<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-Q
---------------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended: December 31, 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
----------------
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 1/11/97
- ----------------------------- -------------------------
Common Stock, $.001 Par Value 6,897,934
<PAGE>
PART 1 FINANCIAL INFORMATION
ITEM 1. Financial Statements
IMEX MEDICAL SYSTEMS, INCORPORATED
CONSOLIDATED BALANCE SHEETS
December 31, 1996 (unaudited) and June 30, 1996
December 31, 1996 June 30, 1996
----------------- -------------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash & cash equivalents $ 28,381 $ 68,771
Trade accounts receivable - net of
allowance for doubtful accounts:
December 31, 1996, $70,966;
June 30, 1996, $40,000 1,638,239 2,247,332
Inventories 3,326,626 3,222,841
Prepaid expenses 87,097 154,541
Deferred income tax assets 314,000 168,000
---------- ----------
Total current assets 5,394,343 5,861,485
---------- ----------
PROPERTY AND EQUIPMENT - At cost:
Machinery and equipment 2,165,077 2,048,747
Furniture and fixtures 312,705 307,967
Leasehold improvements 105,616 88,859
---------- ----------
Total 2,583,398 2,445,573
Accumulated depreciation and
amortization (2,063,522) (1,956,440)
---------- ----------
Property and equipment - net 519,876 489,133
---------- ----------
PRODUCT TECHNOLOGY, net of
amortization: December 31, 1996,
$690,300; June 30, 1996, $612,880 76,956 153,220
---------- ----------
NONCOMPETE AGREEMENT, net of
amortization: December 31, 1996,
$542,790; June 30, 1996, $483,200 60,054 120,800
---------- ----------
OTHER ASSETS 16,864 27,637
---------- ----------
TOTAL $6,068,093 $6,652,275
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $421,037 $920,405
Line of credit 745,000 250,000
Wages, bonuses and commissions 208,818 337,078
Other accrued expenses 190,994 247,944
Sales returns and warranty reserve 122,398 122,576
Guaranteed payments 352,768 343,400
Capital lease obligations 56,720 54,135
---------- ----------
Total current liabilities 2,097,735 2,275,538
---------- ----------
GUARANTEED PAYMENTS 146,195 287,462
---------- ----------
CAPITAL LEASE OBLIGATION 72,151 101,076
---------- ----------
DEFERRED INCOME TAX LIABILITIES 38,000 38,000
---------- ----------
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:
December 31, 1996, 7,100,632;
June 30, 1996, 7,092,445; shares
outstanding: December 31, 1996,
6,895,395; June 30, 1996, 6,890,208 7,100 7,092
Additional paid-in capital 2,739,243 2,733,550
Retained earnings 1,306,764 1,543,965
---------- ----------
Total 4,053,107 4,284,607
Treasury stock, at cost:
December 31, 1996, 205,237 shares;
June 30, 1996, 202,237 shares (339,095) (334,408)
---------- ----------
Total stockholders' equity 3,714,012 3,950,199
---------- ----------
TOTAL $6,068,093 $6,652,275
---------- ----------
See notes to unaudited consolidated financial statement
<PAGE>
IMEX MEDICAL SYSTEMS, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
For the Three and Six Months Ended December 31, 1996 and 1995
<TABLE>
Three Months Ended December 31 Six Months Ended December 31
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $2,312,881 $2,551,150 $4,457,276 $4,605,411
COST OF SALES 1,257,808 1,212,447 2,365,110 2,272,439
---------- ---------- ---------- ----------
GROSS PROFIT 1,055,073 1,338,703 2,092,166 2,332,972
RESEARCH AND DEVELOPMENT 164,467 166,003 353,123 357,242
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 1,088,889 1,047,028 2,084,959 2,027,661
---------- ---------- ---------- ----------
OPERATING INCOME (LOSS) (198,283) 125,672 (345,916) (51,931)
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest income 3,016 2,391 4,189 3,796
Interest expense (21,633) (13,863) (41,474) (30,953)
---------- ---------- ---------- ----------
Total other expense - net (18,617) (11,472) (37,285) (27,157)
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME
TAX PROVISION (BENEFIT) (216,900) 114,200 (383,201) (79,088)
INCOME TAX PROVISION (BENEFIT) (83,000) 43,500 (146,000) (30,000)
---------- ---------- ---------- ----------
NET INCOME (LOSS) (133,900) 70,700 (237,201) (49,088)
---------- ---------- ---------- ----------
NET INCOME (LOSS) PER COMMON SHARE $ (0.02) $ 0.01 $ (0.03) $ (0.01)
---------- ---------- ---------- ----------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES 6,895,395 6,865,009 6,893,468 6,864,024
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See notes to unaudited consolidated financial statements
<PAGE>
IMEX MEDICAL SYSTEMS, INCORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
For the Six Months Ended December 31, 1996 and 1995
<TABLE>
Six Months Ended December 31
----------------------------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(237,201) $(49,088)
Adjustments to reconcile net loss
to net cash provided by (used in) operating activities:
Depreciation and amortization 244,092 261,653
Imputed interest 18,101 26,847
Common shares issued for service 0 1,750
Deferred income tax benefit (146,000) (14,000)
Net changes in operating assets and liabilities:
Trade accounts receivable 609,093 478,957
Income tax receivable 0 (61,450)
Inventories (103,785) (163,664)
Prepaid expenses and other assets 78,217 (21,423)
Accounts payable (499,368) (8,648)
Wages, bonuses and commissions (128,260) (100,187)
Other accrued expenses (56,950) 127,598
Sales returns and warranty reserve (178) (16,795)
--------- ---------
Net cash provided by (used in) operating activities: (222,239) 461,550
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES -
Cash used in purchase of property and equipment (137,825) (56,494)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayments) borrowings under line of credit 495,000 150,000
Payments for acquisition of product line (150,000) (150,000)
Principal payments on capital lease obligations (26,340) (23,705)
Proceeds from issuance of common stock 5,701 3,231
Payments for purchase of treasury stock (4,687) (3,231)
--------- ---------
Net cash provided by (used in) financing activities 319,674 (448,705)
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS
(40,390) (43,649)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 68,771 71,511
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 28,381 $ 27,862
--------- ---------
--------- ---------
</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 six months ended December 31, 1996 and 1995, and the percentage changes
in those items for the three and six months ended December 31, 1996 from the
comparable periods in 1995.
