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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995 Commission File
Number: 0-7101
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INAMED CORPORATION
State of Incorporation: Florida I.R.S. Employer Identification No.:
59-0920629
3800 Howard Hughes Parkway, Suite #900, Las Vegas, Nevada 89109
Telephone Number: (702) 791-3388
________________________________
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
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The aggregate market value of voting stock held by non-affiliates as of
March 29, 1996, was $72,434,436
On March 29, 1996 there were shares of Common Stock outstanding.
This document contains 60 pages.
Exhibit index located on page 58.
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PART I
ITEM 1. BUSINESS.
GENERAL DEVELOPMENT OF BUSINESS
INAMED Corporation ("INAMED") (formerly First American Corporation)
was incorporated under the laws of the state of Florida on February 6, 1961.
In 1985, First American Corporation acquired all of the outstanding shares of
McGhan Medical Corporation ("MMC") in a stock-for-stock, reverse merger
transaction. The Company changed its name in 1986 from First American
Corporation to INAMED Corporation in order to better reflect its involvement
in the medical field. The name was chosen to promote the recognition of the
concepts "Innovation and Medicine". MMC now operates as a wholly-owned
subsidiary of INAMED Corporation. MMC entered the medical device business on
August 3, 1984, through the acquisition of assets related to Minnesota Mining
and Manufacturing ("3M") Company's silicone implant product line.
Specialty Silicone Fabricators, Inc. ("SSF") was a wholly-owned
subsidiary of McGhan Medical Corporation at the time McGhan Medical was
acquired by First American Corporation. As a result of the acquisition, SSF
became a wholly-owned subsidiary of First American Corporation, and operated
as such until it was divested in August 1993.
Unless otherwise indicated by context, the term "Company" as used
herein refers to INAMED and its subsidiaries. The purpose of this method of
filing as one company is to reflect consolidation for the sole purpose of
reporting in the required SEC method and is not intended for any other
purpose. INAMED Corporation is the subsidiaries' parent through stock
ownership. INAMED's subsidiaries operate as individual corporations
corresponding to their state corporate filings, and under their own daily
management, to assist INAMED in accomplishing its corporate objectives.
Since 1985, the Company has incorporated or acquired several
companies, which it has structured as subsidiaries, in order to strengthen
its position as a leading medical products company. INAMED Development
Company ("IDC") was incorporated in 1986 as a wholly-owned subsidiary to
pursue research and development of new medical devices primarily using
silicone-based technology.
In May 1989, the Company acquired 100% of the outstanding shares of
Cox-Uphoff Corporation and subsidiaries ("CUC"), a competitor of MMC in the
silicone implant market. Upon the acquisition, the company name was changed
to CUI Corporation ("CUI") which now operates as a wholly-owned subsidiary of
the Company.
In October 1989, INAMED incorporated its McGhan Limited subsidiary
which has designed and equipped a new medical device manufacturing plant in
Arklow, County Wicklow, Ireland, to supplement production of the Company's
current and future products. The location in Ireland was selected because it
offers many favorable conditions such as availability of labor at reasonable
rates, availability of attractive grants from the Industrial Development
Authority (IDA), geographic proximity to INAMED B.V., favorable local tax
treatment and their membership in the European Economic Community or EEC.
The manufacturing plant in Ireland was fully operational in 1993, and is
capable of supplying nearly all of the products sold in the international
market. Future new products will be produced by McGhan Limited for sale
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internationally with limited support shipments from the Company's U.S.
manufacturing plants. In support of expected future growing international
demand the Company incorporated its Chamfield Limited subsidiary in 1993.
Chamfield Limited's manufacturing facilities, which are not yet fully
operational, are located adjacent to McGhan Limited's facilities.
In November 1989, INAMED incorporated its INAMED B.V. subsidiary in
Breda, the Netherlands, to warehouse and distribute the Company's products to
the European Community, Asia and other international locations. INAMED B.V.
also markets products on a direct sales basis throughout the Netherlands. In
conjunction with, and to further accomplish its long-range plans, the Company
incorporated INAMED GmbH in Germany and INAMED B.V.B.A. in Belgium as
subsidiaries in December 1989, thereby establishing a base from which to
initiate direct sales of its products in two additional countries.
In 1991, INAMED concentrated on continued expansion into the
European and international market, increasing production in its Irish
manufacturing facility, continued efficiency and quality evaluation of its
other manufacturing facilities and continued sales growth. The Company
expanded its marketing base in Europe by incorporating INAMED S.R.L. as a
direct marketing and distribution center for the Company's products in Italy
in May 1991.
In 1991, the Company also incorporated its BioEnterics Corporation
subsidiary in Carpinteria, California. BioEnterics was incorporated in order
to focus on the development, production and international distribution of
high-quality, proprietary implantable devices and associated instrumentation
to the bariatric and general surgery markets for the treatment of
gastrointestinal disorders and serious obesity.
In 1992, the Company incorporated its Biodermis Corporation
subsidiary in Las Vegas, Nevada, in order to focus on the development,
production and international distribution of premium products for
dermatology, wound care and burn treatment.
In 1992, the Company also incorporated its Medisyn Technologies
Corporation subsidiary to focus on the development and promotion of the
merits of the use of silicone chemistry in the fields of medical devices,
pharmaceuticals and biotechnology. This subsidiary is located in Las Vegas,
Nevada.
The Company also continued development of its international market
base in 1992 by incorporating INAMED Ltd. to market and distribute the
Company's products in the United Kingdom.
In 1993, the Company incorporated Bioplexus Corporation, a
wholly-owned subsidiary which is a research and development company that
develops, produces and distributes specialty medical products for use by the
General Surgery Profession.
The Company also incorporated Flowmatrix Corporation as a
wholly-owned subsidiary in 1993. Flowmatrix manufactures high-quality
silicone components and devices for INAMED's wholly-owned subsidiaries, and
produces and distributes a line of proprietary silicone surgical products
internationally.
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The Company continued to expand its international marketing base in
1993 by incorporating INAMED S.A.R.L. in Paris, France. The new subsidiary
operates as a wholly-owned subsidiary of INAMED B.V.
In 1993, the Company sold its Specialty Silicone Fabricators
("SSF") subsidiary and SSF's Innovative Surgical Products subsidiary to
Innovative Specialty Silicone Acquisition Corporation (ISSAC), a private
investment group which included certain members of Specialty Silicone
Fabricators' management. The transaction was valued at approximately $10.8
million, including $2.7 million in cash, $5.9 million in structured
short-term and long-term notes, and the retirement of $2.2 million in
intercompany notes due to SSF by the Company's subsidiaries.
Effective January 1994, the Company acquired the assets of
Novamedic, S.A. in Barcelona, Spain. Novamedic, S.A. is a well-established
distributor of medical products in Spain which further strengthens the
Company's presence in the international market. The new subsidiary was
renamed INAMED, S.A. and operates as a wholly-owned subsidiary of the Company.
The Company has identified Spain, Portugal, South America, Central
America, and Mexico as the IberoLatinoAmerican area. The incorporation of
INAMED do Brazil in 1995 has strengthened the Company's presence in this
area. INAMED do Brazil operates as a wholly-owned subsidiary of INAMED, S.A.
The Company incorporated its INAMED Japan subsidiary in Las Vegas,
Nevada in 1995. INAMED Japan subsequently acquired 95% of INAMED Medical
Group, a Japanese corporation. Additionally, the Company's McGhan Medical
Corporation subsidiary incorporated its McGhan Medical Asia Pacific
subsidiary in 1995. The formation of INAMED Japan and McGhan Medical Asia
Pacific has enabled the Company to continue its expansion into the
Asia-Pacific Rim market.
PRINCIPAL PRODUCTS AND MARKETS
The Company is engaged in the development, manufacture and
marketing of a number of implantable products, including mammary prostheses,
tissue expanders and facial implants for plastic and reconstructive surgeons
as well as custom prostheses for a variety of surgical applications and
procedures.
Mammary prostheses are used for breast reconstruction and
augmentation. As part of its mammary prosthesis product line, the Company
produces different models, shapes and sizes of mammary implants including but
not limited to double-lumen, saline and gel-filled mammary implants. In
addition, the Company manufactures the Biocell-Registered Trademark- implant
which incorporates the Company's patented low-bleed technology. The resulting
implant has an open-cell silicone surface bio-engineered for a more favorable
implant-to-tissue interface. The Biocell product line has received notably
favorable market acceptance.
The Company is one of the leading world-wide manufacturers of
saline-filled mammary prostheses. Saline implants are manufactured at two
different subsidiaries: McGhan Medical Corporation and McGhan Limited.
These products are made in various shapes and sizes, and utilize various
valve designs. The surface construction of the finished
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implants provide the surgeon the opportunity to select from a smooth
silicone, the BioCell textured surface or the patented MicroCell-Registered
Trademark- textured surface.
The Company has developed and currently manufactures and markets a
line of implantable and intraoperative tissue expanders. A typical tissue
expander may consist of two unequal-size chambers which are implanted at a
site where new tissue can be generated. After the device is implanted fluid
can be injected into the smaller receiving chamber, or injection port, which
then flows into the larger expanding chamber thus causing increased pressure
under the skin resulting in tissue growth over a reduced period of time. The
expanded tissue can then be used to cover defects, burns and injury sites or
prepare a healthy site for an implant with the extra tissue available without
the trauma of skin grafting. The Company has further developed its tissue
expander product line by incorporating a patented integral valve injection
area that is located by a magnetic detection system to enable the doctor to
determine location of the injection port.
The Company manufactures and markets its patented
BioSpan-Registered Trademark- tissue expander product line that utilizes the
BioCell textured surface which allows more precise surgical placement. The
BioSpan tissue expander surface subsequently decreases capsular contracture
and yields greater tissue laxity during expansion.
The Company introduced the BioDimensional-TM- system for breast
reconstruction following radical mastectomy procedures. The BioSpan tissue
expanders and BioCell mammary implants used for this system were designed
using a computer-assisted modeling study to determine the ideal dimensions
and also utilized computer imaging programs to evaluate the expected
aesthetic results. The BioDimensional system matches the specific size
tissue expander to the mammary implant that will be used for the breast
reconstruction procedure.
The Company also manufactures and markets the Ruiz-Cohen
intraoperative expander. The Ruiz-Cohen intraoperative expander utilizes
rapid intraoperative expansion as an effective means of arterial elongation
to provide the additional tissue needed for end-to-end anastomosis. By
eliminating the need for arterial grafting, patient discomfort is greatly
reduced and the time and associated costs required to complete arterial
anastomosis are minimized. The Company has license agreements and patents
covering this product line, as well as patents pending for the next
generation of the product. Additionally, the Company has patents and patent
applications in eight countries outside of the United States for the product.
The Company's group of products allows the plastic or
reconstructive surgeon a range of options. If requested, the Company works
with a surgeon to design, to the surgeon's specifications, a custom implant
suited to individual patients' needs.
The Company manufactures silicone gel sheeting intended for use in
the treatment and control of old and new hypertrophic or keloid scarring.
The products are sold under the tradenames TopiGel-TM-, Epi-Derm-TM-, and
DemaSof-TM-.
During 1994 and 1995, the Company's proprietary products accounted
for 100% of net sales. Comparatively, in 1993, silicone implant products and
silicone components accounted for 90% and 10% of net sales, respectively. The
percentage of sales represented
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by proprietary products has increased due to the sale of Specialty Silicone
Fabricators in August 1993.
MARKETING
In the United States, the Company's implant products are sold to
plastic and reconstructive surgeons, facial and oral surgeons, outpatient
surgery centers and hospitals through its own staff of direct sales people
and independent distributors. In Canada and Hawaii, the Company is
represented by independent distributors. The Company reinforces its sales
and marketing program through the use of telemarketing which produces sales
by providing follow up on leads and distributing product information to
potential customers. The Company also supplements its marketing effort
through its subsidiaries' appearances at trade shows and advertisements in
trade journals and sales brochures.
The Company has a direct sales and distribution network in the
Netherlands, Belgium, Germany, Italy, France, Spain, the United Kingdom,
Brazil, Japan, and China. The Company's Netherlands subsidiary markets to
and supports independent distributors in Denmark, Finland, Iceland, Italy,
Norway, Sweden, and Switzerland. The Company also sells its products to
independent distributors in Argentina, Australia, India, Korea, New Zealand
and Taiwan. Sales outside the United States and Canada are made directly to
these and other independent distributors and sales organizations through the
Netherlands subsidiary's inventory of the Company's products. The Company
believes its direct sales efforts and increased support of its international
independent distributors has greatly enhanced overall sales which will
continue throughout calendar 1996.
The Company maintains inventories of finished implant products in
the United States and in the Netherlands to support and facilitate direct and
immediate delivery on a normal basis. However, a back-order situation may
occur from time to time due to a product's unusually high demand or unusual
circumstances such as regulatory restrictions or new product release. As a
direct result of the regulatory activity by the Food and Drug Administration
("FDA") in 1991 and 1992, the Company reduced its inventory levels and wrote
off certain inventories impacted by FDA actions. To comply with FDA
regulations, the Company voluntarily recalled all silicone gel-filled mammary
implants which had previously been sold to its customers but not used. In
1992 the Company wrote off approximately $2.0 million of certain inventories
and intangible assets related to the products covered by the FDA's request
relating to the return of gel-filled implants and regulations. All the
Company's silicone implant products manufactured or sold in the United States
are classified as medical devices subject to regulation by the FDA, as more
fully described under "Government Regulations."
COMPETITION
The Company competes with one other manufacturer in the production and
sale of mammary prostheses in the domestic market. Three other competitors
discontinued production of mammary prostheses in 1992 largely as a result of
regulatory action by the FDA. The Company believes that the principal factors
permitting its products to compete effectively are its high-quality product
consistency, variety of product designs, management's knowledge of and
sensitivity to market demands, and the Company's ability to identify, develop
and/or obtain license agreements for patented products embodying new
technology. In compliance with certain FDA regulations, the Company
is allowed to sell one type of silicone gel-filled mammary prosthesis
to a limited number of customers in the United States under stringent
guidelines.
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Internationally, the Company competes with several other
manufacturers in the production and sale of its mammary prostheses. Major
competitors in Europe include Mentor Corporation, Silimed, Laboratories
Sebbin, L.P.I., Nagor, and LipoMatrix. However, the Company believes that
its extensive network of marketing and distribution centers throughout Europe
create the strongest presentation of its products in the international
market, as well as the most favorable acceptance by physicians.
The tissue expander products' competition comes generally from the
same corporations as in the manufacture and sale of mammary prostheses.
Management believes the Company's implant market position will continue to grow
due to its superior design, strong product features and future additions to its
product lines.
