UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: June 30, 1997
Commission file Number: 0-12661
Exact Name of Registrant as Specified in its Charter: IMTEC, Inc.
State of Incorporation: Delaware
I. R. S. Employer Identification Number: 03-0283466
Address of Principle Executive Offices: One Imtec Lane
Bellows Falls, VT 05101
Registrant's Telephone Number: 802-463-9502
Securities registered pursuant to Section 12(g) of the Act:
Class: Common
Exchange: NASDAQ SmallCap Market
Indicate by check mark whether the registrant (1) has filled 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 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. [X] YES [ ] NO
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (229.405 of the this chapter) 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 this Form 10-K. [ X ]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant. $6,583,566.
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common shares outstanding as of September 3, 1997: 1,553,088
<PAGE>
PART I
Item 1. BUSINESS
(a) General Development of Business
IMTEC, Inc. (the "Company" or "IMTEC") designs, assembles, markets and
sells high performance barcode labels and labeling systems.
The Company's Hot Stamp printer business was discontinued in August
1994. Reference is made to the Company's report on Form 8-K, dated August 19,
1994, the contents of which are incorporated herein by reference for further
information in these regards.
The Company acquired the Customark division of Markem Corporation in
August 1997. Reference is made to the Company's report on Form 8-K, dated August
26, 1997, the contents of which are incorporated herein by reference for further
information in these regards.
The Company was incorporated in Vermont on March 17, 1982 under the
name Imaging Technologies, Inc., and was reincorporated in Delaware under its
present name on September 22, 1983. The Company's executive offices are located
at One Imtec Lane, Bellows Falls, Vermont 05101, and its telephone number is
(802) 463-9502.
(b) Financial Information About Industry Segments
Not Applicable.
(c) Narrative Description of Business
Products and Services
The Company markets high-performance labels, label material, ribbons
and laminates, and produces preprinted bar code labels for customers who prefer
outsourcing of label printing. Although the Company sells a broad variety of
label materials, the Company focuses on high performance label materials,
designed to perform in demanding environments. Sales of such labeling supplies
accounted for 72.1%, 56.5% and 50.7% of the Company's revenues during fiscal
years 1997, 1996 and 1995, respectively.
The Company also markets bar code label printer/applicators, label
applicators, label dispensers and bar code label printer/laminators. The
printer/applicators print bar codes and variable alphanumeric information onto
pressure sensitive labels and automatically applies the label in a single
integrated process to a product or package. These devices are typically used to
automate information transfer and labeling processes in a real time production
or distribution environment. The printer/laminators enable rapid automated
printing of bar code and variable information on labels with a laminated
surface. These labels are often used in environments where resistance to
temperatures, chemicals and weather are valued.
These labeling systems are microprocessor driven and involve
proprietary software, label applicator elements and transport, cutting and
laminating devices. The systems often include scanners, detectors and printers
supplied by unaffiliated manufactures. Equipment sales accounted for 27.9%,
43.5% and 49.3% of the Company's revenue during fiscal years 1997, 1996 and
1995, respectively.
<PAGE>
Marketing and Sales
The Company's marketing efforts are directed to those industries and
businesses which have need of bar coding labels and labeling systems. The
Company conducts its marketing and sales efforts primarily through an in-house
sales staff of 18 full-time employees and its executive officers; 3 sales
management offices in the Metropolitan areas of Chicago, IL, Philadelphia, PA,
and Roseville, CA, respectively, each of which employs one full- time sales
employee; and approximately 12 independent reseller organizations throughout the
United States who market other bar code products in addition to the Company's.
The Company also conducts marketing efforts and sales throughout
Canada, Latin America, Europe, and the Far East through resellers and
distributors.
The Company supplements these efforts by advertising, publishing
articles in trade and business journals, and participation at trade shows.
Manufacturing and Sources of Supply
The Company purchases substantially all of the printers that it
incorporates into its bar code printers from non-affiliated manufacturers. As
there are numerous manufacturers and distributors of printers, the Company does
not anticipate experiencing any curtailment in the availability of printers.
The Company is not materially dependent on any one supplier for its
computer software, bar code printing supplies or components used in assembling
its present or proposed products. It currently uses a number of outside
contractors to fabricate machine parts and sub-assemblies for its products but
is not currently materially dependent on any one such contractor.
Patents and Trademarks
During the current fiscal year the Company received no new patents. As
of June 30, 1997, the Company owned eight patents and licensing rights to two
others, expiring at various dates ranging from 2001 to 2009, and eleven
trademarks, respectively. Registrations of trademarks in nine foreign countries
have been issued. Applications for five patents were also pending at June 30,
1997. The Company does not believe the proprietary protection afforded by such
patents and trademarks is of material importance to its current or future
operations or prospects.
Warranty
The Company's personnel install its products and train customers'
personnel in their operation and service. The Company's personnel also service
such products when a customer's own staff is unable to diagnose or correct a
problem. The Company provides warranty for its enhanced printers for a one-year
period for parts and in-house labor. The Company also offers service and
warranty contracts directly to its customers as well as through third party
service groups.
Customers
The Company's primary customers are those businesses in industries that
utilize bar code labels and labeling systems. The Company's customers include,
but are not limited to, the fields of electronics, distribution, automotive and
consumer's goods manufacturers. During fiscal year 1996, sales pursuant to a
single customer (United Parcel Service) accounted for approximately 13% of the
Company's revenues. This customer accounted for 31% of the Company's revenues
during fiscal 1995. No other customer accounted for more than 10% of the
Company's revenues during fiscal year 1997, 1996 and 1995.
<PAGE>
Backlog
The aggregate backlog of firm orders for the Company's products as of
June 30, 1997 was approximately $1,510,000 as compared with $2,228,000 at June
30, 1996. Approximately $1,210,000 of the current backlog is for media supplies
with scheduled shipping dates over the next 12 months. The balance of the
current backlog ($300,000) is for equipment, including several orders for
multiple units, with scheduled delivery over several months. The Company
anticipates that substantially all of its backlog will be filled during the
current fiscal year.
Competition
The Company competes with several other companies in the sale of its
bar code accessories, supplies and services, many of which are larger and have
greater financial resources. The Company recognizes approximately 10 direct
competitors in its field; however, the Company believes that no one competitor
is a dominant factor therein.
