<PAGE>
FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ANNUAL REPORT
Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the fiscal year ended June 30, 1996 Commission File No. 0-1140
IMEX MEDICAL SYSTEMS, INCORPORATED
----------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 84-0712044
-------- ----------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
6355 Joyce Drive, Golden, CO 80403
- ---------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 431-9400
----------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock par value $.001
----------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 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
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to Form
10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the
Registrant as of August 30, 1996 - $8,615,446.
The number of shares outstanding of the Registrant's common stock as of
August 30, 1996 - 6,892,357.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT
Registrant's definitive Proxy Statement to be filed pursuant to Regulation 14(a)
under the Securities Exchange Act of 1934 is incorporated by reference in Part
II of this report.
<PAGE>
PART 1
ITEM 1. BUSINESS
GENERAL
Imex Medical Systems, Incorporated was organized under the laws of the state of
Colorado on April 12, 1976. Effective July 31, 1987, the Company reincorporated
in the state of Delaware. The Company develops, manufactures, markets and
services non-invasive medical diagnostic and monitoring instruments for use by
physicians in private practice, clinics and hospitals. The Company is a leading
producer and supplier of portable ultrasonic and plethysmographic
instrumentation used for listening to blood flow in the veins and arteries as
well as for monitoring the fetal heart. The Company intends to enhance its
current market position through the introduction or acquisition of new products.
ULTRASONIC DIAGNOSTIC EQUIPMENT
The medical applications of ultrasound were developed starting after World War
II, but have seen their greatest growth and application during this generation.
The number of ultrasound patient studies performed has increased primarily
because: (1) the technology has greatly improved allowing more information to
be obtained from the ultrasound signal; (2) more physicians have become aware
of the potential of ultrasound and have been trained in its use; and (3)
ultrasound has advantages over certain competing technologies in that it is non-
invasive and requires no ionizing radiation or injection of radioactive/
radiopaque dyes.
Plethysmographs are used to determine the amount of blood in a limb.
Photoplethysmographs, or PPG's, employ a light or infrared transmitter/receiver
to measure the amount of localized blood in the skin, which is often closely
related to the total amount of blood in the limb. Pressure sensors in a blood
pressure cuff (a pulse cuff recorder) can be used to sense both arterial pulses
and changes due to venous flow over a longer period of time.
<PAGE>
Ultrasonic doppler instruments provide an audible sound produced by the change
in frequency, or pitch, of the ultrasound wave when it is reflected from a
moving object. The motion of the fetal heart, even as early as 10-12 weeks into
the gestation period, can be heard with a doppler transducer/probe; also the
flow of blood can be heard through the peripheral vascular system. The pitch of
the doppler sound increases with increased blood velocity. Vascular dopplers
are used to diagnose conditions such as occluded arteries which can lead to leg
pain, stroke or heart attacks.
Vascular dopplers are used in taking systolic blood pressures and detecting
pulses, especially in patients with low blood pressure. These dopplers are
therefore useful to many physicians in the hospital or in the office practice.
Dopplers for obstetrical work are primarily used for reassuring the expectant
mother and physician of fetal viability through the detection of fetal heart
tones.
PRODUCTS
The Company's product line presently consists of the Pocket-Dop II, the Pocket-
Dop OB, the Pocket Dop3, the Pocket Dop One, the IMEXDOP CT+, the FreeDop, the
Imex Antepartum Monitor, the Imex Twin Antepartum Monitor, the IMEXLAB 3000DX,
IMEXLAB PVL and IMEXLAB 9000 vascular evaluation systems together with
associated accessories and disposables.
(a) POCKET-DOP II The Pocket-Dop II is a small, hand-held doppler. It has
multiple probes and, depending on which of the probes is utilized, can be
used for various obstetrical and vascular applications. The Pocket-Dop II
is designed specifically for convenience, portability and affordability.
The Company has sold tens of thousands of these devices since its
introduction.
(b) POCKET-DOP OB The Pocket-Dop OB is an obstetrical doppler based on the
design of the Pocket-Dop II.
(c) POCKET DOP3 The Pocket Dop3 is an advanced obstetrical doppler that
features autocorrelation, a technique that looks for patterns in the baby's
heart sounds to find the heart rate. It also includes a digital display
that indicates the heart rate, wall mount, recharging stand and a magnetic
system to hold the probe to the unit.
(d) IMEXDOP CT+ The IMEXDOP CT+ is a larger obstetrical and vascular doppler
featuring digital display, and autocorrelation. The unit comes with a
recharging stand and can be wall or table mounted.
(e) THE FREEDOP The FreeDop is a cordless version of the company's small
doppler line and can be used for vascular or obstetrical applications.
<PAGE>
(f) THE IMEX ANTEPARTUM MONITOR The unit is used primarily in the doctors
office or antepartum areas of hospitals to track the fetal heartrate and
monitor uterine contractions.
(g) THE IMEX TWIN ANTEPARTUM MONITOR The unit is used primarily in the
doctors office or antepartum areas of hospitals to track either one or two
fetal heart rates.
(h) THE POCKET DOP ONE The unit is an economical small hand-held doppler
that can be used for ob or vascular applications.
(i) IMEXLAB 3000DX This vascular diagnostic system offers both venous and
arterial test capabilities through bi-directional doppler and five other
test modalities.
(j) IMEXLAB PVL The PVL is a portable bi-directional vascular testing system
that comes complete with several accessories.
(k) IMEXLAB 9000 The IMEXLAB 9000 diagnostic system is an expandable
workstation design that automatically and non-invasively tests for arterial
and venous disease. Its CRT screen displays test results, and provides
step-by-step prompting for performing various diagnostic tests. The system
performs a full spectrum of bi-directional doppler, PPG and PCR vascular
tests that help determine if vascular disease is present and to what extent
the disease has progressed. Test results can be analyzed from the full
page printed report which provides waveforms, calculations and a suggested
diagnosis.
Additional new products and product enhancements are expected to be introduced
in fiscal year 1997. The Company may discontinue some current products
depending on future sales and profitability projections.