Through August 1993, the Company competed in a highly diverse field in
the sale of silicone components for the health care industry. These competitors
included Dow Corning Corporation, Furon, Inc., Mox-Med, Inc., SF Medical,
Surgical Technologies, Inc. and Helix Medical. The Company's products, although
not proprietary, received good customer acceptance through the development of
process technology, such as injection molding of liquid silicone, and the
ability to achieve close tolerances. The Company no longer competes in this
market since the sale of its Specialty Silicone Fabricators subsidiary in August
1993.
RESEARCH AND PRODUCT DEVELOPMENT
A qualified staff of doctorates, scientists, engineers and
technicians, working in material technology and product design configurations,
presently guide the Company's research and development efforts. The Company is
directing its research toward new and improved products based on scientific
advances in technology and medical knowledge together with qualified input from
the surgical profession.
The Company has introduced the LAP-BAND-Registered Trademark-
Adjustable Gastric Banding (LAGB-Registered Trademark-) System to the
international market as an improvement to the earlier adjustable banding design.
The LAGB System is in clinical trials in the United States. The LAGB System is
designed to permit a laparoscopic procedure for severe obesity. During the
operation, which is usually done without any large incision but under general
anesthesia, the adjustable gastric band is placed around the stomach to
constrict the stomach, forming a stoma between the stomach and a small stomach
pouch above the band. The system utilizes special pouch and stoma measuring
equipment, including an electronic device, and a special laparoscopic band
placement instrument. Unlike "stomach stapling" or "stomach bypass" procedures,
no cutting or stapling of the stomach is required and, usually, no major
incision. the band is designed to be adjustable postoperatively without
additional surgery. The LAGB System is currently being used for the long-term
treatment of severe obesity throughout Europe, as well as in Australia, Latin
America and the Middle East. The Company holds a license for the patent and
patent pending applications.
The Company also holds a license for the patent and patent pending
applications for EndoLumina-Registered Trademark- Illuminated Bougies, devices
designed to transilluminate the esophagus and other organs of the body for
improved visualization during a variety of laparoscopic and other surgical
procedures. These products are on the market internationally and in the United
States. The Company is currently conducting research into special materials and
manufacturing techniques for providing increased transillumination and
miniaturization for new indications.
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The Company holds a license for the U.S. and international patents
for a new device for the treatment of severe gastroesophageal reflux. This
device, with a cuff-like design and a self-locking mechanism, is designed to
improve the safety and reliability of the laparoscopic treatment of
gastroesophageal reflux. It is anticipated that clinical use of this device
will start during 1996.
The Company's BioEnterics-Registered Trademark- Intragastric
Balloon (BIB-Registered Trademark-) is being marketed on a limited basis in
Europe for preoperative weight loss in severely obese patients, and as an aid
to weight reduction in moderately obese patients. The balloon is
endoscopically (non-surgically) placed in the patient's stomach and inflated
with saline. The balloon partially fills the stomach, inducing weight loss.
Severely obese patients have a higher incidence of surgical and perioperative
complications, and weight loss also facilitates laparoscopic procedures in
these patients.
The Company is also continuing efforts to add to its existing line
of breast prostheses.
The Company depends on the efforts and accomplishments of the
dedicated staff in its Research and Development groups, and will continue to
support its current and future R & D projects and activities.
PATENTS AND LICENSE AGREEMENTS
It is the Company's policy to actively seek patent protection for
its products and/or processes when appropriate. The Company developed and
currently owns patents and trademarks for both the product and processes used
to manufacture low-bleed mammary prostheses and for the resulting barrier
coat mammary prostheses. Intrashiel-Registered Trademark- is the Company's
registered trademark for the products using this technology. Beginning in
1984, such patents were granted in the United States, Australia, Canada,
France, the Netherlands, the United Kingdom and West Germany. Trademarks for
this product have been granted in the United States and France. The Company
has license agreements allowing other companies to manufacture products using
the Company's select technology, such as the Company's patented Intrashiel
process, in exchange for royalty and other agreed to compensation or benefits.
The Company's other patents include patents relating to its mammary
prostheses, tissue expanders, textured surfaces, injection ports, and valve
systems. The Company also has various patent assignments or license
agreements which grant the Company the right to manufacture and market
certain products.
The Company believes its patents are valuable; however, it has been
the Company's experience that the knowledge, experience and creativity of its
product development and marketing staffs, and trade secret information with
respect to manufacturing processes, materials and product design, have been
equally important in maintaining proprietary product lines. Staying at the
forefront of rapidly advancing medical technology by being responsive to the
needs and concerns of health care professionals and their patients is the key
to the Company's plans for future business expansion and financial success.
As a condition of employment, the Company requires each of its employees to
execute an agreement relating to confidential information and patent rights.
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MANUFACTURING AND PRODUCT DEPENDABILITY
The Company manufactures its silicone devices under controlled
conditions. The majority of the manufacturing process is accomplished
manually, in conjunction with specialized equipment for precision
measurement, quality control, packaging and sterilization. Quality control
procedures begin upon the receipt of raw components and materials and
continue throughout production and final packaging. The Company maintains
quality control and production records of each product manufactured and
encourages the return of any explanted units for analysis by its personnel.
A majority of the Company's silicone products are supplied to the customer in
a sterile condition requiring quarantine for appropriate periods of time to
permit confirmation of sterility. All of the Company's activities are
subject to FDA regulations and guidelines, and the Company's products and
manufacturing procedures are continually monitored and/or reviewed by the
Food and Drug Administration.
In the Company's continued efforts to develop state-of-the-art
processes that are environmentally responsible, a dry-heat sterilization
process has been developed and is in place in the Company's manufacturing
plants in the United States at McGhan Medical Corporation and in Ireland at
McGhan Limited. Development of this dry heat packaging and sterilization
cycle was the result of over three years of equipment design, identification
and testing of materials and products, and process development, replacing a
sterilization process that used ethylene oxide (EtO), as the standard.
The Company had more than one source of supply for all silicone
materials used in the manufacture of its products until Dow Corning
Corporation ("DCC"), a major supplier of medical grade silicone materials,
announced it would discontinue the sale of implant grade silicone materials
as of March 31, 1993. A majority of the silicone raw materials utilized by
the Company have been purchased from a supplier other than DCC. The Company
has studied the impact of the discontinuation of the supply of certain raw
materials on the Company's ongoing business, and has established reliable
alternate sources of high-quality critical silicone materials. The Company
has experienced increased costs for its silicone materials, however, the cost
increase is not significant to the overall cost of the finished products.
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LIMITED WARRANTIES
The Company provides a limited warranty to the effect that it will
replace without charge any product that proves defective with a new product
of comparable type.
McGhan Medical Corporation's Product Service Program (PSP-TM-) is
designed to provide limited financial assistance to cover non-reimbursed
operating room or surgical expenses due to a loss of shell integrity for
inflatable mammary implants for a period of five years from the date of
implantation; in addition, a no charge replacement of the same or similar
product is provided for returned McGhan Medical mammary implant products
covered within the program. The Company reserves the right to make changes
to its warranty policy from time to time within the confines of its warranty
documents.
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GOVERNMENT REGULATIONS
All the Company's silicone implant products manufactured or sold in
the United States are classified as medical devices subject to regulation by
the Food and Drug Administration ("FDA"). FDA regulations classify medical
devices into three classes that determine the degree of regulatory control to
which the manufacturer of the device is subject. In general, Class I devices
involve compliance with labeling and record keeping requirements and are
subject to other general controls. Class II devices are subject to
performance standards in addition to general controls. A notification must
be submitted to the FDA prior to the commercial sale of some Class I and all
Class II products. Class II products are subject to fewer restrictions than
Class III products on their commercial distribution, such as compliance with
general controls and performance standards relating to one or more aspects of
the design, manufacturing, testing and performance or other characteristics
of the product. Tissue expanders are currently proposed to be classified as
Class II devices. The Company's mammary prostheses, silicone intragastric
balloon and gastric band system are Class III devices. Class III devices
require the FDA's Pre-Market Approval (PMA) or an FDA Investigational Device
Exemption (IDE) before commercial marketing to assure the products' safety
and effectiveness.
On April 10, 1991, the FDA issued a final ruling requiring all
manufacturers of silicone gel filled mammary prostheses to file a PMA
application for their version(s) of the product(s) within 90 days after the
effective date of the regulation or cease sale and/or distribution of their
product(s). The ruling reflects the FDA's discretion to require PMA's for
any device which predates the 1976 Medical Device Act. This ruling is also
in line with the FDA's stated priorities and Congress' requirement that all
Class III devices be submitted to PMA review. In anticipation of this
ruling, the Company had, for some time, been gathering the required data,
including the results of laboratory, animal and clinical investigation and
testing. In July 1991 the Company submitted an application to the FDA in
response to the ruling. In November 1991 an FDA advisory panel voted
unanimously to recommend that the Company's silicone gel-filled breast
implants remain on the market while more safety data was gathered and
evaluated by the agency. While the advisory panel concluded that the
original PMA submitted by the Company's McGhan Medical subsidiary had failed
to provide sufficient data concerning the safety of the implants, the FDA
staff had not provided the panel members with updated and additional test
results that had been submitted to the PMA application in late September
1991.
In January 1992, FDA Commissioner, David Kessler, requested that
all United States silicone breast implant manufacturers stop manufacturing
and marketing their silicone gel-filled implants as a voluntary action and
that surgeons refrain from implanting the devices in patients pending further
review of information relating to the safety of the products. The FDA
advisory panel reconvened in February 1992 and, after review of the new
information, recommended that the gel-filled mammary implants remain
available for all patients wishing reconstruction following mastectomies
and/or to correct severe deformities, and, under strictly controlled clinical
studies, be available on a limited basis to patients wishing augmentation.
On April 16, 1992, the FDA announced that silicone gel-filled breast implants
would be available only under controlled clinical studies. Under an Urgent
Need protocol, the products would be available immediately to patients
requiring completion of reconstructive surgery which was begun prior to the
January 1992 moratorium. All patients are required to sign detailed informed
consent forms prior to surgery under the Urgent Need program. Under an
Adjunct Study Program developed by the FDA, gel-filled implants would also be
available to women desiring them for reconstruction, including the correction
of severe deformities.
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As of December 31, 1994, the Company has not been a participant in the
Adjunct Study.
In the ongoing process of compliance with the Medical Device Act,
the Company has incurred, and will continue to incur, substantial costs which
relate to laboratory and clinical testing of new products, data preparation
and filing of documents in the proper outline or format as required by the
FDA under the Medical Device Act. Further, the FDA is expected to issue a
call for PMA applications for saline-filled breast implants in 1998.
Although the Company has agreed to conduct clinical trials and is collecting
data in anticipation of FDA action, there can be no assurance that the
Company can prepare or file a PMA in a timely manner or whether said PMA will
be accepted by the FDA, regardless of the time and money that the Company has
incurred. The Company will decide on a product by product and subsidiary by
subsidiary basis whether to respond to any future calls for PMA's and
regulatory requirements, requested response or Company action. The cost of
any PMA filings is unknown until the call for a PMA occurs and the Company
has had an opportunity to review the filing requirements.
There can be no assurance that other products under development by
the Company will be classified as Class I or Class II products or that
additional regulations restricting the sale of its present or proposed
products will not be promulgated by the FDA. The Company is not aware of any
changes to be put in place by the FDA that would be so restrictive as to
remove the Company from the market place. However, the FDA has significantly
restricted the Company's right to manufacture and sell gel-filled breast
implants in the United States. As a result, the Company's sales of
saline-filled breast implant products have increased significantly, and are
expected to continue to be the Company's main product line for 1996.
As a manufacturer of medical devices, the Company's manufacturing
processes and facilities are subject to continuing review by the FDA,
responsible state or local agencies such as the State Department of Health
Services and other regulatory agencies to insure compliance with good
manufacturing practices and public safety compliance. The Company's
manufacturing plants are also subject to regulation by the local Air
Pollution Control District and by the Environmental Protection Agency as a
user of certain solvents.
Due to the ongoing requirements, FDA reviews, and changing policies
and inspection procedures, the Company, from time to time, receives
inspections from the FDA. Early in 1993, Dow-Corning, the leading supplier
of medical grade silicone material, announced that it would no longer be
supplying medical grade silicone to medical device manufacturers. On July 6,
1993, The FDA announced, through the Federal Register, a notice identifying
plans for handling products that did use Dow-Corning silicone. The notice
provided guidance regarding tests required to demonstrate the equivalence of
silicone material from an alternate supplier and the overall policy relating
to regulatory submissions. As McGhan Medical had certain devices and/or
components produced from Dow-Corning silicone materials, it was necessary to
plan for this material changeover. Since some of the materials directly or
indirectly affected the gel-filled mammary implant product line, the
availability of the materials hampered the Company's efforts in further
validation testing for its manufacturing processes involving gel-filled
mammary implants. On March 1, 1994, the FDA inspected McGhan Medical to
review its validation processes for the manufacturing of gel-filled mammary
implants. These mammary implants are currently not marketed because of the
FDA moratorium on gel-filled mammary implants which limited their use for
reconstruction and restricted their use for augmentation.
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McGhan was limited to marketing its style 153 gel mammary implant for
reconstruction use only under an Urgent Need basis. No other gel-filled
products have been manufactured by McGhan over the last three years. The
inspection conducted by the FDA was to evaluate whether McGhan's
manufacturing processes were sufficiently validated to authorize the further
manufacturing of both the 153 and other styles of gel-filled mammary
implants. At the conclusion of the inspection, the FDA issued an FD483, list
of observations, which specifically dealt with the inadequacies of the
validation for the shell dipping operations. McGhan responded to the FD483 by
March 11, 1994. Subsequently, the FDA conducted a follow-up inspection and
concluded that Mcghan had not satisfactorily addressed the inadequacies noted
in the FD483. As a result, the FDA issued McGhan a warning letter. McGhan
has responded to the warning letter, is addressing the completion of the
FD483 responses, and expects to achieve compliance. McGhan continues to
market its saline-filled mammary implants and expects to be inspected by the
FDA again specific to saline manufacturing at the FDA's discretion.
EMPLOYEES
As of December 31, 1995, the Company employed 832 persons: 13
persons were employees of INAMED; 13 persons were employees of INAMED
Development Company working on its research and development projects; 555
persons were employed by the various operating subsidiaries within the United
States; and 251 persons were employed by the Company in Europe, Asia-Pacific
Rim, and IberoLatinoAmerica performing production operations, marketing and
sales functions.
Except for the manufacturing operation in Ireland, the employees
are not represented by a labor union. The Company offers its employees
competitive benefits and wages comparable with like employee status for the
type of business and the location/country in which the employment occurs. The
Company considers its employee relations to be good throughout its operations.
ITEM 2. PROPERTIES.
