<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: March 31, 1997
Commission File No. 0-11400
IMEX MEDICAL SYSTEMS, INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 84-071204
--------------------------------- -----------------------
(State or other jurisdiction (IRS Employer ID Number)
of incorporation or organization)
6355 JOYCE DRIVE, GOLDEN, COLORADO 80403
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(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
--- ---
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 3/13/97
- ----------------------------- -------------------------
Common Stock, $.001 Par Value 6,898,083
<PAGE>
PART 1 FINANCIAL INFORMATION
ITEM 1. Financial Statements
IMEX MEDICAL SYSTEMS, INCORPORATED
CONSOLIDATED BALANCE SHEETS
March 31, 1997 (unaudited) and June 30, 1996
March 31, 1997 June 30, 1996
-------------- -------------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash & cash equivalents $ 37,264 $ 68,771
Trade accounts receivable - net of
allowance for doubtful accounts:
March 31, 1997, $88,366;
June 30, 1996, $40,000 1,809,095 2,247,332
Inventories 3,228,535 3,222,841
Prepaid expenses 95,580 154,541
Deferred income tax assets 282,000 168,000
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Total current assets 5,452,474 5,861,485
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PROPERTY AND EQUIPMENT - At cost:
Machinery and equipment 2,213,091 2,048,747
Furniture and fixtures 312,705 307,967
Leasehold improvements 105,616 88,859
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Total 2,631,412 2,445,573
Accumulated depreciation and amortization (2,119,078) (1,956,440)
----------- -----------
Property and equipment - net 512,334 489,133
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PRODUCT TECHNOLOGY, net of
amortization: March 31, 1997,
$727,792; June 30, 1996, $612,880 38,308 153,220
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NONCOMPETE AGREEMENT, net of
amortization: March 31, 1997,
$573,803; June 30, 1996, $483,200 30,197 120,800
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OTHER ASSETS 11,480 27,637
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TOTAL $ 6,044,793 $ 6,652,275
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----------- -----------
March 31, 1997 June 30, 1996
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(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 446,602 $ 920,405
Line of credit 670,000 250,000
Wages, bonuses and commissions 251,894 337,078
Other accrued expenses 193,422 247,944
Sales returns and warranty reserve 125,927 122,576
Guaranteed payments 357,573 343,400
Capital lease obligations 57,862 54,135
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Total current liabilities 2,103,280 2,275,538
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GUARANTEED PAYMENTS 73,725 287,462
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CAPITAL LEASE OBLIGATIONS 57,250 101,076
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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:
March 31, 1997, 7,105,806; June 30, 1996,
7,092,445; shares outstanding: March 31, 1997,
6,898,083; June 30, 1996, 6,890,208 7,106 7,092
Additional paid-in capital 2,750,992 2,733,550
Retained earnings 1,358,035 1,543,965
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Total 4,116,133 4,284,607
Treasury stock, at cost: March 31, 1997,
207,723 shares; June 30, 1996,
202,237 shares (343,595) (334,408)
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Total stockholders' equity 3,772,538 3,950,199
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TOTAL $ 6,044,793 $ 6,652,275
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See notes to unaudited consolidated financial statement
<PAGE>
IMEX MEDICAL SYSTEMS, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended March 31, 1997 and 1996
<TABLE>
Three Months Ended March 31 Nine Months Ended March 31
(unaudited) (unaudited)
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 2,473,046 $ 2,645,479 $ 6,930,322 $ 7,250,890
COST OF SALES 1,228,958 1,217,055 3,594,068 3,489,494
----------- ----------- ----------- -----------
GROSS MARGIN 1,244,088 1,428,424 3,336,254 3,761,396
RESEARCH AND DEVELOPMENT 137,238 173,057 490,361 530,299
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,002,267 1,068,524 3,087,226 3,096,185
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) 104,583 186,843 (241,333) 134,912
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income 2,145 (317) 6,334 3,479
Interest expense (23,457) (13,210) (64,931) (44,163)
----------- ----------- ----------- -----------
Total other expense - net (21,312) (13,527) (58,597) (40,684)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME
TAX PROVISION (BENEFIT) 83,271 173,316 (299,930) 94,228
INCOME TAX PROVISION (BENEFIT) 32,000 66,000 (114,000) 36,000
----------- ----------- ----------- -----------
