<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended: September 30, 1996
Commission File No. 0-11400
IMEX MEDICAL SYSTEMS, INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 84-0712044
- - ---------------------------- -----------------------
(State or other jurisdiction (IRS Employer ID Number)
of incorporation or organization)
6355 Joyce Drive, Golden, Colorado 80403
- - ---------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(303) 431-9400
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Telephone Number
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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Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest
practicable date.
Class Outstanding as of 10/14/96
- - ----------------------------- --------------------------
Common Stock, $.001 Par Value 6,894,357
<PAGE>
PART 1 FINANCIAL INFORMATION
ITEM 1. Financial Statements
IMEX MEDICAL SYSTEMS, INCORPORATED
CONSOLIDATED BALANCE SHEETS
September 30, 1996 (unaudited) and June 30, 1996
<TABLE>
September 30, 1996 June 30, 1996
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(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash & cash equivalents $ 39,837 $ 68,771
Trade accounts receivable - net of
allowance for doubtful accounts:
September 30, 1996, $57,167;
June 30, 1996, $40,000 1,782,799 2,247,332
Inventories 3,414,894 3,222,841
Prepaid expenses 157,996 154,541
Deferred income tax assets 168,000 168,000
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Total current assets 5,563,526 5,861,485
PROPERTY AND EQUIPMENT - At cost:
Machinery and equipment 2,081,424 2,048,747
Furniture and fixtures 307,967 307,967
Leasehold improvements 105,616 88,859
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Total 2,495,007 2,445,573
Accumulated depreciation and amortization (2,008,891) (1,956,440)
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Property and equipment - net 486,116 489,133
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PRODUCT TECHNOLOGY, net of
amortization: September 30, 1996,
$652,168; June 30, 1996, $612,880 115,088 153,220
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NONCOMPETE AGREEMENT, net of
amortization: September 30, 1996,
$512,417; June 30, 1996, $483,200 90,427 120,800
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OTHER ASSETS 22,250 27,637
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TOTAL $6,277,407 $6,652,275
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LIABILITIES AND STOCKHOLDERS' EQUITY September 30, 1996 June 30, 1996
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(unaudited)
CURRENT LIABILITIES:
Accounts Payable $ 603,071 $ 920,405
Line of Credit 625,000 250,000
Wages, bonuses and commissions 256,953 337,078
Other accrued expenses 98,332 247,944
Sales returns and warranty reserve 101,316 122,576
Guaranteed payments 348,044 343,400
Capital lease obligations 55,601 54,135
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Total current liabilities 2,088,317 2,275,538
GUARANTEED PAYMENTS 217,434 287,462
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CAPITAL LEASE OBLIGATION 86,757 101,076
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DEFERRED INCOME TAX LIABILITIES 38,000 38,000
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STOCKHOLDERS' EQUITY:
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:
September 30, 1996, 7,097,445; June 30, 1996,
7,092,445; shares outstanding: September 30, 1996,
6,892,208; June 30, 1996, 6,890,208 7,098 7,092
Additional paid-in capital 2,738,232 2,733,550
Retained earnings 1,440,664 1,543,965
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Total 4,185,994 4,284,607
Treasury stock, at cost: September 30, 1996,
205,237 shares; June 30, 202,237 shares (339,095) (334,408)
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Total stockholders' equity 3,846,899 3,950,199
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TOTAL $6,277,407 $6,652,275
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</TABLE>
See notes to unaudited consolidated financial statement
<PAGE>
IMEX MEDICAL SYSTEMS, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
For the Three Months Ended September 30, 1996 and 1995
Three Months Ended September 30
1996 1995
---- ----
NET SALES $2,144,395 $2,054,261
COST OF SALES 1,107,302 1,059,992
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GROSS PROFIT 1,037,093 994,269
RESEARCH AND DEVELOPMENT 188,656 191,239
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 996,070 980,633
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OPERATING LOSS (147,633) (177,603)
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OTHER INCOME (EXPENSE):
Interest Income 1,173 1,405
Interest Expense (19,841) (17,090)
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Total other expense - net (18,668) (15,685)
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LOSS BEFORE INCOME
TAX BENEFIT (166,301) (193,288)
INCOME TAX BENEFIT (63,000) (73,500)
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NET LOSS (103,301) (119,788)