PATENTS
The Company has applied for a patent on the FreeDop system. The Company has
also applied for and received a patent on aspects of the IMEXLAB 9000, however,
the Company believes that patents are not a key determinant to its success. It
depends principally upon trade secrets and proprietary engineering, marketing,
service and manufacturing skills as well as the quality and economic value of
its products.
BACKLOG
The Company strives to fill orders on a timely basis and usually operates
without an inordinate backlog that would materially affect the business.
<PAGE>
GOVERNMENTAL REGULATION
All of the Company's present products are classified as Class II medical devices
under the Medical Device Amendment to the Federal Food, Drug and Cosmetic Act
(the "Act") and are thereby subject to regulation by the United States Food and
Drug Administration (the "FDA"). The FDA has the authority to regulate medical
devices before sale, remove medical devices from the marketplace if found to be
unsafe, ineffective or unreliable and to control plant conditions assuring
product quality. The Company's products are registered under the FDA 510(k)
regulation procedure.
The Act includes regulations with requirements that manufacturers of medical
devices register with the FDA, including lists of devices manufactured by them.
The Company is duly registered as a manufacturer of medical devices, and as such
is subject to periodic inspection requirements. With respect to individual
medical devices, the Act requires that a registered manufacturer submit a Form
510(k) or pre-marketing application (PMA) to the FDA for each new product.
The FDA also has the authority to prescribe performance standards for the
products manufactured by the Company. Should such standards be prescribed, the
Company's products would be required to conform to them. To date, no such
standards have been adopted, and the Company cannot predict which changes, if
any, may be necessitated in its products should such performance standards ever
be issued. Furthermore, the FDA has the authority to regulate the Company's
manufacturing practices that pertain to the safety of its products and to
inspect the Company's facilities for compliance with FDA standards. The Company
has had such inspections, and believes that it is currently in compliance with
such good manufacturing practices.
The Company believes it is in material compliance with the Act and the FDA's
regulations promulgated thereunder; however, regulatory changes could adversely
affect the Company.
The Company may be affected by governmental regulations concerning reimbursement
to health-care providers for Medicare and Medicaid services; i.e., CPT codes
for reimbursement of diagnostic services can change or be eliminated.
Healthcare reform is taking place nationwide, but not as a result of federal
legislation. Rather, it has proceeded as a result of public pressure and
natural free market forces. This situation has caused considerable uncertainty
on the part of healthcare providers, causing some purchasing decisions regarding
medical capital equipment to be postponed.
As this reform continues to evolve, the market for Imex products could be
affected in either a positive or negative way, depending on the perception of
our customer base of the impact such reform would have on the desirability of
performing noninvasive diagnostic procedures. Such procedures have the
documented potential for reducing long-term healthcare costs by reducing the
need for more expensive diagnostic
<PAGE>
techniques or for more serious and expensive treatments including surgery.
RESEARCH AND PRODUCT DEVELOPMENT
For the fiscal years ending June 30, 1996, 1995 and 1994 the Company incurred
$703,298, $844,354, and $605,575, respectively, on Company-sponsored research
and development activities.
MARKETING
The primary markets for the Company's products are hospitals and office-based
physicians. Some practices included are: internal medicine, family practice,
osteopathic medicine, general surgery, OB/GYN, podiatry and urology. Other
markets include clinics and primary care specialists.
To sell its products, the Company utilizes national and regional medical
conventions, trade journal advertising, direct mailing, telemarketing,
accredited medical education programs and referrals of satisfied customers. The
Company distributes domestically and internationally through distributors/
dealers who buy the products at a reduced price for resale, as well as through
commissioned manufacturers representatives and direct salespeople.
FOREIGN SALES
The Company has sold a number of its products outside the United States. For the
year ended June 30, 1996 these sales constituted 15% of the Company's net sales.
Foreign customers accounted for 14% in fiscal year 1995 and 15% of the Company's
net sales in fiscal year 1994. All foreign sales are made for the Company by
its wholly-owned subsidiary, Imex International, Inc.
COMPETITION
The Pocket-Dop II, Pocket-Dop OB, Pocket Dop3, Pocket Dop One, IMEXDOP CT+,
FreeDop, Imex Antepartum Monitor, Imex Twin Antepartum Monitor, IMEXLAB 3000DX,
IMEXLAB PVL and IMEXLAB 9000 compete with products offered by MedaSonics, Inc.
(hand-held dopplers only), Parks Medical Electronics, Inc., Huntleigh, Ltd.,
Oxford and others. The Company believes that it is one of the leading
suppliers of hand-held doppler instruments for vascular diagnosis and fetal
monitoring, portable vascular recorders for vascular diagnosis and automated
diagnostic units for vascular testing.
<PAGE>
MANUFACTURING AND QUALITY ASSURANCE
The Company manufactures its instruments at its facility in Golden, Colorado.
The Company's manufacturing operations principally involve the assembly, testing
and packaging of its products. A small number of parts and components are
available from limited sources of supply and interruption of vendor sources
could have a temporary adverse effect on the Company. However, the Company
believes that it would be able to replace any current vendor. The Company is
not materially dependent on any one supplier of its components.
The Company believes that the quality and reliability of its products are very
important. Many quality control procedures and reliability tests are included
in the manufacturing process of each instrument.
EMPLOYEES
As of August 30, 1996 the Company had 76 full-time employees and 5 part-time
employees.
ITEM 2. PROPERTIES
Since July, 1982, the Company has been leasing an 18,000 square foot building in
the Arvada Technological Center. The building is leased from Dennis and
Patricia Newman, officers and directors of the Company. The Company's
manufacturing, engineering, internal service and administrative operations are
conducted at this facility. Some leasehold improvements have been made to
increase engineering and manufacturing capabilities and efficiencies.
