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, 1999
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 Principal 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 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 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 as of September 1, 1999: $4,738,750
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 1, 1999: 1,587,313
DOCUMENTS INCORPORATED BY REFERANCE
Part III Registrant's Proxy Statement for its Annual Meeting scheduled
to be convened on November 1, 1999
<PAGE>
PART I
Item 1. BUSINESS
(a) General Development of Business
IMTEC, Inc. (the "Company") designs, manufactures and sells labeling
systems. These systems include label printer laminators, label printer
applicators, preprinted 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 acquired the Customark division of Markem Corporation in
August 1997. A Form 8-K, dated August 26, 1997, was filed related to this
acquisition.
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
See note 12 in the financial statements.
(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 70.5%, 71.5 % and 72.1% of the Company's revenues during fiscal
years 1999, 1998 and 1997, respectively.
The Company also markets bar code label printer/applicators, label
applicators, label dispensers and bar code label printer/laminators.
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. Label applicators apply pre-printed labels to
product or packages. Label dispensers present pre-printed labels for hand
application. 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 29.5%,
28.5% and 27.9% of the Company's revenue during fiscal years 1999, 1998 and
1997, respectively.
Marketing and Sales
The Company's marketing efforts are directed to those industries and
businesses that have a need for bar coded labels and labeling systems. The
Company conducts its marketing and sales efforts primarily through an in-house
sales staff of 26 full-time employees and its executive officers; 2 sales
management offices in the Metropolitan areas of Chicago, IL and Asheville, NC,
respectively, each of which employs one full-time sales employee; and an
independent reseller network consisting of 41 certified distributors and an
additional 60 resellers 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 Pacific Rim through resellers and
distributors.
The Company supplements these efforts by advertising, publishing
articles in trade and business journals, and participating in trade shows.
<PAGE>
Manufacturing and Sources of Supply
The Company purchases, from non-affiliated manufacturers, substantially
all of the printers that it incorporates into its bar code printers. 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 one new patent. As
of June 30, 1999, the Company owned ten patents, expiring at various dates
ranging from 2001 to 2009, and eleven trademarks, respectively. Registrations of
trademarks in nine foreign countries have been issued. 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.
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. No one customer accounted for more than 10% of
the Company's revenues during fiscal years 1999, 1998 and 1997.
Backlog
The aggregate backlog of firm orders for the Company's products as of
June 30, 1999 was approximately $2,846,000 as compared with $1,590,000 at June
30, 1998. Approximately $2,554,000 of the current backlog is for media supplies
with scheduled shipping dates over the next 12 months. The balance of the
current backlog of $292,000 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, and many of these companies 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.
<PAGE>
Research and Development
The Company conducts on-going research and development to refine,
improve and enhance its product lines. Research and development expenses were
$473,789, $577,864 and $591,767 in the fiscal years ended June 30, 1999, 1998
and 1997, 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 June 30, 1999, the Company employed 93 persons on a full time
basis, including 8 employees in administration, 31 in marketing and sales, 8 in
research and development and 46 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 $2,365,000 in fiscal 1999,
$2,125,000 in fiscal 1998 and $1,979,000 in fiscal 1997, representing 17.0%,
17.0% and 22.5%, respectively, of the Company's sales in such fiscal years.
While our export sales are generally denominated in U.S. dollars, our
international business may be affected by changes in demand resulting from
fluctuations in currency exchange rates, trade restrictions and duties and other
political and economic factors. 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,
1999 1998 1997
---- ---- ----
Latin America 53% 32% -
Pacific Rim 21% 35% 46%
Canada 15% 14% 15%
Europe 10% 12% 26%
Others 1% 7% 13%
---- ---- ----
100% 100% 100%
==== ==== ====
Item 2. PROPERTIES
The Company currently 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
through June 30, 1999 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 June 30, 1999 at this facility is $68,000.
The Company also leases approximately 9,000 square feet in facilities
at 17 Bradco Road, Keene, New Hampshire, which house additional manufacturing
and sales facilities. This lease expires May 31, 2000 and the Company has the
right to extend the lease for another term of three years. Annual rent through
June 30, 1999 at this facility is $52,920.
The Company also leases approximately 5,500 square feet in facilities
at 90 Pattison Street, Evans City, Pennsylvania, which house additional
manufacturing facilities. This lease expires April 30, 2001 and the Company has
the right to extend the lease for another term of three years. Annual rent
through June 30, 1999 at this facility is $19,250.
The Company plans to consolidate the majority of its New England
facilities into a newly constructed 56,000 square foot building located in
Keene, NH, which the Company intends to lease from Monadnock Economic
Development Corporation of Keene, NH. The Company expects to begin the move in
May, 2000. The Company signed a letter of intent on April 9, 1999 to lease new
office and production facilities in Keene, NH. Although the lease has not yet
been finalized, the lease calls for estimated annual rental payments of $300,000
and is expected to commence on May 1, 2000.
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, 1999.
<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:
1999 HIGH TRADE LOW TRADE
First Quarter $ 12 7/8 $ 9 1/4
Second Quarter 10 7/8 6 1/2
Third Quarter 8 1/2 5 1/4
Fourth Quarter 9 1/4 5 1/8
1998
First Quarter $ 10 $ 8
Second Quarter 12 1/2 8 1/2
Third Quarter 11 1/2 8 3/4
Fourth Quarter 13 10 1/16
(b) Holders
At June 30, 1999, there were approximately 310 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.