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NET LOSS PER COMMON SHARE $ (0.01) $ (0.02)
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WEIGHTED AVERAGE NUMBER OF COMMON SHARES 6,891,541 6,863,039
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See notes to unaudited consolidatd financial statements
<PAGE>
IMEX MEDICAL SYSTEMS, INCORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
For the Three Months Ended September 30, 1996 and 1995
<TABLE>
Three Months Ended September 30
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1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (103,301) $ (119,788)
Adjustments to reconcile net loss
to net cash provided by (used in) operating activities:
Depreciation and amortization 120,956 130,922
Imputed interest 9,616 13,951
Common shares issued for service 0 1,750
Deferred income tax benefit 0 (7,000)
Net changes in operating assets and liabilities:
Accounts receivable 464,533 794,542
Income tax receivable 0 (68,450)
Inventories (192,053) (93,969)
Prepaid expenses 1,932 (14,825)
Accounts payable (317,334) 125
Wages, bonuses and commissions (80,125) (49,855)
Other accrued expenses (149,612) 14,961
Sales returns and warranty reserve (21,260) (16,434)
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Net cash provided by (used in) operating activities: (266,648) 585,930
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CASH FLOWS FROM INVESTING ACTIVITIES -
Cash used in purchase of property and equipment (49,434) (27,706)
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CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayments) borrowings under line of credit 375,000 (425,000)
Payments for acquisition of product line (75,000) (75,000)
Principal payments on capital lease obligations (12,853) (11,734)
Proceeds from issuance of common stock 4,688 2,056
Payments for purchase of treasury stock (4,687) (2,056)
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Net cash provided by (used in) financing activities 287,148 (511,734)
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NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (28,934) 46,490
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 68,771 71,511
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 39,837 $ 118,001
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</TABLE>
See notes to unaudited consolidated financial statements
<PAGE>
IMEX MEDICAL SYSTEMS, INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE
THREE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995.
1. In the opinion of management, the accompanying
unaudited consolidated financial statements contain all
adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the Company's
financial position as of September 30, 1996 and the
results of its operations and its cash flows for the
three months ended September 30, 1996 and 1995.
2. The significant accounting policies followed by the
Company are set forth in Note 1 to the Company's
financial statements in the Company's Annual Report on
Form 10-K for the year ended June 30, 1996.
3. Inventories consist of the following as of September
30, 1996 and June 30, 1996:
September 30 June 30
------------ ----------
Raw materials $1,526,487 $1,430,991
Work-in-process 335,050 427,100
Finished goods 1,148,626 1,065,320
Demonstrator 404,731 299,430
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Total inventories $3,414,894 $3,222,841
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4. The Company paid $19,841 and $17,074 for interest
during the three months ended September 30, 1996 and
1995, respectively.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
As an aid to understanding the Company's operating results, the following
table indicates relationships of income and expense items to net sales for
line items included in the Consolidated Statements of Income for the three
months ended September 30, 1996 and 1995, and the percentage changes in those
items for the three months ended September 30, 1996 from the comparable
periods in 1995.
<TABLE>
Percentage Change From
As a Percentage of Total Prior Year's Comparable
Revenues Periods
------------------------ -----------------------
Three Months Three Months
Ended September 30, Ended September 30,
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<S> <C> <C> <C>
Income and Expense Items 1996 1995 1996
- - ------------------------ ---- ---- ----
Net Sales 100.0 % 100.0 % 4.4 %
Cost of Sales 51.6 51.6 4.5 %
----- ----- ----
Gross Profit 48.4 48.4 4.3 %
Research and Development 8.8 9.3 (1.4)%
Selling, General and
Administrative Expenses 46.4 47.7 1.6 %
----- ----- ----
Operating Loss (6.8) (8.6) 16.9 %
Other Income (Expense) (.9) (.8) (19.0)%
----- ----- ----
Loss Before
Income Tax Benefit (7.7) (9.4) 13.7 %
Income Tax Benefit (2.9) (3.6) 14.3 %
----- ----- ----
Net Loss (4.8)% (5.8)% 13.8 %
----- ----- ----
----- ----- ----
</TABLE>
<PAGE>
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.
RESULTS OF OPERATIONS:
Net loss decreased from $119,788 for the first quarter
ended September 30, 1995 to $103,301 for the same period
ended September 30, 1996.