The Company may face potential competition with respect to its
specialized bar code labeling systems from other companies engaged in various
areas of the bar code industry which have both the technical knowledge to
develop competing systems and financial resources substantially greater than
those of the Company.
The Company believes that it presently competes based on performance,
simplicity of operation, reliability of products, and price. It also expects to
compete with respect to specialized bar code labeling systems presently under
development, based upon its chemical and systems engineering capabilities.
Research and Development
The Company conducts on-going research and development to refine,
improve and enhance its product lines. Research and development expenses were
$591,767, $625,149 and $643,081 in the fiscal years ended June 30, 1997, 1996
and 1995, respectively. The research and development expenses were primarily
attributable to the Company's efforts with respect to its specialized bar code
labeling systems and proprietary materials.
Employees
As of August 30, 1997, the Company employed 72 persons on a full time
basis, including 6 employees in administration, 19 in marketing and sales, 10 in
research and development and 37 in service and manufacturing.
None of the Company's employees are represented by a labor union, and
the Company has experienced no work stoppages. The Company believes that its
employee relations are good.
(d) Financial Information about Foreign and Domestic Operations
and Export Sales
Export sales aggregated approximately $1,979,000 in fiscal 1997,
$1,435,000 in fiscal 1996 and $1,704,000 in fiscal 1995, representing 22.5%,
15.7% and 16.6%, respectively, of the Company's sales in such fiscal years. The
Company has no significant assets outside of the United States and all export
sales in such years were made to persons or entities that had no affiliation to
the Company.
Fiscal Years Ended June 30,
1997 1996 1995
---------------------------------------
Pacific Rim 46% 57% 49%
Europe 26% 18% 24%
Canada 15% 12% 19%
Others 13% 13% 8%
<PAGE>
Item 2. PROPERTIES
The Company occupies approximately 15,000 square feet in leased
facilities and a plot of land measuring 11.59 acres situated in the Rockingham
Industrial Park, Bellows Falls, Vermont, which house the Company's executive and
administrative offices, and its bar code manufacturing and shipping facilities.
The lease expires on December 31, 1999. The Company has the right to extend the
lease for an additional five-year term and to purchase the building at any time
at a purchase price equal to the then outstanding principal balance and accrued
interest of a $525,000 Vermont Industrial Development Authority Industrial
Development Revenue Bond, issued in May, 1985. Annual rent at this facility is
$54,000. The lease provides that the Company shall pay property taxes and
utility charges. Sufficient land is available to allow for future expansion.
The Company also leases approximately 19,100 square feet in facilities
at 33 Bridge Street, Bellows Falls, Vermont, which house additional
manufacturing and storage facilities. This lease expires December 31, 2000 and
the Company has the right to extend the lease for two terms of five years each.
Annual rent through December 31, 1997 at this facility is $68,000.
The Company believes that these facilities are adequate for its present
and currently contemplated future operations.
Item 3. LEGAL PROCEEDINGS
There is no material litigation currently pending, or, to the Company's
knowledge, threatened against the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended June 30, 1997.
<PAGE>
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) Market Information
The Company's Common Stock is quoted on Nasdaq-SmallCap Market tier of
The Nasdaq Stock Market under the symbol IMTC. The following table sets forth,
for the periods indicated, the bid price range of the Common Stock as reported
by National Quotation Bureau Incorporated. These quotations represent prices
between dealers, do not include retail markups, markdowns or commissions and do
not necessarily represent actual transactions:
1997 HIGH TRADE LOW TRADE
----------- ----------
First Quarter $ 8 $ 5-3/4
Second Quarter 9-1/4 6-3/4
Third Quarter 10-3/4 7
Fourth Quarter 10-1/2 8
1996
First Quarter $ 14 $ 9
Second Quarter 13 10
Third Quarter 10-3/4 7-1/2
Fourth Quarter 8-3/4 6-1/4
(b) Holders
At September 3, 1997, there were approximately 258 registered
shareholders of record of the Company's Common Stock.
(c) Dividends
The Company has not paid any cash dividends since its inception and the
Board of Directors does not contemplate doing so in the near future. Any
decision as to future payment of dividends will depend on the earnings and
financial position of the Company and such other factors as the Board of
Directors deem relevant.
<PAGE>
<TABLE>
<CAPTION>
Item 6. SELECTED FINANCIAL DATA
Years Ended June 30,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $8,801,389 $9,114,405 $10,272,846 $ 6,529,755 $7,120,594
Earnings (Loss)
Before Income Tax $ 921,458 $1,176,569 $1,196,532 $(1,099,956) $ (129,979)
Income Tax
Expense (Benefit) $ 365,384 $ 457,246 $ 345,437 $ (228,598) $ (2,200)
Net income
(loss) $ 556,074 $ 719,323 $ 851,095 $ (871,358) $ (127,779)
Income (loss) per common
share and common
share equivalents $ .34 $ .46 $ .57 $ (.62) $ (.09)
At year end:
Total Assets $6,152,363 $5,439,085 $5,268,176 $ 3,763,499 $4,407,415
Long-term debt and
capital lease
obligation $ 0 $ 0 $ 0 $ 386,904 $ 21,476
- ----------------
</TABLE>
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Fiscal year ended June 30, 1997, as compared to fiscal year ended June 30, 1996.
Revenues for the fiscal year ended June 30 1997, decreased
approximately 3.4% over the fiscal year ended June 30, 1996.
Revenues from Bar Code labels and printing supplies were $6,345,046 for
the fiscal year ended June 30, 1997, as compared to $5,146,749 for the year
ended June 30, 1996, an increase of 23.3%. The sale of Bar Code labels and
printing supplies represented approximately 72.1% of total revenues for fiscal
year 1997 as compared to 56.5% of total revenues for fiscal year 1996. This
increase is the result of increased sales activity.
Revenues from the sales and service of Industrial Bar Code Equipment
were $2,456,343 for the year ended June 30, 1997, down 38.0% when compared to
$3,967,656 for the year ended June 30, 1996. Industrial Bar Code Equipment
revenues represented 27.9% of total revenues in fiscal year 1997 compared to
43.5% of total revenues in fiscal year 1996. The decrease in bar code equipment
sales in fiscal year 1997, when contrasted with fiscal year 1996, is primarily
attributable to the completion, in October, 1996, of a contract with a single
customer. Excluding this contract, the core equipment business decreased 11.3%
from $2,768,240 in fiscal year 1996. The decrease in the core equipment business
is the result of a change in the Company's equipment sales personnel. The
Company has increased it product line with the announcement of ten new products
and has hired an equipment-marketing specialist.