ITEM 3. LEGAL PROCEEDINGS
Inapplicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
(a) MARKET INFORMATION The principal market on which the Company's Common
Stock is traded is the over-the-counter market. It is included in the
automated quotation system of the National Association of Securities
Dealers, Inc. (NASDAQ) under the system symbol "IMEX". It is also listed
monthly in the Standard and Poor's "Stock Guide" and daily in the Wall
Street Journal. The table below presents the high and low "bid" and "ask"
prices of the Company's common stock for each of its fiscal quarters during
the last two fiscal years. Beginning January 1996 NASDAQ was reporting
high and low not bid and asked. Such prices reflect inter-dealer prices
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
FISCAL YEAR 1996
QUARTER ENDED
----------------
9/30/95 12/31/95
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High Bid $ 1 $ 7/8
Low Bid 5/8 9/16
High Ask $ 1 1/8 $ 15/16
Low Ask 11/16 11/16
3/31/96 6/30/96
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High $1 15/16 $ 2 1/16
Low 21/32 1 1/8
FISCAL YEAR 1995
QUARTER ENDED
----------------
9/30/94 12/31/94 3/31/95 6/30/95
------- -------- ------- -------
High Bid $ 3/4 $ 7/8 $ 11/16 $ 21/32
Low Bid 11/16 11/16 5/8 5/8
High Ask $ 7/8 $ 1 $ 3/4 $ 13/16
Low Ask 13/16 3/4 11/16 11/16
(b) HOLDERS The approximate number of holders of record of the Company's
common stock as of August 30, 1996 was 576.
<PAGE>
(c) DIVIDENDS The Company has not declared and does not anticipate declaring or
paying any dividends on shares of its common stock in the foreseeable
future.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30
--------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Sales $10,146,506 $9,175,853 $8,726,907 $9,257,517 $9,796,282
Net Income(Loss) 137,706 (415,050) 211,859 (264,859) 506,303
Net Income
(Loss) per
Common Share .02 (.06) .03 (.04) .08
Total Assets 6,652,275 6,351,493 6,483,388 7,058,938 7,784,131
Long-term
Obligations 388,538 560,069 859,045 1,137,699 1,222,337
Cash Dividends
per share 0 0 0 0 0
</TABLE>
Any forward looking statements contained in this document reflect management's
current intentions and expectations. Actual future results could vary
materially depending upon certain risks and uncertainties, including such
factors as the development of new products, market acceptance of existing and
future products, the timing of product sales, changes in the governmental
regulatory climate, health care reform, risks associated with foreign sales
including currency fluctuations and economic instability and the results of the
Company's cost containment revenues.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
On June 30, 1992, the Company acquired a competitor's vascular recorder product
line. This product acquisition was financed by a cash down payment, monthly
installment payments over the first three quarters of fiscal year 1993,
quarterly installments in fiscal years 1994 through 1996, and quarterly
installment payments to be made in fiscal years 1997 and 1998.
RESULTS OF OPERATIONS
Net sales for fiscal year 1996 increased 10.6% from fiscal year 1995. This
increase was due to higher demand for both vascular recorder lines and small
doppler products, and the successful introduction of new products. Both
domestic and international sales increased, with the
<PAGE>
latter accounting for 15% of total sales. Net sales increased in fiscal year
1995 from fiscal year 1994 by 5.1%, due primarily to the higher demand for small
products.
Management believes the increase in sales in small product lines from fiscal
year 1995 to fiscal year 1996 is due to the Company's continued strong position
in the marketplace, as well as the successful introduction of the innovative
Freedop doppler, the market's first cordless handheld doppler. Management
believes that continued timely introduction of pace-setting new products will
continue to be an important component of the growth engine required to drive
small product sales to increasing levels.
Increased sales in the vascular product lines are due to the investments made in
the previous fiscal year on direct salesperson training, and enhanced product
offerings. In addition, the uncertainty of healthcare consolidation is
lessening, at the same time the Company's sales approach and strategy is
maturing. Management continues to strongly believe that its vascular products
have the potential to help reduce health care costs in the United States by the
early detection of cardiovascular disease. This disease is the number one cause
of death in the country, and early detection can easily lead to preventative
measures capable of prolonging quality life in afflicted patients. If potential
customers perceive that the emerging healthcare system will support and
encourage the early diagnosis of vascular disease, then the domestic sales of
the Company's products that achieve such results, will continue their upward
trend.
International sales were higher than in fiscal year 1995. Fiscal year 1995
international sales were even with fiscal year 1994 sales. Management believes
that selected overseas markets hold much potential for the expansion of small
product lines, especially new small products due to be introduced in the fourth
quarter of fiscal year 1997. Increased levels of prenatal health care bodes
well for the Company's well-established obstetrical products.
Gross profit margins as a percentage of net sales decreased slightly to 51.1% in
fiscal year 1996 versus 52.2% in fiscal year 1995. In fiscal year 1994, the
gross profit margins were 53.8%. The slight decrease in gross profit margins
for fiscal year 1996 was due primarily a continued shift to smaller products,
those sold exclusively through dealer networks at significant discounts. This
was also true for the gross profit margin changes from fiscal 1994 to fiscal
year 1995. The Company continues to work towards improved margins on existing
product lines, and the development of new products that will contain higher than
existing gross margins.
Research and development ("R & D") expenses decreased significantly from the
prior fiscal year due to a planned reduction in efforts following record levels
in fiscal year 1995. R & D expenditures were $703,298 or 6.9% of net sales,
compared to 9.2% of net sales or $844,354 in fiscal year 1995. In fiscal year
1994, R & D expenditures were $605,575 or 6.9% of net sales. Thus, the
percentage level of R & D in fiscal year 1996 was a return to previous
percentage levels. The Company continues, however, to explore new opportunities
that will enhance existing
<PAGE>
products and develop new products for its markets. Management expects
expenditures for R & D to remain at current levels for fiscal year 1997, as the
Company continues to fund new projects that pertain to both existing and new
product lines.
Selling, general and administrative expense decreased to 41.5% of net sales in
fiscal year 1996 from 50.2% of net sales in fiscal year 1995. This decrease was
planned and anticipated, as investments in sales force training were completed
in fiscal 1995, and not required in fiscal year 1996. In fiscal year 1994,
selling, general and administrative expense was 41.9% of net sales. The
increase in costs from fiscal year 1994 to fiscal year 1995 was due to the
aforementioned investments in sales force development. Management expects
selling, general and administrative expenses to decrease as a percentage of
sales in fiscal year 1997, as sales are anticipated to increase and the Company
is stressing cost containment in fiscal year 1997.