The Company leases a total of 18,681 square feet of office and
warehouse space in three locations in Las Vegas, Nevada. The Company's
corporate headquarters comprise 4,449 square feet of office space located in
a multi-story office building for a current rental rate of $13,289 per month.
The lease on this space expires July 1, 1998. The Company leases 6,895
square feet of office space in a building adjacent to the corporate
headquarters which it subleases to Medisyn Technologies Corporation. The
current monthly lease rate is $12,066 with the lease expiring in May 1996.
This lease is currently being renegotiated. The Company leases 7,337 square
feet of office and warehouse space in an industrial complex adjacent to the
Las Vegas Airport. This space is subleased to Flowmatrix Corporation. The
current rental rate is $2,861 with the lease expiring in August 1996. This
lease is currently being renegotiated.
The Company also leases office and industrial space which is
comprised of three buildings with an aggregate of 33,939 square feet in
Carpinteria, California. BioEnterics Corporation subleases one building
totaling 4,900 square feet. INAMED Development Company occupies 6,900 square
feet in the second building, with the remaining 4,900 being used for storage.
The Company has exercised the option to extend the lease term to May
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<PAGE>
1996. The current rental rate is $14,657 per month (with cost of living
escalation in June of every year). The third building, which has 17,239
square feet, is subleased to CUI Corporation. The current rental rate is
$12,857 per month with the lease expiring in February 1996, and continuing
month to month thereafter.
McGhan Medical Corporation leases manufacturing facilities in Santa
Barbara, California, aggregating 44,800 square feet for $39,947 per month,
with cost of living escalations in July of every year. The lease for these
buildings expires in 1996, with four one-year options to extend. McGhan
Medical Corporation also leases 27,992 square feet of office space in an
adjacent building. The lease term expires in July 1996 with a seven year
option to extend. The rent is $32,354 per month, with cost of living
escalations in January of every year. Additionally, McGhan Medical
Corporation leases a total of 27,123 square feet of adjacent office and
warehouse space with monthly rentals aggregating $18,206 and lease terms
expiring through February 1997. In June 1994, McGhan Medical Corporation
entered into a lease for a manufacturing facility aggregating 57,897 square
feet with a monthly rental rate of $59,024 (with cost of living escalation in
June of every year) expiring in July 2006. In March 1995, McGhan Medical
Corporation entered into a lease for office space of 23,697 square feet with
a monthly rental rate of $16,114 expiring in April 2000.
McGhan Limited's and Chamfield Limited's manufacturing facilities
are located in Arklow, County Wicklow, Ireland. McGhan Limited leases a
28,000 square foot building from the Ireland IDA at a current annual rate of
84,996 Irish Punts for a term ending in 2017. Chamfield Limited leases a
23,000 square foot building at a current annual rental rate of 74,352 Irish
Punts for a term ending in 2029.
INAMED B.V. in the Netherlands leases 1,407 square meters of office
and warehouse space at a quarterly rate of 84,118 Guilders, with cost of
living escalation in May of each year, for a lease term ending in April 2000.
INAMED B.V.B.A. leases 220 square meters of office and warehouse
space in Turnhout, Belgium at a rate of 28,346 Belgian Francs per month (with
a cost of living escalation in September of each year) with a lease term
expiring in November 1998.
INAMED GmbH currently rented 210 square meters of office and
warehouse space at a rate of 7,173 German Marks per month on a three year
lease expiring in January 1996. Starting December 1995 INAMED GmBH is
renting 286 square meters of office and warehouse space in Dusseldorf,
Germany at a rate of 7,150 German Marks per month on a five year lease
expiring in December 2000. The lease provides for an automatic yearly
extension thereafter unless the contract is terminated 9 months before
renewal date of the lease.
INAMED S.R.L. leases 460 square meters of office and warehouse
space in Verona, Italy for 4,460,000 Italian Lira per month with a lease term
expiring in August 2000. INAMED S.R.L. also leases 60 square meters of
office space in Rome, Italy for 1,600,000 Italian Lira per month with a lease
expiration of August 2000.
INAMED Ltd. rents 1,550 square feet of office and warehouse space
in Wokingham, United Kingdom under a five year lease expiring in July 1997.
Under the terms of the lease, payments are made on a quarterly basis. The
current rate is L5,426 per quarter.
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<PAGE>
INAMED SARL rents 243 square meters of office and warehouse space
in Paris, France for an annual rent of 345,825 Francs. The lease term is
nine years with expiration in December 2004. The first eight months of rent
were free, therefore the first rent was due in August of 1996. Rent is paid
in quarterly installments in advance.
INAMED, S.A. rents 950 square meters of office and warehouse space
in Barcelona, Spain at a monthly rate of 864,438 Pesetas under a lease
expiring in February 1998.
INAMED do Brazil rents 345 square meters of office and warehouse
space in Sao Paulo, Brazil at a monthly rate of $2,000 under a lease expiring
in May 1998.
McGhan Medical Asia Pacific rents 389 square feet of office space
in Hong Kong at a monthly rate of $7,124 under a lease expiring in September
1996. The Company intends to renegotiate this lease prior to its expiration.
INAMED Medical Group(Japan) rents 155 square meters of office space
in Tokyo, Japan at a monthly rate of $3,000 under a lease which is
automatically renewed upon expiration.
ITEM 3. LEGAL PROCEEDINGS.
In 1987 the Company acquired two health insurance subsidiaries. In
1988 the Company sold both subsidiaries. In 1991, the Company was sued for
third party resolution in the amount of $500,000, related to the acquiring
company's inability or failure to meet asset deposit requirements of the
Illinois Director of Insurance. The Company reached settlement with the
Illinois Department of Insurance in February 1993, whereby the Company paid
the third party demand of $500,000 for full release.
In October, 1990, the Company's CUI Corporation subsidiary brought
action against a former employee for violation of a contractual non-compete
agreement entered into with the Company. A settlement was reached in August
of 1992 whereby the Company repurchased common stock acquired by the former
employee in exchange for the resolution of all issues and legal proceedings
and the elimination of any future Company obligation to the former employee
as to the non-compete agreement. The Company made final payment under this
settlement in 1994.
During 1992 an action against the Company and two of its
subsidiaries and one of its officers was filed in California Superior Court
for the County of Santa Barbara (State Court). The Company, through one of
its subsidiaries, filed a lawsuit against the plaintiff in the United States
District Court for the Central District of California (Federal Court). The
State Court action was filed as a contract dispute over an Exclusive License
Agreement and the Federal Court action was filed over the same Exclusive
License Agreement, but with different issues as subject matter. The State
action was settled in April 1993 and discharged as an action with the
Plaintiff Agreement remaining in force as written, and the Company's
subsidiaries agreed to and complied with the terms as written in the
Agreement. No changes were made with the outcome that both of the Company's
subsidiaries will comply with the
- 15 -
<PAGE>
terms of the Agreement, as written, for the subsidiaries' products over the
life of the patent. The Federal action was terminated by mutual agreement in
1994.
In 1992, the County of Santa Barbara, California, filed a complaint
against the Company's McGhan Medical Corporation subsidiary alleging that MMC
supplied false and inaccurate information regarding xylene emissions to the
Air Pollution Control District and had engaged in a pattern of unfair
business practices by failing to control its emissions. In March 1993 MMC
reached a settlement with the County of Santa Barbara Air Pollution Control
District. The parties agreed to a settlement to avoid prolonged litigation
surrounding alleged emission violations. By entering the agreement, the
Company made no admission of wrongdoing but assented to a one time payment of
$100,000 and installation of emissions control equipment at MMC's facility.
MMC's decision to settle allowed it to allocate the Company's manpower and
funds to the installation of the control equipment rather than expending
these resources on successful defense against the complaint.
PRODUCT LIABILITY
INAMED and/or its subsidiaries are defendants in numerous State court
actions and a Federal class action in the United States District Court,
Northern District of Alabama, Southern Division, under Chief Judge Sam C.
Pointer, Jr., U.S. District Court, regarding Master File No. C892-P-10000-S
(Silicone Gel Breast Implants Product Liability Litigation MDL 926). The
claims are for general and punitive damages substantially exceeding
provisions made in the Company's consolidated financial statements. The
accompanying consolidated financial statements have been prepared assuming
that the Company will withstand the financial results of said litigation.
Several U.S. based manufacturers negotiated settlement with the
Plaintiffs' Negotiating Committee ("PNC"), and on March 29, 1994 filed a
Proposed Non-Mandatory Class Action Settlement in the Silicone Breast Implant
Products Liability (the "Settlement Agreement") providing for settlement of
the claims as to the class (the "Settlement") as described in the Settlement
Agreement. The Settlement Agreement, upon approval, will provide resolution
of any existing or future claims, including claims for injuries not yet
known, under any Federal or State law, from any claimant who received a
silicone breast implant prior to June 1, 1993. A fairness hearing for the
non-mandatory class was held before Judge Pointer on August 18, 1994. On
September 1, 1994, Judge Pointer gave final approval to the non-mandatory
class action settlement. The deadline for plaintiffs to enter the Settlement
was March 1, 1995.
The Company was not originally a party to the Settlement Agreement.
However, on April 8, 1994 the Company and the PNC reached an agreement which
would join the Company into the Settlement. The agreement reached between
the Company and the PNC added great value to the Settlement by enabling all
plaintiffs and U.S. based manufacturers to participate in the Settlement, and
facilitating the negotiation of individual contributions by the Company,
Minnesota Mining and Manufacturing Company ("3M"), and Union Carbide
Corporation which total more than $440 million.
Under the terms of the Settlement Agreement, the parties stipulate and
agree that all claims of the Settlement Class against the Company regarding
breast implants and breast implant materials shall be fully and finally
settled and resolved on the terms and conditions set forth in the Settlement
Agreement.
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<PAGE>
Under the terms of the Settlement Agreement, the Company will pay $1
million to the Settlement fund for each of 25 years starting three years
after Settlement approval by the Court. The Company recorded a pre-tax
charge of $9.1 million in the fourth quarter of 1993. The charge represents
the present value (discounted at 8%) of the Company's settlement of $25
million over a payment period of 25 years, $1 million per year starting three
years from the date of Settlement approval.
Under the Settlement, $1.2 billion had been provided for "current
claims" (disease compensation claims). In May 1995, Judge Pointer completed
a preliminary review of current claims which had been filed as of September
1994, in compliance with deadlines set by the court. Judge Pointer
determined that based on the preliminary review, it appears that projected
amounts of eligible current claims exceed the $1.2 billion provided in the
Settlement. The Settlement provided that in the event of such over
subscription, the amounts to be paid to eligible current claimants would be
reduced and claimants would have a right to "opt-out" of the Settlement at
that time.
On October 1, 1995, Judge Pointer finalized details of a scaled-back
breast implant injury settlement involving defendants Bristol-Myers Squibb,
Baxter International, and 3M, allowing plaintiffs to reject this settlement
and file their own lawsuits if they believe payments are too low. On
November 14, 1995, McGhan Medical and Union Carbide were added to this list
of settling defendants to achieve the Bristol, Baxter, 3M, McGhan and Union
Carbide Revised Settlement Program (the "Revised Settlement Program").
The Company has opposed the plaintiffs' claims in these complaints and
other similar actions, and continues to deny any wrongdoing or liability to
the plaintiffs of any kind. However, the extensive burdens and expensive
litigation the Company would continue to incur related to these matters
prompted the Company to work toward and enter into the Settlement which
insures a more satisfactory method of resolving claims of women who have
received the Company's breast implants.
Management's commitment to the Settlement does not alter the Company's
need for complete resolution sought under a mandatory ("non-opt-out")
settlement class (the "Mandatory Class"). Therefore, the company has
petitioned the United States District Court, Northern District of Alabama,
Southern Division, for certification of a Mandatory Class under the
provisions of Federal Rule of Civil Procedure.
The Company was a defendant with 3M in a case involving three plaintiffs
in Houston, Texas, in March 1994, in which the jury awarded the plaintiffs
$15 million in punitive damages and $12.9 million in damages plus fees and
costs. However, the decision was reversed in March 1995 resulting in no
financial responsibility on the part of the Company.
The cost of the foregoing litigation has adversely affected the
liquidity of the Company. Management believes that the Company may not
continue as a going concern if its request to the Court for Mandatory Class
resolution of the breast implant litigation actions against the Company is
not approved. Although management is optimistic that the Mandatory Class will
be approved by the Court, there can be no assurances that this outcome will
be achieved.
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<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS.
The Company's common stock is traded in the over-the-counter market
and was listed on NASDAQ beginning in June 1986. The Company's common stock
also began trading on the Pacific Stock Exchange on December 1, 1987. On
March 28, 1996, the Company had stockholders of record.
Effective December 20, 1995, the Company has been granted a
temporary exception to the capital and surplus requirement of the NASDAQ
Small Cap Market-TM- by the NASDAQ Listing Qualifications Committee. As part
of its conditional listing, the Company's stock symbol was changed from IMDC
to IMDCC. The fifth character "C" appended to the Company's stock symbol will
remain until such time that the Company is able to evidence compliance with
all NASDAQ listing criteria in a manner deemed acceptable by the Listing
Qualifications Committee. The Company expects to evidence this compliance in
1996.
The Table below sets forth the high and low bid prices of the
Company's common stock for the periods indicated. Quotations reflect prices
between dealers, do not reflect retail markups, markdowns or commissions, and
may not necessarily represent actual transactions. No cash dividends have
been paid by the Company during such periods.
1994 HIGH LOW
---- ---- ----
1st Quarter 4-3/4 2-1/2
2nd Quarter 4-1/2 2-3/4
3rd Quarter 3-3/4 2-3/8
4th Quarter 3-1/8 2-3/8
1995
----
1st Quarter 4-1/4 3
2nd Quarter 4-1/8 3
3rd Quarter 14 3
4th Quarter 12-5/8 8-1/4
The Company has never paid a cash dividend. It is the present
policy of the Company to retain earnings to finance the growth and
development of its business and to fund ultimate litigation settlements.
Therefore, the Company does not anticipate paying cash dividends on its
common stock in the foreseeable future.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following table summarizes certain selected financial data of the
Company and should be read in conjunction with the related Consolidated
Financial Statements of the Company and accompanying Notes to Consolidated
Financial Statements.
<TABLE>
<CAPTION>
Years Ended December 31
---------------------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales $ 81,625,581 80,385,342 74,497,946 64,343,031 42,283,931
Operating income (loss) (9,189,905) 3,578,025 (3,471,507) 611,836(2) (2,792,828)(2)
Gain on sale of subsidiaries -- -- 4,158,541 -- --
Income (loss) before income
tax expense (benefit) (8,575,860) 5,007,103 449,448(1) 435,591(2) (3,655,746)(2)
Income tax expense (benefit) (1,682,799) 2,260,792 4,533,142 1,807,000 (845,000)
------------------------------------------------------------------------
Net income (loss) $ (6,893,061) 2,746,311 (4,083,694)(1) (1,371,409)(2) (2,810,746)(2)
========================================================================
Net income (loss) per share
of common stock $ (0.91) 0.37 (0.52) (0.17) (0.35)
========================================================================
Weighted average common
shares outstanding 7,544,335 7,410,591 7,850,853 7,873,504 8,099,483
========================================================================
</TABLE>
(1) Includes a pre-tax charge of $9.1 million under the terms of the proposed
class action settlement.