Cost of sales improved to 53.2% of net sales for fiscal 1997 verses
55.1% for fiscal 1996.
Selling, general and administrative expenses represented 30.1% of sales
in fiscal year 1997 and 26.0% of sales in fiscal year 1996. These expenses for
fiscal 1997 increased by about $285,000 over fiscal 1996 levels. However, the
majority of the increase is attributable to the Vermont Supreme Court's ruling
in favor of the Company in a wrongful termination suit, reversing a lower
court's earlier ruling in favor of the plaintiff, in the amount of $175,000 plus
interest. The Supreme Court's decision resulted in the Company's reversal of a
$215,000 reserve in fiscal 1996, the majority of which was originally expensed
in June, 1994.
Research and Development expenses represented 6.7% of sales in fiscal
year 1997 and 6.9% of sales in fiscal year 1996. The actual costs decreased by
about $33,000.
There was no Interest Expense for either fiscal years 1997 or 1996. At
June 30, 1995, all of the Company's long-term and short-term debt had been paid
in full, with funds generated through operations.
Interest Income generated during fiscal year 1997 was $42,357, compared
to $48,578 during fiscal year 1996. This interest is earned on the balance of
cash and cash equivalents and marketable investment securities.
Income before taxes was $921,458 in fiscal year 1997 compared to
$1,176,569 in fiscal year 1996, reflecting a 21.7% decrease.
Income tax expense was $365,384 for fiscal year ended June 30, 1997,
compared to $457,246 in fiscal year 1996. The tax rate remains approximately 40%
of income before taxes.
At June 30, 1997 and 1996, the Company had accrued $149,306 and
$119,954, respectively, against future product warranty claims based on
experience with customer claims. Warranty expense charged to operations amounted
to an expense of $ 77,095 and a benefit of $9,546 for the years ended June 30,
1997 and 1996, respectively. The increased warranty expense is the result of new
products entering the markets.
Accounts receivable at June 30, 1997 increased 17.0% when compared to
June 30, 1996, while revenues during the 4th quarter increased 15.7% when
compared to the 4th quarter in the prior year . The increase in shipments in the
fourth quarter contributed to a corresponding increase in accounts receivable.
Fiscal year ended June 30, 1996, as compared to fiscal year ended June 30, 1995.
Revenues for the fiscal year ended June 30 1996, decreased
approximately 11.3% over the fiscal year ended June 30, 1995.
<PAGE>
Revenues from Bar Code labels and printing supplies were $5,146,749 for
the fiscal year ended June 30, 1996, as compared to $5,187,457 for the year
ended June 30, 1995, a decrease of 0.8%. The sale of Bar Code labels and
printing supplies represented approximately 56.5% of total revenues for fiscal
year 1996 as compared to 50.7% of total revenues for fiscal year 1995. There was
a backlog of $1,319,601 as of June 30, 1996 for Bar Code labels and printing
supplies, as compared to $956,402 for June 30, 1995.
Revenues from the sales and service of Industrial Bar Code Equipment
were $3,967,656 for the year ended June 30, 1996, down 21.5% when compared to
$5,051,666 for the year ended June 30, 1995. Industrial Bar Code Equipment
revenues represented 43.5% of total revenues in fiscal year 1996 compared to
49.3% of total revenues in fiscal year 1995. The decrease in bar code equipment
sales in fiscal year 1996, when contrasted with fiscal year 1995, is primarily
attributable to the completion, in October, 1995, of a contract with a single
customer. When this contract is removed from the revenues, the core equipment
business increased 49.3% from $1,854,071 in fiscal year 1995, to $2,768,240 in
fiscal year 1996. The increase in the core equipment business is a direct result
of increased sales and marketing activities and efforts to expand the Company's
distribution network. Backlog as of June 30, 1996, was $908,175 for Industrial
Bar Code Equipment as contrasted with $1,846,535 (of which $1,115,752
represented orders from the above-mentioned single customer) for June 30, 1995.
This represents a net increase of 24.3% in backlog for the core equipment when
the single customer is excluded.
Cost of sales remained steady, at 55.1% of revenues, not withstanding
the Company's inability to secure volume discounts on purchased parts in fiscal
1996 as it had in fiscal 1995.
Selling, general and administrative expenses represented 26.0% of sales
in fiscal year 1996 and 27.1% of sales in fiscal year 1995. These expenses for
fiscal 1996 decreased by about $411,000 over fiscal 1995 levels. However, the
majority of the decrease is attributable to the Vermont Supreme Court's ruling
in favor of the Company in a wrongful termination suit, reversing a lower
court's earlier ruling in favor of the plaintiff, in the amount of $175,000 plus
interest. The Supreme Court's decision resulted in the Company's reversal of a
$215,000 reserve, the majority of which was originally expensed in June, 1994.
Research and Development expenses represented 6.9% of sales in fiscal
year 1996 and 6.3% of sales in fiscal year 1995, though the actual costs
decreased by about $18,000.
There was no Interest Expense for fiscal year 1996 compared to $39,603
for the previous fiscal year. This decrease is the result of efforts to reduce
debt. At June 30, 1995, all of the Company's long-term and short-term debt had
been paid in full, with funds generated through operations.
Interest Income generated during fiscal year 1996 was $48,578, compared
to $11,925 during fiscal year 1995. This interest is earned on the balance of
cash and cash equivalents and marketable investment securities.
Income before taxes was $1,176,569 in fiscal year 1996 compared to
$1,196,532 in fiscal year 1995, reflecting an 1.7% decrease, compared to the
11.3% decrease in revenues.
Income tax expense was $457,246 for fiscal year ended June 30, 1996,
compared to $345,437 in fiscal year 1995. The difference is due primarily to an
increase in the effective tax rate from 28.9% for fiscal year 1995 to 38.9% of
income for fiscal year 1996. Fiscal year 1995 income tax expense was favorably
impacted by the utilization of a loss carryforward.