NET INCOME (LOSS) 51,271 107,316 (185,930) 58,228
----------- ----------- ----------- -----------
NET INCOME (LOSS) PER COMMON SHARE $ 0.01 $ 0.02 $ (0.03) $ 0.01
----------- ----------- ----------- -----------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 6,898,683 6,881,379 6,895,146 6,869,809
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See notes to unaudited consolidated financial statements
<PAGE>
IMEX MEDICAL SYSTEMS, INCORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended March 31, 1997 and 1996
<TABLE>
NINE MONTHS ENDED MARCH 31
--------------------------
(unaudited)
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (185,930) $ 58,228
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization 368,153 386,504
Imputed interest 25,436 38,668
Common shares issued for services 0 15,750
Deferred income tax benefit (114,000) (14,000)
Net changes in operating assets and liabilities:
Trade accounts receivable 438,237 514,156
Income tax receivable 0 (61,450)
Inventories (5,694) (412,081)
Prepaid expenses and other assets 75,118 (46,780)
Accounts payable (473,803) 174,634
Wages, bonuses and commissions (85,184) 29,758
Other accrued expenses (54,522) 123,741
Sales returns and warranty reserve 3,351 (30,798)
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Net cash provided by (used in) operating activities (8,838) 776,330
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CASH FLOWS FROM INVESTING ACTIVITIES -
Cash used in purchase of property and equipment (185,839) (114,032)
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CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayments) borrowings under line of credit 420,000 (425,000)
Payments for acquisition of product line (225,000) (225,000)
Principal payments on capital lease obligations (40,099) (28,326)
Proceeds from issuance of common stock 17,456 9,106
Payments for purchase of treasury stock (9,187) (9,106)
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Net cash provided by (used in) financing activities 163,170 (678,326)
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NET DECREASE IN CASH
AND CASH EQUIVALENTS (31,507) (16,028)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 68,771 71,511
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 37,264 $ 55,483
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</TABLE>
See notes to unaudited consolidated financial statements
<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 and nine months
ended March 31, 1997 and 1996, and the percentage changes in those items for the
three and nine months ended March 31, 1997 from the comparable periods in 1996.
<TABLE>
Percentage Change From
As a Percentage of Total Prior Year's Comparable
Revenues Period
- -------------------------------- -------------------------------
Three Months Nine Months Three Months Nine Months
Ended March 31 Ended March 31 Ended March 31 Ended March 31
1997 1996 1997 1996 Income and Expense Items 1997 1997
- ----- ----- ----- ----- ------------------------ ---- ----
<S> <C> <C> <C> <C> <C> <C>
100.0% 100.0% 100.0% 100.0% Net Sales (6.5%) (4.4%)
49.7 46.0 51.9 48.1 Cost of Sales 1.0% 3.0%
- ----- ----- ----- -----
50.3 54.0 48.1 51.9 Gross Margin (12.9%) (11.3%)
5.5 6.5 7.1 7.3 Research and Development (20.7%) (7.5%)
40.5 40.4 44.5 42.7 Selling, General and
- ----- ----- ----- ----- Administrative Expenses (6.2%) (.3%)
4.3 7.1 (3.5) 1.9 Operating Income (Loss) (44.0%) (278.9%)
(.9) (.5) (.8) (.6) Other Expense 57.6% 44.0%
- ----- ----- ----- -----
3.4 6.6 (4.3) 1.3 Income (Loss) Before
Income Tax Provision (Benefit) (52.0%) (418.3%)
1.3 2.5 (1.6) .5 Income Tax Provision (Benefit) (51.5%) (416.7%)
- ----- ----- ----- -----
2.1% 4.1% (2.7%) .8% Net Income (Loss) (52.2%) (419.3%)
- ----- ----- ----- -----
- ----- ----- ----- -----
</TABLE>
<PAGE>
IMEX MEDICAL SYSTEMS, INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND NINE
MONTHS ENDED MARCH 31, 1997 AND 1996.
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 March 31, 1997 and the results of its operations and its
cash flows for the nine months ended March 31, 1997 and 1996.
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 March 31, 1997 and June 30,
1996:
MARCH 31 JUNE 30
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Raw materials $1,570,957 $1,430,991
Work-in-process 279,122 427,100
Finished goods 919,569 1,065,320
Demonstrator 458,887 299,430
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Total inventories $3,228,535 $3,222,841
---------- ----------
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4. On October 31, 1996, the Company renewed the revolving bank line of credit
with terms similar to the amended line of credit agreement that was entered
into on October 31, 1995. The new line of credit expires on October 31,
1997.
5. The Company paid $64,931 and $44,163 for interest during the nine months
ended March 31, 1997 and 1996, respectively.