<TABLE>
<CAPTION>
Item 6. SELECTED FINANCIAL DATA
Years Ended June 30,
<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995
Net Sales $13,925,231 $12,510,555 $ 8,801,389 $ 9,114,405 $10,272,846
Income before Income Tax and
Cumulative Effect of Accounting
Change $ 1,541,605 $ 1,632,801 $ 921,458 $ 1,176,569 $ 1,196,532
Income Tax Expense $ 610,638 $ 648,179 $ 365,384 $ 457,246 $ 345,437
Income Before Cumulative Effect
Of Accounting Change $ 930,967 $ 984,622 $ 556,074 $ 719,323 $ 851,095
Cumulative Effect of Accounting
Change, Net of Income
Tax Benefit $ 51,240 $ 0 $ 0 $ 0 $ 0
Net Income $ 879,727 $ 984,622 $ 556,074 $ 719,323 $ 851,095
Basic Net Income per
Common Share (a) $ .55 $ .63 $ .36 $ .48 $ .58
Diluted Net Income per
Common Share (a) $ .54 $ .60 $ .34 $ .46 $ .57
At Year-End:
Total Assets $10,087,516 $ 8,353,749 $ 6,152,363 $ 5,439,085 $ 5,268,176
Long-Term Debt $ 309,291 $ 575,118 $ 0 $ 0 $ 0
- ----------------
</TABLE>
(a) The net income per share amounts for Fiscal 1999 include a net loss of
$0.04 per share for basic and $0.03 per share for diluted attributable
to the cumulative effect of accounting change.
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995
The statements contained in the following Management's Discussion and
Analysis of Financial Condition and Results of Operations which are not
historical are "forward looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 31E of the Securities
Exchange Act of 1934, as amended. These forward looking statements represent the
Company's present expectations or beliefs concerning future events, however the
Company cautions that such statements are qualified by important factors such as
the Company's continued ability to develop and introduce innovative label
products and applications, actions by competitors, the effect of economic
conditions and other considerations and risks identified from time to time in
the Company's filings with the Securities and Exchange Commission. Such factors,
considerations and risks could cause actual results to differ materially from
those indicated in Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Fiscal year ended June 30, 1999 as compared to fiscal year ended June 30, 1998.
Revenues for the fiscal year ended June 30 1999, increased
approximately 11.3% over the fiscal year ended June 30, 1998.
Revenues from Bar Code labels and printing supplies were $9,822,661 for
the fiscal year ended June 30, 1999, as compared to $8,942,540 for the year
ended June 30, 1998, an increase of 9.8%. The sale of Bar Code labels and
printing supplies represented approximately 70.5% of total revenues for fiscal
year 1999 as compared to 71.5% of total revenues for fiscal year 1998.
Revenues from the sales and service of Industrial Bar Code Equipment
were $4,102,570 for the year ended June 30, 1999, up 15.0% when compared to
$3,568,015 for the year ended June 30, 1998. Industrial Bar Code Equipment
revenues represented 29.5% of total revenues in fiscal year 1999 compared to
28.5% of total revenues in fiscal year 1998. The increase in bar code equipment
sales in fiscal year 1999, when compared to fiscal year 1998, is primarily
attributable to the increase in sales and marketing activity and a broader, more
comprehensive product line.
Cost of sales were 55.7% of net sales for fiscal 1999 compared to 52.5%
for fiscal 1998. Material costs, as a percentage of net sales, increased
approximately 9.0% due to more competitive pricing of the product lines. Other
cost increases are related to additional labor required to handle larger volumes
of business.
Selling, general and administrative expenses represented 29.3% of net
sales in fiscal year 1999 and 29.5% of net sales in fiscal year 1998. These
expenses for fiscal 1999 increased by approximately $391,000 over fiscal 1998
levels. A significant portion of this increase reflects severance benefits and
transition costs of approximately $253,000 incurred relating to the change of
the Company's Chief Executive Officer.
Research and Development expenses represented 3.4% of net sales in
fiscal year 1999 and 4.6% of net sales in fiscal year 1998. The actual costs
decreased by approximately $104,000. This decrease is primarily due to the
temporary redeployment of several of the Company's personnel to direct labor and
field service.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities," which requires that all start-up activities and organizational
costs be expensed as incurred. SOP 98-5 is effective for fiscal years beginning
after December 15, 1998, however, early adoption is encouraged. The Company
adopted this SOP in the fourth quarter of Fiscal 1999. The adoption of this
statement resulted in a charge of $51,240 (net of an income tax benefit of
$33,609), which is included in the Statement of Operations as a cumulative
effect of accounting change. The cumulative effect of the adoption of SOP 98-5
is calculated as if the new statement was adopted as of the beginning of the
year. Had the Company adopted this statement in the first quarter of the fiscal
year, the cumulative effect, net of income taxes of $51,240, would have been
reported in the Company's first quarter. The impact on operating income had this
statement been adopted in the first quarter would have been to increase
operating income by approximately $2,000 for the first, second and third
quarters, respectively.
Operating Income, prior to the charges arising from the change at the
C.E.O. position, was approximately $1,869,000 for fiscal 1999 compared to
approximately $1,675,000 for fiscal 1998. This represents an increase of
approximately 11.6%.
<PAGE>
Interest Expense for fiscal year 1999 was $77,717, compared to $78,242
in fiscal 1998.
Interest Income generated during fiscal year 1999 was $1,052, compared
to $28,502 during fiscal year 1998. This interest was earned on the balance of
cash and cash equivalents. The decrease from 1998 was the result of decreased
cash balances during the year.
Income before taxes and before the cumulative effect of accounting
change was $1,541,605 in fiscal year 1999 compared to $1,632,801 in fiscal year
1998, reflecting a 5.6% decrease.
Income tax expense was $610,638 for the fiscal year ended June 30,
1999, compared to $648,179 in fiscal year 1998. The tax rate remains at
approximately 40% of income before taxes.