As a Percentage of Total
Revenues
- -------------------------------------
Three Months Six Months
Ended December 31 Ended December 31
1996 1995 1996 1995
- ---- ---- ---- ----
100.0% 100.0% 100.0% 100.0%
54.4 47.5 53.1 49.3
- ----- ----- ----- -----
45.6 52.5 46.9 50.7
7.1 6.5 7.9 7.8
47.1 41.0 46.8 44.0
- ----- ----- ----- -----
(8.6) 5.0 (7.8) (1.1)
(.8) (.4) (.8) (.6)
- ----- ----- ----- -----
(9.4) 4.6 (8.6) (1.7)
(3.6) 1.7 (3.3) (.7)
- ----- ----- ----- -----
(5.8%) 2.9% (5.3%) (1.0%)
- ----- ----- ----- -----
- ----- ----- ----- -----
Percentage Change From
Prior Year's Comparable
Periods
----------------------------------------
Three Months Six Months
Ended December 31 Ended December 31
Income and Expense Items 1996 1995
- ------------------------ ---- ----
Net Sales (9.3%) (3.2%)
Cost of Sales 3.7% 4.1%
Gross Profit (21.2%) (10.3%)
Research and Development (.9%) (1.2%)
Selling, General and
Administrative Expenses 4% 2.8%
Operating Income (Loss) N/A N/A
Other Expense 62.3% 37.3%
Income (Loss) Before
Income Tax Provision (Benefit) N/A N/A
Income Tax Provision (Benefit) N/A N/A
Net Income (loss) N/A N/A
<PAGE>
IMEX MEDICAL SYSTEMS, INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX
MONTHS ENDED DECEMBER 31, 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 December 31, 1996 and the results of its operations and its
cash flows for the six months ended December 31, 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 December 31, 1996 and June 30,
1996:
December 31 June 30
----------- ----------
Raw materials $1,717,975 $1,430,991
Work-in-process 251,009 427,100
Finished goods 965,513 1,065,320
Demonstrator 392,129 299,430
---------- ----------
Total inventories $3,326,626 $3,222,841
---------- ----------
---------- ----------
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 $41,474 and $30,951 for interest during the six months
ended December 31, 1996 and 1995, respectively.
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.
<PAGE>
RESULTS OF OPERATIONS:
Net sales in the second quarter ($2,312,881) ended December 31, 1996,
decreased 9.3% from the same quarter ($2,551,150) ended December 31, 1995.
For the six months ended December 31, 1996, net sales decreased 3.2% from
$4,605,411 to $4,457,276, for the same six months ended December 31, 1995.
Net income decreased from $70,700 for the second quarter ended December 31,
1995, to a net loss of $133,900 for the same period ended December 31, 1996.
For the six months ended December 31, 1996, the net loss was $237,201
compared to a loss of $49,088 for the six months ended December 31, 1995.
The decrease in income from the second quarter of FY1996 to the second
quarter of FY1997 is a direct result of a decrease in sales of 9.3%, an
increase in cost of sales of 3.7%, combined with an increase in operating
expenses of 3.3%. The cost of sales increase was due to the product mix
sold. The slight increase in operating expenses were planned and
anticipated, primarily for one-time sales and administrative expenses that
were not apparent in the second quarter of FY1996.
For the six months ended December 31, 1996, the increase in net losses is due
to a decrease in sales of 3.2%, an increase in selling, general and
administrative expenses of 2.8%, offset slightly by a decrease in research
and development of 1.2% from the comparable six months ended December 31,
1995.
