING STATEMENTS
  10




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COMPANY OVERVIEW
  RESULTS SUMMARY
   1)
    
    First quarter 2007 non-cash expenses of $0.3 million in
amortization of intangible assets acquired in the Camtronics acquisition ($0.9 million for the three months ended March 31, 2006);
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2)
    
    First quarter 2007 non-cash expenses of $0.7 million for
stock-based compensation ($0.6 million for the three months ended
March 31, 2006); and3)
    
    First quarter 2006 expenses of $1.2 million related to the
integration of Camtronics into the operations of the Company. The integration of Camtronics
was substantially completed as of December 31, 2006.
  Revenue and Gross Margin
     Three Months Ended March 31,2007
    
    
    2006Revenue:System sales
    
    $
    13,668
    
    
    $
    17,269Support
services
    
    
    13,682
    
    
    
    9,732Total
    
    $
    27,350
    
    
    $
    27,001Cost of Revenue:System sales
    
    $
    8,722
    
    
    $
    13,284Support services
    
    
    7,160
    
    
    
    6,257Total
    
    $
    15,882
    
    
    $
    19,541Gross Profit:System sales
    
    $
    4,946
    
    
    $
    3,985Support services
    
    
    6,522
    
    
    
    3,475Total
    
    $
    11,468
    
    
    $
    7,460Gross Margin:System sales
    
    
    36.2
    %
    
    
    23.1
    %Support services
    
    
    47.7
    %
    
    
    35.7
    %Total
    
    
    41.9
    %
    
    
    27.6
    %
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Summary
   System Sales Revenue
  System Sales Gross Margin
   Support Services Revenue
  13




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Support Services Gross Margin
  Research & Development, Sales & Marketing, and General & Administrative Expenses
   Research and Development Expenses
  Sales and Marketing Expenses
  General and Administrative Expenses
  14




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LIQUIDITY AND CAPITAL RESOURCES
 Summary
  Cash Used In Operating Activities
    Cash From Investing Activities
   15




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Cash From Financing Activities
  Contractual Cash Obligations
  Available Credit
   
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    16




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ITEM 4. CONTROLS AND PROCEDURES
  17




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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 the 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 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 *
    
    Filed herewith 18




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SIGNATURES
  EMAGEON INC.By:

/s/ Charles
A. Jett, Jr.Charles A. Jett, Jr.Chairman, Chief Executive Officer, and President
(Principal Executive Officer)By:
    /s/ W. Randall PittmanW. Randall PittmanChief Financial Officer and Treasurer
(Principal Financial and Accounting Officer) 19