At June 30, 1996 and 1995, the Company had accrued $119,954 and
$289,906, respectively, against future product warranty claims based on
experience with customer claims. Warranty expense charged to operations amounted
to a benefit of $9,546 and an expense of $215,171 for the years ended June 30,
1996 and 1995, respectively. The 1995 warranty accrual included approximately
$140,000 of additional reserve due to estimated warranty costs related to
shipments of a new product during fiscal year 1995, and fiscal year 1996
reflects a reversal of that reserve of $127,000 during fiscal year 1996 as those
units came out of warranty.
Accounts receivable at June 30, 1996 decreased 21.9% when compared to
June 30, 1995, while revenues during the 4th quarter decreased 13.9% when
compared to the 4th quarter in the prior year . The decrease in shipments in the
fourth quarter contributed to a corresponding decrease in accounts receivable.
Account receivable days (the number of days to collect the receivable) decreased
from 58 days during fiscal year 1995 to 51 days during fiscal year 1996,
reflecting a better efficiency in collections. The Company considers all of
these amounts to be collectible.
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY:
During fiscal year 1997, the Company's principal source of liquidity
was cash flow from operations. The Company had no bank borrowings as of June 30,
1997. The Company believes that the cash generated from operations and bank
borrowings, including borrowings available under its line of credit, will be
sufficient to meet its cash needs on both a short-term (i.e., 12 months) and
long-term ( i.e., at least 24 months) basis.
The Company has secured a line of credit agreement in the amount of
$1,000,000, all of which was available at June 30, 1997. The Company's accounts
receivable, inventory and property and equipment secure the line of credit. The
interest rate varies from time to time with changes in the prime interest rate.
During fiscal year 1997, the Company spent $770,475 on property and
equipment, computer software and other intangible assets, which is an increase
over the previous year's $427,461. The majority of this increase was for a high
speed converting machine, valued at over $300,000. The cash for these
expenditures was generated from the Company's operating activities.
The Company believes that its capital expenditures for fiscal year 1998
will remain about the same as the capital expenditures for fiscal 1997.
NEW ACCOUNTING STANDARDS:
In February 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 128, "Earnings per Share," and SFAS No. 129, "Disclosure of
Information about Capital Structure." SFAS No. 128 establishes standards for
computing and presenting earnings per share and applies to entities with
publicly held common stock or potential common stock. SFAS No. 129 establishes
standards for disclosing information about an entity's capital structure and
applies to all entities. The Company will adopt both SFAS No. 128 and SFAS No.
129 in the second quarter of fiscal 1998. The implementation of these standards
is not expected to have a material effect on its financial position or results
of operations.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses, gains
and losses) in a full set of general-purpose financial statements. SFAS No. 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. Both
standards will be adopted by the Company during the first quarter of fiscal 1999
and are not expected to have a material effect on its financial position,
results of operations or financial statement disclosures.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
IMTEC, Inc.
Bellows Falls, Vermont
We have audited the accompanying balance sheet of IMTEC, Inc. as of June 30,
1997, and the related statements of operations, stockholders' equity, and cash
flows for the year then ended. Our audit also included the financial statement
schedule listed in the Index at Item 14. These financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statements and
financial statement schedule based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of IMTEC, Inc. as of June 30, 1997, and the
results of its operations and its cash flows for the year then ended, in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
/s/ Deloitte & Touche LLP
Worcester, Massachusetts
August 5, 1997 (August 11, 1997
as to Note 13)
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
IMTEC, Inc.
Bellows Falls, Vermont
We have audited the accompanying balance sheet of IMTEC, Inc. as of June 30,
1996, and the related statements of operations, stockholders' equity, and cash
flows for each of the years in the two-year period ended June 30, 1996. In
connection with our audits of the financial statements, we also have audited the
financial statement schedule for the years ended June 30, 1996 and 1995, listed
in the index included herein in Part IV, Item 14. These financial statements and
the financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and the financial statement schedule based on our audit.
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, the financial statements referred to above present fairly, in
all material respects, the financial position of IMTEC, Inc. as of June 30,
1996, and the results of its operations and its cash flows for each of the years
in the two-year period ended June 30, 1996, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule for the years ended June 30, 1996 and 1995, when considered
in relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
Albany, New York
August 2, 1996
<PAGE>
<TABLE>
<CAPTION>
IMTEC, INC.
BALANCE SHEETS
JUNE 30, 1997 AND 1996
- ------------------------------
ASSETS 1997 1996
---------- ----------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $1,352,562 $ 806,633
Marketable investment securities 92,999 54,671
Accounts Receivable (less allowance for doubtful
accounts of $175,000 in 1997 and
$94,000 in 1996) 1,499,283 1,281,101
Inventories 1,402,318 1,512,037
Prepaid expenses, deferred charges and other
current assets 45,423 134,650
Income tax refund receivable - 87,086
Deferred income taxes 159,508 96,330
---------- ----------
Total current assets 4,552,093 3,972,508
PROPERTY AND EQUIPMENT - Net 1,234,488 995,450
DEPOSITS 48,991 150,481
COMPUTER SOFTWARE - Net 94,759 109,008
OTHER INTANGIBLES - Net 222,032 211,638
---------- ----------
$6,152,363 $5,439,085
========== ==========
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES:
Accounts payable $ 324,651 $ 430,420
Income taxes payable 223,935 -
Accrued liabilities:
Salaries and wages 191,502 176,276
Commissions 95,229 45,899
Other 351,275 417,030
---------- ----------
Total current liabilities 1,186,592 1,069,625
---------- ----------
LONG-TERM DEBT - -
---------- ----------
COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock - $.01 par value; authorized, 5,000,000
shares; issued and outstanding: 1997, 1,553,088
shares, 1996, 1,545,088 shares 15,531 15,451
Additional paid-in capital 2,489,674 2,449,517
Retained earnings 2,460,566 1,904,492
---------- ----------
Total stockholders' equity 4,965,771 4,369,460
---------- ----------
$6,152,363 $5,439,085
========== ==========
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IMTEC, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1997,1996 AND 1995
- -----------------------------------------------
1997 1996 1995
<S> <C> <C> <C>
NET SALES $8,801,389 $9,114,405 $10,272,846
COST OF SALES 4,682,513 5,029,394 5,657,545