At June 30, 1999 and 1998, the Company had accrued $136,633 and
$124,570, respectively, against future product warranty claims based on
experience with customer claims. Warranty expense charged to operations was
$82,565 and $77,266 for the years ended June 30, 1999 and 1998, respectively.
Fiscal year ended June 30, 1998, as compared to fiscal year ended June 30, 1997.
Revenues for the fiscal year ended June 30 1998, increased
approximately 42.1% over the fiscal year ended June 30, 1997.
Revenues from Bar Code labels and printing supplies were $8,942,540 for
the fiscal year ended June 30, 1998, as compared to $6,345,047 for the year
ended June 30, 1997, an increase of 40.9%. The sale of Bar Code labels and
printing supplies represented approximately 71.5% of total revenues for fiscal
year 1998 as compared to 72.1% of total revenues for fiscal year 1997.
Approximately 70.0% of the increase is the result of the acquisition of the
Customark division of Markem Corporation in August 1997.
Revenues from the sales and service of Industrial Bar Code Equipment
were $3,568,015 for the year ended June 30, 1998, up 45.3% when compared to
$2,456,342 for the year ended June 30, 1997. Industrial Bar Code Equipment
revenues represented 28.5% of total revenues in fiscal year 1998 compared to
27.9% of total revenues in fiscal year 1997. The increase in bar code equipment
sales in fiscal year 1998, when contrasted with fiscal year 1997, is primarily
attributable to the increase in sales and marketing activity and a broader, more
comprehensive product line.
Cost of sales improved to 52.5% of net sales for fiscal 1998 compared
to 53.2% for fiscal 1997.
Selling, general and administrative expenses represented 29.5% of net
sales in fiscal year 1998 and 30.1% of net sales in fiscal year 1997. These
expenses for fiscal 1998 increased by $1,036,332 over fiscal 1997 levels. The
majority of the dollar increase is related to compensation for the growing sales
and marketing personnel.
Research and Development expenses represented 4.6% of net sales in
fiscal year 1998 and 6.7% of net sales in fiscal year 1997. The actual costs
decreased by about $13,900.
Interest Expense for fiscal year 1998 was $78,242, reflecting debt
incurred to finance the acquisition of the Customark business. The Company had
no interest expense for fiscal years 1997 and 1996.
Interest Income generated during fiscal year 1998 was $28,502, compared
to $42,357 during fiscal year 1997. This interest was earned on the balance of
cash and cash equivalents and marketable investment securities. The decrease was
the result of using the cash to acquire the above-mentioned business.
Income before taxes was $1,632,801 in fiscal year 1998 compared to
$921,458 in fiscal year 1997, reflecting a 77.2% increase.
Income tax expense was $648,179 for fiscal year ended June 30, 1998,
compared to $365,384 in fiscal year 1997. The tax rate remains approximately 40%
of income before taxes.
At June 30, 1998 and 1997, the Company had accrued $124,570 and
$149,306, respectively, against future product warranty claims based on
experience with customer claims. Warranty expense charged to operations amounted
to an expense of $77,266 and $77,095 for the years ended June 30, 1998 and 1997,
respectively.
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY:
As of June 30, 1999, the Company's principal available sources of
liquidity were: operations, and a $2,000,000 bank line of credit, of which
approximately $1,200,000 was available as of June 30, 1999.
Net accounts receivable at June 30, 1999 increased 40.2% when compared
to June 30, 1998. This is the result of allowing several customer accounts to
extend well beyond terms. The Company recognizes the problem and has taken very
deliberate steps to improve its days outstanding. Those steps include the hiring
of two administrative personnel to accelerate collections. The Company has
increased its allowance for doubtful accounts from $198,000 at June 30, 1998 to
$260,000 at June 30, 1999, which the Company believes is adequate to cover bad
debts associated with the increased receivables balance.
Inventories increased by $179,249, from $2,286,123 at June 30, 1998 to
$2,465,372 at June 30, 1999, as a result of increasing levels of business in
sales across the entire product line.
The Company's capital commitments for fiscal 2000 are expected to be at
approximately the same level as fiscal 1999. However, the Company is currently
analyzing the effect that the proposed leased facility will have on capital
commitments.
The Company believes that it will be able to offset the effects of
inflation by selected price increases in its products, although it can give no
assurances in this regard.
The Company anticipates that cash flows from operations, together with
current cash and cash equivalents balances and funds available under the
Company's line of credit, will be sufficient to meet the Company's working
capital and capital equipment expenditure requirements for the foreseeable
future.
<PAGE>
Recent Accounting Pronouncements:
As discussed above, in Fiscal 1999, the Company adapted SOP 98-5,
"Reporting on the Costs of Start-Up Activities."
Effective July 1, 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments
of an Enterprise and Related Information." The standard requires the reporting
of certain information about operating segments including the basis of
presentation and segment profit or loss. The disclosures relating to this
statement are included in Note 12.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities,"
subsequently amended in June 1999, and effective for fiscal years, including
fiscal quarters, beginning after June 15, 2000. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
It requires that an entity recognizes all derivatives as either assets or
liabilities in the balance sheet and measures those instruments at fair value.
The Company is currently analyzing the impact this statement will have on its
financial statements.
Year 2000
The Company has reviewed the issue of Year 2000. All of the
manufacturing and accounting software has been brought into compliance,
effective June 16, 1998. There are neither internal clocks nor dating mechanisms
within the Company's products that would be effected by changing dates. The
Company is confident that its products and services will continue uninterrupted
into the new millennium. No material additional costs are anticipated at this
time.