(2) Includes write-offs of assets for product inventory aggregating $1,974,423
in 1992 and $4,428,527 in 1991.
- 19 -
<PAGE>
<TABLE>
<CAPTION>
As of December 31
---------------------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (deficiency) $ (6,041,738) 1,087,925 (2,316,741) (1,921,514) 979,462
Total assets 50,384,944 47,810,401 37,857,305 29,092,802 24,681,126
Long term debt, net of
current installments 89,437 50,801 235,170 454,274 509,811
Stockholders' equity (1,704,116) 4,478,827 1,347,425 6,545,891 7,965,951
Stockholders' equity per
share of common stock $ (0.22) 0.60 0.18 0.82 0.97
==========================================================================
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
The Company experienced continued sales growth in 1995 with net
sales of $81.6 million. This represented a 1.5% increase over the year ended
December 31, 1994. Net sales for 1994 increased 7.9% over 1993. Domestic
sales growth in 1995 was adversely affected by shortages of raw materials and
by changes made by the Company in certain processes and procedures in its
domestic manufacturing plant in order to achieve regulatory approvals and
attain higher standards of control. These changes made by the Company limited
the domestic outputs of finished goods in 1995, but are expected to benefit
future periods. The Company expects international sales to represent an
increasing percentage of net sales in future years, since this market is
experiencing increasing demand. Management anticipates the market growth,
continued increase of production capacity, both domestically and
internationally, and expansion of the international sales force will allow an
increase in sales growth throughout 1996.
Cost of goods sold as a percent of net sales was 37% for the year
ended December 31, 1995, compared to 33% for the year ended December 31, 1994
and 31% for the year ended December 31, 1993. Management anticipates that
the Company may experience future quarters with higher costs of production as
modifications are made to accommodate changing FDA views and regulations.
Marketing expenses as a percent of net sales were 29% for the year
ended December 31, 1995, compared to 25% for the year ended December 31, 1994
and 23% for the year ended December 31, 1993. Royalty expense continued to
increase as sales of licensed products continued to grow. As was expected,
while INAMED GmbH, INAMED S.R.L., INAMED Ltd. and INAMED SARL have been in
the start-up phases, marketing expenses as a percent of net sales for their
individual distribution networks have been somewhat higher than the
consolidated percentages. Moderating this increase is the relative stability
of other marketing expenses on a Company wide basis.
General and administrative expenses have increased as the Company
has grown. These expenses have increased from $25,904,000 in 1993, to
$27,099,000 in 1994, and $31,365,000 in 1995. A portion of the increase
relates to the current expansion of international facilities and the overall
growth in sales and production volume which has been experienced by the
Company. Legal fees related to the breast implant litigation also
contributed to the increase.
Research and development expenses have increased from $3,074,000 to
$3,724,000 to $4,392,000 in 1993, 1994, and 1995 respectively, reflecting the
Company's continuing commitment to development of new and advanced medical
products. As a percentage of net sales, this expense has consistently been
between 4.1% and 5.3%. Diversification into other facets of medical devices
within the industry through use of new technology has always been and remains
a goal of the Company. The silicone gastric band and a silicone hemorrhoidal
pessary are products which were developed by the Company and are now in
clinical trials internationally. A government research grant has been
approved for the clinical research of the Company's silicone intragastric
balloon. R & D expenses are expected to increase in 1996. The Company is
also increasing R & D overseas due to the FDA backlog on approval of new
devices in the U.S.
- 20 -
<PAGE>
Additionally, increased costs to obtain FDA PMA approvals are
anticipated in 1996. Beginning in 1989, the Company began the necessary work
to address FDA regulations related to premarket approval of silicone gel
filled mammary implants and the Company anticipates continued investment of
employee hours and Company funds throughout calendar 1996 to facilitate
compliance with all FDA regulations as determined by the PMA study and any
new regulations which may be adopted.
Interest expense was $504,734 in 1993, $624,261 in 1994 and
$833,086 in 1995. The increase in 1995 is due to interest incurred on
outstanding federal and state income tax liabilities.
The Company had a net loss of $6,893,061 or $.91 per share in 1995.
This compares to net income of $2,746,311 or $.37 per share in 1994.
Increased regulatory and legal costs relating to breast implants
continue to be a significant burden on the Company's bottom line
profitability. Management believes that resolution of the breast implant
litigation through the Revised Settlement Program and achievement of
provisional certification of the Mandatory Settlement Class will allow the
Company to anticipate and manage costs associated with the litigation and
move the Company forward toward greater profitability in the future.
FINANCIAL CONDITION
LIQUIDITY
The current ratio (current assets to current liabilities) of 0.9 to
1 as of December 31, 1995 is less than the ratio of 1.0 to 1 as of December
31, 1994. The Company's ratio was negatively affected in 1995 and 1994 by
increased legal costs due to breast implant litigation, and breast implant
returns. In addition, the Company's expansion both domestically and
internationally used significant cash resources throughout 1995.
Breast implant product liability related issues are expected to
draw on the Company's liquidity throughout 1996. The Company is in the
process of negotiating extended payment terms on these expenses which the
Company feels will reduce the adverse effect on short-term and long-term
liquidity. However, there is no assurance that the extended payment terms
will be granted by the legal firms involved.
The cost of the foregoing litigation has adversely affected the
liquidity of the Company. Management believes that the Company may not
continue as a going concern if its request to the Court for Mandatory Class
resolution of the breast implant litigation actions against the Company is
not approved. Although management is optimistic that the Mandatory Class will
be approved by the Court, there can be no assurances that this outcome will
be achieved.
In January 1996, the Company completed a private placement offering
by issuing three-year collateralized convertible, non-callable notes due
March 31, 1999 bearing an interest rate of 11%. The Company received $35
million in proceeds from the offering to be used for the anticipated
litigation settlement, for capital investments and improvements to expand
production capacity, and for working capital purposes. Of the proceeds
received from the offering, $15 million is held in an escrow account to be
released upon the granting and court approval of mandatory class
certification.
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<PAGE>
The Company forecasts that the majority of cash necessary for U.S.
operations will continue to be generated by operations. The Company will
continue to utilize a combination of working capital and available credit
facilities. Increased sales activity throughout 1996 is expected to
increase the availability of cash resources. If cash is determined to be
inadequate for the level of activity, the Company may reduce expenses such as
those related to R & D projects. The future of any affected project would
then be uncertain. As cash flow becomes more available, management may
restart projects, or elect to terminate projects, based on a business
decision and on a project by project basis.
The Company intends to seek out a suitable partner in banking to
achieve current and future credit facility needs for domestic subsidiaries'
support. Additionally, the Company intends to develop other methods to
achieve increased working capital. These methods may be achieved through
both the private and/or public sector. However, there can be no assurance
that such financings will be available at acceptable terms, if at all.
Settlement of the breast implant litigation will greatly enhance the
Company's ability to obtain financing from banks or other lending
institutions.
In June of 1990, the Company established a $4.5 million financing
package for working capital with a major bank that utilizes the domestic
accounts receivable, inventories and certain other assets as collateral. In
December 1990, the line of credit was increased to $5.3 million. As of
December 31, 1995, approximately $328,000 had been drawn on the line of
credit. The weighted average interest rate during 1995 was 11.3%.
The Company's line of credit was due for renewal in August,1993.
The present bank line was not renewable under acceptable terms and conditions
and was extended through March 31, 1996. On January 24, 1996, the Company
paid all amounts due under the line of credit. The Company believes that it
can start reasonable discussions with lenders for a new credit facility now
that the Company has entered into global settlement agreements. Although
there are no assurances that the Company will be successful in the engagement
of a lender, the Company has made progress in addressing lender concern
surrounding the breast implant litigation through settlement agreements which
include mandatory class certification. However, there can be no assurance
that such financings will be available at acceptable terms, if at all.
In April 1994, the Company increased its international line of
credit with a major Dutch bank. The current line is $1,540,000 and is
collateralized by the accounts receivable, inventories and certain other
assets of INAMED B.V. The line of credit expires on March 31, 1996. It is
currently being renegotiated and is expected to be renewed. As of December
31, 1995, approximately $900,000 had been drawn on the line of credit. The
interest rate on the line of credit is 7% per annum.
The Company's international sales subsidiaries achieved significant
sales growth in 1995. In Ireland, grants have been approved by the Irish
Industrial Development Authority (IDA) to fund portions of the costs of
operations of McGhan Limited, including reimbursement for training expenses,
leasehold improvements and capital equipment. As of December 31, 1995, McGhan
Limited had received grants from the IDA for approximately $2.7 million and
had obtained approval for additional grants from other funding agencies for
approved research and development programs for up to $1.1 million.
The Company currently does not utilize forward contracts to hedge
against foreign currency gains or losses.
Management believes liquidity will improve as a result of increased
sales throughout 1996, due to increased sales areas, new product
introductions and decreased litigation costs as a result of projected global
settlement and mandatory class certification, and efforts by the Company to
raise future funding through a bank line or private offering. However, no
assurances can be given as to the outcome of such efforts.
CAPITAL EXPENDITURES
Expenditures on property and equipment approximated $4.7 million in
1995 compared to $2.9 million in 1994. Additionally, capital lease
obligations of approximately $89,000 were incurred during 1995 compared to
capital lease obligations of approximately
- 22 -
<PAGE>
$21,000 incurred during 1994. The majority of the expenditures in each year
were for building improvements and equipment to increase production capacity
and efficiency. The Company is working on several development projects, any
one of which may require additional capital resources for completion,
production, and marketing.
SIGNIFICANT FOURTH QUARTER ADJUSTMENTS
The Company had significant fourth quarter adjustments to financial
results in 1995. The Company recorded a provision for doubtful accounts and
returns and allowances of $1,424,734, or 1.7% of net sales, and compensation
of $891,200, or 1.1% of net sales. An offsetting adjustment was made to reduce
income tax expense by $4,162,607, or 5.1% of net sales.
The Company had significant fourth quarter adjustments to financial
results in 1994. The Company recorded a provision for doubtful accounts and
returns and allowances of $546,054, or 0.7% of net sales, a provision for
inventory obsolescence of $221,590, or 0.3% of net sales, a provision for
product liability of $1,123,605, or 1.4% of net sales, and compensation
expense of $187,500, or 0.2% of net sales. Offsetting adjustments were made
to reduce income tax expense by $3,396,858, or 4.2% of net sales, reduce
rental expense of $800,000, or 1.0% of net sales, and record royalty income
receivable of $325,301, or 0.4% of net sales.
IMPACT OF INFLATION
The Company believes that inflation has had a negligible effect on
operations over the past three years. There exists the opportunity to offset
inflationary increases in the cost of materials and labor by increases in
sales prices and by improved operating efficiencies.
- 23 -
<PAGE>
ITEM 8(A). FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
The Stockholders and Board of Directors
INAMED Corporation:
We have audited the accompanying consolidated balance sheets of INAMED
Corporation and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, stockholders' (deficit) equity,
and cash flows, for each of the three years in the period ended December 31,
1995. In connection with our audits of the consolidated financial
statements, we have also audited the financial statement schedule listed
under item 14(a)(2) of this Annual Report on Form 10-K for each of the three
years in the period ended December 31, 1995. These consolidated financial
statements and the financial statement schedule are the responsibility of the
Company' s management. Our responsibility is to express an opinion on these
consolidated financial statements and the financial statement schedule based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of INAMED
Corporation and subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1995 in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note 14 to the consolidated financial statements, the Company, through
certain subsidiaries, has been a defendant in substantial litigation related
to breast implants which has adversely affected the liquidity and financial
condition of the Company. This raises substantial doubt about the Company's
ability to continue as a going concern. Management's plans in this regard
are discussed in Note 14 to the consolidated financial statements and do not
include any adjustments that might result from the outcome of this
uncertainty.
COOPERS & LYBRAND L.L.P.