---------- ---------- -----------
Gross profit 4,118,876 4,085,011 4,615,301
SELLING, GENERAL AND ADMINSITRATIVE
EXPENSES 2,652,939 2,367,674 2,779,066
RESEARCH AND DEVELOPEMENT EXPENSES 591,767 625,149 643,081
---------- ---------- -----------
Operating income 874,170 1,092,188 1,193,154
---------- ---------- -----------
OTHER INCOME (EXPENSE):
Interest income 42,357 48,578 11,925
Gain on disposal of property and equipment
and other assets 4,931 35,803 31,056
Interest expense - - (39,603)
---------- ---------- -----------
47,288 84,381 3,378
---------- ---------- -----------
INCOME BEFORE INCOME TAXES 921,458 1,176,569 1,196,532
INCOME TAX EXPENSE 365,384 457,246 345,437
---------- ---------- -----------
NET INCOME $ 556,074 $ 719,323 $ 851,095
========== ========== ===========
INCOME PER COMMON SHARE AND
COMMON SHARE EQUIVALENTS $ 0.34 $ 0.46 $ 0.57
========== ========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARE
AND COMMON SHARE EQUIVALENTS OUTSTANDING 1,617,739 1,574,129 1,482,892
========== ========== ===========
See notes to the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IMTEC, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
- -----------------------------------------------
Common Stock Additional
Number of Paid-in Retained
Shares Amount Capital Earnings Total
--------- ------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 1,1994 1,331,664 $13,317 $1,860,714 $ 334,074 $2,208,105
Tax benefit from exercise of stock options - - 84,706 - 84,706
Common stock issued 138,474 1,384 254,269 - 255,653
Net income - - - 851,095 851,095
--------- ------- ---------- ---------- ----------
BALANCE, JUNE 30,1995 1,470,138 14,701 2,199,689 1,185,169 3,399,559
Tax benefit from exercise of stock options - - 73,614 - 73,614
Common stock issued 74,950 750 176,214 - 176,964
Net income - - - 719,323 719,323
--------- ------- ---------- ---------- ----------
BALANCE, JUNE 30,1996 1,545,088 15,451 2,449,517 1,904,492 4,369,460
Tax benefit from exercise of stock options - - 19,393 - 19,393
Common stock issued 8,000 80 20,764 - 20,844
Net income - - - 556,074 556,074
--------- ------- ---------- ---------- ----------
BALANCE, JUNE 30,1997 1,553,088 $15,531 $2,489,674 $2,460,566 $4,965,771
========= ======= ========== ========== ==========
See notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IMTEC, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
- -----------------------------------------------
1997 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 556,074 $ 719,323 $ 851,095
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 534,024 532,744 528,069
Gain on disposal of property and equipment and
other intangible assets (4,931) (35,803) (31,056)
Deferred income taxes (63,178) 52,159 (102,113)
Tax benefit from exercise of stock options 19,393 73,614 84,706
Increase (decrease) in cash from:
Accounts Receivable (218,182) 358,907 (606,456)
Inventories 109,719 (270,074) (336,209)
Marketable investment securities (38,328) 345,329 (400,000)
Prepaid expenses, deferred charges and other assets 89,227 (55,967) (838)
Income tax refund receivable 87,086 (87,086) 177,602
Accounts payable (105,769) (206,301) 242,566
Income taxes payable 223,935 (4,161) 4,161
Accrued liabilities (1,199) (588,530) 695,529
---------- ---------- ----------
Net cash provided by operating activities 1,187,871 834,154 1,107,056
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposal of property and equipment 6,199 59,525 50,719
Expenditures for property and equipment, computer
software and other intangible assets (770,475) (427,461) (494,297)
Deposits 101,490 (122,276) (7,998)
---------- ---------- ----------
Net cash used in investing activities (662,786) (490,212) (451,576)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of note payable to bank - - 201,847
Principal payments on note payable to bank - - (351,071)
Principal payments on long-term debt - - (473,638)
Principal payments under capital lease obligationa - - (6,171)
Proceeds from issuance of common stock 20,844 176,964 255,653
---------- ---------- ----------
Net cash provided by (used in) financing activities 20,844 176,964 (373,380)
---------- ---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 545,929 520,906 282,100
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 806,633 285,727 3,627
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR $1,352,562 $ 806,633 $ 285,727
========== ========== ==========
See notes to financial statements
</TABLE>
<PAGE>
IMTEC, INC.
NOTES TO FINANCIAL STATEMENTS
- -----------------------------------------------
1. DESCRIPTION OF THE COMPANY'S BUSINESS
IMTEC, Inc. (the "Company") designs, manufactures and sells labeling
systems. These systems include label printer laminators, label printer
applicators, pre-printed labels and labeling supplies. IMTEC products are
designed for automated identification (bar coding) applications in the
electronics, pharmaceutical, transportation, textile, automotive and
warehousing industries. The Company conducts its marketing and sales
efforts primarily through its in-house sales staff, three sales offices in
different metropolitan areas in the United States and throughout Canada,
Latin America, Europe and the Far East through resellers and distributors.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The accompanying financial statements have been
prepared on an accrual basis. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Significant
estimates include the allowance for doubtful accounts, useful lives of
depreciable assets, warranty accrual, and deferred income taxes, among
others. Actual results could differ from those estimates.
Revenue Recognition - Product sales, including sales under contract, are
recorded when the products are shipped or in accordance with customer
agreements.
Cash and Cash Equivalents - For purposes of the statement of cash flows,
the Company considers as cash equivalents all highly liquid investments
purchased with a remaining maturity of three months.
Marketable Investment Securities - Marketable investment securities at
June 30, 1997 and 1996 consist of state bonds which the Company considers
as trading securities. The Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," during 1995. Under SFAS No.
115, the Company classifies its debt and marketable equity securities in
one of three categories: trading, available-for-sale, or held-to-maturity.
Trading securities are bought and held principally for the purpose of
selling them in the near term. Held-to-maturity securities are those
securities in which the Company has the ability and intent to hold the
security until maturity. All other securities not included in trading or
held-to-maturity are classified as available-for-sale. Trading and
available-for-sale securities are recorded at fair value.
Inventories - Inventories are stated at the lower of cost or market. Cost
is determined by the first-in, first-out method.
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and Equipment - Property and equipment are carried at cost.
Depreciation, including amortization of leasehold improvements and capital
lease assets, is computed using the straight-line method. When assets are
retired or otherwise disposed of, the cost and related accumulated
depreciation or amortization are removed from the accounts, and any
resulting gain or loss is recognized in income for the period. The cost of
maintenance and repairs is charged to expense as incurred and significant
renewals and betterments are capitalized.