The Company's contingency plan in the event other parties should be
unable to provide Year 2000 compliant electronic data is to revert to paper
documentation from these parties. However, to the extent that customers, vendors
or other entities with which the Company has material relationships do not
adequately address Year 2000 issues, the Company could experience payment
delays.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's outstanding short-term debt at June 30, 1999 bears
interest at a variable rate; therefore, the Company's results of operations
would be affected by interest rate changes to the extent of the notes
outstanding. Due to the short-term nature, an immediate 10 percent change in
interest rates would not have a material effect on the Company's results of
operations over the next fiscal year.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
IMTEC, Inc.
Bellows Falls, Vermont
We have audited the accompanying balance sheets of IMTEC, Inc. as of June 30,
1999 and 1998, and the related statements of operations, stockholders' equity,
and cash flows for each of the three years in the period ended June 30, 1999.
Our audits 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of IMTEC, Inc. as of June 30, 1999 and 1998,
and the results of its operations and its cash flows for each of the three years
in the period ended June 30, 1999, 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
Boston, Massachusetts
August 31, 1999
<PAGE>
<TABLE>
<CAPTION>
IMTEC, INC.
BALANCE SHEETS
JUNE 30, 1999 AND 1998
- ---------------------------------------------------------------------------------------------------------------------------
ASSETS 1999 1998
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 55,260 $ 84,100
Accounts receivable (less allowance for doubtful accounts
of $260,000 in 1999 and $198,000 in 1998) 3,166,970 2,259,107
Inventories 2,465,372 2,286,123
Prepaid expenses, deferred charges and other current assets 143,149 121,072
Deferred tax asset 160,570 85,941
---------- ----------
Total current assets 5,991,321 4,836,343
---------- ----------
PROPERTY AND EQUIPMENT - Net 2,346,727 1,587,914
COMPUTER SOFTWARE - Net 65,987 97,469
OTHER INTANGIBLES - Net 1,683,481 1,832,023
---------- ----------
$10,087,516 $ 8,353,749
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 257,155 $ 235,567
Note payable 794,253 -
Accounts payable 750,302 469,972
Income taxes payable 120,989 33,323
Accrued liabilities:
Salaries and wages 204,503 486,555
Commissions 77,376 68,375
Other 514,328 432,165
---------- ----------
Total current liabilities 2,718,906 1,725,957
---------- ----------
LONG-TERM LIABILITIES:
Long-term deferred tax liability 119,368 -
Long-term bank debt 309,291 575,118
---------- ----------
Total long-term liabilities 428,659 575,118
---------- ----------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY:
Common stock - $.01 par value; authorized, 5,000,000 shares; issued and
outstanding: 1999, 1,587,313 shares; 1998, 1,585,713 shares 15,873 15,857
Additional paid-in capital 2,599,163 2,591,629
Retained earnings 4,324,915 3,445,188
---------- ----------
Total stockholders' equity 6,939,951 6,052,674
---------- ----------
$10,087,516 $ 8,353,749
========== ==========
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IMTEC, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1999, 1998 AND 1997
- ---------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
NET SALES $13,925,231 $12,510,555 $ 8,801,389
COST OF SALES 7,755,267 6,568,050 4,682,513
---------- ---------- ----------
GROSS PROFIT 6,169,964 5,942,505 4,118,876
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 4,079,905 3,689,271 2,652,939
RESEARCH AND DEVELOPMENT EXPENSES 473,789 577,864 591,767
---------- ---------- ----------
OPERATING INCOME 1,616,270 1,675,370 874,170
---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest income 1,052 28,502 42,357
Interest expense (77,717) (78,242) -
Gain on disposal of property and equipment
and other assets 2,000 7,171 4,931
---------- ---------- ----------
(74,665) (42,569) 47,288
---------- ---------- ----------
INCOME BEFORE INCOME TAX EXPENSE AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 1,541,605 1,632,801 921,458
INCOME TAX EXPENSE 610,638 648,179 365,384
---------- ---------- ----------
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 930,967 984,622 556,074
CUMULATIVE EFFECT OF ACCOUNTING CHANGE,
NET OF INCOME TAX BENEFIT 51,240 - -
---------- ---------- ----------
NET INCOME $ 879,727 $ 984,622 $ 556,074
========== ========== ==========
BASIC INCOME PER SHARE BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE $ 0.59 $ 0.63 $ 0.36
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (0.04) - -
---------- ---------- ----------
BASIC NET INCOME PER COMMON SHARE $ 0.55 $ 0.63 $ 0.36
========== ========== ==========
DILUTED INCOME PER SHARE BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE $ 0.57 $ 0.60 $ 0.34
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (0.03) - -
---------- ---------- ----------
DILUTED NET INCOME PER COMMON SHARE $ 0.54 $ 0.60 $ 0.34
=========== ========== ==========
WEIGHTED SHARES FOR BASIC COMPUTATION 1,586,892 1,566,652 1,548,095
=========== ========== ==========
WEIGHTED SHARES FOR DILUTED COMPUTATION 1,638,440 1,654,658 1,617,739
=========== ========== ==========
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
IMTEC, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1999, 1998 AND 1997
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock Additional
Number of Paid-in Retained
Shares Amount Capital Earnings Total
<S> <C> <C> <C> <C> <C>
BALANCE JULY 1, 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
Common stock issued 32,625 326 101,955 - 102,281
-------- ------- ---------- ---------- ----------
Net income - - - 984,622 984,622
BALANCE JUNE 30, 1998 1,585,713 15,857 2,591,629 3,445,188 6,052,674
Common stock issued 1,600 16 7,534 - 7,550
-------- ------- ---------- ---------- ----------
Net income - - - 879,727 879,727
BALANCE JUNE 30, 1999 1,587,313 $ 15,873 $ 2,599,163 $ 4,324,915 $ 6,939,951
======== ======= ========== ========== ==========
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
IMTEC, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1999, 1998 AND 1997
- ---------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 879,727 $ 984,622 $ 556,074
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 585,172 544,899 534,024
Loss on disposal of property and equipment and
other intangible assets (2,000) (7,171) (4,931)
Cumulative effect of accounting change 51,240 - -