Other expense - net was $44,959 in fiscal year 1996, $32,238 in fiscal year
1995, and $79,745 in fiscal year 1994. In all reported years, the interest
expense related primarily to imputed interest on the guaranteed payment for the
acquisition of the product line in 1992, and interest on borrowings under the
line of credit. The Company will continue to incur net interest expense charges
in fiscal year 1997.
The income tax provision (benefit) percentage is comparable in fiscal years
1996, 1995, and 1994. The Company utilized the loss incurred in fiscal year
1995 to recover income taxes paid in prior fiscal years.
LIQUIDITY AND CAPITAL RESOURCES
The Company's overall financial condition remained strong in fiscal year 1996.
Total assets increased in fiscal year 1996 to $6,652,275 from $6,351,493 in
fiscal year 1995. Cash remained virtually the same in fiscal year 1996 at
$68,771 from $71,511 in fiscal year 1995. Inventories increased by $540,057 to
$3,222,841 in fiscal year 1996 from $2,682,784 in fiscal year 1995. The
increase is due to the stocking of finished goods in advance of anticipated
shipments, and a continued focus to ship all goods within the shortest possible
time from the receipt of a confirmed, credit-approved customer order.
Management expects, however, that inventories will remain stable or even decline
slightly in fiscal year 1997. Accounts receivable increased $92,557 to
$2,247,332 in fiscal year 1996 from $2,154,775 in fiscal year 1995. Accounts
receivable remained steady for two off-setting reasons. While cash collections
have been good, receivables remained stable due to high sales in the last month
of the year. Net property and equipment increased to $489,133 in fiscal year
1996 from $441,553 in fiscal year 1995 as the Company's acquisitions of new
equipment exceeded the normal depreciation and retirements of previous year's
purchases. The Company acquired $324,942 in new capital equipment in fiscal
year 1996.
Current liabilities have increased $276,857 in fiscal year 1996, primarily due
to an increase in accounts payable ($324,778) and an increase in income taxes
payable ($84,209). Credit borrowings have decreased from $425,000 in fiscal
year 1995 to $250,000 in fiscal year 1996.
<PAGE>
Stockholders' equity increased $157,456 primarily as a result of the current
year's net profit of $137,706.
Working capital has increased $319,184 from June 30, 1995 ($3,266,763) to June
30, 1996 ($3,585,947).
Fiscal year 1997 will stress continued sales growth from the fiscal year 1996,
which was an all-time high for the Company. In addition, Management will
continue to focus on increasing profitability. Research and development will
continue at historical percentage levels against net sales, which will translate
into larger actual dollar expenditures than fiscal year 1996. Selling, general
and administrative expenses will be carefully monitored, and should be a lessor
percent of net sales than experienced in fiscal 1996. All projects will be
undertaken and completed with an eye towards their future contributions to sales
and profitability.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
F-1 Independent Auditors' Report
F-2 Consolidated Balance Sheets - as of June 30, 1996 and 1995
F-3 Consolidated Statements of Operations - for the years ended
June 30, 1996, 1995, and 1994
F-4 Consolidated Statements of Stockholders' Equity -
for the years ended June 30, 1996, 1995, and 1994
F-5 Consolidated Statements of Cash Flows - for the years
ended June 30, 1996, 1995, and 1994
F-6 Notes to Consolidated Financial Statements - for the years
ended June 30, 1996, 1995, and 1994
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
<PAGE>
INDEPENDENT AUDITORS' REPORT
Imex Medical Systems, Incorporated:
We have audited the accompanying consolidated balance sheets of Imex Medical
Systems, Incorporated and its subsidiaries as of June 30, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended June 30, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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
misstatement. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Imex Medical Systems, Incorporated
and its subsidiaries as of June 30, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 1996 in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Denver, Colorado
September 6, 1996
F-1
<PAGE>
IMEX MEDICAL SYSTEMS, INCORPORATED AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND 1995
- --------------------------------------------------------------------------------------------------
ASSETS 1996 1995
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 68,771 $ 71,511
Accounts receivable - trade, net of allowance
for doubtful accounts: 1996, $40,000; 1995, $40,000 2,247,332 2,154,775
Income tax receivable (Note 6) 161,257
Inventories (Note 2) 3,222,841 2,682,784
Prepaid expenses 154,541 60,117
Deferred income tax assets (Note 6) 168,000 135,000
---------- ----------
Total current assets 5,861,485 5,265,444
---------- ----------
PROPERTY AND EQUIPMENT - at cost (Note 5):
Machinery and equipment 2,048,747 1,993,654
Furniture and fixtures 307,967 305,837
Leasehold improvements 88,859 88,859
---------- ----------
Total property and equipment 2,445,573 2,388,350
Accumulated depreciation and amortization (1,956,440) (1,946,797)
---------- ----------
Property and equipment - net 489,133 441,553
---------- ----------
PRODUCT TECHNOLOGY, net of amortization:
1996, $612,880; 1995, $459,660 (Note 4) 153,220 306,440
---------- ----------
NONCOMPETE AGREEMENT, net of amortization:
1996 $483,200; 1995, $362,400 (Note 4) 120,800 241,600
---------- ----------
DEFERRED INCOME TAX ASSETS (Note 6) 41,000
---------- ----------
OTHER ASSETS 27,637 55,456
---------- ----------
TOTAL $6,652,275 $6,351,493
---------- ----------
---------- ----------
(continued)
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
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LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
<S> <C> <C>
CURRENT LIABILITIES:
Line of credit (Note 3) $ 250,000 $ 425,000
Accounts payable 920,405 595,627
Income tax payable (Note 6) 84,209
Wages, bonuses and commissions 337,078 269,517
Other accrued expenses 50,192 101,597
Deferred revenue 113,543 112,962
Sales returns and warranty reserve 122,576 120,000
Guaranteed payments (Note 4) 343,400 325,604
Capital lease obligations (Note 5) 54,135 48,374
---------- ----------
Total current liabilities 2,275,538 1,998,681
---------- ----------
GUARANTEED PAYMENTS (Note 4) 287,462 555,861
---------- ----------
CAPITAL LEASE OBLIGATIONS (Note 5) 101,076 4,208
---------- ----------
DEFERRED INCOME TAX LIABILITIES (Note 6) 38,000
---------- ----------
COMMITMENTS (Notes 4, 8 and 9)
STOCKHOLDERS' EQUITY (Note 7):
Preferred stock, $.001 par value - 3,000,000 shares authorized;
no shares issued or outstanding
Common stock, $.001 par value - 10,000,000 shares authorized;
shares issued: 1996, 7,092,445; 1995, 7,049,992;
shares outstanding: 1996, 6,890,208; 1995, 6,858,866 7,092 7,050
Additional paid-in capital 2,733,550 2,704,736
Retained earnings 1,543,965 1,406,259
---------- ----------
Total 4,284,607 4,118,045
Treasury stock, at cost: 1996, 202,237 shares; 1995, 191,126 shares (334,408) (325,302)
---------- ----------
Total stockholders' equity 3,950,199 3,792,743
---------- ----------
TOTAL $6,652,275 $6,351,493
---------- ----------
---------- ----------
(concluded)
</TABLE>
See notes to consolidated financial statements.