Any forward looking statements contained in this document reflect management's
current intentions and expectations. Actual future results could vary
materially and 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 government
regulatory climate, health care reform, risks associated with foreign sales
including
<PAGE>
currency fluctuations and economic instability and the results of the
Company's cost containment revenues.
<PAGE>
Results of Operations
Net sales in the quarter ($2,473,046) ended March 31, 1997, decreased 6.5% from
the same quarter ($2,645,479) ended March 31, 1996. For the nine month period
ended March 31, 1997, net sales decreased from the same nine month period ending
March 31, 1996. Sales decreased 4.4% from $7,250,890 to $6,930,322
respectively.
Net income decreased from $107,316 for the quarter ended March 31, 1996, to
$51,271 for the same period ended March 31, 1997. For the nine months ended
March 31, 1997, the loss was $185,930 versus a profit for the nine months ended
March 31, 1996 of $58,228.
This decrease in quarterly income from the third quarter of FY1996 to the third
quarter of FY1997, is a direct result of the decrease in sales of 6.5%. As an
offset to this decrease, selling, general and administrative expenses have
decreased 6.2% ($66,257) and research and development expenses have decreased
20.7% ($35,819). These cost reductions were planned and anticipated, and made
with the intent to return the Company to profitability while still maintaining
the necessary infrastructure to meet the daily demands of the business.
Quarterly sales for FY1997 have increased steadily. The second quarter sales
were 7.9% greater than the first quarter, and the third quarter sales were 6.9%
greater than the second quarter. This trend is expected to continue into the
fourth quarter of FY1997, which ends June 30, 1997.
Domestic sales in small doppler products have strengthened in the past quarter,
due to strong demand for hand-held dopplers. Domestic sales in the diagnostic
systems products have rebounded due to renewed emphasis on lead generation, and
the introduction of the ImexLab 9100, a product that the company believes is the
most innovative, and user-friendly system on the market. International sales
are more improved in the nine month period ending March 31, 1997 when compared
to the nine month period ended March 31, 1996. This is attributable to a
increased demand for our products in the emerging markets of the pacific rim
areas, as well as Latin America.
Research and development expenses have decreased due to planned reductions in
outsourcing of various activities. This action has not reduced the Company's
new product development emphasis, but has shifted tasks to in-house resources
for completion. The Company foresees continued
<PAGE>
strong potential for new products in its market niche, and has several
projects underway to meet this increasing demand. Selling, general and
administrative expenses have decreased from the prior years' periods, as a
result of the aforementioned planned efforts to reduce costs while maintaining
effectiveness. Management anticipates these expenses to continue at their
present levels in subsequent periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company's overall financial condition continues to remain strong.
Inventories have remained virtually flat, increasing only $5,694 since last
fiscal year-end at June 30, 1996. Trade receivables have decreased $438,237 as
a direct result of increased collection efforts. The Company purchased capital
equipment worth $185,839, including expenditures for minor leasehold
improvements, and an upgraded voicemail system.
Accounts payable have decreased by $473,803. Wages, bonuses and commissions
have decreased by $85,184; and other accrued expenses have decreased $54,522.
Stockholders' equity for the nine months ended March 31, 1997 decreased
$168,476, primarily as a result of the year-to-date loss of $185,930.
Working capital has decreased $236,753 from June 30, 1996 to March 31, 1997.
the amount of working capital remains high at $3,349,194 or a current ratio of
2.59 to 1.0.
<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
None
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 March 31, 1997.
<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
/s/ Dennis R. Newman
------------------------------------
4/23/97 Dennis R. Newman, Chairman of the Board
(Principal Executive Officer)
/s/ Ernest S. Malachowski
------------------------------------
4/23/97 Ernest S. Malachowski
President
(Principal Financial and Chief
Accounting Officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 37,264
<SECURITIES> 0
<RECEIVABLES> 1,897,461
<ALLOWANCES> 88,366
<INVENTORY> 3,228,535
<CURRENT-ASSETS> 5,452,474
<PP&E> 2,631,412
<DEPRECIATION> (2,119,078)
<TOTAL-ASSETS> 6,044,793
<CURRENT-LIABILITIES> 2,103,280
<BONDS> 0
0
0
<COMMON> 7,106
<OTHER-SE> 4,109,027
<TOTAL-LIABILITY-AND-EQUITY> 6,044,793
<SALES> 2,473,046
<TOTAL-REVENUES> 2,473,046
<CGS> 1,228,958
<TOTAL-COSTS> 1,139,505
<OTHER-EXPENSES> 21,312
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,312
<INCOME-PRETAX> 83,271
<INCOME-TAX> 32,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51,271
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0
</TABLE>