Deferred income tax 44,739 73,567 (63,178)
Tax benefit from exercise of stock options - - 19,393
Increase (decrease) in cash from:
Accounts receivable (907,863) (759,824) (218,182)
Inventories (179,249) (770,798) 109,719
Marketable investment securities - 92,999 (38,328)
Prepaid expenses, deferred charges and other current assets (22,077) (26,658) 89,227
Accounts payable 280,330 145,321 (105,769)
Income taxes payable/refundable 121,275 (190,612) 311,021
Accrued liabilities (190,888) 349,089 (1,199)
--------- --------- ---------
Net cash provided by operating activities 660,406 435,434 1,187,871
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for computer software (8,909) (43,100) (46,704)
Proceeds from disposal of property and equipment 2,000 7,171 6,199
Expenditures for property and equipment and other intangible assets (1,239,901) (680,933) (723,771)
Deposits - - 101,490
Acquisition of Customark - (1,900,000) -
--------- --------- ---------
Net cash used by investing activities (1,246,810) (2,616,862) (662,786)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings - note payable bank 794,253 - -
Proceeds from long-term debt - 1,200,000 -
Principal payments on long-term debt (244,239) (389,315) -
Proceeds from issuance of common stock 7,550 102,281 20,844
--------- --------- ---------
Net cash provided by financing activities 557,564 912,966 20,844
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (28,840) (1,268,462) 545,929
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 84,100 1,352,562 806,633
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 55,260 $ 84,100 $1,352,562
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid $ 445,000 $ 765,000 $ 182,000
Interest paid $ 77,717 $ 78,242 $ -
</TABLE>
See notes to financial statements.
<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,
preprinted 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; two 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
Use of Management Estimates -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 and intangibles, 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.
Cash and Cash Equivalents - Cash and cash equivalents include all highly-liquid
investments purchased with a remaining maturity of three months or less from
date of purchase.
Inventories - Inventories are stated at the lower-of-cost-or-market. Cost is
determined by the first-in, first-out method.
Property and Equipment - Property and equipment are carried at cost.
Depreciation, including amortization of leasehold improvements, is computed
using the straight-line method. When assets are retired or otherwise disposed
of, the cost and related accumulated depreciation or amortization is 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 using the straight-line method over the lesser of
three years or the estimated life of the related product. Included in
amortization expense is amortization of computer software of approximately
$40,000, $40,000 and $61,000 during 1999, 1998 and 1997, respectively.
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Other Intangibles - Other intangibles consist primarily of the cost of goodwill
and patents and trademarks, which are amortized over their estimated useful
lives. The composition at June 30 is as follows:
<TABLE>
<CAPTION>
Estimated
1999 1998 Useful Life
<S> <C> <C> <C>
Goodwill $1,655,112 $1,655,112 20 years
Patents and trademarks 192,533 243,134 17 years
Product documentation and other - 556,386 3 years
---------- ----------
1,847,645 2,454,632
Less accumulated amortization (164,164) (622,609)
---------- ----------
$1,683,481 $1,832,023
========== ==========
</TABLE>
Amortization expense related to other intangibles amounted to approximately
$89,000, $97,000 and $79,000 during 1999, 1998 and 1997, respectively.
Income Taxes - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes." 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
currently enacted tax rates.
Income Per Share - In February 1997, the Financial Accounting Standards Board
("FASB") issued SFAS No. 128, "Earnings Per Share," which establishes standards
for computing and presenting earnings per share and applies to entities with
publicly held common stock or potential common stock. Prior to 1998, the Company
computed income per common share using the methods outlined in Accounting
Principles Board ("APB") Opinion No. 15, "Earnings Per Share," and its
interpretations. The Company adopted SFAS No. 128 in 1998 and restated its
income per share for 1997.
Basic income per common share is computed using the weighted-average number of
common shares outstanding during each year. Diluted income per common share
reflects the effect of the Company's outstanding options, except where such
items would be antidilutive.
A reconciliation of weighted-average shares used for the basic computation and
that used for the diluted computation is as follows:
<TABLE>
<CAPTION>
Years Ended June 30
1999 1998 1997
<S> <C> <C> <C>
Weighted-average shares - basic 1,586,892 1,566,652 1,548,095
Dilutive effect of options 51,548 88,006 69,644
--------- --------- ---------
Weighted-average shares - diluted 1,638,440 1,654,658 1,617,739
========= ========= =========
</TABLE>
Options to purchase 64,800, 0 and 0 shares of common stock were outstanding at
June 30, 1999, 1998 and 1997, respectively, but were not included in the
computation of diluted earnings per share because the options' exercise prices
were greater than the average market price of the common stock and, therefore,
their effect would be antidilutive.
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, accrued expenses and note payable approximate fair
value because of the short maturity of these instruments. The fair value of
long-term debt approximates the carrying value.
Stock-Based Compensation - The Company accounts for stock-based compensation in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees,"
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.
Comprehensive Income - SFAS No. 130, "Reporting Comprehensive Income," requires
the reporting of comprehensive income, which, in the case of the Company, is the
same as net income for each of the three years ended June 30, 1999.
Segments - Effective July 1, 1998, the Company adopted the provisions of SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
The standard requires the reporting of certain information about operating
segments including the basis of presentation and segment profit or loss. The
disclosures relating to this statement are included in Note 12.