Las Vegas, Nevada
March 28, 1996
- 24 -
<PAGE>
INAMED CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
ASSETS 1995 1994
----------- ----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 2,807,327 673,951
Trade accounts receivable, net of allowance for doubtful
accounts and returns and allowances of $6,641,177 in
1995 and $6,025,827 in 1994 10,470,375 11,319,487
Notes receivable - trade 157,534 1,400,503
Related party notes receivable 385,508 --
Inventories 17,695,847 14,879,570
Prepaid expenses and other current assets 1,825,213 2,548,748
Income tax refund receivable 95,580 462,304
Deferred income taxes 2,014,589 2,648,653
----------- -----------
Total current assets 35,451,973 33,933,216
----------- -----------
Property and equipment, at cost:
Machinery and equipment 8,923,564 7,449,622
Furniture and fixtures 3,714,717 2,620,594
Leasehold improvements 7,567,208 5,469,234
----------- -----------
20,205,489 15,539,450
Less, accumulated depreciation and amortization (9,234,166) (6,819,866)
----------- -----------
Net property and equipment 10,971,323 8,719,584
Notes receivable 2,047,535 2,215,058
Related party notes receivable -- 688,184
Intangible assets, net 1,658,926 1,956,648
Deferred income taxes -- 48,810
Other assets, at cost 255,187 248,901
----------- ----------
Total assets $50,384,944 47,810,401
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
- 25 -
<PAGE>
INAMED CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
---------- ---------
<S> <C> <C>
Current liabilities:
Current installments of long-term debt $ 51,735 176,910
Notes payable to bank 1,273,476 1,795,721
Notes payable 493,511 --
Related party notes payable 1,759,417 970,610
Accounts payable 20,093,073 15,780,050
Accrued liabilities:
Salaries and wages 9,559,348 3,381,369
Interest 1,609,947 567,365
Self-insurance 1,130,632 1,291,605
Stock option compensation 68,714 68,714
Other 2,200,860 2,462,930
Royalties payable 1,430,115 1,053,888
Income taxes payable 1,812,818 4,960,352
Deferred income taxes 10,065 335,777
------------ ----------
Total current liabilities 41,493,711 32,845,291
------------ ----------
Long-term debt, excluding current installments 89,437 50,801
Deferred grant income 1,114,735 931,367
Deferred income taxes 239,177 352,115
Litigation settlement 9,152,000 9,152,000
Commitments and contingencies
Stockholders' (deficit) equity :
Common stock, $.01 par value. Authorized 20,000,000
shares; issued and outstanding 7,602,617 in 1995
and 7,466,139 in 1994 76,027 74,662
Additional paid-in capital 9,963,635 9,699,345
Cumulative translation adjustment 882,146 437,683
Accumulated deficit (12,625,924) (5,732,863)
------------ ----------
Stockholders' (deficit) equity (1,704,116) 4,478,827
------------ ----------
Total liabilities and stockholders' (deficit) equity $50,384,944 47,810,401
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
- 26 -
<PAGE>
INAMED CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ -------------
<S> <C> <C> <C>
Net sales $81,625,581 $80,385,342 $ 74,497,946
Cost of goods sold 30,155,783 26,264,458 22,973,697
----------- ---------- -----------
Gross profit 51,469,798 54,120,884 51,524,249
----------- ---------- -----------
Operating expense:
Marketing 23,434,040 19,719,078 16,865,104
General and administrative 32,833,609 27,099,371 25,904,418
Research and development 4,392,054 3,724,410 3,074,234
----------- ---------- -----------
Total operating expenses 60,659,703 50,542,859 54,995,756
----------- ---------- -----------
Operating income (loss) (9,189,905) 3,578,025 (3,471,507)
----------- ---------- -----------
Other income (expense):
Interest income 770,081 428,704 186,665
Interest expense (833,086) (624,261) (504,734)
Royalty income 351,376 419,675 496,444
Foreign currency transaction
gains (losses) (252,525) 264,473 (786,371)
Miscellaneous income 578,199 940,487 370,410
----------- ---------- -----------
Net other income (expense) 614,045 1,429,078 (237,586)
------------ ---------- -----------
Gain on sale of subsidiaries -- -- 4,158,541
----------- ---------- -----------
Income (loss) before income
tax expense (8,575,860) 5,007,103 449,448
Income tax expense (1,682,799) 2,260,792 4,533,142
----------- ---------- -----------
Net income (loss) $(6,893,061) $2,746,311 $(4,083,694)
=========== ========== ===========
Net income (loss) per share of common stock $ (.91) $ .37 $ (.52)
=========== ========== ===========
Weighted average shares outstanding 7,544,335 7,410,591 7,850,853
=========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
- 27 -
<PAGE>
INAMED CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE
---------------------------- PAID-IN TRANSLATION ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL ADJUSTMENT DEFICIT EQUITY
----------- ---------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1992 $7,985,251 $79,853 $10,778,411 $ 83,107 $ (4,395,480) $ 6,545,891
Net loss -- -- -- -- (4,083,694) (4,083,694)
Repurchases and retirement
of common stock (587,684) (5,877) (1,038,143) -- -- (1,044,020)
Issuances of common stock 63,000 630 90,720 -- -- 91,350
Translation adjustment -- -- -- (162,102) -- (162,102)
---------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1993 7,460,567 74,606 9,830,988 (78,995) (8,479,174) 1,347,425
Net income -- -- -- -- 2,746,311 2,746,311
Repurchases and retirement
of common stock (124,034) (1,240) (405,447) -- -- (406,687)
Issuances of common stock 129,606 1,296 273,804 -- -- 275,100
Translation adjustment -- -- -- 516,678 -- 516,678
---------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 7,466,139 74,662 9,699,345 437,683 (5,732,863) 4,478,827
Net loss -- -- -- -- (6,893,061) (6,893,061)
Repurchases and retirement
of common stock (322) (3) (1,342) -- -- (1,345)
Issuances of common stock 136,800 1,368 265,632 -- -- 267,000
Translation adjustment -- -- -- 444,463 -- 444,463
---------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 $7,602,617 $76,027 $ 9,963,635 $882,146 $(12,625,924) $(1,704,116)
=============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
- 28 -
<PAGE>
INAMED CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- --------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(6,893,061) $2,746,311 $(4,083,694)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 2,432,554 2,058,462 1,553,829
Amortization of intangible assets 297,722 254,391 249,491
Non-cash stock compensation 29,500 29,000 --
Non-cash compensation to officers/directors 165,000 -- 727,230
Provision for doubtful accounts and returns 1,707,308 -- --
Provision for obsolescence 308,632 -- --
Deferred income taxes 243,430 99,897 595,532
Gain on sale of subsidiaries -- -- (4,158,541)
Litigation settlement -- -- 9,152,000
Write-off of intangible assets -- 46,017 440,000
Changes in current assets and liabilities:
Trade accounts receivable 503,114 (2,750,160) (1,269,528)
Notes receivable - trade 343,534 12,814 (31,751)
Inventories (2,539,782) (1,403,644) (4,859,712)
Prepaid expenses and other
current assets 791,350 (2,091,247) 254,282
Income tax receivable 367,476 (113,304) --
Other assets (6,286) (62,376) 69,090
Accounts payable 4,227,439 1,610,174 5,705,716
Accrued salaries, wages, and payroll taxes 6,094,940 1,223,904 491,366
Accrued interest 1,042,582 342,294 (1,786)
Accrued self-insurance (160,973) (1,631) (666,896)
Other accrued liabilities (284,380) 1,021,116 (54,661)
Royalties payable 376,227 91,526 (269,888)
Income taxes payable (3,147,534) 576,768 2,259,002
----------- ---------- ----------
Net cash provided by
operating activities 5,898,792 3,790,312 6,101,081
----------- ---------- ----------
Cash flows from investing activities:
Purchase of property and equipment (4,694,592) (2,948,945) (4,195,281)
Proceeds from sale of property and equipment -- -- 2,725,000
Increase in notes receivable, net of
forgiveness of intercompany payable -- -- (1,973,368)
Decrease in notes receivable -- -- --
Acquisition of INAMED, S.A. -- (400,050) --
----------- ---------- ----------
Net cash used in
investing activities $(4,694,592) $(3,348,995) $(3,443,649)
----------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
- 29 -
<PAGE>
INAMED CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- -----------
<S> <C> <C> <C>
Cash flows from financing activities:
Increases in notes payable and long-term debt $ 493,511 $1,077,355 $ --
Principal repayment of notes payable
and long-term debt (608,784) (1,117,373) (3,273,941)
(Increase) decrease in related party receivables 302,676 451,516 (458,387)
Increase in related party payables 788,807 420,610 --
Grants received, net 150,131 96,466 191,682
Proceeds from exercise of stock options 72,500 26,100 --
Repurchase of common stock (1,345) (406,687) (358,124)
Cash overdraft -- -- 331,795
---------- ---------- -----------
Net cash provided by (used in) financing activities 1,197,496 547,987 (3,566,975)
---------- ---------- -----------
Effect of exchange rate changes on cash (268,320) (315,353) 221,308
---------- ---------- -----------
Net increase (decrease) in cash
and cash equivalents 2,133,376 673,951 (688,235)
Cash and cash equivalents at beginning of year 673,951 -- 688,235
---------- ---------- -----------
Cash and cash equivalents at end of year $2,807,327 $ 673,951 $ --
========== ========== ===========
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest $ 442,314 $ 311,876 $ 506,520
========== ========== ==========
Income taxes $ 273,947 $1,639,755 $1,280,000
========== ========== ==========
(Continued)
</TABLE>
See accompanying notes to consolidated financial statements.
- 30 -
<PAGE>
Supplemental schedule of noncash investing and financing activities:
Year ended December 31, 1995:
In 1995 the Company issued 75,000 shares of common stock and recorded
a corresponding $165,000 reduction of a liability which had been
incurred in connection with the acquisition of INAMED, S.A.
Year ended December 31, 1994:
The 1994 statement of cash flows is presented net of the noncash effects
of the acquisition of INAMED, S.A. In connection with the acquisition of
INAMED, S.A., the Company initially made cash payments of $250,050,
recorded a note payable for future cash payments of $700,000 and recorded
a liability of $385,000 for the future issuance of 175,000 shares of
common stock. As of December 31, 1994, the Company had paid $150,000
on the note payable and had issued 100,000 shares of common stock.
Year ended December 31, 1993:
In connection with the sale of Specialty Silicone Fabricators, Inc. and
Innovative Surgical Products, Inc., the Company repurchased approximately
461,120 shares of common stock in exchange for a reduction in notes
receivable of $685,916.
See accompanying notes to consolidated financial statements.
- 31 -
<PAGE>
INAMED CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
The Company and its subsidiaries are engaged primarily in the development,
manufacture and distribution of implantable medical devices for the
plastic and general surgery fields. Its primary products include mammary
prostheses and tissue expanders. The Company operates in both domestic
and foreign markets.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of INAMED
Corporation and its wholly-owned subsidiaries (collectively referred to as
the Company). All significant intercompany balances and transactions have
been eliminated in consolidation.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates (also see Note 14).
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
ACCOUNTS RECEIVABLE AND CREDIT RISK
The Company grants credit terms in the normal course of business to its
customers, primarily hospitals, doctors and distributors. As a part of its
ongoing control procedures, the Company monitors the credit worthiness of
its customers. Bad debts have been minimal. The Company does not normally
require collateral or other security to support credit sales. An estimated
provision for returns and credit losses has been provided for in the
financial statements and has generally been within management's
expectations.
REVENUE RECOGNITION
Revenues are recognized when product is shipped. Revenues are recorded net
of estimated sales returns and allowances. The Company ships product with
the right of return and has provided an estimate of the allowance for sales
returns.
- 32 -
<PAGE>
INAMED CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market
(net realizable value). Estimated inventory obsolescence has been provided
for in the financial statements and has generally been within management's
expectations.
CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS
The Company has primarily one source of supply for certain raw materials
which are significant to its manufacturing process. Although there are a
limited number of manufacturers of the particular raw materials,
management believes that other suppliers could provide similar raw
materials on comparable terms. A change in suppliers, however, could
cause a delay in manufacturing and a possible loss of sales, which would
affect operating results adversely.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. Significant improvements and betterments are capitalized
while maintenance and repairs are charged to operations as incurred.
Depreciation of property and equipment is computed using the straight-line
method based on estimated useful lives ranging from five to ten years.
Leasehold improvements are amortized on the straight-line basis over their
estimated economic useful lives or the lives of the leases, whichever are
shorter.
INTANGIBLE AND LONG-TERM ASSETS
Intangible and long term assets are stated at cost less accumulated
amortization, and are amortized on a straight-line basis over their
estimated useful lives as follows:
Customer lists 5 years
Organization costs 5 years
Patents 17 years
Trademarks and technology 5 years
Goodwill 10-12 years
The Company classifies as goodwill the cost in excess of fair value of the
net assets acquired in purchase transactions. The Company periodically
evaluates the realizability of goodwill. Based upon its most recent
analysis, no material impairment of goodwill exists at December 31, 1995.
- 33 -
<PAGE>
INAMED CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED
INTANGIBLE AND LONG-TERM ASSETS, continued
The carrying value of long-term assets is periodically reviewed by
management, and impairment losses, if any, are recognized when the expected
nondiscounted future operating cash flows derived from such assets are less
than their carrying value. In 1995, Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of" (SFAS No. 121), was issued and was
adopted by the Company for the year ended December 31, 1995. This
statement requires that long-lived assets and certain identifiable
intangible assets to be held and used be reviewed for impairment whenever
events or changes in circumstances indicate the carrying amount of such
assets may not be recoverable. The adoption of SFAS No. 121 did not have
any impact on the financial position, results of operations, or cash flows
of the Company.
INCOME TAXES
The Company accounts for its income taxes using the liability method,
under which deferred taxes are determined based on the differences
between the financial statement and tax bases of assets and liabilities,
using enacted tax rates in effect for the years in which the differences
are expected to reverse. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be
realized.
NET INCOME/LOSS PER SHARE
Net income/loss per share is computed using the weighted average number of
shares outstanding, and when dilutive, common stock equivalents (stock
options).
- 34 -
<PAGE>
INAMED CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED
FOREIGN CURRENCY TRANSLATION
The functional currencies of the Company's foreign subsidiaries are their
local currencies, and accordingly, the assets and liabilities of these
foreign subsidiaries are translated at the rate of exchange at the balance
sheet date. Revenues and expenses have been translated at the average rate
of exchange in effect during the periods. Unrealized translation
adjustments do not reflect the results of operations and are reported as
a separate component of stockholders' (deficit) equity, while transaction
gains and losses are reflected in the consolidated statement of
operations. To date, the Company has not entered into hedging transactions
to protect against changes in foreign currency exchange rates.
RECENTLY ISSUED ACCOUNTING STANDARD
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." The accounting or
disclosure requirements of this statement are effective for the Company's
fiscal year 1996. The Company has not yet determined whether it will adopt
the accounting requirements of this standard or whether it will elect only
the disclosure requirements and continue to measure compensation expense
using Accounting Principles Board Opinion No.25.
RECLASSIFICATION
Certain reclassifications were made to the 1993 and 1994 consolidated
financial statements to conform to the 1995 presentation.
- 35 -
<PAGE>
INAMED CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) INVENTORIES
Inventories are summarized as follows:
December 31
---------------------------
1995 1994
---------- ----------
Raw materials $ 2,513,862 $ 2,187,689
Work in progress 3,773,579 3,268,947
Finished goods 12,167,768 9,873,664
----------- -----------
$18,455,209 $15,330,300
Less allowance for obsolescence (759,362) (450,730)
----------- -----------
$17,695,847 $14,879,570
=========== ===========
(3) INTANGIBLE ASSETS
Intangible assets, at cost are summarized as follows:
December 31
---------------------------
1995 1994
------------ ---------
Customer lists $ 125,000 125,000
Organization and acquisition costs 251,539 237,814
Patents, trademarks and technology 2,585,961 2,585,961
Goodwill 1,785,451 1,841,234
Other 337,827 337,827
------------ ----------
5,085,778 5,127,836
Less accumulated amortization (3,426,852) (3,171,188)
------------ ----------
$1,658,926 1,956,648
============ ==========
Effective January 1994, the Company acquired the assets of Novamedic, S.A. The
cost in excess of fair value of the net assets acquired of $797,294 is
classified as goodwill.
(4) LINES OF CREDIT
As of December 31, 1995 and 1994, the Company had outstanding borrowings in
the amount of $328,366 and $718,366, respectively, under a $5,300,000
revolving line of credit agreement with a domestic bank which expired
August 31, 1993 and was extended through March 31, 1996. The terms of
the agreement required the Company to make monthly principal payments
($30,000 per month at December 31, 1995) and monthly interest payments
at prime plus 2.5% per annum (11.0% per annum at December 31, 1995).
Interest of $62,519, $105,417, and $203,186 was paid on the line of credit
in 1995, 1994, and 1993, respectively. The line of credit is
collateralized by the Company's domestic accounts receivable, inventories
and certain other assets. In September 1994, the company entered into
an agreement with the bank which deleted the financial covenants which
had been part of the original line of credit agreement. In January, 1996,
the obligation to the bank was satisfied.