<PAGE>
IMEX MEDICAL SYSTEMS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
NET SALES $10,146,506 $ 9,175,853 $ 8,726,907
COST OF SALES 4,964,673 4,383,610 4,030,437
----------- ----------- -----------
GROSS MARGIN 5,181,833 4,792,243 4,696,470
RESEARCH AND DEVELOPMENT 703,298 844,354 605,575
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (Notes 8 and 9) 4,212,870 4,604,701 3,659,291
----------- ----------- -----------
OPERATING INCOME (LOSS) 265,665 (656,812) 431,604
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income 6,357 16,940 19,040
Other income 5,712 37,317
Interest expense (Notes 3, 4 and 5) (57,028) (86,495) (98,785)
----------- ----------- -----------
Other expense - net (44,959) (32,238) (79,745)
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME
TAX PROVISION (BENEFIT) 220,706 (689,050) 351,859
INCOME TAX PROVISION (BENEFIT)
(Note 6) 83,000 (274,000) 140,000
----------- ----------- -----------
NET INCOME (LOSS) $ 137,706 $ (415,050) $ 211,859
----------- ----------- -----------
----------- ----------- -----------
NET INCOME (LOSS) PER
COMMON SHARE $ .02 $ (.06) $ .03
----------- ----------- -----------
----------- ----------- -----------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 6,944,682 6,843,825 6,835,390
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
IMEX MEDICAL SYSTEMS, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Total
Common Stock Additional Stock-
------------------------- Paid-In Retained Treasury holders'
Shares Amount Capital Earnings Stock Equity
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1993 6,995,455 $ 6,995 $2,664,409 $1,609,450 $ (307,782) $3,973,072
Common shares issued for cash
upon exercise of options 34,538 35 27,391 27,426
Purchase of treasury shares (17,520) (17,520)
Net income 211,859 211,859
---------- ---------- ---------- ---------- ---------- ----------
BALANCE, JUNE 30, 1994 7,029,993 7,030 2,691,800 1,821,309 (325,302) 4,194,837
Common shares issued for cash
upon exercise of options 2,500 3 1,173 1,176
Common shares issued for
services 17,499 17 11,763 11,780
Net loss (415,050) (415,050)
---------- ---------- ---------- ---------- ---------- ----------
BALANCE, JUNE 30, 1995 7,049,992 7,050 2,704,736 1,406,259 (325,302) 3,792,743
Common shares issued for cash
upon exercise of options 19,375 19 9,087 9,106
Common shares issued for
services 23,078 23 19,727 19,750
Purchase of treasury shares (9,106) (9,106)
Net income 137,706 137,706
---------- ---------- ---------- ---------- ---------- ----------
BALANCE, JUNE 30, 1996 7,092,445 $ 7,092 $2,733,550 $1,543,965 $ (334,408) $3,950,199
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
IMEX MEDICAL SYSTEMS, INCORPORATED AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1996, 1995, AND 1994
- -----------------------------------------------------------------------------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 137,706 $ (415,050) $ 211,859
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 515,116 491,655 535,688
Loss on disposal of property and equipment 300
Imputed interest 49,397 66,015 81,529
Common shares issued for services 19,750 11,780
Deferred income tax provision (benefit) 46,000 (146,000) 77,000
Net change in operating assets and liabilities:
Accounts receivable (92,557) (219,914) (205,836)
Income tax receivable 161,257 (153,490) 301,780
Inventories (540,057) (334,522) 615,894
Prepaid expenses (94,424) 42,001 11,776
Other assets 27,819 53,146 64,640
Accounts payable 324,778 185,970 (358,422)
Income taxes payable 84,209
Wages, bonuses and commissions 67,561 (114,969) 130,998
Other accrued expenses (51,405) 91,971 (26,166)
Deferred revenue 581 (12,174) 64,751
Sales returns and warranty reserve 2,576 8,053 (8,397)
---------- ---------- ----------
Net cash provided by (used in) operating activities 658,607 (445,528) 1,497,094
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (139,332) (265,917) (109,179)
Proceeds from sale of property and equipment 2,028
---------- ---------- ----------
Net cash used in investing activities (137,304) (265,917) (109,179)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit 400,000 600,000
Repayments of line of credit borrowings (575,000) (175,000) (445,000)
Payments for acquisition of product line (300,000) (300,000) (225,000)
Proceeds from issuance of common stock 9,106 1,176 27,426
Payments for purchase of treasury shares (9,106) (17,520)
Principal payments on capital lease obligations (49,043) (44,667) (53,445)
---------- ---------- ----------
Net cash provided by (used in) financing activities (524,043) 81,509 (713,539)
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,740) (629,936) 674,376
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 71,511 701,447 27,071
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 68,771 $ 71,511 $ 701,447
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
IMEX MEDICAL SYSTEMS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1996, 1995, AND 1994
- --------------------------------------------------------------------------------
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS - Imex Medical Systems, Incorporated and its subsidiaries (the
Company) develop, manufacture, market and service non-invasive medical
diagnostic and monitoring instruments which primarily utilize vascular and
obstetrical ultrasound and plethysmographic technology.