New Accounting Pronouncements - In June 1998, the FASB issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," subsequently
amended in June 1999, and effective for fiscal years, including fiscal quarters,
beginning after June 15, 2000. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. It requires that an
entity recognizes all derivatives as either assets or liabilities in the balance
sheet and measures those instruments at fair value. The Company is currently
analyzing the impact that this statement will have on its financial statements.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities," which requires that all start-up activities and organizational
costs be expensed as incurred. SOP 98-5 is effective for fiscal years beginning
after December 15, 1998, however, early adoption is encouraged. The Company
adopted this SOP in the fourth quarter of Fiscal 1999. The adoption of this
statement resulted in a charge of $51,240 (net of an income tax benefit of
$33,609), which is included in the Statement of Operations as a cumulative
effect of accounting change. The cumulative effect of the adoption of SOP 98-5
is calculated as if the new statement was adopted as of the beginning of the
year.
Reclassifications - Certain amounts in the 1998 and 1997 financial statements
have been reclassified to conform to the 1999 presentation.
<PAGE>
3. ACQUISITION OF CUSTOMARK
In August 1997, the Company completed the acquisition of the Markem
Corporation's Customark Division ("Customark") for a cash purchase price of $1.9
million.
The Customark acquisition has been accounted for by the purchase method of
accounting, and, accordingly, the results of operations of Customark for the
period from August 11, 1997 are included in the accompanying financial
statements. The assets acquired consist primarily of $113,000 of inventory and
$132,000 of property and equipment. The excess of cost over the estimated fair
value of net assets acquired was allocated to goodwill. A total of $1,655,112
was allocated to goodwill and will be amortized on a straight-line basis over 20
years.
The Statement of Operations for the year ended June 30, 1999 includes a full
year of operations of the acquired business. The following unaudited pro forma
information presents the results of operations of the Company as if the
acquisition had taken place as of the beginning of each period presented:
Year Ended Year Ended
June 30, 1998 June 30, 1997
Revenues $12,705,159 $10,746,845
Net earnings $968,597 $688,798
Diluted income per share $0.59 $0.43
These pro forma results of operations have been prepared for comparative
purposes only and do not purport to be indicative of the results of operations
which actually would have resulted had the acquisition occurred on the date
indicated, or which may result in the future.
4. INVENTORIES
<TABLE>
<CAPTION>
Inventories consist of the following at June 30:
1999 1998
<S> <C> <C>
Finished products $ 72,325 $ 158,907
Work in process 397,520 190,122
Raw materials and purchased components 1,995,527 1,937,094
--------- ---------
$2,465,372 $2,286,123
========= =========
</TABLE>
<PAGE>
5. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Property and equipment consists of the following at June 30:
Estimated
Useful
1999 1998 Life
<S> <C> <C> <C>
Machinery, equipment and tooling $4,067,198 $3,609,794 3-10 years
Furniture and fixtures 931,958 872,570 5-7 years
Leasehold improvements 448,085 447,445 5-10 years
--------- ---------
5,447,241 4,929,809
Less accumulated depreciation and amortization (3,774,016) (3,341,895)
--------- ---------
1,673,225 1,587,914
Construction-in-progress 673,502 -
--------- ---------
Property and equipment, net $2,346,727 $1,587,914
========= =========
</TABLE>
6. OTHER ACCRUED LIABILITIES
<TABLE>
<CAPTION>
Other accrued liabilities consist of:
1999 1998
<S> <C> <C>
Accrued warranty $ 136,633 $ 124,570
Accrued medical 21,328 69,837
Other 356,367 237,758
-------- --------
$ 514,328 $ 432,165
======== ========
</TABLE>
7. NOTE PAYABLE AND LONG-TERM DEBT
Note Payable: The Company has a secured line-of-credit agreement in the amount
of $2,000,000, of which approximately $1,200,000 is available at June 30, 1999.
The interest rate varies from time to time with changes in the prime interest
rate. At June 30, 1999 the interest rate was 7.0%. The Note is due on demand and
is renewed annually in March.
<TABLE>
<CAPTION>
Long-term debt: Long-term debt consists of the following at June 30:
1999 1998
Term note payable to a commercial lender; payable in monthly
installments of $24,620 including principal and interest at
<S> <C> <C>
8.5% through August 2002 $566,446 $810,685
Less current portion (257,155) (235,567)
------- -------
$309,291 $575,118
======= =======
The line-of-credit and term note are secured by the Company's accounts
receivable, inventories and property and equipment.