Computer Software - The cost of developing computer software to be
included in the Company's products is expensed until the technological
feasibility of the software is established. Subsequent costs are
capitalized. Capitalized computer software costs are amortized over the
greater of the ratio of current product revenue to estimated future
revenues or the straight-line method using estimated lives of two to five
years. Accumulated amortization was approximately $451,000 and $390,000 at
June 30, 1997 and 1996, respectively.
Other Intangibles - The cost of product documentation, organization,
patents and trademark applications and license agreements is amortized
over the estimated useful lives of the assets, which range from three to
seventeen years, using the straight-line method. Accumulated amortization
was approximately $525,000 and $447,000 at June 30, 1997 and 1996,
respectively.
Income Taxes - The Company accounts for income taxes using the asset and
liability method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to temporary differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in operations in the
period that includes the enactment date.
Income Per Common Share - Income per common share is computed using the
weighted average number of common and common equivalent shares outstanding
during each period presented. Common stock equivalents consist of stock
options. Income per common share is computed by dividing net income by the
weighted average number of common and common equivalent shares outstanding
based on the higher of the ending or average market price of the Company's
common stock (under the treasury stock method).
Product Warranties - Estimated costs related to product warranties are
recorded at the time of the sale of the product.
Fair Value of Financial Instruments - The carrying amounts of cash,
accounts receivable, accounts payable and accrued expenses approximate
fair value because of the short maturity of these instruments.
Stock-Based Compensation - During 1997, the Company adopted SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 123 encourages, but
does not require, the recognition of compensation expense for the fair
value of stock options and other equity instruments issued to employees
and nonemployee directors. The Company continues to account for
stock-based compensation in accordance with APB Opinion No. 25, using the
intrinsic value method. The difference between accounting for stock-based
compensation under APB Opinion No. 25 and SFAS No. 123 is disclosed in
Note 11.
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Impairment of Long-Lived Assets - During 1997, the Company adopted SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." SFAS No. 121 establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles, and goodwill when events or changes in circumstances indicate
that the carrying amount of the assets may not be recoverable. This
statement had no effect on the financial position and results of
operations of the Company.
New Accounting Pronouncements - In February 1997, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 128, "Earnings per Share," and
SFAS No. 129, "Disclosure of Information about Capital Structure." SFAS
No. 128 establishes standards for computing and presenting earnings per
share and applies to entities with publicly-held common stock or potential
common stock. SFAS No. 129 establishes standards for disclosing
information about an entity's capital structure and applies to all
entities. The Company will adopt both SFAS No. 128 and SFAS No. 129 in the
second quarter of fiscal 1998. The implementation of these standards is
not expected to have a material effect on its financial position or
results of operations.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information." SFAS No. 130 establishes standards for reporting
and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general purpose financial
statements. SFAS No. 131 establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. Both standards will be adopted by
the Company during the first quarter of fiscal 1999 and are not expected
to have a material effect on its financial position, results of operations
or financial statement disclosures.
Reclassifications - Certain amounts in the 1996 and 1995 financial
statements have been reclassified to conform with the 1997 presentation.
3. INVENTORIES
Inventories consist of:
1997 1996
Finished products $ 78,263 $ 39,299
Work in process 145,391 97,310
Raw materials and purchased components 1,178,664 1,375,428
---------- ----------
$1,402,318 $1,512,037
========== ==========
4. MARKETABLE INVESTMENT SECURITIES
Marketable investment securities consist of state bonds due October 1,
1998 which are classified as trading securities. Their amortized cost of
$92,999 and $54,671 approximates fair value at June 30, 1997 and 1996,
respectively; therefore, there are no unrealized gains or losses included
in income.
<PAGE>
<TABLE>
<CAPTION>
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
Estimated
Useful
1997 1996 Lives
<S> <C> <C> <C>
Machinery, equipment and tooling $3,256,336 $2,766,871 3-10 years
Furniture and fixtures 547,383 474,807 5- 7 years
Leasehold improvements 365,536 327,334 5-10 years
---------- ----------
4,169,255 3,569,012
Less accumulated depreciation and amortization 2,934,767 2,573,562
---------- ----------
Property and equipment, net $1,234,488 $ 995,450
========== ==========
</TABLE>
Included in depreciation and amortization expense is amortization of
computer software cost of approximately $61,000, $73,000 and $74,000 and
amortization of other intangibles of approximately $79,000, $84,000 and
$86,000 in 1997, 1996 and 1995, respectively.
6. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of:
1997 1996
Accured warranty $149,306 $119,954
Accrued medical 50,000 135,256
Other 151,969 161,820
-------- --------
Total $351,275 $417,030
======== ========
7. SHORT-TERM AND LONG-TERM DEBT
The Company has a secured line-of-credit agreement in the amount of
$1,000,000, all of which is available at June 30, 1997. The line of credit
is secured by the Company's accounts receivable, inventories, and property
and equipment, and expires October 31, 1997. The interest rate varies from
time to time with changes in the prime interest rate.
The Company paid $39,603 for interest on notes payable, long-term debt,
and capital lease obligations for the year ended June 30, 1995.
<PAGE>
8. INCOME TAXES
Income tax expense (benefit) consists of the following at June 30:
1997 1996 1995
Federal:
Current $340,964 $320,237 $353,887
Deferred (50,584) 40,406 (71,153)
-------- -------- --------
290,380 360,643 282,734
-------- -------- --------
State:
Current 87,598 84,850 93,663
Deferred (12,594) 11,753 (30,960)
-------- -------- --------
75,004 96,603 62,703
-------- -------- --------
$365,384 $457,246 $345,437
======== ======== ========
Total income tax expense differs from the amount computed by applying the
statutory federal income tax rate of 34% to pretax income. The computed
amount, and the items which make total income tax expense (benefit) vary
from it, are as follows at June 30:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Federal statutory rate 34% 34% 34%
State income taxes, net of federal income tax effect 6 5 5
Change in valuation allowance for deferred tax assets - - (11)
Other - net - - 1
--- --- ---
Income tax expense 40% 39% 29%
=== === ===
</TABLE>
The Company paid approximately $182,000, $423,000 and $181,000 for income
taxes during 1997, 1996 and 1995, respectively.