This decrease in net loss from the first quarter of FY1996
to the first quarter of FY1997, is a direct result of net
sales increasing 4.4%. Cost of goods sold increased
approximately the same rate as sales, or 4.5%. Sales were
lower in the diagnostic systems area (DSG) due to the usual
summer slowdowns in customer purchasing of capital
equipment. Sales were higher in the small products area due
to increased cross distribution by DSG sales people.
Overall, the sales mix and modest increase from the first
quarter of FY1996 are in line with management's
expectations.
The Company's primary customer base continues to shift, as
the nation's delivery of health care continues to evolve by
its own efforts. This gradual shift from the private
physician to large groups and hospital settings, has caused
the Company to re-evaluate its distribution, and shift
resources to areas where it can be most effective. We
anticipate improved sales as a result of this shift in
resources. The Company will continue to capitalize on its
strong distribution system in these evolving market
segments.
The Company's outlook remains positive, especially in the
hospital and managed care markets. Our equipment is cost
effective, and we enjoy strong market share and market
presence. Domestic sales in the small doppler products are
strong, and higher than the first quarter of FY1996.
Domestic sales of diagnostic systems are off slightly, from
the first quarter of FY1996. International sales are up
significantly when compared to the first quarter of FY1996.
Research and development expenses have decreased slightly
due to minor decreases in outside engineering expenses. The
Company foresees significant potential for new products in
its market niche, and has several projects underway to take
advantage of its unique position Sales, General and
Administrative expenses have increased slightly from the
<PAGE>
prior years' first quarter. Management anticipates these
expenses to continue to be flat if not decline slightly in
future periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company's overall financial condition is strong.
Inventories have increased $192,053, primarily due to an
increase in raw materials. Accounts receivable have
decreased $464,533 in the first quarter of FY1997 as a
direct result of increased collection efforts. Cash
decreased $28,934 during the first quarter of FY1997 and was
used along with additional borrowings on the line of credit
of $375,000 to meet current obligations of accounts payable,
and year-end sales commissions, payable in the first
quarter. Accounts payable have decreased $317,334; wages,
bonuses and commissions are down by $80,125 and other
accrued expenses are down by $149,612. Capital expenditures
have been modest, totaling $49,434.
Stockholders' equity for the three months ended September
30, 1996 decreased, primarily as a result of the net loss of
$103,301.
Working capital has decreased $110,738 from June 30, 1996
($3,585,947) to September 30, 1996 ($3,475,209). The
current ratio, however, has increased from 2.58 to 1.0 at
June 30, 1996, to 2.66 to 1.00 at September 30, 1996.
Management anticipates that cash on hand will be utilized
in the second quarter, with borrowings mostly repaid by
December 31, 1996. The line of credit, which will expire
on October 31, 1996, is in the process of being renewed at
rates and covenants similar to the past year.
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 2. CHANGES IN SECURITIES
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
On August 2, 1996 David Mabe resigned as Senior
Vice-President.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits: None
(b) Registrant was not required to file any
reports on Form 8-K during the quarter ended
September 30, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements 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
Dennis R. Newman
------------------------------
October 23, 1996 Dennis R. Newman, Chairman of
the Board
(Principal Executive Officer)
Ernest S. Malachowski
------------------------------
October 23, 1996 Ernest S. Malachowski
President
(Principal Financial and
Chief Accounting Officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 39,837
<SECURITIES> 0
<RECEIVABLES> 1,782,799
<ALLOWANCES> (57,167)
<INVENTORY> 3,414,894
<CURRENT-ASSETS> 5,563,526
<PP&E> 2,495,007
<DEPRECIATION> (2,008,891)
<TOTAL-ASSETS> 6,277,407
<CURRENT-LIABILITIES> 2,088,317
<BONDS> 0
0
0
<COMMON> 7,098
<OTHER-SE> 4,178,896
<TOTAL-LIABILITY-AND-EQUITY> 6,277,407
<SALES> 2,144,395
<TOTAL-REVENUES> 2,144,395
<CGS> 1,107,302
<TOTAL-COSTS> 2,292,028
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (18,668)
<INCOME-PRETAX> (166,301)
<INCOME-TAX> (63,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (103,301)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