</TABLE>
<PAGE>
The following is a summary of the maturities of long-term debt as of June 30:
Year Ending
2000 $ 257,155
2001 279,886
2002 29,405
---------
$ 566,446
=========
8. INCOME TAXES
<TABLE>
<CAPTION>
Income tax expense (benefit) consists of the following for the years ended June 30:
1999 1998 1997
Federal:
<S> <C> <C> <C>
Current $444,749 $454,664 $340,964
Deferred 34,897 54,421 (50,584)
------- ------- -------
479,646 509,085 290,380
------- ------- -------
State:
Current 121,150 119,948 87,598
Deferred 9,842 19,146 (12,594)
------- ------- -------
130,992 139,094 75,004
------- ------- -------
$610,638 $648,179 $365,384
======= ======= =======
</TABLE>
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 vary from it, are as follows
for the years ended June 30:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Federal statutory rate 34 % 34 % 34 %
State income taxes, net of federal income tax effect 6 6 6
-- -- --
Income tax expense 40 % 40 % 40 %
== == ==
</TABLE>
<PAGE>
8. INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
Deferred tax assets and liabilities as of June 30, 1999 and 1998 are attributable to the following:
1999 1998
Deferred tax assets:
Accounts receivable, principally due to allowance
<S> <C> <C>
for doubtful accounts $102,220 $79,651
Inventories, principally due to reserves for obsolescence 28,425 35,609
Vacation accrual 9,543 13,501
Warranty accrual 47,747 43,823
------- -------
Total gross deferred tax assets 187,935 172,584
------- -------
Deferred tax liabilities:
Prepaid expenses, deferred charges and other current assets 27,365 27,267
Property and equipment, computer software and other
intangible assets principally due to differences in depreciation
and amortization methods 119,368 59,376
------- -------
Total gross deferred tax liabilities 146,733 86,643
------- -------
Net deferred tax asset $41,202 $85,941
======= =======
</TABLE>
In assessing the recoverability 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 AND CONTINGENT LIABILITIES
The Company leases its facilities under lease agreements expiring through 2001
which are classified as operating leases. The lease for the Company's 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 leases for the
remaining three locations are noncancelable. Future minimum rental payments
under the noncancelable operating leases for each of the years subsequent to
June 30, 1999 are as follows:
2000 $165,620
2001 53,721
--------
$219,341
========
Rental expense under cancelable and noncancelable operating leases amounted to
approximately $161,000, $151,000 and $107,000 during 1999, 1998 and 1997,
respectively. The Company is also subject to various legal proceedings and
claims, either asserted or unasserted, which arise in the ordinary course of
business. While the outcome of these claims cannot be predicted with certainty,
management does not believe that the outcome of any of these matters will have a
material adverse effect on the Company's financial position or results of
operations.
<PAGE>
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
$66,000, $60,000 and $45,000 to the plan during 1999, 1998 and 1997,
respectively.
11. STOCKHOLDERS' EQUITY
Stock Option Plans - The Company has three plans: the 1985 Incentive Stock
Option Plan, the 1993 Stock Option Plan, and the 1997 Stock Option Plan. These
plans provide for granting of options for common stock to officers and key
employees. The options granted are generally exercisable in four annual
installments beginning one year after the date of the grant and expiring five to
ten years after the date of the grant, depending on stock ownership on the grant
date. The following is a summary of the option activity for the Company:
Weighted-
Number Average
of Exercise Price
Shares per Share
Balance July 1, 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
Granted 53,000 8.51
Exercised (32,625) 3.14
Canceled (1,000) 8.50
-------
Balance June 30, 1998 171,075 5.80
Granted 35,250 10.87
Exercised (1,600) 4.72
Canceled (25,525) 8.78
-------
Balance June 30, 1999 179,200 $4.12
=======
<PAGE>
11. STOCKHOLDERS' EQUITY (CONTINUED)
Stock Option Plans (Continued) - The following table sets forth information
regarding options outstanding at June 30, 1999:
<TABLE>
<CAPTION>
Options
Outstanding Options Exercisable
--------------------------------------------------------------------------------- -------------------------------------
Weighted-
Average Weighted- Weighted-
Range of Remaining Average Number Average
Exercise Number Contractual Exercise Currently Exercise
Prices Outstanding Life (Years) Prices Exercisable Prices
<S> <C> <C> <C> <C> <C> <C> <C>
$1.38 - $2.38 7,500 2.61 $1.98 7,500 $1.98
2.50 - 3.31 66,000 1.60 2.75 66,000 2.75
6.75 - 8.50 64,200 7.30 8.01 33,025 8.05
9.63 - 10.87 41,500 8.81 10.42 6,000 9.63
------- -------
179,200 5.35 $6.38 112,525 $4.62
======= =======
</TABLE>
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 diluted net income per
share for the years ended June 30, 1999, 1998 and 1997 would have been $836,679
or $.51 per share, $949,791 or $.57 per share and 539,782 or $.33 per share,
respectively. The fair value of each option is estimated on the date of the
grant using the Black-Scholes option-pricing model with the following
assumptions used:
<TABLE>
<CAPTION>
1999 1998 1997
Dividend yield none none none
<S> <C> <C> <C>
Expected volatility factor 39.9% 38.1% 45.8%
Average risk-free interest rate 6.0% 5.4% 6.2%
Expected lives 6 years 6 years 6 years
</TABLE>
The weighted-average fair value of options granted in 1999, 1998 and 1997 was
$5.29, $3.94 and $4.50, 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.
<PAGE>
12. SEGMENT INFORMATION
The Company has identified two distinct and reportable segments: the
Hardware and the Media segments. The Company considers these two segments
reportable under the requirements of SFAS No. 131 criteria as they are managed
separately and the operating results of each segment are regularly reviewed and
evaluated separately by the Company's chief decision-maker.
The Hardware segment provides printers, high performance applicators
and laminators of labels for industrial environments. The Media segment provides
the high performance label material for industrial environments. The accounting
policies of each segment are in accordance with those described in Note 2.
A summary of information about the Company's operations by segment for
the fiscal years ended June 30, 1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Hardware Media Total
1999
<S> <C> <C> <C>
Net sales $ 4,102,570 $ 9,822,661 $13,925,231
Cost of sales 2,362,794 5,392,473 7,755,267
Gross profit 1,739,776 4,430,188 6,169,964
Selling, general & administrative (1) 1,241,691 2,838,214 4,079,905
Research & development 311,809 161,980 473,789
---------- ---------- ----------
Operating income $ 186,276 $ 1,429,994 $ 1,616,270
1998
Net sales $ 3,568,015 $ 8,942,540 $12,510,555
Cost of sales 1,918,586 4,649,464 6,568,050
Gross profit 1,649,430 4,293,075 5,942,505
Selling, general & administrative (1) 1,152,036 2,537,235 3,689,271
Research & development 446,022 131,842 577,864
---------- ---------- ----------
Operating income $ 51,372 $ 1,623,998 $ 1,675,370
1997
Net sales $ 2,456,342 $ 6,345,047 $ 8,801,389
Cost of sales 1,364,443 3,318,070 4,682,513
Gross profit 1,091,899 3,026,977 4,118,876
Selling, general & administrative (1) 972,348 1,680,591 2,652,939
Research & development 427,201 164,566 591,767
---------- ---------- ----------
Operating income $ (307,650) $ 1,181,820 $ 874,170
(1) Management allocates general and administrative expenses to the two segments.