BASIS OF PRESENTATION - The consolidated financial statements include the
accounts of Imex Medical Systems, Incorporated and its wholly-owned
subsidiaries, Imex International, Inc., which is engaged in selling the
Company's products in foreign markets, and ILS, Inc., which is engaged in
leasing the Company's products to end users. All intercompany transactions
and accounts have been eliminated.
USE OF ESTIMATES - The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
amounts reported in these financial statements and accompanying notes.
Actual results could differ from these estimates.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid short-
term investments purchased with an original maturity of three months or
less to be equivalent to cash.
INVENTORIES - Inventories are stated at the lower of first-in, first-out
cost or market.
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost and
are depreciated using the straight-line method over the estimated useful
lives of the assets ranging from three to seven years.
INTANGIBLE ASSETS - The Company acquired certain vascular products of a
competitor and recorded intangible assets for product technology acquired
and a noncompete agreement. These intangible assets are amortized using
the straight-line method over the estimated useful life of five years.
DEFERRED REVENUE - The Company sells extended warranty contracts to
customers for a term of one to four years. Revenue is recognized on a
straight line basis over the life of the service contract.
WARRANTY RESERVE - The Company warrants its products against defects in
material and workmanship for one to five years on parts and one year on
labor. A reserve is provided for estimated warranty costs.
REVENUE RECOGNITION - Revenues are recognized at date of shipment, with a
reserve provided for estimated sales returns. The Company generally grants
a 21-day right of return on product sales.
RESEARCH AND DEVELOPMENT - Research and development costs are charged to
operations as incurred.
INCOME TAXES - The Company accounts for income taxes under the liability
method. Under the liability method, deferred income taxes are recognized
for the future tax consequences of temporary differences by applying
enacted statutory tax rates to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities. The
effect on deferred taxes of a change in tax rates is recognized in income
in the period that includes the enactment date.
F-6
<PAGE>
EARNINGS PER SHARE - Earnings per share are computed using the weighted
average number of common and common stock equivalent shares outstanding
during the period. Common stock equivalents are excluded from the
calculation of earnings per share for the year ended June 30, 1995 as their
effect is anti-dilutive.
CONCENTRATION OF CREDIT RISK - Financial instruments which subject the
Company to concentrations of credit risk consist principally of trade
receivables. The Company extends credit primarily to companies and
professionals in the healthcare industry. The Company's operations are
located entirely within the United States. However in 1996, 1995 and 1994,
$1,510,905 (15%), $1,321,883 (14%), and $1,334,473 (15%), respectively, of
the Company's net sales were to foreign customers. This concentration of
credit risk may be affected by changes in economic or other conditions and
may, accordingly, impact the Company's overall credit risk.
RECLASSIFICATIONS - Certain amounts in the 1995 and 1994 financial
statements have been reclassified to conform to the 1996 presentation.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS - During 1995, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 121, "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED
ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF". SFAS No. 121 requires
that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable and establishes guidelines for determining
recoverability based on future net cash flows from the use of the asset and
for the measurement of the impairment loss. Impairment loss is calculated
as the difference between the carrying amount of the asset and its fair
value. Any impairment loss is recorded in the period in which the
recognition criteria are first applied and met. The Company is required to
adopt SFAS No. 121 in fiscal 1997. Adoption of SFAS No. 121 is not
expected to have a material effect on the financial position or results of
operations of the Company.
During 1995, the FASB issued SFAS No. 123, "ACCOUNTING FOR STOCK BASED
COMPENSATION." This statement, effective for the Company in fiscal 1997,
establishes financial accounting and reporting standards for stock-based
employee compensation plans and for transactions where equity securities
are issued for goods and services. The statement defines a fair value-
based method of accounting for employee stock options or similar equity
instruments and encourages, but does not require, application of that
method of accounting for all employee stock compensation plans. However,
it also allows an entity to continue to measure compensation cost for those
plans using the intrinsic value-based method of accounting prescribed by
Accounting Principles Board No. 25, "ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES." Management's present intention is to continue to follow the
intrinsic value-based method and to elect only the disclosure provisions of
SFAS No. 123. Therefore, adoption of SFAS No. 123 is not expected to have
a material impact on the financial position or results of operation of the
Company.
F-7
<PAGE>
2. INVENTORIES
Inventories consist of the following as of June 30:
1996 1995
Raw materials $1,430,991 $1,124,529
Work-in-process 427,100 365,144
Finished goods 1,065,320 707,426
Demonstrators 299,430 485,685
---------- ----------
Total inventories $3,222,841 $2,682,784
---------- ----------
---------- ----------
3. LINE OF CREDIT
The Company has a $1,250,000 revolving bank line of credit with interest at
the bank's prime rate plus 1/4% (8.5% at June 30, 1996). The line of
credit is collateralized by substantially all of the Company's assets. The
amount of credit available under the line of credit is limited to the total
of 75% of eligible trade receivables and 50% of eligible inventories up to
a maximum of $400,000. The agreement expires October 31, 1996, contains
standard financial statement covenants and restricts payment of dividends
by the Company. On June 30, 1996, the Company had available additional
borrowing capacity of $1,000,000 under the line of credit.
4. GUARANTEED PAYMENTS
In connection with the acquisition of certain vascular products of a
competitor, the Company is obligated to make certain minimum guaranteed
payments. The guaranteed payments are collateralized by substantially all
of the Company's assets and are subordinate to security interests under
capital lease obligations and the line of credit. As of June 30, 1996,
guaranteed future principal and interest payments, with interest being
imputed at 6.92%, are as follows:
1997 $ 375,000
1998 300,000
----------
Total payments 675,000
Interest portion (44,138)
----------
Principal payments $ 630,862
----------
----------
The acquisition was initially valued at $2,151,175 which represented the
amounts paid for the net assets acquired, principally consisting of
inventories, product technology and a noncompete agreement. Under the
acquisition agreement, royalties may be payable depending upon future sales
levels of the acquired products. Royalties, if any, will be expensed as
incurred.
5. CAPITAL LEASE OBLIGATIONS
Capital lease obligations are collateralized by the underlying equipment,
and are due in monthly installments, with interest at 8%.