- 36 -
<PAGE>
INAMED CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) LINES OF CREDIT, CONTINUED
The Company's Dutch subsidiary has a line of credit with
a major Dutch bank, totaling $1,540,000, which is collateralized
by the accounts receivable, inventories and certain other assets of its
Dutch subsidiary. The line of credit expires on March 31, 1996. As of
December 31, 1995 and 1994, approximately $900,000 and $1,100,000,
respectively, had been drawn on the line of credit. The interest rate
on the line of credit is 7% per annum.
The Company's weighted average interest rate on short-term borrowings
was 8.9% and 8.4% in 1995 and 1994, respectively.
The Company is currently seeking alternative lending sources from other
financial institutions. However, no agreements have been finalized to
replace the line of credit.
(5) LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1995 1994
---------- ----------
<S> <C> <C>
Note payable to Department of Commerce, due in
monthly installments of $766, including interest
at 8.9% through January 1995 $ -- $ 760
Capital lease obligations, collateralized by related
equipment, payable in monthly installments
aggregating $8,754, including interest at 6.9%
to 15.8%, expiring through November 1998 141,172 226,951
---------- --------
141,172 227,711
Less, current installments (51,735) (176,910)
---------- --------
$ 89,437 $ 50,801
========== ========
</TABLE>
The aggregate installments of long-term debt as of December 31, 1995 are as
follows:
Year ending December 31:
1996 $ 51,735
1997 65,993
1998 23,444
--------
$141,172
========
(6) DEFERRED GRANT INCOME
Deferred grant income represents grants received from the Irish Industrial
Development Authority (IDA) for the purchase of capital equipment, and is
amortized over the life of the related assets against the related
depreciation expense. Amortization for the years ended December 31, 1995,
1994 and 1993 was approximately $78,000, $61,000, and $42,000,
respectively.
In addition, for the years ended December 31, 1994 and 1993, respectively,
approximately $125,000, and $225,000 was received for training grants. For
the year ended December 31, 1993 approximately $41,000 was received for
rent subsidy grants. This amount has been offset against the related
expenses on the accompanying consolidated statements of operations.
- 37 -
<PAGE>
INAMED CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) DEFERRED GRANT INCOME, CONTINUED
The Company has a contingent liability to the IDA for deferred grant income
if certain conditions of the agreement with the IDA are not maintained.
(7) INCOME TAXES
Income tax expense (benefit) at December 31, is summarized as follows:
1995 1994 1993
----------- --------- ---------
Current:
Federal $(2,267,198) 1,577,188 2,823,052
State (195,969) 310,816 934,374
Foreign 551,893 172,891 241,184
----------- --------- ---------
Total (1,911,274 2,060,895 3,998,610
----------- --------- ---------
Deferred:
Federal $ 530,419 (70,778) 353,280
State (157,016) (39,984) 181,252
Foreign (144,928) 310,659 --
----------- --------- ---------
Total 228,475 199,897 534,532
----------- --------- ---------
$(1,682,799) 2,260,792 4,533,142
=========== ========= =========
- 38 -
<PAGE>
INAMED CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) INCOME TAXES, CONTINUED
The primary components of temporary differences which comprise the Company's net
deferred tax assets during 1995 and 1994 are as follows:
DECEMBER 31, DECEMBER 31,
1995 1994
---------- ----------
Deferred tax assets:
Allowance for doubtful accounts $ 576,350 $ 203,113
Allowance for returns 2,895,564 2,102,447
Inventory reserves 90,090 36,159
Inventory capitalization 481,456 458,583
Accrued liabilities 599,605 666,117
Net operating losses 1,103,248 510,032
State taxes 2,554 165,114
Intangible assets 168,151 161,296
Litigation settlement 3,651,648 3,651,648
Tax credits 145,748 --
Other 8,322 16,023
---------- ----------
Deferred tax assets 9,722,736 7,970,532
Valuation allowance (7,377,074) (5,000,080)
---------- ----------
Net deferred tax assets 2,345,662 2,970,452
---------- ----------
Deferred tax liabilities:
Depreciation and amortization (46,456) (33,210)
Installment sale (358,584) (592,645)
Other foreign (175,275) (335,026)
---------- ----------
Deferred tax liability (580,315) (960,881)
---------- ----------
Net deferred tax asset $1,765,347 $2,009,571
========== ==========
Although realization is not assured, management believes it is more likely
than not that the net deferred tax asset is fully recoverable against
taxes previously paid and thus no further valuation allowance for these
amounts is required.
- 39 -
<PAGE>
INAMED CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) INCOME TAXES, CONTINUED
The difference between actual tax expense (benefit) and the "expected" tax
expense (benefit) computed by applying the Federal corporate tax rate of
34% for the years ended December 31, 1995, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- --------- ----------
<S> <C> <C> <C>
"Expected" tax expense (benefit) $(2,915,792) 1,702,415 152,812
Litigation settlement -- -- 3,111,680
Tax effect of nondeductible expenses 51,084 43,974 18,196
Goodwill amortization 49,924 61,525 18,615
Research tax credits (1,099,596) (188,223) (46,851)
Foreign taxes 406,965 483,550 241,184
State franchise tax (benefit), net
of Federal tax benefits (268,488) 175,944 736,313
Losses of foreign operations (48,256) (290,522) (170,116)
Change in valuation allowance of
deferred tax assets 1,948,830 -- --
Tax penalties 276,708 150,726 415,658
Other (84,178) 121,403 55,651
----------- --------- ---------
$(1,682,799) 2,260,792 4,533,142
=========== ========= =========
</TABLE>
The Company had net operating loss carryovers at the foreign companies
aggregating approximately $2,260,000 at December 31, 1995 (based on
exchange rates at that date), to be used by the individual
foreign companies that incurred the losses. These net operating loss
carryovers have various expiration dates. As of December 31, 1995,
the Company had a net operating loss carryover of approximately
$2,400,000 for California franchise tax purposes. These loss
carryovers expire in 2000.
(8) ROYALTIES
The Company has entered into various license agreements whereby the Company
has obtained the right to produce, use and sell patented technology. The
Company pays royalties ranging from 5% to 10% of the related net sales,
depending upon sales levels. Royalty expense under these agreements was
approximately $5,511,000, $4,326,000, and $3,352,000, for the years ended
December 31, 1995, 1994 and 1993, respectively, and is included in
marketing expense. The license agreements expire at the expiration of
the related patents.
- 40 -
<PAGE>
INAMED CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9) STOCKHOLDERS' EQUITY
The Company has adopted several incentive and non-statutory stock option
plans. Under the terms of the plans, 610,345 shares of common stock are
reserved for issuance to key employees at prices generally not less than
the market value of the stock at the date the options are granted, unless
previously approved by the Board of Directors.
Activity under these plans for the years ended December 31, 1995, 1994
and 1993 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Options outstanding at beginning of year 122,500 167,854 222,054
Granted 80,000 -- 20,000
Exercised (50,000) (18,000) (63,000)
Expired or canceled (6,000) (27,354) (11,200)
------- ------- -------
Options outstanding at end of year 146,500 122,500 167,854
======= ======= =======
Options exercisable at end of year 94,000 102,500 126,604
======= ======= =======
</TABLE>
The exercise price of all options outstanding under the stock option plans
range from $1.45 to $2.49 per share. At December 31, 1995, there were
114,754 shares available for future grant under these plans. Under certain
plans, the Company granted options at $1.45, which was below the fair
market value of the common stock at the date of grant. Accordingly, the
Company is amortizing the difference between the fair market value and the
exercise price of the related outstanding options over the vesting period
of the options. Stock option compensation expense for the years ended
December 31, 1995, 1994 and 1993 aggregated $9,000, $10,000, and $38,000,
respectively.
In 1984, McGhan Medical Corporation adopted an incentive stock option plan
(the 1984 plan). Under the terms of the plan, 100,000 shares of its common
stock were reserved for issuance to key employees at prices not less than
the market value of the stock at the date the option is granted. In 1985,
INAMED Corporation agreed to substitute options to purchase its shares (on
a two-for-one basis) for those of McGhan Medical Corporation. 80,000
options were granted under this plan during 1995.
In 1986, the Company adopted an incentive and nonstatutory stock option
plan (the 1986 plan). Under the terms of the plan, 300,000 shares of
common stock have been reserved for issuance to key employees. No options
were granted under this plan during 1995.
In 1987, the Company also adopted an incentive stock award plan. Under the
terms of this plan, 300,000 shares of common stock were reserved for
issuance to employees at the discretion of the Board of Directors. The
Directors awarded 11,800 shares in 1995 and 11,600 shares in 1994 with
aggregate values of $29,500 and $29,000,
- 41 -
<PAGE>
INAMED CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9) STOCKHOLDERS' EQUITY, CONTINUED
respectively. No shares were awarded in 1993. At December 31, 1995,
there were 119,612 shares available for future grant under this plan.
The Company has a stock appreciation rights plan that became effective in
1989. Under the terms of this plan, 500,000 shares of common stock were
reserved for issuance to employees at the discretion of the Board of
Directors. In 1992, the Directors granted 250,000 shares each to the two
Officers/Directors of the Company; these were exercised in 1992.
In 1993 the Company adopted a Non-employee Director Stock Option Plan which
authorized the Company to issue up to 150,000 shares of common stock to
directors who are not employees of or consultants to the Company and who
are thus not eligible to receive stock option grants under the Company's
stock option plans. Pursuant to the Plan, each non-employee director is
automatically granted an option to purchase 5,000 shares of common stock on
the date of his or her initial appointment or election as a director, and
an option to purchase an additional 5,000 shares of common stock on each
anniversary of his or her initial grant date on which he or she is still
serving as a director. The exercise price per share is the fair market
value per share on the date of grant. As of December 31, 1995 no options
were granted under this plan.
(10) FOREIGN SALES INFORMATION
Net sales to customers in foreign countries for the years ended December
31, 1995, 1994 and 1993 represented the following percentages of net sales:
1995 1994 1993
------ ------ -------
Europe 22.3% 21.5% 14.3%
Asia - Pacific Rim 3.5 2.7 3.1
IberoLatinoAmerica 5.4 1.4 1.4
Other 0.3 0.7 0.7
------- ------- -------
31.5% 26.3% 19.5%
======= ======= =======
(The IberoLatinoAmerican classification above includes Central America, South
America, Spain, and Portugal.)
- 42 -
<PAGE>
INAMED CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(11) GEOGRAPHIC SEGMENT DATA
The following table shows net sales, operating income (loss) and
identifiable assets by geographic segment for the years ended December 31,
1995, 1994, and 1993:
1995 1994 1993
----------- ---------- ----------
Net sales:
United States $55,881,262 59,196,401 59,943,525
International 25,744,319 21,188,941 14,554,421
----------- ---------- ----------
$81,625,581 80,385,342 74,497,946
=========== ========== ==========
Operating income (loss):
United States $(7,601,277) 4,717,154 (4,304,047)
International (1,588,628) (1,139,129) 832,540
----------- ---------- ----------
$(9,189,905) 3,578,025 (3,471,507)
=========== ========== ==========
Identifiable assets:
United States $25,976,480 29,337,456 27,618,672
International 24,408,464 18,472,945 10,238,633
----------- ---------- ----------
$50,384,944 47,810,401 37,857,305
=========== ========== ==========
(12) RELATED PARTY TRANSACTIONS
Included in assets is an unsecured note receivable from an officer of the
Company. This receivable approximated $386,000 and $688,000 as of
December 31, 1995 and 1994, respectively. The note bears interest at
9.5% per annum and is due in June 1996. The note is primarily for
various personal activities and certain relocation allowances. On
March 4, 1996, the officer paid the balance of the note in full.
Included in liabilities are notes payable to an officer of the Company
and to a corporation in which an officer is the chief executive officer.
These payables approximated $1,209,000 and $421,000 as of December 31, 1995
and 1994, respectively. The notes bear interest at prime plus 2% per annum
(10.5% per annum at December 31, 1995) and are due June 30, 1996, or on
demand. The Company paid the balance of these notes in full on January 25,
1996. Also included in liabilities is a note payable of approximately
$550,000 to an officer of INAMED, S.A. in connection with the Company's
acquisition of this subsidiary. Final payment on this note was made on
February 6, 1996.
During 1992, the Company entered into a lease arrangement with an entity
controlled by an officer of the Company for rental of an aircraft to
provide transportation between Company facilities for corporate purposes.
The minimum rental through December 31, 1993 was $95,000 per month. In
January 1994 this lease was renegotiated to a month-to-month arrangement
with a monthly rent of $74,000 during 1994. Rent expense for 1995, 1994 and
1993 was $900,000, $888,000, and $1,260,000, respectively. In February
1995, the Company received a credit voucher from the carrier for $800,000.
This amount represents payments made during 1994 in excess of actual rent
and has been included in other current assets at December 31, 1994.
At December 31, 1995, the credit voucher had an outstanding balance of
$107,670. This balance was paid to the Company on March 11, 1996. The
lease arrangement was terminated effective December 31, 1995.
- 43 -
<PAGE>
INAMED CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(13) EMPLOYEE BENEFIT PLANS
Effective January 1, 1990, the Company adopted a 401(k) Defined
Contribution Plan for all U.S. employees. After six months of service,
employees become eligible to participate in the Plan. Participants may
contribute to the plan up to 20% of their compensation annually, subject
to the limitations in the Internal Revenue Code. The Company can match
contributions equal to 10% of each participant's contribution, limited
to 5% of the participant's compensation. The participants are 100%
vested in their own contributions and vesting in the Company's
contributions is based on years of credited service. Participants
become 100% vested after five years of credited service. The Company's
contributions to the plan amounted to $0, $0, and $96,519 for the years
ended December 31, 1995, 1994, and 1993, respectively.
Effective January 1, 1990, a certain subsidiary adopted a Defined Benefit
Plan for all employees. After one year of service, employees become
eligible to participate in the plan. Employees in active employment on
January 1, 1990 were immediately eligible. Plan benefits, including
pension upon retirement or complete disability, are based on an employee's
years of service and average compensation prior to retirement.
Participants share in the cost of the plan by making contributions of
3% to 5% of the pension basis. The funding policy is to pay the accrued
pension contribution currently. Contributions to the defined benefit
pension plan approximated $75,000, $49,000, and $55,000 for the years
ended December 31,1995, 1994, and 1993, respectively.
Effective February 1, 1990, a certain subsidiary adopted a Defined
Contribution Plan for all non-production employees. Upon commencement of
service, employees become eligible to participate in the plan and may
contribute to the plan up to 5% of their compensation. The Company's
matching contribution is equal to 200% of the participant's contribution.
The employee is immediately and fully vested in the Company's contribution.
The Company's contributions to the plan approximated $198,000, $144,000,
and $77,000 for the years ended December 31, 1995, 1994, and 1993,
respectively.