The decrease in sales are mainly attributable to anticipation of a new
product introduction in the third quarter of FY1997, and to a modest slowdown
in customer demand for various products in the first and second quarters of
FY1997. With the introduction of the Company's new vascular recorder in
January 1997, the ImexLab 9100 completely supersedes the previous flagship
product, the ImexLab 9000. Early market acceptance of this new product
introduction has been very encouraging. The general market softness appears
to be subsiding as leads for potential products sales are increasing to near
historical levels.
Domestic sales in the small doppler products are off slightly from the
previous year at the close of the second quarter of FY1997, primarily due to
the aforementioned market softness. Domestic sales in the vascular products
have decreased primarily due to the anticipation of the ImexLab 9100.
International sales, however, are much improved for the six months ended
December 31, 1996 when compared to the six months ended December 31, 1995.
This is attributable to an increased demand for our products in the Pacific
rim areas and Latin America.
<PAGE>
Research and development expenses have remained essentially the same for the
three and six months ended December 31, 1996 as compared to the same period
ended December 31, 1995. New product development emphasis has been primarily
on the ImexLab 9100 in the first six months of FY1997. In the third and
fourth quarters of FY1997, work will continue on that product line,
involving software development allowing the ImexLab 9100 to completely and
efficiently interface with existing user computer systems and networks. In
addition, new product development will intensify on the innovative doppler
stethoscope project, which has received significant positive response and
acclaim since its pre-market announcement in November 1996. The Company has
received a great amount of customer interest in this innovative,
patent-applied-for product.
LIQUIDITY AND CAPITAL RESOURCES
The Company's overall financial condition continues to remain strong.
Inventories have increased $103,785, primarily due to an increase in raw
materials and demonstrators, as the Company geared itself towards the
introduction of the ImexLab 9100. Trade receivables have decreased $609,093
as a direct result of increased collection efforts. Cash decreased $40,390
and was used along with the line of credit to fund increases in inventory, to
paydown accounts payable, the continued payment of our 1992 acquisition, and
to finance the loss through six months.
Accounts payable have decreased by $499,368. The Company has increased its
fixed assets by $137,825 in the first six months for production and computer
equipment.
Stockholders' equity for the six months ended December 31, 1996 decreased, as
a result of the net loss of $237,201.
Working capital has decreased $289,339 from June 30, 1996 to December 31,
1996. The amount of working capital remains high at $3,296,608 or a quick
ratio of 2.57 to 1.0 Management anticipates the amount outstanding on the
line of credit to decrease in the third quarter of fiscal 1997.
<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
An Annual Meeting of Shareholders was held at 3:00 p.m.
on Wednesday, November 13, 1996 at the Norwest Bank
Center Building, 1700 Broadway, Denver, CO. during which
time two matters were submitted to a vote of
shareholders.
The first matter was the election of eight Directors
to serve until the next Annual Meeting of Shareholders. The
following individuals were elected as Directors:
Shares
Voted Shares
Individual For Withheld
---------- --------- --------
Fred H. Ayers 6,248,878 15,750
Byron R. Chrisman 6,249,878 14,750
Richard E. Geesaman 6,248,878 15,750
Kenneth L. Koskella 6,250,378 14,250
Ernest S. Malachowski 5,874,003 390,625
R. C. Mercure, Jr. 6,249,878 14,750
Dennis R. Newman 6,249,478 15,150
Patricia L. Newman 5,873,503 391,125
The second matter was the consideration of the
proposal to ratify the appointment of Deloitte & Touche as
independent auditors of the Company for the fiscal year ending
June 30, 1997. Deloitte & Touche was ratified with 6,253,278
shares voted for, 1,800 voted against and 9,550 abstentions.
Item 5. OTHER INFORMATION
None
<PAGE>
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
December 31, 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
/s/ Dennis R. Newman
-------------------------------------
January 29, 1997 Dennis R. Newman, Chairman of
the Board
(Principal Executive Officer)
/s/ Ernest S. Malachowski
-------------------------------------
January 29, 1997 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 QUARTERLY
REPORT ON FORM 10-Q FOR THE PERIOD ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 28,381
<SECURITIES> 0
<RECEIVABLES> 1,638,239
<ALLOWANCES> 70,966
<INVENTORY> 3,326,626
<CURRENT-ASSETS> 5,394,343
<PP&E> 2,583,398
<DEPRECIATION> (2,063,522)
<TOTAL-ASSETS> 6,068,093
<CURRENT-LIABILITIES> 2,097,735
<BONDS> 0
0
0
<COMMON> 7,100
<OTHER-SE> 4,046,007
<TOTAL-LIABILITY-AND-EQUITY> 6,068,093
<SALES> 2,312,881
<TOTAL-REVENUES> 2,312,881
<CGS> 1,257,808
<TOTAL-COSTS> 2,511,164
<OTHER-EXPENSES> (18,617)
<LOSS-PROVISION> (216,900)
<INTEREST-EXPENSE> (21,633)
<INCOME-PRETAX> (216,900)
<INCOME-TAX> (83,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (133,900)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