F-8
<PAGE>
Assets financed by capital lease obligations as of June 30, include the
following:
1996 1995
Machinery and equipment $ 181,906 $ 138,625
Accumulated amortization (12,127) (84,929)
---------- ----------
Machinery and equipment - net $ 169,779 $ 53,696
---------- ----------
---------- ----------
Future principal and interest payments due on capital lease obligations as
of June 30, 1996 are as follows:
1997 $ 64,980
1998 64,980
1999 43,320
----------
Total payments 173,280
Interest portion (18,069)
----------
Principal payments $ 155,211
----------
----------
6. INCOME TAXES
The components of the provision (benefit) for income taxes for the years
ended June 30 are as follows:
1996 1995 1994
Current - Federal $ 37,000 $ (128,000) $ 63,000
---------- ---------- ----------
Deferred:
Federal 60,000 (116,000) 50,000
State (14,000) (30,000) 27,000
---------- ---------- ----------
Total 46,000 (146,000) 77,000
---------- ---------- ----------
Income tax provision (benefit) $ 83,000 $ (274,000) $ 140,000
---------- ---------- ----------
---------- ---------- ----------
F-9
<PAGE>
Deferred income taxes have been provided for the temporary differences that
exist between financial reporting and income tax bases. Temporary
differences which give rise to deferred tax assets and liabilities as of
June 30, are as follows:
1996 1995
Deferred income tax assets:
Current:
Inventories $ 99,000 $ 20,000
Accrued expenses 73,000 104,000
Other 12,000
Non-current:
State net operating loss carryforwards 37,000 21,000
Property and equipment 55,000
Leases 56,000 28,000
Other 24,000
---------- ----------
Total deferred income tax assets $ 289,000 $ 240,000
---------- ----------
---------- ----------
Deferred income tax liabilities:
Current - prepaid expenses $ 4,000 $ 1,000
Non-current:
Deferred international income 106,000 59,000
Property and equipment 48,000
Intangible assets 1,000 4,000
---------- ----------
Total deferred income tax liabilities $ 159,000 $ 64,000
---------- ----------
---------- ----------
Net current deferred income tax assets $ 168,000 $ 135,000
---------- ----------
---------- ----------
Net non-current deferred income tax
assets (liabilities) $ (38,000) $ 41,000
---------- ----------
---------- ----------
A reconciliation of federal statutory income taxes to the income tax
provision (benefit) is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Federal statutory income taxes at 34% $ 75,000 $ (234,000) $ 120,000
State income taxes, net of Federal
income tax benefit 5,000 (21,000) 14,000
Other 3,000 (19,000) 6,000
--------- ----------- ----------
Income tax provision (benefit) $ 83,000 $ (274,000) $ 140,000
--------- ----------- ----------
--------- ----------- ----------
</TABLE>
The Company has state net operating loss carryforwards available of
approximately $900,000 which expire in various amounts from 2007 to 2010.
7. STOCK OPTION PLANS
The Company has adopted an incentive stock option plan and nonstatutory
stock option plans for key employees and directors of the Company. The
Company has reserved 1,660,000 shares of its common stock for issuance
under the plans. The exercise price of options granted must be at least
equal to the
F-10
<PAGE>
fair market value of the related common stock on the date of grant. Stock
options granted to employees are exercisable during the term of employment
or during the three month period immediately following the term of
employment, generally vest 25% per year for four years and expire five
years from the date of grant. Stock options granted to directors generally
are exercisable immediately and expire five years from the date of grant.
Changes in options outstanding under the plans for the three years in the
period ended June 30, 1996, are as follows:
NON-
INCENTIVE STATUTORY
STOCK STOCK
OPTION PRICES OPTIONS OPTIONS
Balance, June 30, 1993 $0.47 to 2.00 35,538 167,949
Grants 0.97 to 1.22 6,882 83,618
Cancellations 0.47 to 1.96 (7,507) (80,118)
Exercised 0.47 to 1.96 (28,913) (5,625)
---------- ----------
Balance, June 30, 1994 0.47 to 2.00 6,000 165,824
Grants 0.75 to 0.81 45,000
Cancellations 0.47 to 2.00 (3,000) (14,000)
Exercised 0.47 (2,500)
---------- ----------
Balance, June 30, 1995 0.47 to 2.00 3,000 194,324
Grants 0.75 19,500
Cancellations 0.47 to 2.00 (63,625)
Exercised 0.47 (19,375)
---------- ----------
Balance, June 30, 1996 0.75 to 2.00 3,000 130,824
---------- ----------
---------- ----------
Exercisable, June 30, 1996 0.75 to 2.00 3,000 97,449
---------- ----------
---------- ----------
8. RELATED-PARTY TRANSACTIONS
The Company rents office and manufacturing space from the principal
stockholders and officers of the Company under a noncancelable lease
agreement which expires on June 30, 1998. The Company may sub-lease the
building. Monthly rental payments of $10,361 are required and are subject
to annual escalation based upon the percentage increase in the Consumer
Price Index. Rent expense was $124,332 in 1996, $124,332 in 1995 and
$116,676 in 1994. Future minimum annual rentals under this lease are as
follows:
1997 $ 124,332
1998 124,332
----------
Total $ 248,664
----------
----------
9. EMPLOYEE SAVINGS PLAN
The Company sponsors a 401(k) Savings and Retirement Plan (the Plan). The
Plan is a defined contribution plan for all full-time employees of the
Company who have attained at least 18 years of age and have completed at
least six months of service.
F-11
<PAGE>
Participants may elect to make contributions up to 15% of their annual
compensation, subject to limitations based on provisions of the tax law.
The Company may, at its option, match 50% of individual participant
contributions up to 6% of the participant's annual compensation. The
Company's contributions vest at a rate of 25% per year. For the years
ended June 30, 1996, 1995 and 1994, the Company incurred costs of $47,362,
$40,638 and $0, respectively under the Plan.
10. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments as of June 30, 1996. SFAS No. 107,
"DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS", defines the fair
value of a financial instrument as the amount at which the instrument could
be exchanged in a current transaction between willing parties.
CARRYING FAIR
AMOUNT VALUE
Financial assets:
Cash and cash equivalents $ 68,771 $ 68,771
Financial liabilities:
Line of credit 250,000 250,000
Guaranteed payments 630,862 621,463
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
CASH AND CASH EQUIVALENT AND LINE OF CREDIT - The carrying amounts
approximate fair value because of the short maturity of these instruments.