</TABLE>
Depreciation and amortization for the Hardware and Media segments for 1999 were
$260,787 and $324,385, for 1998 $235,056 and $309,843 and for 1997 $269,035 and
$264,989.
Geographic Areas: Export sales aggregated approximately $2,365,000, $2,125,000
and $1,979,000 in 1999, 1998 and 1997, respectively.
13. CONCENTRATION OF SALES
During 1999, 1998 and 1997, no single customer accounted for 10% or more of
total sales.
* * * * * *
<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) Reports of Independent Auditors
(b) Balance Sheets, June 30, 1999 and 1998.
(c) Statements of Operations for the years ended June 30,
1999, 1998 and 1997.
(d) Statements of Stockholders' Equity for the years ended
June 30, 1999, 1998 and 1997.
(e) Statements of Cash Flows for the years ended June 30,
1999, 1998 and 1997.
(f) Notes to Financial Statements.
2. Financial Statement Schedule.
Schedule II - Valuation and Qualifying Accounts and
Reserves, years ended June 30, 1999, 1998 and 1997.
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 of 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/_Steven D. Anton_________
Steven D. Anton, President & CEO
(Principal Executive Officer)
By:___/s/ George S. Norfleet III_________
George S. Norfleet III, Secretary - Treasurer
(Principal Financial & Accounting Officer)
Dated: September 20, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated:
Signatures Titles Date
___/s/ Ralph E. Crump______ Chairman, Director September 20, 1999
Ralph E. Crump
___/s/ Douglas T. Granat___ Director September 20, 1999
Douglas T. Granat
___/s/ Robert W. Ham_______ Director September 20, 1999
Robert W. Ham
___/s/ David C. Sturdevant_ Director September 20, 1999
David C. Strudevant
<PAGE>
<TABLE>
<CAPTION>
Schedule II
IMTEC Inc.
Valuation and Qualifying Accounts
Years ended June 30, 1999, 1998, and 1997
Balance at Charged to
Beginning cost and Additions Balance
Description of year expenses other accounts (deductions) end of year
Allowance for doubtful accounts:
<S> <C> <C> <C> <C> <C> <C> <C>
Year ended 6/30/99 $197,521 $63,302 $- $(787) $260,036
Year ended 6/30/98 $175,104 $88,404 $- $(65,987) $197,521
Year ended 6/30/97 $ 93,915 $98,400 $- $(17,211) $175,104
Reserve for obsolete inventory:
Year ended 6/30/99 $ 94,855 $99,576 $- $(119,645) $74,786
Year ended 6/30/98 $167,918 $95,536 $- $(168,599) $94,855
Year ended 6/30/97 $ 67,086 $168,480 $- $(67,648) $167,918
</TABLE>
<PAGE>
EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Years Ended June 30,
1999 1998 1997
BASIC
<S> <C> <C> <C>
Weighted Average Shares Outstanding 1,586,892 1,566,652 1,548,095
--------- --------- ---------
TOTAL 1,586,892 1,566,652 1,548,095
========= ========= =========
Net Income $879,727 $984,622 $556,073
========= ========= =========
Net Income Per Share $ 0.55 $ 0.63 $ 0.36
========= ========= =========
DILUTED
Weighted Average Shares Outstanding 1,586,892 1,566,652 1,548,095
Net effect of dilutive stock options
Based on the treasury stock method
Using average market price 51,548 88,006 69,644
--------- --------- ---------
TOTAL 1,638,440 1,654,658 1,617,739
========= ========= =========
Net Income $879,727 $984,622 $556,073
========= ========= =========
Net Income Per Share $ 0.54 $ 0.60 $ 0.34
========= ========= =========
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
333-65263, 33-62361 and 33-00666 of IMTEC, Inc. on Form S-8 of our report dated
August 31, 1999, appearing in this Annual Report on Form 10-K of IMTEC, Inc. for
the year ended June 30, 1999.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
September 22, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
IMTEC, Inc., EX-27, FDS for 10-K, June 30, 1999
</LEGEND>
<CIK> 0000730045
<NAME> IMTEC Inc.
<MULTIPLIER> 1
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 55260
<SECURITIES> 0
<RECEIVABLES> 3426970
<ALLOWANCES> 260000
<INVENTORY> 2465372
<CURRENT-ASSETS> 5991321
<PP&E> 8665124
<DEPRECIATION> 4568929
<TOTAL-ASSETS> 10087516
<CURRENT-LIABILITIES> 2718906
<BONDS> 309291
0
0
<COMMON> 15873
<OTHER-SE> 2599163
<TOTAL-LIABILITY-AND-EQUITY> 6939951
<SALES> 13925231
<TOTAL-REVENUES> 13925231
<CGS> 7755267
<TOTAL-COSTS> 7755267
<OTHER-EXPENSES> 4553694
<LOSS-PROVISION> 260036
<INTEREST-EXPENSE> 77717
<INCOME-PRETAX> 1541605
<INCOME-TAX> 610638
<INCOME-CONTINUING> 930967
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 51240
<NET-INCOME> 879727
<EPS-BASIC> 0.55
<EPS-DILUTED> 0.54
</TABLE>