<PAGE>
8. INCOME TAXES (CONTINUED)
Deferred tax assets and liabilities as of June 30, 1997 and 1996 are
attributable to the following:
<TABLE>
<CAPTION>
1997 1996
Deferred tax assets:
Accounts receivable, principally due to allowance
<S> <C> <C>
for doubtful accounts $ 69,937 $ 37,510
Inventories, principally due to reserves for obsolescence 67,066 26,446
Vacation accrual 13,079 11,273
Warranty accrual 59,633 44,444
-------- --------
Total gross deferred tax assets 209,715 119,673
-------- --------
Deferred tax liabilities:
Prepaid expenses and other assets 17,905 16,871
Property, plant and equipment, computer software and other
intangible assets principally due to differences in
depreciation and amortization methods 32,302 6,472
-------- --------
Total gross deferred tax liabilities 50,207 23,343
-------- --------
Net deferred tax assets $159,508 $ 96,330
======== ========
</TABLE>
In assessing the reliability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become
deductible. Management considers the projected future taxable income and
tax planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over
the periods during which the deferred tax assets are deductible,
management believes it is more likely than not that the Company will
realize the benefits of these deductible differences.
9. COMMITMENTS
The Company leases its facilities under lease agreements expiring in 2000
which are classified as operating leases. The lease for the main building
is noncancelable by the Company except through the exercise of an option
to purchase the property for the remaining principal and interest balance
on the Vermont Industrial Revenue Bond held by the lessor. The lease for
the Bridge Street plant is noncancelable. The Company also leases office
equipment under short-term, cancelable operating leases.
<PAGE>
9. COMMITMENTS (CONTINUED)
Future minimum rental payments under the noncancelable operating leases
for each of the years subsequent to June 30, 1997 are as follows:
1998 $121,680
1999 121,680
2000 94,680
2001 33,840
2002 -
--------
$371,880
========
Rental expense under cancelable and noncancelable operating leases
amounted to approximately $107,000, $104,000 and $107,000 during 1997,
1996 and 1995, respectively.
10. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) savings plan under which eligible employees are
allowed to contribute certain percentages of their pay, up to the maximum
allowed under Section 401(k) of the Internal Revenue Code. The plan covers
all employees meeting certain eligibility requirements. The Company
contributed approximately $45,000, $52,000 and $14,000 to the plan during
1997, 1996 and 1995, respectively.
11. STOCKHOLDERS' EQUITY
Stock Option Plans - The Company has three plans: the 1983 Incentive Stock
Option Plan, the 1985 Incentive Stock Option Plan, and the 1993 Stock
Option Plan. These plans provide for granting of options on common stock
to officers and key employees. The options granted are exercisable in four
annual installments beginning one year after the date of the grant and
expire five to ten years after the date of the grant, depending on stock
ownership on the grant date.
The Company granted an option on 25,000 shares of its common stock to a
Director on November 15, 1990. The option was exercisable on November 19,
1990 and annually thereafter in 5,000 share increments through January 31,
1995 at $3.00 per share, which was the approximate market value of the
shares when the Director agreed to join the Board of Directors. During
1995, all of these options were exercised.
The Company granted an option on 25,000 shares of its common stock to a
Director on November 1, 1993. The option is exercisable on November 18,
1993 and annually thereafter in 5,000 share increments through January 31,
1998 at $2.75 per share, which was the market value of the shares when the
Director agreed to join the Board. As of June 30, 1997, none of these
options have been exercised.
<PAGE>
11. STOCKHOLDERS' EQUITY (CONTINUED)
Stock Option Plans (Continued) - The following is a summary of the option
activity for the Company:
Weighted
Average
Exercise Price
Shares Per Share
Balance, July 1, 1994 302,499 $2.53
Granted 43,500 8.11
Exercised (51,599) 2.03
Canceled (25,000) 3.03
-------
Balance, June 30, 1995 269,400 3.48
Granted 23,000 7.60
Exercised (99,950) 2.52
Canceled (31,750) 5.48
-------
Balance, June 30, 1996 160,700 4.27
Granted 3,000 6.75
Exercised (8,000) 2.61
Canceled (4,000) 7.60
-------
Balance, June 30, 1997 151,700 $4.32
=======
The following table sets forth information regarding options outstanding
at June 30, 1997:
<TABLE>
<CAPTION>
Options Exercisable
Options and/or
Outstanding Shares Transferable
--------------------------------------------------- ----------------------
Weighted
Average Weighted Weighted
Range of Remianing Average Average
Exercise Number Contractual Exercise Exercise
Prices Outstanding Life (Years) Prices Number Prices
<S> <C> <C> <C> <C> <C> <C>
$1.38 5,700 2.38 $1.38 5,700 $1.38
2.50 - 3.31 96,000 5.63 2.44 74,475 2.72
3.75 3,500 7.00 3.75 2,375 3.75
6.75 - 8.50 46,500 8.47 8.03 15,750 8.32
------- -------
151,700 6.41 4.05 98,300 3.57
======= =======
</TABLE>
<PAGE>
11. STOCKHOLDERS' EQUITY (CONTINUED)
Stock Option Plans (Continued) - As described in Note 2, the Company uses
the intrinsic value method (in accordance with APB No. 25) to measure
compensation expense associated with grants of stock options to employees.
Had the Company used the fair value method to measure compensation, the
Company's net income and net income per share for the years ended June 30,
1997 and 1996 would have been $539,782 or $.33 per share and $711,740 or
$.45 per share, respectively.
The fair value of each stock option is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions in 1997 and 1996: an expected life of 6
years, expected volatility of 45.8%, a dividend yield of 0% and a
risk-free interest rate of 6.20%. The weighted-average fair value of
options granted in 1997 and 1996 was $4.50 and $3.95, respectively.
The option pricing model used was designed to value readily tradable stock
options with relatively short lives. The options granted to employees are
not tradable and have contractual lives of ten years. However, management
believes that the assumptions used and the model applied to value the
awards yield a reasonable estimate of the fair value of the grants made
under the circumstances.