GUARANTEED PAYMENTS - The fair value is estimated by discounting expected
cash flows at the interest rates currently offered to the Company.
11. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
NONCASH INVESTING AND FINANCING ACTIVITIES - During 1996, the Company
acquired equipment by incurring a capital lease obligation of $185,610 and
returned property and equipment of $33,938 to a vendor in satisfaction of
the prior capital lease financing obligation.
SUPPLEMENTAL CASH FLOW INFORMATION - The Company received an income tax
refund of $208,466 in 1996. The Company paid $25,490 and $83,788 in income
taxes in 1995 and 1994, respectively, and $7,631, $20,481 and $17,256 for
interest on debt in 1996, 1995 and 1994, respectively.
* * * * * *
F-12
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's definitive proxy statement to be filed pursuant to Regulation
14 (a) under the Securities and Exchange Act of 1934 is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The Company's definitive proxy statement to be filed pursuant to Regulation
14 (a) under the Securities and Exchange Act of 1934 is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company's definitive proxy statement to be filed pursuant to Regulation
14 (a) under the Securities and Exchange Act of 1934 is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's definitive proxy statement to be filed pursuant to Regulation
14 (a) under the Securities and Exchange Act of 1934 is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS
Independent Auditors' Report
Consolidated Balance Sheets - as of June 30, 1996 and 1995
Consolidated Statements of Operations - for the years ended
June 30, 1996, 1995, and 1994
Consolidated Statements of Stockholders' Equity - for the
years ended June 30, 1996, 1995, and 1994
Consolidated Statements of Cash Flows - for the years
ended June 30, 1996, 1995, and 1994
Notes to Consolidated Financial Statements - for the years
ended June 30, 1996, 1995, and 1994
<PAGE>
(b) REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K during the fourth quarter of
fiscal year 1996.
(c) EXHIBITS
Exhibit No. Item
----------- ----
3.1 Articles of Incorporation as
filed with the Delaware
Secretary of State on April
20, 1987***
3.2 Bylaws***
4.2 Form of Warrant issued by
Registrant to Underwriter*
10.1 Limited Partnership
Agreement of Imex Medical
Associates II, Ltd.,
executed December 30, 1982*
10.2 Option Agreement between
Registrant and Imex Medical
Associates II, Ltd., dated
December 30, 1982*
10.3 Development Agreement
between Registrant and Imex
Medical Associates II, Ltd.,
executed December 30, 1982*
10.4 License Agreement between
the Registrant and Imex
Medical Associates, II Ltd.,
executed December 30, 1982*
10.5 1983 Incentive Stock Option
Plan of the Registrant*
10.6 1983 Non-Statutory Stock
Option Plan of the
Registrant*
10.7 1987 Non-Statutory Stock
Option Plan of the
Registrant***
<PAGE>
10.8 Addendum, dated July 13,
1988 to Lease Agreement
between the Registrant and
Dennis R. Newman and
Patricia L. Newman dated
June 1, 1982***
10.9 Asset Purchase Agreement
dated as of June 30, 1992
between Registrant and
MedaSonics, Inc.****
13.0 A copy of the Registrant's
1996 Annual Report to
Shareholders will be fur-
nished to the Commission.
No part of the financial
statements contained herein
have been incorporated in
this Report by reference,
and said 1996 Annual Report
shall not be deemed to be
filed with the Securities
and Exchange Commission.
* Similarly denoted as an Exhibit to Registration Statement No. 2-86388-D on
Form S-18 and incorporated herein by reference.
** Similarly denoted as an Exhibit to Annual Report on Form 10-K for fiscal
year ending June 30, 1985, and incorporated herein by reference.
*** Similarly denoted as an Exhibit to Annual Report on Form 10-K for fiscal
year ending June 30, 1988 and incorporated herein by reference.
**** Denoted as Exhibit 2.1 to current report on Form 8-K dated June 30, 1992
and incorporated herein by reference.
<PAGE>
SIGNATURES
Pursuant to the Requirements of Sections 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned thereunto duly authorized.
IMEX MEDICAL SYSTEMS, INCORPORATED
Registrant
By /s/ Dennis R. Newman
----------------------------------
Dennis R. Newman, Chairman and CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
<TABLE>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
Chairman of the Board,
/s/ Dennis R. Newman Chief Executive Officer, September 12, 1996
- ------------------------- Director
Dennis R. Newman
/s/ Patricia L. Newman Vice President, Secretary September 12, 1996
- ------------------------- Officer, Director
Patricia L. Newman
/s/ Ernest S. Malachowski President, COO September 12, 1996
- ------------------------- CFO, Treasurer, Officer, Director
Ernest S. Malachowski
/s/ Fred Ayers Director September 12, 1996
- -------------------------
Fred Ayers
/s/ Byron R. Chrisman Director September 12, 1996
- -------------------------
Byron R. Chrisman
/s/ Richard E. Geesaman Director September 12, 1996
- -------------------------
Dr. Richard E. Geesaman
/s/ Kenneth L. Koskella Director September 12, 1996
- -------------------------
Kenneth L. Koskella
/s/ R. C. Mercure, Jr. Director September 12, 1996
- -------------------------
R. C. Mercure, Jr.
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE YEAR ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 68,771
<SECURITIES> 0
<RECEIVABLES> 2,287,332
<ALLOWANCES> (40,000)
<INVENTORY> 3,222,841
<CURRENT-ASSETS> 5,861,485
<PP&E> 2,445,573
<DEPRECIATION> (1,956,440)
<TOTAL-ASSETS> 6,652,275
<CURRENT-LIABILITIES> 2,275,538
<BONDS> 0
0
0
<COMMON> 7,092
<OTHER-SE> 4,277,515
<TOTAL-LIABILITY-AND-EQUITY> 6,652,275
<SALES> 10,146,506
<TOTAL-REVENUES> 10,146,506
<CGS> 4,964,673
<TOTAL-COSTS> 9,880,841
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44,959
<INCOME-PRETAX> 220,706
<INCOME-TAX> 83,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 137,706
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