Effective January 1, 1991, a certain subsidiary adopted a Defined Benefit
Plan for all employees. After one year of service, employees become
eligible to participate in the plan. Plan benefits, including pension upon
retirement or complete disability, are based on an employee's years of
service and average compensation prior to retirement. Participants share
in the cost of the plan by making contributions of 2% to 3% of the pension
basis. The funding policy is to pay the accrued pension contribution
currently. Contributions to the defined benefit pension plan approximated
$17,000, $14,000,and $15,000 for the years ended December 31, 1995, 1994,
and 1993, respectively.
Effective February 1, 1991, a certain subsidiary adopted a Defined Benefit
Plan for all employees. After one year of service, employees become
eligible to participate in the plan. Plan benefits, including additional
pension upon retirement or complete disability, are based on an employee's
years of service and average compensation prior to
- 44 -
<PAGE>
INAMED CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(13) EMPLOYEE BENEFIT PLANS, CONTINUED
retirement. Participants do not share in the cost of the plan.
The funding policy is to pay the accrued pension contribution currently.
The Company's contributions to the plan approximated $24,000, $10,000,
and $12,000 for the years ended December 31, 1995, 1994, and 1993,
respectively.
Effective July 1, 1992, a certain subsidiary adopted a Defined Contribution
Plan for all employees. After six months of service, employees become
eligible to participate in the plan. They may contribute to the plan up to
5% of their compensation. The Company's matching contribution is equal to
100% of the participant's contribution. The employee is immediately and
fully vested in the Company's contribution. The Company's contributions to
the plan approximated $9,000, $7,000, and $6,000 for the years ended
December 31, 1995, 1994 and 1993, respectively.
Effective July 1, 1993, a certain subsidiary adopted a Defined Benefit Plan
for all employees. After one year of service, employees become eligible to
participate in the plan. Plan benefits, including pension upon retirement
or complete disability, are based on an employee's years of service and
average compensation prior to retirement. Participants do not share in the
cost of the plan. The funding policy is to pay the accrued pension
contribution currently. The Company's contributions to the plan
approximated $15,000 and $12,000 for the years ended December 31, 1995 and
1994, respectively.
Effective January 1, 1995, a certain subsidiary adopted a Defined Benefit
Plan for all employees. After one year of service, employees become
eligible to participate in the plan. The Company contributes 7% of the
employees' fixed salaries. The Company's contributions to the plan
approximated $15,000 for the year ended December 31, 1995.
Effective January 1, 1995, a certain subsidiary adopted a Defined
Contribution Plan for non-production employees. Upon commencement of
service, these employees become eligible to participate in the plan.
They may contribute to the plan up to 5% of their compensation. The
Company's matching contribution is equal to 10% of the participant's
contribution. The employee is immediately and fully vested in the
Company's contribution. The Company's contribution to the plan
approximated $17,000 for the year ended December 31, 1995.
(14) LITIGATION
INAMED and/or its subsidiaries are defendants in numerous State court
actions and a Federal class action in the United States District Court,
Northern District of Alabama, Southern Division, under Chief Judge Sam C.
Pointer, Jr., U.S. District Court, regarding Master File No. C892-P-10000-S
(Silicone Gel Breast Implants Product Liability Litigation MDL 926). The
claims are for general and punitive damages substantially exceeding
provisions made in the Company's consolidated financial statements. The
accompanying consolidated financial statements have been prepared assuming
that the Company will withstand the financial results of said litigation.
Several U.S. based manufacturers negotiated a settlement with the
Plaintiffs' Negotiating Committee ("PNC"), and on March 29, 1994 filed a
Proposed Non-Mandatory Class Action Settlement in the Silicone Breast
Implant Products Liability (the "Settlement Agreement") providing for
settlement of the claims as to the class (the "Settlement") as described in
the Settlement Agreement. The Settlement Agreement provides for resolution
of any existing or future claims, including claims for injuries not yet
known, under any Federal or State law, from any claimant who received a
silicone breast implant prior to June 1, 1993. A fairness hearing for the
non-mandatory class was held before Judge Pointer on August 18, 1994. On
September 1, 1994, Judge Pointer gave final approval to the non-mandatory
class action settlement.
- 45 -
<PAGE>
INAMED CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(14) LITIGATION, CONTINUED
The Company was not originally a party to the Settlement Agreement.
However, on April 8, 1994 the Company and the PNC reached an agreement
which would join the Company into the Settlement. The agreement reached
between the Company and the PNC added great value to the Settlement by
enabling all plaintiffs and U.S. based manufacturers to participate in the
Settlement, and facilitating the negotiation of individual contributions by
the Company, Minnesota Mining and Manufacturing Company ("3M"), and Union
Carbide Corporation which total more than $440 million.
Under the terms of the Settlement Agreement, the parties stipulate and
agree that all claims of the Settlement Class against the Company regarding
breast implants and breast implant materials shall be fully and finally
settled and resolved on the terms and conditions set forth in the
Settlement Agreement.
Under the terms of the Settlement Agreement, the Company will pay $1
million to the Settlement fund for each of 25 years starting three years
after Settlement approval by the Court. The Company recorded a pre-tax
charge of $9.1 million in the fourth quarter of 1993. The charge
represents the present value (discounted at 8%) of the Company's settlement
of $25 million over a payment period of 25 years.
Under the Settlement, $1.2 billion had been provided for "current claims"
(disease compensation claims). In May 1995, Judge Pointer completed a
preliminary review of current claims which had been filed as of September
1994, in compliance with deadlines set by the court. Judge Pointer
determined that based on the preliminary review, it appears that projected
amounts of eligible current claims exceed the $1.2 billion provided in the
Settlement. The Settlement provided that in the event of such over
subscription, the amounts to be paid to eligible current claimants would be
reduced and claimants would have a right to "opt-out" of the Settlement at
that time.
On October 1, 1995, Judge Pointer finalized details of a scaled-back breast
implant injury settlement involving defendants Bristol-Myers Squibb, Baxter
International, and 3M, allowing plaintiffs to reject this settlement and
file their own lawsuits if they believe payments are too low. On November
14, 1995, McGhan Medical and Union Carbide were added to this list of
settling defendants to achieve the Bristol, Baxter, 3M, McGhan and Union
Carbide Revised Settlement Program (the "Revised Settlement Program").
At December 31, 1995, the Company's reasonable estimate of its liability
to fund the Revised Settlement Program is a range between $9.1 million,
the original estimate as noted above, and $50 million, with no amount
within the range a better estimate. Due to the uncertainty of the ultimate
resolution and acceptance of the Revised Settlement Program by the PNC, as
well as a lack of information related to the total claims, the financial
statements do not reflect any additional provision for the litigation
settlement.
The Company has opposed the plaintiffs' claims in these complaints and
other similar actions, and continues to deny any wrongdoing or liability to
the plaintiffs of any kind. However, the extensive burdens and expensive
litigation the Company would continue to incur related to these matters
prompted the Company to work toward and enter into the Revised Settlement
Agreement which insures a more satisfactory method of resolving claims
of women who have received the Company's breast implants.
Management's commitment to the Settlement does not alter the Company's need
for complete resolution sought under a mandatory ("non-opt-out") settlement
class (the "Mandatory Class"). Therefore, the Company has petitioned the
United States District Court, Northern District of Alabama, Southern
Division, for certification of a Mandatory Class under the provisions of
Federal Rule of Civil Procedure.
- 46 -
<PAGE>
INAMED CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(14) LITIGATION, CONTINUED
The Company was a defendant with 3M in a case involving three plaintiffs in
Houston, Texas, in March 1994, in which the jury awarded the plaintiffs $15
million in punitive damages and $12.9 million in damages plus fees and
costs. However, the decision was reversed in March 1995 resulting in no
financial responsibility on the part of the Company.
(15) COMMITMENTS AND CONTINGENCIES
The Company leases facilities under operating leases. The leases are
generally on an all-net basis, whereby the Company pays taxes, maintenance
and insurance. Leases that expire are expected to be renewed or replaced
by leases on other properties. Rent expense for the years ended December
31, 1995, 1994 and 1993 aggregated $4,927,677, $4,913,327, and
$4,040,430, respectively.
Minimum lease commitments under all noncancelable leases as of December 31, 1995
are as follows:
Year ending December 31:
1996 $ 3,068,534
1997 1,831,633
1998 1,548,876
1999 1,291,402
2000 1,086,974
Thereafter 9,899,150
-----------
$18,726,569
===========
(16) SALE OF SUBSIDIARIES
As of August 31, 1993, the Company announced the sale of its wholly-owned
subsidiary, Specialty Silicone Fabricators, Inc. (SSF), a manufacturer of
silicone components for the medical device industry with production
facilities in Paso Robles, California. The sale included SSF's wholly-
owned subsidiary, Innovative Surgical Products, Inc. located in Santa Ana,
California, which assembles, packages and sterilizes products for other
medical device companies. The Company received total consideration of
approximately $10.8 million from the buyer, Innovative Specialty Silicone
Acquisition Corporation (ISSAC), a private investment group which included
certain members of SSF's management.
The consideration consisted of $2.7 million in cash, the forgiveness of
$2.2 million in intercompany notes due to SSF, and $5.9 million in
structured notes with various terms, due through August 31, 2003. The
notes bear interest ranging from 6% to 10% per annum and have been
reflected on the balance sheet net of a discount of $643,663 and settlement
of certain intercompany amounts totaling approximately $957,000. The notes
are collateralized by all of the assets of ISSAC. The Company has filed a
UCC1 and its position is subordinated only to that of ISSAC's primary
lender.
At December 31, 1995, the current portion due from ISSAC under the terms
of the note agreement is in dispute. The Company has classified all
current amounts due as long-term and an estimated provision for credit
loss has been provided for in the financial statements.
(17) SUBSEQUENT EVENT
In January 1996, the Company completed a private placement offering by
issuing three-year secured convertible, non-callable notes due March 31,
1999 bearing an interest rate of 11%. The Company received $35 million in
proceeds from the offering to be used for the anticipated litigation
settlement, for capital investments and improvements to expand production
capacity, and for working capital purposes. Of the proceeds received
from the offering, $15 million is held in an escrow account to be
released upon the granting and court approval of mandatory class
certification. At December 31, 1995 proceeds of approximately $500,000
were received and classified as a current liability. The notes are
collateralized by all the assets of the Company.
The notes become convertible into shares of common stock at the option of
the noteholders on April 22, 1996. The conversion rate is one share of
common stock for each $10 principal amount of notes. Alternatively, the
notes may automatically convert into shares of common stock upon the
occurrence of certain events in connection with the certification of the
Company's Mandatory Class.
Under the terms of the note agreement, the Company may obtain up to
$5 million in structured debt or make an equity offering without
restriction. However, the terms of the note agreement restrict the
Company's ability to make a debt offering.
- 47 -
<PAGE>
INAMED CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(18) QUARTERLY SUMMARY OF OPERATIONS (UNAUDITED)
The following is a summary of selected quarterly financial data for
1995 and 1994:
<TABLE>
<CAPTION>
Quarter
---------------------------------------------------------
First Second Third Fourth
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Sales:
1995 21,744,875 24,112,600 18,279,111 17,488,995
1994 16,896,056 21,978,104 20,911,167 20,600,015
Gross Profit:
1995 15,410,563 16,431,581 11,439,933 8,187,721
1994 10,476,412 14,664,187 14,085,793 14,894,492
Net Income (loss):
1995 1,140,496 2,744,448 (2,592,588) (8,185,417)
1994 1,271,942 1,710,309 1,004,409 (1,240,349)
Net Income (loss) per share:
1995 .15 .36 (.34) (1.08)
1994 .17 .23 .14 (.17)
========================================================
</TABLE>
SIGNIFICANT FOURTH QUARTER ADJUSTMENTS, 1995
During the fourth quarter of the year ended December 31, 1995, significant
adjustments to the results of operations were as follows:
Provision for income taxes $(4,162,607)
Provision for doubtful accounts
and returns and allowances 1,424,734
Compensation expense 891,200
- 48 -
<PAGE>
INAMED CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(18) QUARTERLY SUMMARY OF OPERATIONS (UNAUDITED), CONTINUED
Significant Fourth Quarter Adjustments, 1994
During the fourth quarter of the year ended December 31, 1994, significant
adjustments to the results of operations were as follows:
Provision for income taxes $(3,396,858)
Provision for doubtful accounts and
returns and allowances 546,054
Provision for inventory obsolescence 221,590
Provision for product liability 1,123,605
Rental expense (800,000)
Royalty income (325,301)
Compensation expense 187,500
- 49 -
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
DISCLOSURE.
Not applicable.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth the names of the directors and executive
officers of the Company, together with their ages and positions. There are no
family relationships among these directors and officers.
Name Age Position
----- ---- --------
Donald K. McGhan 62 Chairman of the Board
and President
Michael D. Farney 52 Chief Executive Officer,
Chief Financial Officer,
Treasurer and Secretary
DONALD K. MCGHAN
Mr. McGhan has served as Chairman of the Board of INAMED since October
1985 and President of INAMED since January 1987. He served as Chief Executive
Officer of INAMED from April 1987 until June 1992. He is also Chairman of the
Board of McGhan Medical Corporation, INAMED Development Company, BioEnterics
Corporation, Biodermis Corporation, Bioplexus Corporation, Flowmatrix
Corporation, Medisyn Technologies Corporation, McGhan Limited, INAMED B.V.,
INAMED B.V.B.A., INAMED GmbH., INAMED S.R.L., INAMED Ltd., INAMED, S.A., INAMED
SARL, INAMED Japan, and INAMED Medical Group (Japan).
MICHAEL D. FARNEY
Mr. Farney has served as Chief Financial Officer and Treasurer of
INAMED since April 1987. He was appointed Chief Executive Officer and Secretary
of INAMED Corporation in 1992. He also serves as Chief Executive Officer and
Chief Financial Officer of McGhan Medical Corporation, INAMED Development
Company, BioEnterics Corporation, Biodermis Corporation, Bioplexus Corporation,
Flowmatrix Corporation, Medisyn Technologies Corporation, McGhan Limited, INAMED
B.V., INAMED B.V.B.A., INAMED GmbH., INAMED S.R.L., INAMED Ltd., INAMED, S.A.,
and INAMED SARL. He is also a Director of INAMED Japan and INAMED Medical Group
(Japan).
- 50 -
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
The Company has no standing Compensation Committee of the Board of
Directors.
The Company believes that executive compensation should be closely
related to the value delivered to shareholders. This belief has been adhered to
by developing incentive pay programs which provide competitive compensation and
reflect Company performance. Both short-term and long-term incentive
compensation are based on Company performance and the value received by
shareholders.