Stock Warrants - On August 12, 1985, the Company sold warrants to purchase
123,750 shares of common stock for a total of $750 to three of its
directors. These warrants were originally exercisable at $4.00 per share
and expired July 14, 1990. On September 28, 1988, the Directors approved
modification of the terms of the warrants to be exercisable at $1.375 per
share. During 1989, 22,500 shares of common stock were purchased under
these warrants for $30,938. During 1990, the Directors extended the
expiration date to July 14, 1991. During 1991, the Directors extended the
expiration date to July 14, 1995. During 1995, 61,875 shares were
purchased under these warrants at $1.375 per share.
12. CONCENTRATION OF SALES
During 1997, no single customer accounted for 10% or more of total sales.
During 1996 and 1995, there were sales to one customer which accounted for
10% or more of total sales.
Export sales aggregated approximately $1,979,000, $1,435,000 and
$1,704,000 in 1997, 1996 and 1995, respectively.
13. SUBSEQUENT EVENT
On August 11, 1997, the Company acquired certain assets of Markem
Corporation's Customark Division for approximately $1,900,000 in cash. The
assets acquired consist primarily of inventory, property and equipment and
the registered U.S. service mark "Customark." The Company also assumed the
facility lease obligation of Customark and intends to continue its
operations as a separate division.
* * * * * *
<PAGE>
<TABLE>
<CAPTION>
Schedule II
IMTEC, Inc.
Valuation and Qualifying Accounts
Years ended June 30, 1997, 1996, and 1995
Balance at Charged to Additions
beginning cost and Charged to Additions Balance
Description of year expenses other accounts (deductions) end of year
Allowance for doubtful accounts:
<S> <C> <C> <C> <C> <C>
Year ended 6/30/97 $ 93,915 98,400 - (17,211) 175,104
Year ended 6/30/96 $ 101,042 6,000 - (13,127) 93,915
Year ended 6/30/95 $ 59,320 16,305 - 25,417 101,042
Reserve for obsolete inventory:
Year ended 6/30/97 $ 67,086 168,480 - (67,648) 167,918
Year ended 6/30/96 $ 109,134 85,358 - (127,406) 67,086
Year ended 6/30/95 $ 193,029 248,000 - (331,895) 109,134
</TABLE>
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements:
Included in Part II, Item 8, of this report:
(a) Report of Independent Auditors
(b) Balance Sheets, June 30, 1997 and 1996.
(c) Statements of Operations for the years ended June 30,
1997, 1996 and 1995.
(d) Statements of Stockholders' Equity for the years ended
June 30, 1997, 1996 and 1995.
(e) Statements of Cash Flows for the years ended June 30,
1997, 1996 and 1995.
(f) Notes to Financial Statements.
2. Financial Statement Schedule.
Schedule II - Valuation and Qualifying Accounts and
Reserves, years ended June 30, 1997, 1996 and 1995.
All other schedules have been omitted because of the
absence of conditions requiring them or because the
required information is shown in financial statements or
the notes thereto.
3. Exhibits
(a) Certificate of Incorporation as amended (1).
(b) By-Laws, as amended (1).
(c) The Exhibits required by 601 of Regulation S-K are set
forth in (3) (a) above.
(d) The financial statement schedule required by
Regulation S-K, which is excluded from the Annual
Report to Shareholders is set forth in (2) above.
(b) Reports on Form 8-K
None
- ------------------------------
(1) Denotes document filed as an Exhibit to the Company's Registration Statement
on Form S-1 (File No. 2-86978) and incorporated herein by reference.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 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.
IMTEC, INC.
By: /s/ Richard L. Kalich
-----------------------------
Richard L. Kalich, President
By: /s/ George S. Norfleet III
------------------------------
George S. Norfleet III, Secretary - Treasurer
Dated: September 17, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following person in the capacities and on the
dates indicated:
Signatures Title Date
/s/ Ralph E. Crump Chairman, Director September 17, 1997
- ------------------
Ralph E. Crump
/s/ Robert W. Ham Director September 17, 1997
- -----------------
Robert W. Ham
/s/ David C. Sturdevant Director September 17, 1997
- -----------------------
David C. Sturdevant
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF PER SHARE EARNONGS
Years Ended June 30,
1997 1996 1995
PRIMARY
<S> <C> <C> <C>
Average Shares Outstanding 1,548,095 1,509,433 1,386,428
Net effect of dilutive stock options-
Based on the treasury stock method
Using average market price 69,644 64,596 75,047
Net effect of common stock warrants - - 21,417
--------- --------- ---------
TOTAL 1,617,739 1,574,129 1,482,892
========= ========= =========
Net income $556,074 $719,323 $851,095
========= ========= =========
Net income per share $0.34 $0.46 $0.57
========= ========= =========
FULLY DILUTED
Average Shares Outstanding 1,548,095 1,509,433 1,386,428
Net effect of dilutive stock options-
Based on the treasury stock method
Using average market price 76,708 64,596 96,969
Net effect of common stock warrants - - 26,211
--------- --------- ---------
TOTAL 1,624,803 1,574,129 1,509,608
========= ========= =========
Net income $556,074 $719,323 $851,095
========= ========= =========
Net income per share $0.34 $0.46 $0.56
========= ========= =========
</TABLE>
<PAGE>
EXHIBIT 23.1
The Board of Directors
IMTEC, Inc.
We consent the incorporation by reference in Registration Statement Nos.
33-62361 and 33-00666 of IMTEC, Inc. on Form S-8 of our report dated August 5,
1997 (August 11, 1997 as to Note 13), appearing in this Annual Report on Form
10-K of IMTEC, Inc. for the year ended June 30, 1997.
/s/ Deloitte & Touche LLP
Worcester, Massachusetts
September 17, 1997
EXHIBIT 23.2
The Board of Directors
IMTEC, Inc.
We consent the incorporation by reference in Registration Statement Nos.
33-62361 and 33-00666 of IMTEC, Inc. on Form S-8 of our report dated August 2,
1996, relating to the balance sheet of IMTEC, Inc. as of June 30, 1996, and the
related statements of operations, stockholders' equity, and cash flows for each
of the years in the two-year period ended June 30, 1996, and the schedule of
valuation and qualifying accounts for the years ended June 30, 1996 and 1995,
which report appears in the June 30, 1997 annual report on Form 10-K of IMTEC,
Inc.
/s/ KPMG Peat Marwick LLP
Albany, New York
September 17, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
IMTEC, Inc., EX-27, FDS for 10-K, June 30, 1997
</LEGEND>
<CIK> 0000730045
<NAME> IMTEC, Inc.
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