COMPENSATION PHILOSOPHY
In designing its compensation program, the Company follows its belief
that compensation should reflect the value created for shareholders while
supporting the Company's strategic business goals. In doing so, the
compensation programs reflect the following themes:
- Compensation should encourage increased stockholder value.
- Compensation programs should support the short and long-term
strategic business goals and objectives of the Company.
- Compensation programs should reflect and promote the
Company's values, and reward individuals for outstanding
contributions toward business goals.
- Compensation programs should enable the Company to attract
and retain highly qualified professionals.
COMPENSATION MAKE-UP AND MEASUREMENT
The Company's executive compensation is based on three components,
base salary, short-term incentives and long-term incentives, each of which is
intended to serve the overall compensation philosophy.
BASE SALARY
The Company's salary levels are intended to be consistent with
competitive pay practices and level of responsibility, with salary increases
reflecting competitive trends, the overall financial performance of the Company,
general economic conditions as well as a number of factors relating to the
particular individual, including the performance of the individual executive,
and level of experience, ability and knowledge of the job.
SHORT-TERM INCENTIVES
At the start of each fiscal year, target levels of pre-tax profits and
revenue growth are established by senior management of the Company during the
budgeting process and approved by the Board of Directors. An incentive award
opportunity is established for each employee based on the employee's level of
responsibility, potential contribution, the success of the Company and
competitive conditions. Generally, approximately 25% of an executive's
potential bonus relates to his or her achievement of personal objectives and 75%
relates to the Company's achievement of its pre-tax profit and revenue goals.
The employee's actual award is determined at the end of the fiscal
year based on the Company's achievement of its pre-tax profit and revenue
goals and an assessment of the employee's individual performance, including
achievement of personal objectives. This ensures that individual awards
reflect an individual's specific contributions to the success of the Company.
- 51 -
<PAGE>
Stock options are granted from time to time to reward key employees'
contributions. The grant of options is based primarily on a key employee's
potential contribution to the Company's growth and profitability. Options are
granted at an in-the-money option price of $1.45 per share, and will increase in
value if the Company's stock price increases above that price. An in-the-money
option is an option which has an exercise price for the common stock which is
lower than the fair market value of the common stock on a specified date.
Generally, grants of options vest over seven years and employees must be
employed by the Company for such options to vest.
EMPLOYMENT, SEVERANCE, AND CHANGE OF CONTROL AGREEMENTS
The Company has entered into employment agreements with a number of
key personnel for various contract periods. Each of the contracts grants the
Board of Directors of the Company the right to increase the employee's base
salary and provides for other specified forms of compensation.
STOCK OPTION PLANS
In 1984, McGhan Medical Corporation adopted an incentive stock option
plan (the 1984 plan). Under the terms of the plan, 100,000 shares of its common
stock were reserved for issuance to key employees at prices not less than the
market value of the stock at the date the option is granted. In 1985, INAMED
Corporation agreed to substitute options to purchase its shares (on a two-for-
one basis) for those of McGhan Medical Corporation. 80,000 options were granted
under this plan during 1995.
In 1986, the Company adopted an incentive and nonstatutory stock
option plan (the 1986 plan). Under the terms of the plan, 300,000 shares of
common stock have been reserved for issuance to key employees. No options were
granted under this plan during 1995.
STOCK AWARD PLAN
In 1987, the Board of Directors adopted a stock award plan (the 1987
plan) whereby 300,000 shares of the Company's common stock were reserved for
issuance to selected employees of the Company. The plan was adopted to further
the Company's growth, development and financial success by providing additional
incentives to employees by rewarding them for their performance and providing
them the opportunity to become owners of common stock of the Company, and thus
to benefit directly from its growth, development and financial success. Shares
are awarded under the plan to employees as selected by a committee appointed by
the Board of Directors to administer the plan. Stock awards totaling 180,388
have been granted as of December 31, 1995.
- 52 -
<PAGE>
STOCK APPRECIATION RIGHTS PLAN
The Company has approved a stock appreciation rights (SAR) plan
whereby key employees may be issued cash or common stock based on the increase
in the stock value. The plan was adopted in 1988 by the Board of Directors. As
of December 31, 1992, 500,000 shares had been granted under the SAR. At
December 31, 1995 and during the year then ended, there were no SARs which were
outstanding.
SUMMARY COMPENSATION TABLE
The following table sets forth information with respect to the
compensation of the Company's executive officers for services in all capacities
to the Company in 1993, 1994 and 1995:
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION -------------
---------------------------------------------- STOCKS
OTHER OPTION/SARs ALL OTHER
ANNUAL GRANTED COMPENSATION
NAME AND PRINCIPAL POSITiON YEAR SALARY BONUS COMPENSATION (IN SHARES) (2)
- --------------------------- ---- -------- ------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Donald K. McGhan 1995 $299,676 -- -- -- --
Chairman and President 1994 253,187 -- -- -- --
1993 276,104 510,100 -- -- 1,745
Michael D. Farney 1995 245,165 714,227 -- -- --
Chief Executive Officer, 1994 207,354 -- -- -- --
Chief Financial Officer, 1993 226,104 405,900 -- -- 1,745
and Secretary
Gerald L. Ehrens (1) 1995 -- -- -- -- --
Chief Operating Officer 1994 141,795 -- -- -- --
1993 201,104 121,689 -- -- 1,745
</TABLE>
_________________
(1) Mr. Ehrens commenced employment with the Company on May 1, 1992 , and
terminated employment with the Company in September of 1994.
(2) During 1993 the Company made matching contributions to the employee
savings plan under Section 401(k) of the Internal Revenue Code in the
following amounts: Mr. McGhan, $1,745; Mr. Farney, $1,745; Mr. Ehrens,
$1,745.
TABLE OF STOCK OPTION EXERCISES IN 1995 AND YEAR-END OPTION VALUES
Not applicable.
- 53 -
<PAGE>
COMPARISON OF TOTAL SHAREHOLDER RETURN
The following graph sets forth the Company's total shareholder return as
compared to the NASDAQ Market Index and the Standard & Poor's Medical Products
and Supplies Index over the period from December 31, 1990 until December 31,
1995. The total shareholder return assumes $100 invested at December 31, 1990
in the Company's Common Stock, the NASDAQ Market Index and the Standard & Poor's
Medical Products and Supplies Index. It also assumes reinvestment of all
dividends.
COMPARISON OF 5-YEAR CUMULATIVE RETURN
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Inmaed Corp. 100 156 131 138 163 444
S&P Medical Products 100 164 140 107 127 214
Nasdaq Composite 100 161 187 214 210 297
</TABLE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information as to the shares of common
stock owned as of March 28, 1996, by (i) each person who, insofar as the Company
has been able to ascertain, beneficially owned more than five percent of the
outstanding common stock of the Company, (ii) each director, and (iii) all the
directors and officers as a group. Unless otherwise indicated in the footnotes
following the table and subject to community property laws where applicable, the
person(s) as to whom the information is given had sole voting and investment
power over the shares of common stock shown as beneficially owned.
Name of Beneficial
Owner or Identity Number Percent
of Group(1) of Shares of Class
--------------- --------- --------
Donald K. McGhan 1,221,829(2) 16.1%
Michael D. Farney 344,285 4.5%
All officers and directors as a group 1,566,114 20.6%
- ----------------
(1) Unless otherwise noted, the business address of all individuals listed
in the table is 3800 Howard Hughes Parkway, Suite 900, Las Vegas,
Nevada 89109.
(2) Includes 207,310 shares of common stock owned by Shirley M. McGhan,
the wife of Donald K. McGhan, as to which Mr. McGhan disclaims
beneficial ownership; 107,935 shares owned by a corporation of which
Mr. McGhan is the president; and 270,980 shares owned by a limited
partnership of which Mr. McGhan is the general partner.
- 54 -
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Included in assets is a note receivable from an officer of the
Company. The total amount of this receivable approximated $386,000 and $688,000
as of December 31, 1995 and 1994, respectively. The note bears interest ranging
from 8% to 10% per annum and is due in June, 1996. On March 4, 1996, the
officer paid the balance of the note in full.
Included in liabilities are notes payable to an officer and to a
corporation in which an officer is the chief executive officer. These payables
approximated $1,209,000 and $421,000 as of December 31, 1995 and 1994,
respectively. The notes bear interest at prime plus 2% per annum (10.5% per
annum at December 31, 1995) and are due June 30, 1996, or on demand. The
Company paid these notes in full on January 25, 1996. Also included in
liabilities is a note payable of $550,000 to an officer of INAMED, S.A. in
connection with the Company's acquisition of this subsidiary. Final payment on
this note was made on February 6, 1996.
During 1995, the Company incurred fees in the amount of $900,000, or
$75,000 per month, for services rendered by an entity controlled by an
officer/director of the Company. In February 1995, the Company received a
credit voucher from this entity for $800,000. This amount represented payments
made during 1994 in excess of actual rent and was included in other current
assets at December 31, 1994. At December 31, 1995, the credit voucher had an
outstanding balance of $107,670. This balance was paid to the Company on March
11, 1996. The lease arrangement was terminated effective December 31, 1995.
- 55 -
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) CONSOLIDATED FINANCIAL STATEMENTS: PAGE(S)
--------------------------------- ------
Report of Independent Accountants 26
Consolidated Balance Sheets as of
December 31, 1995, and 1994 27-28
Consolidated Statements of Operations for the
years ended December 31, 1995, 1994 and 1993 29
Consolidated Statements of Stockholders'
Equity for the years ended December 31,
1995, 1994, and 1993 30
Consolidated Statements of Cash Flows for the
years ended December 31, 1995, 1994 and 1993 31-33
Notes to Consolidated Financial Statements 34-51
(a)(2) CONSOLIDATED FINANCIAL STATEMENT SCHEDULES:
Schedule II - Valuation and Qualifying Accounts 59
All other schedules are omitted because the required information is not
present or is not present in amounts sufficient to require submission of the
schedule or because the information required is given in the consolidated
financial statements or notes thereto.
(a)(3) EXHIBITS:
3.1 Registrant's Articles of Incorporation
3.2 Registrant's Bylaws
10.1 Stock Option Plan, together with form of
Incentive Stock Option Agreement and
Nonstatutory Stock Option Agreement
10.2 Stock Award Plan
10.3 Non-Employee Directors' Stock Option Plan
21 Registrant's Subsidiaries
23.1 Consent of Independent Accountants
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K:
None
- 56 -
<PAGE>
SCHEDULE II
INAMED CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Beginning End of
of period period
Description balance Additions Deductions balance
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Year ended December 31, 1995:
Allowance for returns 5,346,885 329,364 -- 5,676,249
Allowance for doubtful
accounts 678,942 376,182 90,196 964,928
Allowance for obsolescence 450,730 600,847 292,215 759,362
Valuation allowance for
deferred tax assets 5,000,080 2,376,994 -- 7,377,074
Self-insurance accrual 1,291,605 9,000 169,973 1,130,632
Allowance for doubtful notes -- 1,066,958 -- 1,066,958
Year ended December 31, 1994:
Allowance for returns 4,807,675 585,885 46,675 5,346,885
Allowance for doubtful
accounts 333,321 454,380 108,759 678,942
Allowance for obsolescence -- 450,730 -- 450,730
Valuation allowance for
deferred tax assets 5,606,666 -- 606,586 5,000,080
Self-insurance accrual 1,293,236 -- 1,631 1,291,605
Year ended December 31, 1993:
Allowance for returns 5,033,218 494,736 720,279 4,807,675
Allowance for doubtful
accounts 208,187 272,771 147,637 333,321
Valuation allowance for
deferred tax assets -- 5,606,666 -- 5,606,666
Self-insurance accrual 1,960,132 157,000 823,896 1,293,236
</TABLE>
- 57 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
INAMED CORPORATION
By /s/ MICHAEL D. FARNEY
-------------------------------
Michael D. Farney
Chief Executive Officer and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
Registrant in the capacities and on the dates indicated:
<TABLE>
<S> <C> <C>
/s/ DONALD K. MCGHAN Chairman of the Board and President March 29, 1996
- -------------------------
Donald K. McGhan
/s/ MICHAEL D. FARNEY Chief Executive Officer, Chief March 29, 1996
- ------------------------- Financial Officer, Treasurer
Michael D. Farney and Secretary
(Principal Financial and Accounting Officer)
</TABLE>
- 58 -
<PAGE>
SUBSIDIARIES OF INAMED CORPORATION
State/Country of
Name Incorporation
---- ----------------
BIODERMIS CORPORATION Nevada
BIODERMIS LTD. Ireland
BIOENTERICS CORPORATION California
BIOENTERICS LTD. Ireland
BIOPLEXUS CORPORATION Nevada
BIOPLEXUS LTD. Ireland
CHAMFIELD LTD. Ireland
CUI CORPORATION California
FLOWMATRIX CORPORATION Nevada
INAMED B.V. The Netherlands
INAMED B.V.B.A. Belgium
INAMED DEVELOPMENT COMPANY California
INAMED do BRASIL, LTDA Brazil
INAMED GmbH Germany
INAMED LTD. United Kingdom
INAMED JAPAN Nevada
INAMED MEDICAL GROUP Japan
INAMED, S.A. Spain
INAMED S.A.R.L. France
INAMED S.R.L. Italy
McGHAN LTD. Ireland
McGHAN MEDICAL CORPORATION California
McGHAN MEDICAL ASIA PACIFIC Hong Kong
MEDISYN TECHNOLOGIES CORPORATION Nevada
MEDISYN TECHNOLOGIES LTD. Ireland
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statement of INAMED Corporation on Form S-3 filed on March 29, 1996 (File
No. 33- ) of our report dated March 28, 1996, on our audits of the
consolidated financial statements and consolidated financial statement
schedule of INAMED Corporation as of December 31, 1995 and 1994, and for the
years ended December 31, 1995, 1994, and 1993, which report is included in
this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
Las Vegas, Nevada
March 28, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 2,807,327
<SECURITIES> 0
<RECEIVABLES> 17,269,086
<ALLOWANCES> 6,641,177
<INVENTORY> 17,695,847
<CURRENT-ASSETS> 35,451,973
<PP&E> 20,205,489
<DEPRECIATION> 9,234,166
<TOTAL-ASSETS> 50,384,944
<CURRENT-LIABILITIES> 41,493,711
<BONDS> 0
0
0
<COMMON> 10,039,662
<OTHER-SE> (11,743,778)
<TOTAL-LIABILITY-AND-EQUITY> 50,384,944
<SALES> 81,625,581
<TOTAL-REVENUES> 81,625,581
<CGS> 30,155,783
<TOTAL-COSTS> 90,815,486
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 833,086
<INCOME-PRETAX> (8,575,860)
<INCOME-TAX> (1,682,799)
<INCOME-CONTINUING> (6,893,061)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,893,061)
<EPS-PRIMARY> (0.91)
<EPS-DILUTED> (0.91)
</TABLE>
